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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 28, 1997
COMMISSION FILE NUMBER 0000912842
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APPLIED SCIENCE AND TECHNOLOGY, INC.
(Name of Issuer in its Charter)
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DELAWARE 04-2962110
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
35 CABOT ROAD, WOBURN, MASSACHUSETTS 01801-1053
(Address of Principal Executive Offices) (Zip Code)
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(781) 933-5560
(Registrant's Telephone Number, Including Area Code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Title of Class
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COMMON STOCK, $0.1 PAR VALUE
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
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CHECK WHETHER THE ISSUER: (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(D) OF THE EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR
SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND
(2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
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CHECK IF THERE IS NO DISCLOSURE OF DELINQUENT FILERS IN RESPONSE TO ITEM 405 OR
REGISTRATION S-B IF NOT CONTAINED IN THIS FORM, AND NO DISCLOSURE WILL BE
CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K
OR ANY AMENDMENT TO THIS FORM 10-K.
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The Issuer's total revenues for its most recent fiscal year were $ 47,967,138.
The aggregate market value of the shares of Common stock, held by non
affiliates, based upon the average of the closing bid and asked prices for such
stock on September 24, 1997 was approximately $75,595,000. As of September 24,
1997, 4,556,899 shares of Common Stock, $.01 par value per share, were issued
and outstanding.
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ITEM 1. BUSINESS
INTRODUCTION
Applied Science and Technology, Inc. (the "Company" or "ASTeX") is a leading
provider of innovative production technology for the manufacture of advanced
semiconductor devices. The Company's products are typically used in plasma
production techniques in which gases are heated to form a plasma which
chemically interacts with a substrate material. Based on its estimates of the
market, management believes that the Company is the leading worldwide supplier
of plasma equipment to its markets.
The Company provides patented and proprietary components and subsystems, as well
as engineering and scientific expertise, to semiconductor capital equipment
manufacturers ("SCEMs") for semiconductor production. This equipment performs
essential process steps and includes plasma sources and subsystems and specialty
power sources and subsystems for photoresist stripping, passivation, etching,
thin film deposition and surface cleaning; and ozone generators and subsystems
for low-temperature deposition of insulating layers in integrated circuits.
ASTeX's major customers include Applied Materials, Inc. ("Applied Materials"),
GaSonics International, Inc. ("GaSonics"), Lam Research Corporation ("Lam
Research"), and Watkins-Johnson Company ("Watkins-Johnson"). Their customers
(IBM, Intel, Motorola, et al.) use ASTeX equipment to manufacture the latest
generation of advanced memory devices and microprocessors such as Pentium and
PowerPC chips.
ASTeX markets the same underlying core technology for medical, electro-optic and
synthetic diamond applications. Products include specialty power sources
covering the power delivery spectrum including direct current ("DC"), radio
frequency ("RF"), and microwave generators. These are sold to medical capital
equipment manufacturers ("MCEMs") for use in magnetic resonance imaging ("MRI"),
medical equipment sterilization, and medical lasers. The Company provides
specialty power supplies for digital projection applications in the
electro-optics market, and for laser marking.
Outside of the semiconductor market, the Company's plasma processing equipment
is used to produce synthetic diamond using a chemical vapor deposition ("CVD")
process. Diamond is an ideal material for a wide variety of uses because of its
extreme hardness, excellent thermal conductivity, and other unique properties.
Based on its estimates, management believes that the Company continues to be the
leading commercial equipment supplier to this market.
An M.I.T. spin-off founded in January 1987, the Company has achieved
profitability in nine of the last 11 years and year-to-year revenue growth in 10
of the last 11 years. The Company completed an initial public offering in
November 1993 which raised net proceeds of approximately $15.9 million to fund
R&D activities, expand manufacturing facilities, fund increased sales and
marketing efforts, fund increased inventory and accounts receivable, fund the
acquisition of complementary businesses and provide general working capital. The
Company's balance sheet at June 28, 1997 includes $4.5 million of cash and
investments, $17.0 million of working capital, tangible net worth of $20.1
million, a current ratio of 2.8 to 1 and long term debt of $6.4 million,
excluding current maturities.
For the fiscal year ending June 28, 1997 ("Fiscal 1997"), the Company achieved
record revenues for the year of $48 million, a 23% increase over the $39.1
million reported in the prior fiscal year ending June 29, 1996 ("Fiscal 1996").
Net earnings for the year were $938,000, or $0.19 per share fully diluted,
including an in-process research and development ("R&D") write-off of $1.5
million associated with the acquisition of Converter Power, Inc. ("CPI") in the
fourth quarter. This performance occurred during a severe downturn in the
semiconductor capital equipment industry during the first three quarters of
Fiscal 1997.
The Company continued to invest heavily in R&D during Fiscal 1997, leading to a
series of new product introductions and design wins. During the year, the
Company added record levels of supply agreements
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and continued to strengthen its overall capability both through additions to the
senior management team and through the acquisition of CPI. Management believes
that ASTeX is well positioned as an enabling supplier of advanced technology
solutions.
MARKETS
The Company's primary market consists of subsystems for semiconductor
processing, sold to SCEMs. The Company markets its specialty power supplies to
MCEMs for diagnostic imaging, medical equipment sterilization, and dermatology
and to other OEMs for industrial lasers and electro-optic applications. The
Company markets its plasma equipment outside the semiconductor industry to end
users for producing CVD diamond and for other industrial applications.
SUBSYSTEMS FOR SEMICONDUCTOR PROCESSING
The Company's power supply, plasma and ozone production technologies are used in
semiconductor manufacturing equipment. According to Dataquest, Inc.
("Dataquest"), a market research and consulting firm, the world market for
silicon wafer processing equipment is expected to increase from $21.70 billion
in 1996 to $38.1 billion in the year 2000. However, Dataquest predicts a decline
of around 10% in 1997, to $19.6 billion. The component segment of this market,
which is available to ASTeX, is estimated by management to be approximately $600
million per year and projected to grow to more than $1 billion over the next
five years. Management believes that the total available market for ASTeX in
this industry can be expanded significantly through the development or
acquisition of complementary product lines.
Segments of the market, particularly the plasma etch and deposition segments
currently served by the Company, are expected to grow at a rate faster than the
overall market. According to Dataquest, critical market needs include
high-density plasmas for dry etch processes for fabricating dynamic random
access memory ("DRAM") and logic devices, as well as plasma deposition sources
for intermetal dielectric and metallization for fabricating advanced
microprocessors. The fabrication of these newer, more complex devices employs
the microwave and RF plasma and ozone production technologies offered by the
Company.
Management believes these increases in plasma-related segments represent a
significant opportunity for the Company. Much of this increase is due to more
complex semiconductor products that are required for use in lap-top and other
personal computers, portable communications and application-specific consumer
electronics. The extension of the market for these devices beyond the
traditional personal computer market is also considered by many to imply
longer-term stability and less volatility in the growth of the market, as the
products in which the devices are used become more diverse and targeted at a
larger segment of the population.
Technology shifts within the industry also provide significant new opportunities
for the Company. In particular, the transition to finer line widths (e.g. 0.25
micron and below) and to larger wafer sizes (from 200 mm to 300 mm) provide
opportunity for customers to adopt the Company's products which enable these
transitions to take place.
Another factor affecting the Company's growth has been the structural changes in
the SCEM market. As this industry grows and matures, many of the large SCEMs are
working more directly with companies such as ASTeX in order to implement the
concept of lean manufacturing. Under this concept, suppliers provide a more
fully integrated, complete subsystem solution rather than supplying individual
components. This offers advantages of reduced cycle times, reduced fixed costs,
and a reduced number of suppliers with the overall result of improved efficiency
for the SCEM. ASTeX has been able to take advantage of this transition by
working with its customers to develop and deliver integrated solutions
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and through this process to establish its strategic position as a leading
supplier of advanced technologies to the semiconductor capital equipment
industry.
SPECIALTY POWER SUPPLIES
The Company supplies critical RF power subsystems for diagnostic imaging and
medical equipment sterilization applications, and DC switching power supplies
for medical and industrial lasers and electro-optics.
MRI is a diagnostic imaging modality which uses RF energy to excite the body's
hydrogen molecules in a strong magnetic field. The excited molecules produce a
radio signal that can be translated into images. MRI competes with x-ray and CT
(computed tomography) imaging systems. MRI is especially effective in imaging
soft tissue (brain) and tissue surrounded by bone (spinal cord).
The MRI market experienced significant growth in the late 1980s due to the rapid
expansion of the installed base in the U.S. Currently, the worldwide growth rate
is estimated between 5 and 10% annually. ASTeX is a leading supplier of RF
linear amplifiers to the MRI equipment market. Management estimates that the
total available MRI market for products currently offered by the Company is
approximately $25 million.
ASTeX provides RF power subsystems to a manufacturer of a medical equipment
sterilization system which received FDA approval in late 1993. This system uses
an RF-excited plasma to remove contaminants and sterilize medical instruments
and material without leaving toxic residue. The system has been well received in
the market worldwide. The plasma-based method competes with high temperature
steam autoclaves and low temperature chemical baths. The plasma-based method
significantly reduces instrument wear caused by the steam autoclave and
eliminates the handling of toxic chemicals inherent with the chemical baths.
Management anticipates that sales of these systems could grow significantly over
the next several years.
The Company provides a complete line of DC switching power supplies to a number
of medical and industrial laser manufacturers. In the medical laser market,
strong growth is being driven by increasing demand following FDA approval for
dermatology procedures, including hair and wrinkle removal. Use in urology and
arthroscopic applications is growing at a moderate pace.
Use of continuous wave ("CW") YAG lasers for marking is a rapidly growing market
with many new applications. Date or product code marking of food and medical
packaging with a laser has replaced ink in many products. Metal, plastic and
paper products use marking lasers for serial numbers to reduce cost and increase
throughput.
In the electro-optics market, the Company provides DC switching power supplies
for digital projection applications and medical endoscopy.
The Company's focus on specialty power supplies is driven by the technological
synergies with, and need for, these types of products in the semiconductor
market, and by the desire to balance the cyclicality of the semiconductor
industry by commercializing this common technology in areas outside of
semiconductor processing.
PLASMA PROCESSING
The largest opportunity for the Company's plasma processing equipment outside of
the semiconductor industry is focused on a new way to produce synthetic diamond
using a CVD process. Diamond has a unique combination of physical
characteristics that are not found in other materials. Diamond is the hardest
readily available material, can be highly transparent, and at room temperature
is the best thermal conductor (conducting heat five times better than copper).
In addition, diamond is an excellent electrical
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insulator and, conversely, when controlled quantities of impurities are
introduced, becomes a semiconductor. Diamond is also resistant to most chemicals
and to radiation and, when polished, is almost frictionless.
Because of its outstanding properties, CVD diamond has potential uses in a broad
range of commercial applications, including wear coatings to greatly extend the
lives of cutting tools and machine components; electronic packaging materials to
reduce the operating temperature and thereby improve the output, reliability,
and lifetime of electronic components; transparent optical coatings to protect
sensitive lenses with a scratch-resistant surface; and advanced electronic
devices capable of operating in high temperature and corrosive environments.
CVD diamond is superior in many respects to currently used materials including
tungsten carbide and polycrystalline diamond ("PCD"). CVD diamond is a much
harder material than tungsten carbide and, although it currently costs more than
PCD, it can be used in a variety of tooling applications where PCD cannot.
Industry analysts have projected the global CVD diamond industry to grow to
revenues of $800 million by the year 2000. Current estimates for this market are
less than $100 million in estimated revenues in 1997. As a result, the Company
believes it will take longer for the industry to expand to this level, perhaps
until 2010. The annual equipment market available to ASTeX at that time is
estimated by management at between $100 and $200 million.
The CVD diamond industry's growth rate is controlled to a large extent by two
key factors: (1) CVD diamond's cost per carat, and (2) the rate of new product
development incorporating CVD diamond. As the leading commercial supplier to the
CVD diamond market, one of ASTeX's key goals is to drive down the cost of CVD
diamond, in order to enable a wider range of cost effective applications, and
thus expand the market for ASTeX deposition systems. In addition, ASTeX partners
with its customers in the product development process in an effort to reduce the
time to market for new CVD diamond applications.
The Company also sells its plasma processing products for advanced industrial
processes for a variety of applications.
CURRENT PRODUCTS
Virtually all of the Company's products including its ozone generators and
systems are based on either RF, microwave or plasma technologies. These
technologies represent the confluence of the Company's core technical
competencies in plasma physics and chemistry, high-voltage switching power
supplies, RF and microwave engineering, and integrated systems engineering. The
Company's products range from fully-integrated turnkey systems for ozone
delivery or CVD diamond production to DC, RF, microwave, plasma and ozone
components designed for high-volume original equipment manufacturers.
The Company produces a broad range of plasma systems for chamber clean and
photoresist strip, combined RF/microwave power and control systems, microwave
plasma sources, DC, RF and microwave power generators, turnkey ozone supply
systems for deposition and wet bench applications, and ozone generators that are
sold to OEMs and end-users along with the Company's engineering and technical
support. In addition, the Company sells a large selection of auxiliary
components and spare parts often combining or integrating these components to
meet a customer's specific configuration requirements.
The RF and microwave generators range in price from $7,500 to $40,000 and are
used to provide precise stable energy to plasma sources utilized for etch, strip
and CVD applications. Plasma systems and combined RF/microwave power and control
systems offer integrated solutions to etch, strip and CVD applications that
provide the Company's technology expertise and support, reduced cost and
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improved time to market to SCEMs. The Company's systems range in price from
$20,000 to $75,000. Microwave plasma sources generally range in price from
$17,500 to $125,000 and are used for the same applications but are typically
fully integrated onto the customer's machines by ASTeX. Ozone generators and
turnkey ozone systems generally range in price from $12,500 to $140,000 and are
used to deliver high-purity ozone for film deposition and wafer cleaning
applications. Typical products manufactured with all of these devices include
advanced microprocessors and DRAMs. Each of these products can be used to
perform several steps of the manufacturing processes for these devices.
RF amplifiers used in magnetic resonance imaging ("MRI") systems range in price
from $18,600 to $36,000. RF generators used in medical equipment sterilization
systems are priced between $2,900 and $3,500. The Company offers a range of DC
switching power supplies for medical and industrial lasers and electro-optic
applications which range in price from $300 to $7,100, with an average selling
price of approximately $3,000.
The Company's diamond deposition products include such standard plasma
deposition systems as the AX6300 through the AX6560. These diamond reactors are
primarily used in the production of bulk diamond for thermal management
applications and in research and development for coating tools and for
electronics applications. The base price of the AX6300 is approximately $300,000
and the base price of the AX6500 is approximately $450,000.
The Company manufactures electron cyclotron resonance ("ECR") sources used to
provide high quality thin films without the high temperatures required in
conventional CVD processing. Low temperature operation expands the range of
materials for which the Company's components can be used. Typical materials
include temperature sensitive indium phosphide laser diodes and gallium arsenide
semiconductor devices. ECR plasma sources can be used in a variety of
applications such as plasma etching, low temperature plasma enhanced deposition,
and surface cleaning. Prices for these products currently range from
approximately $30,000 to $60,000.
PRODUCTS UNDER DEVELOPMENT
During Fiscal 1997, the Company completed the development of its Chemical Plasma
Source ("CPS") that is an integrated solution for photoresist strip
applications. The product has been accepted under a volume supply agreement for
integration into a new generation of etch equipment and shipments are expected
to increase in Fiscal 1998 as the new equipment is accepted in the market place.
During Fiscal 1997, the Company also completed development and introduction of
three-channel and four-channel combined RF/microwave power and control systems
for oxide etch and insulator deposition. These products were accepted under a
volume supply agreement and production was ramped in the last half of the year.
Revenues from these products are expected to increase significantly in Fiscal
1998 as the new equipment is accepted in the market place.
The Company has continued development of multiple models of a turnkey ozone
delivery system which incorporates the Company's plasma, power supply and
systems engineering expertise. These products are based on the ASTeX modular
platform which is then customized to meet a particular customer's requirements.
These systems are now in volume production for the Company's SCEM customers.
The Company is in the release phase for a new ozone generator product,
SOLO3(TM). The product is an extension of the patented, high performance,
reliable ASTeX AX8000 ozone generator technology, offering no-dopant ozone
generation and lower cost of ownership. The Company plans to offer the product
to existing customers as well as pursue a new product application, wet bench
cleaning, where ozonated fluids (de-ionized water, sulfuric acid and HCl) offer
lower cost and/or environmentally acceptable solutions for a wide range of
cleaning applications.
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The Company is developing an atomic fluorine generator, ASTRON(TM), for chamber
clean applications. Producing a high flux of atomic fluorine allows for
high-rate processing while a compact, integrated design allows for easy
integration with semiconductor production tools. Introduced in July 1997, the
Company expects to offer initial shipments in limited quantities in the first
half of Fiscal 1998 with production ramping in the second half of the year.
The Company is developing a new line of intelligent microwave power supplies,
SmartPower(TM), primarily for use in the semiconductor industry. Introduced in
July 1997, these generators offer lower cost of ownership with the inclusion of
advanced self-diagnostics for maximum uptime and precision power measurement
capability for process repeatability. These generators are expected to go into
production in the second half of Fiscal 1998.
The Company is developing high performance RF linear amplifiers for advanced MRI
applications. In addition, new RF generator technology is being developed for
use in medical equipment sterilization systems. The Company is developing
several new DC switching power supplies for medical applications to offer
improved price/performance. These are expected to go into production during
Fiscal 1998.
During Fiscal 1997, the Company upgraded the power capability of the AX6600 from
75kW to 100kW to increase the throughput of this production diamond deposition
system. The Company is working to improve the reactor design to further enhance
throughput. The Company is now looking to place early production units of this
product with key CVD diamond customers.
RESEARCH AND DEVELOPMENT
The Company's research and development strategy is focused on deep involvement
in understanding the unique technical problems faced by those in the industries
it serves and, in particular, its current customer base.
During Fiscal 1997, 1996, and 1995, total research and development expenses
(including expenses attributable to certain research contracts which are
expensed as incurred and included in cost of revenue) were approximately $8.7
million, $6.9 million, and $4.1 million or 18%, 18% and 20% of the Company's
revenues, respectively. The Company also receives funding for certain research
and development costs which is used to offset these research and development
expenses. Internally funded research and development expenditures, net of
funding received, were approximately $7.3 million, $5.0 million and $2.8 million
during Fiscal 1997, 1996, and 1995, respectively. Due to the highly technical
nature of the Company's business, rapidly expanding markets, and new
technologies under development, management expects to continue to expend
significant funds in future years on research and development activities.
Management expects that it will continue to fund a significant portion of its
research and development expenses through customer development contracts,
government funded research, and cash flows from operations. The Company intends
to supplement these available cash resources by using possible future joint
ventures or collaborative research with other manufacturers and government
laboratories to develop new products and processes.
The Company has received development contracts directly from its SCEM customers
for products specific to their applications, but which also have other market
potential. These include agreements for the development of next-generation
microwave generators and advanced plasma sources. ASTeX uses such funding as a
means of accelerating its product development and is generally not restricted
from selling developed products widely in the SCEM marketplace.
In any particular case, exclusivity is negotiated based on the scope of the
required development program, the technical risk, and the overall market
potential. Frequently, the Company funds the entire development program
internally and exclusivity is not an issue. In some cases, the product may be
needed by a particular customer which might fund the development simply to
ensure its availability in the
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marketplace. In other cases, the development program may entail a high degree of
technical risk, may require a significant investment beyond what the Company
would fund on its own, and may require the participation of ASTeX's customer's
customer through the need to process device wafers. In this case, the Company
may grant exclusivity to its customer for its specific market in exchange for
program funding, with the goal of manufacturing the new product in the event the
development program is successful.
In conjunction with CVD diamond equipment development, the Company is working to
develop diamond growth processes which will allow its production equipment to
produce diamond at reduced cost and thereby expand its commercial applications.
The Company has developed modeling codes and process technologies for thick
diamond substrates and tool coatings. Researchers are examining additional
applications using microwaves and plasmas for other manufacturing processes.
During Fiscal 1995, the Company completed a $1.5 million contract with the
Defense Advanced Research Projects Agency ("DARPA") to develop CVD diamond
substrates for thermal management applications in multi-chip modules. The
success of this contract resulted in a continuation of funding in Fiscal 1996 by
DARPA in the amount of $900,000. Management anticipates a continuation of this
contract to provide diamond material for a military application with a major
government supplier as a subcontractor. Recently, the Company was awarded a
continuation of a Phase II Small Business Innovative Research ("SBIR") program
from DARPA for the development of diamond deposition at low temperatures.
The Company has been awarded a Phase II SBIR follow-on grant by National Science
Foundation ("NSF") to conduct work in ionized physical vapor deposition ("PVD")
processes for producing specialty materials. Furthermore, two Phase I SBIR
contract proposals have received technical approval from the Department of
Energy. These contracts await administrative and appropriation clearance prior
to final award of contracts. The Company is currently collaborating with several
major firms and anticipates awards or continuation of awards with a number of
partners for additional government funding for diamond and specialty materials
development.
Supporting the Company's research and development group are 13 Ph.D.s as well as
21 engineers and scientists holding masters degrees. A number of other
electrical, mechanical and process engineers as well as external consultants and
designers support the Company's research and development programs. Management
believes that these individuals constitute one of the largest groups of
engineers and scientists assembled in these fields in a commercial enterprise.
SIGNIFICANT CUSTOMERS AND CONTRACTS
During Fiscal 1997, 1996, and 1995, Applied Materials accounted for
approximately 38%, 45%, and 41% of the Company's consolidated total revenue.
Phillips Medical Systems accounted for approximately 10% of the Company's total
revenue in Fiscal 1997. The loss of Applied Materials or Phillips Medical
Systems would have a materially adverse effect on the Company. No other customer
accounted for more than 6% of total revenue in Fiscal 1997.
While sales to Applied Materials represents a large fraction of the Company's
total revenues, Applied Materials is the world's leading SCEM and it typically
dominates the market areas it serves. Therefore, the Company's sales to Applied
Materials are consistent with Applied Materials' market share. The Company's
strategy for reducing the total percentage of revenues due to Applied Materials
is to increase product revenues from other major SCEMs by increasing the range
of products offered by the Company and by expanding the range of semiconductor
process applications for which the Company's products can be used. The Company
is also exploring the opportunity of acquiring complementary businesses with
established sales organizations and complementary product lines and customers.
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In the semiconductor market, the Company sells DC, RF and microwave generators
and subsystems, microwave plasma sources and subsystems, and ozone generators
and subsystems to Applied Materials, GaSonics, Lam Research, Quester Technology,
Ulvac, Varian, Watkins-Johnson and a number of others. During Fiscal 1997, the
Company received new supply agreements and additions to existing supply
agreements from major semiconductor capital equipment manufacturers totaling
$46,000,000. These multi-year supply agreements typically provide for
cancellation or modification with little or no penalty. In addition, customers
may push out deliveries, put firm orders on hold, or cancel existing firm orders
with little or no penalty.
The Company is the leading worldwide supplier of diamond deposition systems and
components to companies producing CVD diamond and products incorporating CVD
diamond, and to researchers exploring the use of CVD diamond. The Company
estimates it has an installed base of reactors and systems for diamond
production and development in excess of 200 units worldwide. Diamond and ECR
customers in Fiscal 1997 include major U.S.-based industrial and research firms,
European commercial and governmental R&D organizations and many others
worldwide. During Fiscal 1997, the Company continued its penetration of the
Japanese market with sales of several of its diamond deposition sources and
systems. Customers in Japan include major industrial companies as well as
universities and research institutions.
The Company also sells systems and components to a number of researchers in
industrial, university, and government laboratories for a wide variety of
applications, including the Naval Research Laboratory, duPont, NASA, and many
others.
MARKETING AND SALES
The Company markets its products through various channels, including its
management and research personnel as well as a direct sales and marketing group
of 20 persons. The Company maintains direct sales and marketing activities
through its Woburn, Massachusetts, headquarters as well as its Beverly,
Massachusetts, site, its Santa Clara, California, technical sales and support
office, its Austin, Texas, support office and its Colorado Springs, Colorado,
site. The Company also employs 32 independent sales representatives and
distributors in the U.S., Europe, and the Far East. The Company has historically
generated a significant level of its total revenue from sales in the Far East
and Europe, which the Company expects to continue. The Company is exploring the
possibility of establishing separate ventures in the Far East and Europe with
organizations which have established sales groups in these territories.
MANUFACTURING AND SUPPLIES
The Company's products are manufactured in facilities at Beverly, Newton, and
Woburn, Massachusetts, Colorado Springs, Colorado and Modesto, California. Many
of the components for the Company's products are manufactured by a number of
suppliers, and final assembly, integration, testing, and quality assurance are
then performed by Company personnel at the Company's facilities. The Company
typically provides one year warranties for its products. The Company obtains
many components and ships many of its products under "just-in-time"
arrangements. The Company relies on certain (fewer than 5) foreign manufacturers
for certain components but believes that these components could be obtained
elsewhere if needed or that the Company's products could be redesigned to use
alternative suppliers' products. However, no assurance can be given that other
supply sources would be available without significant delay or increased cost.
COMPETITION
The Company believes that it is the largest provider of microwave plasma sources
and microwave power supplies in the world. The Company also believes that it
possesses a significant share of the SCEM ozone generator market. The Company
competes in a number of markets with companies which provide
8
competition in certain market niches. In the ozone generator market the Company
competes with companies such as Sumitomo Precision Products, Sorbios, and Ebara.
In addition the Company also competes with others who supply various stand-alone
components in the semiconductor equipment market (e.g. power supplies or plasma
sources) such as Daihen in Japan. Many SCEM customers develop equipment similar
to the equipment ASTeX provides through their proprietary in-house equipment
development programs. No assurance can be given that these or other firms will
not develop new or enhanced products which are more effective than those offered
by the Company.
The Company's strategy is to compete on the basis of its technical expertise,
core competencies, established reputation and customer relationships, its
sponsor base which provides funding for research and development of products,
and its key personnel, many of whom are recognized experts in the fields of
microwave plasma technology, semiconductor processing technology, and diamond
production. The advanced materials field, and particularly the semiconductor and
CVD diamond fields, are undergoing significant technological change. The Company
expects plasma processing and CVD diamond technology to continue to develop. The
Company's success will depend upon its ability to maintain a competitive
position for its products in the marketplace. To do so, the Company must develop
and enhance its technology and products to keep pace with technological changes
in production equipment and advanced materials processes. In addition, the
Company must have world-class manufacturing capabilities in order to meet the
needs of its customers.
The loss of any of its key employees to a competitor could adversely affect the
Company's competitive position. The Company believes that a number of factors
will affect its competitive position in the future, including its ability to
develop and manufacture new products that meet the needs of its markets and
respond to competitive developments and technological changes; its ability to
manufacture its products on a cost effective basis; continued market acceptance;
its ability to retain a highly qualified scientific and engineering staff; and
general domestic and international economic conditions; and exchange rates.
The Company believes its major competitors for RF generators and amplifiers to
be ENI, a subsidiary of Astec (BSR) Plc, Advanced Energy Industries, Inc., RF
Power Products, Inc., Comdel, Erbtec Engineering, and Analogic. The Company
believes its major competitors for DC switching power supplies to be ALE
Systems, Analog Modules, and Kaiser Systems for laser applications, and Buhl,
Tectrol, and Walker Power for electro-optics.
The Company believes that it is the leading worldwide supplier of CVD diamond
production systems and sources. Nonetheless, many companies and academic
institutions have developed and are capable of developing competing products
based on technologies similar to the Company's or on other technologies. A
number of organizations, including Crystallume, DeBeers, Diamonex, Inc. (a
division of Monsanto Corporation), General Electric, and Norton Corporation are
developing new diamond coating technologies, although most are not currently
involved in the sales of diamond production equipment. Several companies make
CVD diamond equipment for internal use only and not for sale. No assurance can
be given that these companies will not sell CVD diamond equipment to outside
customers. Existing customers may also seek to develop proprietary equipment and
processes, which could adversely impact the Company's business. Several
companies, including SI Diamond, are seeking to develop new methods for
manufacturing diamond, utilizing different techniques, which may become
competitive with the Company's equipment. There are additional competitors in
the diamond market in Europe and Japan, several of which are seeking to sell
their products in other countries. Many of these potential competitors are well
established, and several have substantially greater financial resources than the
Company and have established success in the development, sale and service of
competitive products. No assurance can be given that these or other firms will
not develop new or enhanced products which are more effective than any that have
been developed by the Company.
PATENTS AND PROPRIETARY INFORMATION
9
The Company currently owns 16 U.S. patents and one Canadian patent, and has
three applications in various stages of preparation and filing. All pertain to
microwave plasma processes and devices or reactive gas generation devices. The
earliest of the issued patents considered material to the Company's business
expires in 2004. As a qualifying small business, the Company has retained
commercial ownership rights to proprietary technology developed under various
U.S. and government contracts and grants, including SBIR contracts. The Company
also has joint development agreements with industrial and commercial partners
which may result in sole or joint ownership rights to proprietary technology
developed under those agreements. The Company has three U.S. registered
trademarks: (1) ASTeX(R) (stylized letters), (2) Plasma Dome(R) and (3) Applied
Science and Technology, Inc.(R)
During Fiscal 1997, ASTeX registered one new trademark and received five new
patents. In September 1996, ASTeX obtained a patent on the design of its AX6500
Diamond Reactor which is particularly adapted to form an enlarged symmetric
plasma for uniformly processing large substrates. In October 1996, a patent was
received for fluid-cooled dielectric windows for plasma applicators used in
producing reactive gases for processing applications. Two patents issued in
April 1997: one for ASTeX's SmartMatch and the other for its fluid-cooled
microwave plasma applicator for absorbing fluids. The Company's ozone generator
cell and system patent was issued in June 1997.
In addition to its patent rights and with regard to its trade secrets, the
Company relies upon trade secrets and confidentiality agreements, which all of
its employees are required to execute, assigning to the Company all patent
rights and technical or other information developed by the employees during
their employment with the Company. The Company's employees, consultants,
customers, and potential customers have agreed not to disclose any trade secret
or confidential information without the prior written consent of the Company.
Notwithstanding these confidentiality agreements, no assurance can be given that
other companies will not acquire information which the Company considers to be
proprietary. Moreover, while the Company has successfully enforced one of its
patents and intends to continue to vigorously enforce its patents against
infringement by third parties, no assurance can be given that the Company's
patents will be enforceable or provide the Company with meaningful protection
from competitors, or that patent applications will be allowed. Even if a
competitor's products were to infringe patents owned by the Company, it would be
very costly for the Company to enforce its rights in an enforcement action,
which would also divert funds and resources which otherwise could be used in the
Company's operations. No assurance can be given that the Company would be
successful in enforcing such rights, that the Company's products or processes do
not infringe the patent or intellectual property rights of a third party, or if
the Company is not successful in a suit involving patents or other intellectual
property rights of a third party, that a license for such technology would be
available, if at all, on commercially reasonable terms.
GOVERNMENT REGULATION
The Company has entered into certain U.S. government contracts which require
compliance with applicable government regulations. The Company's contracts with
the U.S. government consist primarily of research and development contracts,
many of which are awarded under the SBIR program or through DARPA. Research and
development contracts are generally subject to competitive bidding and extensive
regulation and are generally subject to cancellation at the U.S. government's
sole discretion. The Company is required to obtain approval from the Department
of Commerce for the export of certain equipment.
BACKLOG
The Company's backlog consists of purchase orders for standard products and
contracts for research and development. At June 28, 1997 the Company's backlog
was approximately $13,754,000 of which $13,340,000 was for standard products and
$414,000 was for research contracts. The backlog at June 29, 1996 was $7,870,000
of which $7,103,000 was for standard products and $767,000 was for
10
research contracts. The Company expects to complete all standard product backlog
during the next six months and all research contact backlog during the next
twelve months. The backlog figures exclude orders under three supply agreements
with major semiconductor capital equipment manufacturers. During Fiscal 1997,
the Company received new supply agreements and additions to existing supply
agreements for a total of $46,000,000. These multi-year supply agreements, as
well as certain government contracts, typically provide for cancellation or
modification with little or no penalty. In addition, customers may push out
deliveries, put firm orders on hold, or cancel existing firm orders with little
or no penalty.
EMPLOYEES
As of June 28, 1997, the Company employed 427 persons on a full-time basis, of
which 87 were temporary hires. The Company employs 38 persons in administration,
20 in sales and marketing, 79 in research and development and 203 in
manufacturing. The Company believes that its relations with its employees are
satisfactory.
ITEM 2. FACILITIES
The Company occupies approximately 49,000 square feet of leased space in Woburn,
Massachusetts for its principal executive offices, research and development
center and manufacturing activities. This lease, amended to terminate on June
30, 2000, provides an additional 11,000 square feet in Fiscal 1998. The lease
contains further extension provisions allowing expansion up to 120,000 square
feet in the Woburn area during the term of the lease. The current rent for this
facility is $44,417 per month, subject to increase as space is added at the then
current lease rate for the existing space and also subject to annual adjustment
for certain increases in the Consumer Price Index. ASTeX CPI occupies
approximately 31,000 square feet of leased space in Beverly, Massachusetts. The
Company has a five year lease on this facility which expires in September, 2000,
and which can be extended for an additional five years. The current rent for
this facility is $17,467 per month. The Company owns the 25,000 square feet of
office, lab and manufacturing space of its ETO subsidiary located in Colorado
Springs, Colorado. The Company maintains office and manufacturing facilities in
Newton, Massachusetts in approximately 3,500 square feet of leased space. This
lease expires on June 30, 1998. The rent for this facility is $4,262 per month.
The Company maintains office and manufacturing facilities in Modesto, California
in approximately 11,500 square feet of leased space. This lease expires on
February 28, 2000. The rent for this facility is approximately $5,831 per month.
The Company also maintains a sales and service office in 2,600 square feet of
leased space in Santa Clara, California. The rent for this space is $3,640 per
month and the lease expires on June 30, 1998.
ITEM 3. LITIGATION
The Company is not involved in any litigation of a material nature.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of Fiscal 1997 through the solicitation of proxies of otherwise.
11
PART II
ITEM 5. MARKETS FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Corporation's Common Stock and Redeemable Warrants have been traded on the
National Association of Securities Dealers Automated Quotation System - National
Market System ("NASDAQ/NMS") under the symbols "ASTX" and "ASTXW," respectively.
On September 24, 1997, the closing bid and ask prices for the Corporation's
Common Stock as reported by NASDAQ/NMS were $21 5/8 and $21 7/8, respectively,
and the bid and asked prices for the Redeemable Warrants were $3 1/2 and $3 3/4,
respectively. The Redeemable Warrants have been called for redemption by the
Corporation. The redemption date is October 7, 1997. As of September 24, 1997,
the Corporation had 169 holders of record on its Common Stock. Management
believes that there are approximately 2,100 beneficial owners of its Common
Stock.
For the periods indicated, the following table sets forth the high and low
closing sale prices for the Common Stock as reported by NASDAQ/NMS for July 2,
1995 through September 24, 1997. Such quotations represent interdealer
quotations without adjustment for retail markups, markdowns, or commissions and
may not represent actual transactions.
<TABLE>
<CAPTION>
Sale
----
1996 High Low
- ---- ---- ---
<S> <C> <C>
First Quarter $ 18 $ 11 1/8
Second Quarter 17 1/4 11 3/4
Third Quarter 16 3/8 12 5/8
Fourth Quarter 23 11 3/4
1997
- ----
First Quarter $ 12 5/8 $ 7 3/4
Second Quarter 12 3/4 6 3/4
Third Quarter 14 5/8 8 3/4
Fourth Quarter 17 9 1/8
1997
- ----
First Quarter (through September 24, 1997) $ 23 3/8 $ 15 5/8
</TABLE>
12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
======================================================================
FISCAL YEAR(1) 1997 1996 1995 1994 1993
OPERATIONS: ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Total revenue $ 47,967,138 $ 39,135,596 20,004,853 $ 13,357,471 $ 8,444,426
Gross profit 17,409,904 15,771,626 8,191,621 6,109,033 4,041,407
Operating income(loss) 1,658,805 (6,077,763) 798,955 358,110 215,691
Net income (loss) 937,759 (7,296,775) 1,127,748 518,041 149,292
Earnings (loss) per share $ 0.19 $ (1.74) 0.28 $ 0.15 $ 0.06
Weighted average common
shares outstanding 4,829,114 4,204,764 3,992,100 3,433,800 2,403,700
BALANCE SHEET:
Working capital $ 16,956,302 $ 19,216,542 17,671,056 $ 19,697,944 $ 4,186,165
Total assets 39,327,221 34,361,426 25,077,534 24,569,572 7,554,492
Total long-term debt 6,368,913 6,169,517 0 0 75,437
Total liabilities 15,838,211 13,065,618 3,183,770 2,465,829 1,921,692
Stockholders, equity $ 23,489,010 $ 21,295,808 21,893,764 $ 22,103,743 $ 5,632,800
QUARTERLY 1997: 1ST 2ND 3RD 4TH
------------ ------------ ---------- ------------
Total revenue $ 9,860,340 $ 9,292,777 $ 11,012,532 $ 17,801,489
Gross profit 3,813,414 3,395,395 3,886,336 6,314,759
Acquisition-related expenses 0 0 0 1,500,000
Operating income 535,696 461,072 658,483 3,554
Net income(loss) 311,916 279,588 390,399 (44,144)
Earnings (loss) per share $ 0.07 $ 0.06 $ 0.09 $ (0.01)
QUARTERLY 1996:
Total revenue $ 5,639,415 $ 6,858,967 $ 12,681,488 $ 13,955,726
Gross profit 2,123,348 2,943,620 4,974,459 5,730,199
Acquisition-related expenses 0 2,953,000 0 (65,353)
Write-off of goodwill 0 0 0 6,813,562
Operatingincome(loss) 232,292 (2,357,507) 1,183,271 (5,135,819)
Netincome(loss) 298,520 (2,394,113) 724,997 (5,926,179)
Earnings(loss)per share $ 0.07 $ (0.57) $ 0.16 $ (1.34)
(1) The fiscal year ends for the periods presented are: June 28, 1997; June 29, 1996; July 1, 1995; July 2, 1994; and June 30, 1993.
</TABLE>
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table contains income and expense items from the consolidated
statements of operations for Fiscal 1997, 1996, and 1995 expressed as a
percentage of total revenue.
<TABLE>
<CAPTION>
FISCAL YEAR 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenue 100.0 % 100.0 % 100.0 %
Total cost of sales and revenue 63.7 59.7 59.0
--------------- -------------- -------------
Gross profit margin 36.3 40.3 41.0
--------------- -------------- -------------
Selling expenses 6.2 8.4 10.0
General and administrative expenses 8.2 9.7 12.8
Research and development expenses, net 15.3 12.9 14.2
Acquisition-related expenses 3.1 7.4 0.0
Write-off of goodwill 17.4 0.0
0.0
--------------- -------------- -------------
Total operating expenses 32.8 55.8 37.0
Earnings (loss) from operations 3.5 (15.5) 4.0
--------------- -------------- -------------
Total other expense (income) 0.4 (0.8) (3.6)
--------------- -------------- -------------
Earnings (loss) before income taxes 3.1 (14.7) 7.6
Income tax expense 1.1 3.9 2.0
--------------- -------------- -------------
Net earnings (loss) 2.0 % (18.6) % 5.6 %
--------------- -------------- -------------
</TABLE>
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
REVENUES
Total revenue increased by 23% for Fiscal 1997 to $47,967,000 compared to Fiscal
1996. This growth was the result of acquisitions as total sales to semiconductor
capital equipment customers were flat due to an industry downturn during the
first three quarters of Fiscal 1997. ETO, acquired half-way through
14
Fiscal 1996, provided most of the growth. Sales of specialty RF power sources
for medical applications increased by $7,300,000 in Fiscal 1997 over 1996. The
acquisition of CPI, Inc., completed on May 9, 1997, added $2,257,000 of revenue
in Fiscal 1997.
Research contract revenue was approximately 2% of total revenue in both Fiscal
1997 and 1996. Other revenue consisting of service, spare parts and repairs
increased by 48% to $3,050,000 in Fiscal 1997, primarily due to ETO which
obtains a larger fraction of its total revenues from this category.
GROSS PROFIT
Gross profit increased by $1,638,000 or 10% in Fiscal 1997 compared to Fiscal
1996. Gross profit as a percent of total revenue decreased from 40.3% in Fiscal
1996 to 36.3% in Fiscal 1997, primarily due to the acquisitions of ETO and CPI
whose products have lower gross margins than other product lines in the Company.
In addition, gross margins were negatively impacted by new product introduction
ramp-up costs, reduced volumes on existing products, and increased inventory
reserves. The Company's goal is to improve future gross margins with the
introduction of new products with anticipated higher margins, improved
manufacturing efficiencies and methods, and increased sales volumes spread over
certain fixed costs.
SELLING, GENERAL AND ADMINISTRATIVE
Selling expenses decreased by 11% to $2,950,000 in Fiscal 1997 compared to
Fiscal 1996. Selling expenses decreased due to the consolidation of the
Company's semiconductor sales activities and a reduction in headcount,
promotional costs, and travel expenses compared to Fiscal 1996. General and
administrative expenses increased by 4% to $3,958,000 in Fiscal 1997 but
decreased as a percent of sales compared to Fiscal 1996. During Fiscal 1997
there was an additional six months of ETO and two months of CPI general and
administrative expenses compared to Fiscal 1996. Despite these additions, cost
reduction efforts reduced the overall level of the increase.
RESEARCH AND DEVELOPMENT
Net research and development expenses increased by 46% to $7,343,000 in Fiscal
1997 compared to Fiscal 1996. Gross spending (total research and development
spending including funded joint development and the direct costs of research
contracts) increased by 27% to $8,700,000 in Fiscal 1997 compared to Fiscal
1996. The increased gross spending resulted in significant design wins during
the year, including an integrated Chemical Plasma Source ("CPS") for photoresist
strip and a new combined RF and microwave subsystem for high-density plasma CVD
and etch for semiconductor production. In addition, the Company introduced three
new products at year end, including ASTRON for chamber clean, SOLO3 for wet
bench applications, and SmartPower, a new line of intelligent microwave
generators. The Company is committed to continued investments in research and
development in order to advance its position as a market and technological
leader.
A valuation process was performed in Fiscal 1997 in order to establish the fair
values of the CPI assets acquired and liabilities assumed. As part of this
process, the Company incurred an expense of $1,500,000 for CPI's in-process
research and development. This compares to acquisition-related expenses of
$2,888,000 incurred with the acquisitions of ETO and NES in Fiscal 1996. See
Footnote 11 of the Notes to Consolidated Financial Statements. In the fourth
quarter of Fiscal 1996, the Company recorded an impairment of goodwill in the
amount of $6,814,000 associated with the ETO acquisition. See Footnote 14 of the
Notes to Consolidated Financial Statements.
15
OPERATING INCOME
Operating income was $1,659,000 in Fiscal 1997 compared to a loss of $6,078,000
in Fiscal 1996. Excluding one-time charges for acquisition-related expenses and
the write-off of goodwill, operating income in Fiscal 1997 would have been
$3,159,000 or 6.6% of total revenue compared to $3,624,000 or 9.3% of total
revenue in Fiscal 1996. The decrease in adjusted operating income is primarily
due to the increased R&D investment and lower gross margins in Fiscal 1997.
OTHER EXPENSE AND INCOME TAXES
Interest expense in Fiscal 1997 increased by 81% to $585,000 compared to
$324,000 in Fiscal 1996, while interest income in Fiscal 1997 decreased by 40%
to $396,000 compared to $659,000 in Fiscal 1996. These changes were the result
of the use of cash for the acquisitions of ETO and CPI, and increased borrowings
to fund these acquisitions.
Income tax expense was $550,000 in Fiscal 1997 compared to $1,541,000 in Fiscal
1996. In Fiscal 1996 the "expected" tax computed by applying the U.S. federal
corporate income tax rate of 34% to earnings (loss) before income taxes was
increased by $3,378,000 due to one-time charges of goodwill amortization and
write-off and acquisition-related expenses which were not tax deductible. There
are no comparable costs in Fiscal 1997.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
REVENUES
Total revenue increased by 96% for Fiscal 1996 to $39,136,000 compared to Fiscal
1995. Of this increase, 55% was due to increased sales to semiconductor capital
equipment manufacturers, while 45% was due to the acquisition of ETO. Increased
semiconductor sales were driven by a 209% increase in ozone products and a 50%
increase in microwave and plasma products.
Research contract revenue decreased in Fiscal 1996 by 58% or $1,243,000 compared
to Fiscal 1995 while funding used to offset research and development expenses
increased by $1,076,000, for a net decline of 7%. Other revenue consisting of
service, spare parts and repairs increased by 191% to $2,066,000 in Fiscal 1996,
primarily due to the acquisition of ETO which obtains a larger fraction of its
total revenue from this category.
GROSS PROFIT
Gross profit increased by $7,580,000 or 93% in Fiscal 1996 compared to Fiscal
1995. Gross margin as a percent of total revenue decreased from 41.0% in Fiscal
1995 to 40.3% in Fiscal 1996 primarily due to the acquisition of ETO whose
products have lower gross margins than other product lines in the Company.
SELLING, GENERAL AND ADMINISTRATIVE
Selling expenses decreased to 8.4% of sales in Fiscal 1996 from 10.0% in Fiscal
1995, although gross spending increased by 66% due to the addition of ETO's
selling expenses and to increased personnel in the direct sales and sales
support functions, increased consulting and travel and increased promotional
expenses. General and administrative expenses decreased to 9.7% of sales in
Fiscal 1996 compared to
16
12.8% in Fiscal 1995, although gross spending increased by 49% due to the
acquisition of ETO and to additional personnel, increased consulting and travel,
and increased legal and accounting fees.
RESEARCH AND DEVELOPMENT
Net research and development expenses increased by 78% to $5,043,000 in Fiscal
1996 compared to Fiscal 1995. Gross spending (total research and development
spending including funded joint development and the direct cost of research
contracts) increased by 68% to $6,869,000 in Fiscal 1996 compared to Fiscal
1995. The increased gross spending was primarily due to a technology development
agreement with Applied Materials and increased new product development, offset
by a reduced level of research contract spending.
Acquisition-related expenses of $2,888,000 were incurred in Fiscal 1996
associated with the acquisitions of ETO and NES. See Footnote 11 of the Notes to
Consolidated Financial Statements. In the fourth quarter of Fiscal 1996, the
Company recorded an impairment of goodwill in the amount of $6,814,000. See
Footnote 14 of the Notes to Consolidated Financial Statements. There were no
comparable expenses in Fiscal 1995.
OPERATING INCOME
The Company incurred an operating loss of $6,078,000 in Fiscal 1996 compared to
an operating profit of $799,000 in Fiscal 1995. Excluding one-time charges
associated with the ETO acquisition (acquisition-related costs and non-recurring
goodwill write-off) operating income would have been a record profit of
$3,624,000 (9.3% of sales) or an increase of 354% compared to Fiscal 1995.
OTHER EXPENSE AND INCOME TAXES
Interest expense increased significantly in Fiscal 1996 compared to Fiscal 1995,
while interest income decreased, all driven primarily by bank borrowing and cash
used for the acquisition of ETO. The net effect was a 56% decline in other
income to $322,000 in Fiscal 1996.
Income tax expense was $1,541,000 in Fiscal 1996 compared to $401,000 in Fiscal
1995. In Fiscal 1996 the "expected" tax computed by applying the U.S. federal
corporate income tax rate of 34% to earnings (loss) before income taxes was
increased by $3,378,000 due to one-time charges of goodwill amortization and
write-off and acquisition-related expenses which were not tax deductible. There
were no comparable costs in Fiscal 1995.
FOREIGN CURRENCY FLUCTUATIONS
The Company's foreign revenues are generally denominated in U.S. dollars.
Accordingly, foreign currency fluctuations have not had a significant impact on
the comparison of the results of operations for the periods presented. Over
time, as the Company seeks to expand its operations in Europe and the Far East,
more revenues may be denominated in foreign currencies, increasing the risks
associated with foreign currency fluctuations.
LIQUIDITY AND CAPITAL RESOURCES
17
At Fiscal 1997 year end the Company had cash and long-term investments of
$4,546,000 with working capital of $16,956,000 compared to Fiscal 1996 when the
Company had cash and short-term investments of $7,173,000, and working capital
of $19,217,000.
Footnote 11 of the Notes to Consolidated Financial Statements contains a summary
of recent acquisitions completed by the Company. These include CPI in May, 1997;
ETO in January, 1996; and NES in November, 1995.
In November 1993, the Company completed an IPO and received net proceeds of
$15,920,000 through the sale of 1,700,050 shares of common stock and 1,955,000
five-year redeemable warrants at prices of $10.75 per share and $0.10 per
warrant. See Footnote 6 of the Notes to Consolidated Financial Statements. The
common stock and redeemable warrants are traded on NASDAQ/NMS under the symbols
ASTX and ASTXW, respectively. The redeemable warrants are subject to redemption
at $0.10 per warrant on 30 days prior notice, provided that the average closing
price of the Company's common stock equals or exceeds $19.35 for 20 consecutive
trading days. On September 3, 1997, the Company announced that it had met this
requirement and would call the warrants for redemption. If all the warrants are
exercised, this would provide additional equity financing of approximately $14
million for the Company. These funds would be used to reduce bank debt and for
general working capital purposes.
The Company also issued to the underwriter of the IPO, for nominal
consideration, warrants to purchase 170,000 shares of common stock and 170,000
redeemable warrants. See Footnote 6 of the Notes to Consolidated Financial
Statements.
In October 1995 the Company purchased $250,000 of Series A Convertible Preferred
Stock of Low Entropy Systems, Inc. ("LES"). In August, 1997, the Company sold
all of its shares of LES to Balzers and Leybold U.S. Holding, Inc. for $500,000.
During Fiscal 1997, the Company generated $4,386,000 in net cash flows from
operating activities and used a net $7,018,000 for investing activities. Cash
used for investing activities consisted of $6,483,000 for the acquisition of
CPI, $1,087,000 for additions to property, equipment, and patents, and
$1,299,000 for the purchase of investments, offset by sales of $1,991,000 in
investments. Investments are primarily commercial paper and government treasury
bills. The Company's cash flows from financing activities consisted primarily of
proceeds of notes payable of $4,983,000 offset by note repayments of $4,584,000
and proceeds of $290,000 from issuance of common stock which was primarily due
to exercise of employee stock options. The proceeds of notes payable were a
result of additional borrowings for the acquisition of CPI, while the repayments
were primarily a result of debt restructuring for the acquisition.
During Fiscal 1996, the Company generated $719,000 in net cash flows from
operating activities and used a net $7,228,000 for investing activities. Cash
used for investing activities consisted of $12,318,000 for acquisition of ETO
less cash acquired with the acquisitions of ETO and NES, $2,895,000 for
additions to property, equipment, and patents, $250,000 for an equity investment
in LES, and $3,006,000 for the purchase of investments, offset by sales of
$11,242,000 in investments. Investments are primarily commercial paper and
government treasury bills. The Company's cash flows from financing activities
consisted primarily of proceeds of two notes payable for $8,000,000 used in the
acquisition of ETO offset by $689,000 of note repayments (See Footnote 10 of the
Notes to Consolidated Financial Statements), and $1,999,000 from issuance of
common stock which was primarily due to exercise of investor warrants and
exercise of employee stock options.
During Fiscal 1995 the Company generated $524,000 in net cash flows from
operating activities and used a net $10,849,000 for investing activities,
primarily for the purchase of $14,230,000 of investments and $1,484,000 in
additions to property, equipment, and patents, offset by sales of $4,758,000 of
investments. The Company used $1,338,000 for financing activities, primarily for
a stock repurchase program under which 220,538 shares were repurchased for
$1,413,000 at an average price of $6.41 per share. The stock repurchase program
objective was to support the stock price in the open market. All
18
treasury stock held was retired on July 3, 1995. The Board of Directors has not
terminated the stock repurchase program, but no shares have been purchased since
March 30, 1995.
The Company has a credit facility with State Street Bank and Trust Company which
consists of an $8,000,000 unsecured demand line of credit for working capital
purposes, with interest at the bank's prime rate. There were no outstanding
borrowings under this line of credit at June 28, 1997 and as of the date of this
report. (See Footnote 9 of the Notes to Consolidated Financial Statements.) This
facility is subject to the Company meeting certain financial covenants which are
tested quarterly. The Company is currently in compliance with all covenants. In
addition, the Company has made certain negative pledges against selling assets
without the Bank's consent.
The Company continues to use its cash resources for developing new products,
expanding sales and marketing, performing collaborative product development
projects, and for general working capital. The Company continues to seek joint
ventures and/or acquisitions that will enhance the Company's position in its
markets the potential to increase revenue growth and profitability. The Company
has entered into a binding purchase agreement to acquire certain assets and
assume certain liabilities of a German company, which is expected to close
within the next month. The purchase price of approximately $4 million is to be
paid in cash at closing, subject to adjustment. The Company has adequate
financial resources to complete this acquisition within its existing credit
facilities. See Footnote 16 of the Notes to Consolidated Financial Statements.
Management believes that existing cash resources, investments, anticipated cash
flows from operations and its credit facility will be sufficient to meet planned
operating expenses and working capital requirements for a period of at least the
next 12 months. The Company may seek to raise additional capital for
acquisitions and for other corporate purposes, although no specific financing is
planned at this time, other than the funds raised by the announcement to redeem
all of the Company's unexercised redeemable warrants.
NEW ACCOUNTING PRONOUNCEMENTS
In Fiscal 1998 and 1999, the Company will be required to adopt several new
accounting pronouncements. See Footnote 18 of the Notes to Consolidated
Financial Statements.
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company or statements made by its
employees may contain "forward-looking" information which involve risks and
uncertainties. In particular, statements contained in the Management's
Discussion and Analysis of Financial Condition and Results of Operations which
are not historical facts (including, but not limited to, statements concerning
anticipated operating expense levels, gross margin estimates and the
availability of funds to meet cash requirements) may be "forward-looking"
statements. The Company's actual future results may differ significantly from
those stated in any forward-looking statements. Factors that may cause such
differences include, but are not limited to, the factors discussed below and the
accuracy of the Company's internal estimates of revenue and operating expense
levels.
CUSTOMER CONCENTRATION
Relatively few customers account for a substantial portion of the Company's
revenues. Sales to the Company's ten largest customers in Fiscal Years 1997,
1996, and 1995 accounted for 76%, 77% and 73% of revenues, respectively. In
Fiscal Years 1997, 1996, and 1995, sales to Applied Materials, the Company's
largest customer in each of these periods, accounted for approximately 38%, 45%,
and 41% of the Company's revenues, respectively. The Company expects that sales
to Applied Materials will
19
continue to represent a significant portion of the Company's revenues for the
foreseeable future, although the acquisitions of ETO and CPI are expected to
provide some reduction on the reliance on Applied Materials. Although a number
of the Company's customers do enter into long-term supply agreements, these
agreements typically allow the customer to cancel orders with limited penalties.
A reduction or delay in orders from Applied Materials or other significant
customers, including reductions or delays due to market, economic or competitive
conditions in the semiconductor industry, could have a material adverse effect
on the Company's future financial condition, revenues and operating results.
DEPENDENCE ON CYCLICAL INDUSTRIES
The Company's business is significantly dependent on capital expenditures by
manufacturers of semiconductors. The semiconductor industry is highly cyclical
and historically has experienced periods of oversupply, resulting in
significantly reduced demands for capital equipment, including the products
manufactured and marketed by the Company. The Company's future financial
condition, revenues and operating results may be materially adversely affected
by semiconductor industry downturns or slowdowns.
RELIANCE ON OEM CUSTOMERS; LENGTHY SALES CYCLE
The Company's products are principally sold to OEMs which incorporate the
Company's products into their equipment. Due to the significant capital
commitments usually incurred by semiconductor manufacturers in their purchase of
the OEM's equipment, these manufacturers demand highly reliable products which
require as long as several years for OEMs to develop. The Company's revenues are
therefore primarily dependent upon the timing and effectiveness of the efforts
of its OEM customers in developing and marketing equipment incorporating the
Company's products. There can be no assurance that any equipment incorporating
the Company's products will be marketed successfully by the Company's customers.
See "Business-Marketing and Sales."
JAPANESE MARKET
The Japanese semiconductor equipment markets are large and difficult for foreign
companies to penetrate. The Company believes that increasing its penetration of
the Japanese market is important to its business, and that it is currently at a
competitive disadvantage to Japanese suppliers, many of which have long-standing
collaborative relationships with Japanese semiconductor process equipment
manufacturers. Moreover, the Company's ability to compete effectively in the
Japanese market may be limited by the Company's size and its geographic
location. Although the Company intends to expand its direct presence in Japan,
there can be no assurance that the Company will be able to achieve significant
sales to, or compete successfully in, Japan. See "Business-Marketing and Sales."
FOREIGN REVENUES
The Company does business worldwide, both directly and via sales to United
States-based OEMs who sell such products internationally. In Fiscal 1997, 1996
and 1995, foreign revenues accounted for 21%, 19% and 15%, respectively, of the
Company's revenues. The Company anticipates that foreign revenues will continue
to account for a significant percentage of revenues, which will result in a
significant portion of the Company's revenues and operating results being
subject to risks associated with foreign revenues, including United States and
foreign regulatory and policy changes, political and economic instability,
difficulties in accounts receivable collection, difficulties in managing
representatives, and foreign currency fluctuations. See "Business-Marketing and
Sales."
20
HIGHLY COMPETITIVE INDUSTRY
The markets for the Company's products are highly competitive and subject to
rapid technological change. A number of the Company's current and potential
competitors have substantially greater resources than the Company. There can be
no assurance that the Company will be successful in selling its products to
OEMs, regardless of the performance or the price of the Company's products.
Competitors may develop superior products or products of similar quality at the
same or lower prices. Other technical innovations may impair the Company's
ability to market its products. There can be no assurance that the Company will
be able to compete successfully. See "Business-Competition."
NEW PRODUCTS AND TECHNOLOGICAL CHANGE
The semiconductor manufacturing industry has been characterized by rapid
technological change and evolving industry requirements and standards. The
Company believes that these trends will continue into the foreseeable future.
The Company's success will depend upon its ability to enhance its existing
products and to develop new products to meet customer requirements and to
achieve market acceptance. There can be no assurance that the Company will be
successful in introducing products or product enhancements on a timely basis, if
at all, or that the Company will be able to market successfully these products
and product enhancements once developed. Further, there can be no assurance that
the Company's products will not be rendered obsolete by new industry standards
or changing technology. See "Business- Research and Development."
MANAGEMENT OF GROWTH
The Company has recently gone through a period of rapid growth. Due to the level
of technical and marketing expertise necessary to support its existing and new
customers, the Company must attract highly qualified and well-trained personnel.
There can be only a limited number of persons with the requisite skills to serve
in these positions and it may become increasingly difficult for the Company to
hire such personnel. The Company's expansion may also significantly strain the
Company's management, manufacturing, financial and other resources. There can be
no assurance that the Company's systems, procedures, controls and existing space
will be adequate to support the Company's operations. Failure to manage the
Company's growth properly could have a material adverse effect on the Company's
future financial condition, revenues and operating results.
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS AND MARKET PRICE OF SECURITIES
The Company's quarterly operating results may vary significantly from
quarter-to-quarter depending on factors such as economic conditions in the
semiconductor industry, the timing of significant orders and shipments of its
products, changes and delays in product development, new product introductions
by the Company and its competitors, the mix of products sold by the Company and
competitive pricing pressures. Additionally, a number of the Company's microwave
plasma processing and diamond deposition systems have high selling prices. As a
result, quarterly variations in systems sales could significantly affect the
Company's operating results. Moreover, customers may cancel or reschedule
shipments and production difficulties could delay shipments. These factors could
have a material adverse effect on the Company's future financial condition,
revenues and operating results.
The market price of the Company's securities could also be subject to wide
fluctuations in response to quarter-to-quarter variations in operating results,
changes in earnings estimates by analysts, and market
21
conditions in the semiconductor industry, as well as general economic conditions
and other factors external to the Company.
EFFECTS OF INFLATION
The Company believes that, over the past three years, inflation has not had a
significant impact on the Company's revenues or operating results.
22
ITEM 8. FINANCIAL STATEMENTS
The following financial statements are filed as part of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets as of June 28, 1997 and June 29, 1996 F-3
Consolidated Statements of Operations for the Years Ended
June 28, 1997, June 29, 1996, and July 1, 1995 F-4
Consolidated Statements of Stockholders' Equity for the Years
June 28, 1997, June 29, 1996, and July 1, 1995 F-5
Consolidated Statements of Cash Flows for the Years Ended
June 28, 1997, June 29, 1996, and July 1, 1995 F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not Applicable
PART III
Items 10 to 13 are incorporated by reference to the Company's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements:
The list of financial statements required by this item is set forth in
Item 8 "Consolidated Financial Statements and Supplementary Data" and is
incorporated herein by reference.
(2) Financial Statement Schedule:
All schedules are ommitted because they are inapplicable, not required,
or the information is included elsewhere in the Consolidated Financial
Statements or Notes thereto.
EXHIBITS
(1) The following exhibits are filed herewith or incorporated by reference
as indicated below:
Exhibit
No. Title
- ------- -----
10a** 1993 Stock Option Plan, as amended.
10b** Form of Amended Key Employee Agreement for Dr. Richard S.
Post, dated as of July 1, 1996.
10c** Form of Amended Key Employee Agreement for Dr. Donald K.
Smith, dated as of July 1, 1996.
10d** Form of Amended Key Employee Agreement for John M. Tarrh,
dated as of July 1, 1996.
10e** Form of Key Employee Agreement for Brian R. Chisholm, dated
November 26, 1996.
10f** Form of Key Employee Agreement for Michael DeLuca, dated May
1, 1997.
11 Statement Re: Computation of Per Share Earnings.
21 Revised List of Subsidiaries.
23 Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedule
(2) The following exhibits were filed as part of the Company's
Current Report on Form 8-K filed with the Commission on May 23, 1997, reporting
that the Company acquired substantially all of the assets of Converter Power,
Inc. and are incorporated herein by reference:
Exhibit
No. Title
- ------- -----
10a Asset Purchase Agreement, dated as of May 9, 1997 by and
among the Company, ASTeX/CPI Acquisition Corp., Converter
Power, Inc. and ILC Technology, Inc.
23
10b Assignment and Assumption Agreement, dated as of May 9, 1997,
by and among ILC Technology, Inc. and ASTeX/CPI Acquisition
Corp.
10c Warranty Bill of Sale dated as of May 9, 1997.
10d $8,000,000 Unsecured Committed Revolver Loan Agreement
between the Company and State Street Bank and Trust Company
10e $8,000,000 Unsecured Committed Revolver Promissory Note from
the Company to State Street Bank and Trust Company
10f Term Loan Agreement ($4,983,051)
10g Term Loan Agreement ($4,983,051)
(3) The following exhibits were filed as part of the
Company's Current Report on Form 8-K filed with the Commission on December 29,
1995 in connection with the acquisition of Ehrhorn Technological Operations,
Inc., and are incorporated herein by reference:
2 Agreement and Plan of Merger by and among Applied Science and
Technology, Inc., ASTeX/ETO Acquisition Corp., and Ehrhorn
Technological Operations, Inc., dated December 29, 1995.
10a Escrow Agreement among Richard W. Ehrhorn, Tony Christianson,
James L. Marvin, Applied Science and Technology, Inc., and
State Street Bank and Trust Company, dated December 29, 1995.
10c Supplemental Indemnification Agreement by and among Applied
Science and Technology, Inc. and Certain Principal
Stockholders of Ehrhorn Technological Operations, Inc., dated
December 29, 1995.
(4) The following exhibits were filed as part of the Company's
Annual Report on Form 10-K for the year ended July 1, 1995, filed with the
Commission on September 28, 1995 and are incorporated herein by reference:
Exhibit
No. Title
- ------- -----
10l(3) Extension to the Massachusetts lease, dated June 23, 1995.
24
(5) The following exhibits were filed as part of the
Company's Form SB-2 Registration Statement (Number 33-69098-B) declared
effective by the Commission on November 9, 1993 and are incorporated by
reference herein:
Exhibit
No. Title
- ------- -----
3a Certificate of Incorporation, as amended, dated July 1, 1992
3b Certificate of Amendment of Certificate of Incorporation,
dated September 1, 1993.
3c Bylaws, as amended.
4a Specimen Common Stock Certificate.
4b Form of Warrant Agreement, including Form of Warrant
Certificate.
4c Form of Representative's Warrant Agreement, including Form of
Representative's Warrant Certificate.
+10a Master Purchase Order and Sales Agreement between the Company
and Applied Materials, Inc., dated May 28, 1993 (the "Applied
Agreement"). Attached as Appendix A to the Applied Agreement
is an Intellectual Property Agreement by and between the
Company and Applied Materials, Inc.
10f Form of Consulting Agreement between the Company and Outside
Consultants.
10g Form of Employee Agreement between the Company and
Non-executive Employees.
10h Form of Employment Agreement between ASTeX/Gerling and
Non-executive Employees.
10k Form of Confidentiality Agreement between the Company and
Customers, Suppliers and Vendors.
101(1) Lease for premises at 35 Cabot Road, Woburn, Massachusetts,
dated February 10, 1989 (the "Massachusetts Lease").
10m Lease for the premises at 1132 Doker Drive, Modesto,
California, dated January 31, 1992.
10n** 1987 Stock Option Plan.
25
10o** 1993 Stock Option Plan.
+10t Purchase Agreement by and between the Company and GaSonics
Corporation, dated September 24, 1993.
- ------------------------------------
+ Certain information withheld and filed separately with the Commission
pursuant to a request for confidential treatment.
** These exhibits relate to executive compensation plans and arrangements
required to be filed as an exhibit to this form pursuant to Item 14(c) of
Form 10-K.
(b) Reports on Form 8-K. See Item 2 listed in Item 14(a)(3) above.
(c) Exhibits. The Company hereby files as exhibits to this Annual Report on
Form 10-K those exhibits listed in Item 14(a)(3) above.
(d) Financial Statement Schedules.
Not Applicable.
26
APPLIED SCIENCE AND TECHNOLOGY, INC.
INDEX TO
FINANCIAL STATEMENTS
TITLE PAGE
----- ----
Independent Auditors' Report F-2
Consolidated Balance Sheets as of June 28, 1997 and June 29, 1996 F-3
Consolidated Statements of Operations for the Years Ended
June 28, 1997, June 29, 1996, and July 1, 1995 F-4
Consolidated Statements of Stockholders' Equity for the Years
June 28, 1997, June 29, 1996, and July 1, 1995 F-5
Consolidated Statements of Cash Flows for the Years Ended
June 28, 1997, June 29, 1996, and July 1, 1995 F-6
Notes to Consolidated Financial Statements F-8
24
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Financial Statements
June 28, 1997 and June 29, 1996
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Applied Science and Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Applied Science
and Technology, Inc. and subsidiaries as of June 28, 1997 and June 29, 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended June 28, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Applied Science and
Technology, Inc. and subsidiaries as of June 28, 1997 and June 29, 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 28, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
July 30, 1997, except as to note 16,
which is as of September 3, 1997
F-2
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 28, June 29,
Assets 1997 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,246,337 5,182,294
Short-term investments - 1,990,962
Trade receivables, net (notes 2, 3 and 8) 11,915,919 8,921,890
Inventories (note 4) 10,013,422 8,734,401
Prepaid expenses and other assets 276,682 276,848
Deferred income taxes (note 7) 895,237 969,741
-------------- ---------------
Total current assets 26,347,597 26,076,136
-------------- ---------------
Property and equipment (note 10):
Land 473,000 473,000
Building 1,621,469 1,606,947
Equipment 7,871,718 7,068,802
Furniture and fixtures 741,143 543,860
Leasehold improvements 1,946,800 1,455,977
-------------- ---------------
12,654,130 11,148,586
Less accumulated depreciation and amortization (5,150,881) (3,458,407)
-------------- ---------------
Net property and equipment 7,503,249 7,690,179
-------------- ---------------
Other assets:
Patents, net 148,794 141,525
Goodwill, net of accumulated amortization
of $55,282 (notes 11 and 14) 3,261,652 -
Long-term investments 1,299,545 -
Notes receivable, less current maturities (notes 3 and 12) 383,080 191,362
Other, net 383,304 262,224
-------------- ---------------
Total other assets 5,476,375 595,111
-------------- ---------------
$ 39,327,221 34,361,426
============== ===============
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt (note 10) $ 1,824,397 1,624,641
Accounts payable 3,869,521 2,564,149
Accrued expenses 1,374,635 820,030
Accrued compensation expense and related costs 1,448,928 1,428,759
Accrued income taxes 647,142 173,179
Commissions payable and customer advances 226,672 248,836
-------------- ---------------
Total current liabilities 9,391,295 6,859,594
Long-term debt, less current maturities (note 10) 6,368,913 6,169,517
Deferred income taxes (note 7) 78,003 36,507
-------------- ---------------
Total liabilities 15,838,211 13,065,618
-------------- ---------------
Commitments and contingencies (notes 5, 9, 11 and 16)
Stockholders' equity (notes 6 and 11):
Preferred stock - -
Common stock 45,190 44,484
Additional paid-in capital 27,859,845 26,690,108
Accumulated deficit (4,267,699) (5,205,458)
Less: Notes receivable for common stock purchases (148,326) (233,326)
-------------- ---------------
Total stockholders' equity 23,489,010 21,295,808
-------------- ---------------
$ 39,327,221 34,361,426
============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended
-------------------------------------------------
June 28, June 29, July 1,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Product sales, net $ 43,934,476 36,175,388 17,157,756
Research contract revenue 982,383 894,517 2,138,332
Other revenue 3,050,279 2,065,691 708,765
-------------- -------------- --------------
Total revenue (note 8) 47,967,138 39,135,596 20,004,853
-------------- -------------- --------------
Cost of sales and revenue:
Product sales and other revenues 30,052,877 22,924,311 10,868,160
Research contracts 504,357 439,659 945,072
-------------- -------------- --------------
Total cost of sales and revenue 30,557,234 23,363,970 11,813,232
-------------- -------------- --------------
Gross profit 17,409,904 15,771,626 8,191,621
-------------- -------------- --------------
Operating expenses:
Selling expenses 2,950,117 3,297,664 1,991,459
General and administrative expenses 3,957,792 3,807,327 2,561,221
Research and development expenses, net (note 1) 7,343,190 5,043,189 2,839,986
Acquisition-related expenses 1,500,000 2,887,647 -
Write-off of goodwill (note 14) - 6,813,562 -
-------------- -------------- --------------
Total operating expenses 15,751,099 21,849,389 7,392,666
-------------- -------------- --------------
Earnings (loss) from operations 1,658,805 (6,077,763) 798,955
-------------- -------------- --------------
Other expense (income):
Interest expense 585,462 323,510 960
Interest income (396,114) (659,066) (744,751)
Other expense (income) (18,302) 13,568 13,998
-------------- -------------- --------------
Total other expense (income) 171,046 (321,988) (729,793)
-------------- -------------- --------------
Earnings (loss) before income taxes 1,487,759 (5,755,775) 1,528,748
Income tax expense (note 7) 550,000 1,541,000 401,000
-------------- -------------- --------------
Net earnings (loss) $ 937,759 (7,296,775) 1,127,748
============== ============== ==============
Primary earnings (loss) per share $ 0.21 (1.74) .29
============== ============== ==============
Fully diluted earnings (loss) per share $ 0.19 (1.74) .28
============== ============== ==============
Weighted average common shares outstanding used to
calculate primary earnings (loss) per share 4,518,293 4,204,764 3,906,800
============== ============== ==============
Weighted average common shares outstanding used to
calculate fully diluted earnings (loss) per share 4,829,114 4,204,764 3,992,100
============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended June 28, 1997, June 29, 1996 and July 1, 1995
<TABLE>
<CAPTION>
Preferred stock Common stock Additional
--------------------------- ----------------------------- paid-in
Shares Amount Shares Amount capital
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Balance at July 2, 1994 - $ - 4,354,167 $ 43,542 $ 21,224,387
Repurchase of common stock - - - - -
Exercise of stock options - - 9,560 95 55,542
Repayment of notes receivable - - - - -
Net earnings - - - - -
--------- --------- --------- --------- -----------
Balance at July 1, 1995 - - 4,363,727 43,637 21,279,929
Retirement of treasury stock - - (506,973) (5,069) (1,441,550)
Repayment of notes receivable - - - - -
Issuance of notes receivable - - 18,000 180 236,570
Exercise of stock options and warrants - - 233,587 2,336 1,996,397
Tax benefit of stock options exercised - - - - 284,101
Stock issued in connection with
acquisitions (note 11) - - 340,034 3,400 4,334,661
Net loss - - - - -
--------- --------- --------- --------- -----------
Balance at June 29, 1996 - - 4,448,375 44,484 26,690,108
Repayment of notes receivable - - - - -
Canceled stock in exchange for cancella-
tion of note receivable - - (5,000) (50) (77,450)
Exercise of stock options - - 35,310 353 289,323
Tax benefit of stock options exercised - - - - 62,242
Stock issued in connection with
acquisition (note 11) - - 40,321 403 895,622
Net earnings - - - - -
--------- --------- --------- --------- -----------
Balance at June 28, 1997 - $ - 4,519,006 $ 45,190 $ 27,859,845
========= ========= ========= ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Retained Notes
earnings Treasury stock receivable for Total
(accumulated ---------------------------- common stock stockholders'
deficit) Shares Amount purchases equity
-------- ------ ------ --------- ------
<S> <C> <C> <C> <C> <C>
Balance at July 2, 1994 $ 963,569 286,435 $ (33,255) $ (94,500) $22,103,743
Repurchase of common stock - 220,538 (1,413,364) - (1,413,364)
Exercise of stock options - - - - 55,637
Repayment of notes receivable - - - 20,000 20,000
Net earnings 1,127,748 - - - 1,127,748
----------- -------- --------- --------- ----------
Balance at July 1, 1995 2,091,317 506,973 (1,446,619) (74,500) 21,893,764
Retirement of treasury stock - (506,973) 1,446,619 - -
Repayment of notes receivable - - - 77,924 77,924
Issuance of notes receivable - - - (236,750) -
Exercise of stock options and warrants - - - - 1,998,733
Tax benefit of stock options exercised - - - - 284,101
Stock issued in connection with
acquisitions (note 11) - - - - 4,338,061
Net loss (7,296,775) - - - (7,296,775)
----------- -------- ---------- --------- ----------
Balance at June 29, 1996 (5,205,458) - - (233,326) 21,295,808
Repayment of notes receivable - - - 7,500 7,500
Canceled stock in exchange for cancella-
tion of note receivable - - - 77,500 -
Exercise of stock options - - - - 289,676
Tax benefit of stock options exercised - - - - 62,242
Stock issued in connection with
acquisition (note 11) - - - - 896,025
Net earnings 937,759 - - - 937,759
----------- -------- --------- --------- ----------
Balance at June 28, 1997 $ (4,267,699) - $ - $ (148,326) $23,489,010
=========== ======== ========= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended
---------------------------------------------------
June 28, June 29, July 1,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 937,759 (7,296,775) 1,127,748
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation 1,824,739 1,335,634 715,542
Amortization and goodwill write-off 117,164 7,129,418 87,076
Acquisition-related expenses 1,500,000 2,203,000 -
Deferred income taxes (439,000) (143,000) (68,438)
Gain on sale of property and equipment - - (12,625)
Equipment transferred to inventories 114,419 - -
Changes in assets and liabilities:
Trade receivables (1,739,367) (1,112,739) (1,394,413)
Inventories 146,391 (1,117,125) (401,073)
Prepaid expenses and other assets 41,036 474,325 (4,136)
Notes receivable 373,304 154,524 (187,267)
Accounts payable 785,299 (76,810) 302,944
Accrued expenses 188,022 (1,060,162) 358,759
Accrued income taxes 536,205 228,445 -
-------------- -------------- --------------
Net cash provided by
operating activities 4,385,971 718,735 524,117
-------------- -------------- --------------
Cash flows from investing activities:
Acquisitions of subsidiaries, less cash acquired (6,482,933) (12,318,331) -
Purchases of investments (1,299,102) (3,006,211) (14,230,097)
Sales of investments 1,990,519 11,241,904 4,758,220
Additions to property and equipment (1,029,908) (2,812,968) (1,434,125)
Patent costs (57,005) (81,974) (49,412)
Proceeds from sale of property and equipment - - 106,000
Investment in other assets (139,827) (250,000) -
-------------- -------------- --------------
Net cash used for investing
activities (7,018,256) (7,227,580) (10,849,414)
-------------- -------------- --------------
Cash flows from financing activities:
Proceeds from notes payable 4,983,050 8,000,000 -
Repayments of notes payable (4,583,898) (689,163) -
Repayment of notes receivable for common
stock purchases 7,500 77,924 20,000
Net proceeds from issuance of common stock 289,676 1,998,733 55,637
Repurchase of treasury stock - - (1,413,364)
-------------- -------------- --------------
Net cash provided by (used for)
financing activities 696,328 9,387,494 (1,337,727)
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents (1,935,957) 2,878,649 (11,663,024)
Cash and cash equivalents at beginning of year 5,182,294 2,303,645 13,966,669
-------------- -------------- --------------
Cash and cash equivalents at end of year $ 3,246,337 5,182,294 2,303,645
============== ============== ==============
(Continued)
</TABLE>
F-6
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Continued)
<TABLE>
<CAPTION>
Years ended
---------------------------------------------------
June 28, June 29, July 1,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 538,893 276,347 960
============== ============== ==============
Income taxes $ 453,567 1,470,555 425,154
============== ============== ==============
Acquisitions:
Assets acquired $ 4,074,488 12,145,829 -
Acquisition related expenses, net of
tax benefit 945,000 2,203,000 -
Goodwill and other intangible assets 3,316,934 7,048,512 -
Liabilities assumed (957,464) (4,459,280) -
Common stock issued (896,025) (4,338,061) -
-------------- -------------- --------------
Cash paid 6,482,933 12,600,000 -
Less cash acquired - (281,669) -
-------------- -------------- --------------
Net cash paid for acquisitions $ 6,482,933 12,318,331 -
============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 28, 1997 and June 29, 1996
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Business
Applied Science and Technology, Inc. (the "Company") develops and
manufactures equipment for plasma processing of materials and for
medical applications. The Company commenced operations in January
1987.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries: Applied Science and Technology
("ASTeX"), GmbH, ASTeX/Gerling Laboratories, Inc., ETO, Inc. ("ETO"),
ASTeX CPI, Inc. ("CPI"), and Newton Engineering Service, Inc.
("NES"). All significant intercompany balances and transactions have
been eliminated in consolidation.
(c) Revenue Recognition
The Company recognizes revenue on product sales and other sales when the
related products are shipped or the related services are rendered.
The Company periodically enters into research contracts which
generally provide for nonrefundable payments. Research contract
revenue is recognized based on the proportion of costs incurred to
total estimated costs using the percentage of completion method. At
the time a loss on a contract becomes known, the entire amount of the
estimated loss is recognized.
(d) Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
(e) Investments
Cash equivalents and long-term investments consist of U.S.treasury notes
and commercial paper at June 28, 1997. Prior to June 28, 1997, cash
equivalents and short-term investments consisted of corporate bonds
and notes, government agency bonds, and commercial paper. The Company
uses an investment firm to manage its investment portfolio. All
investments mature within a two-year period.
The Company classifies its securities as held-to-maturity.
Held-to-maturity securities are those investments in which the
Company has the ability and intent to hold the security until
maturity. Held-to-maturity securities are recorded at amortized cost,
which approximates market value.
During 1996, the Company sold held-to-maturity securities with an
amortized cost of $3,012,500 prior to their maturity dates. The sale
of these securities prior to their maturities was due to
unanticipated cash requirements resulting from the acquisition of ETO
(see note 11).
Dividend and interest income is recognized in the period earned. Realized
gains and losses for held-to-maturity securities are included in
earnings and are derived using the specific identification method for
determining the cost of securities sold.
(Continued)
F-8
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(f) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
(g) Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets
for financial statement purposes and accelerated methods for income
tax purposes. The estimated useful lives of fixed assets are as
follows:
Building 25 to 31-1/2 years
Equipment, furniture and fixtures 3-1/2 to 7 years
Leasehold improvements Remaining lease term
(h) Patents
Patent costs are amortized over their estimated useful life of five
years.
(i) Goodwill
Goodwill is amortized over a 10 year period. The Company continually
evaluates whether events or circumstances have occurred that indicate
that the remaining useful life of goodwill may warrant revision or
that the remaining balance may not be recoverable. When factors
indicate that goodwill should be evaluated for possible impairment,
the Company estimates the undiscounted cash flow of the business
segment, net of tax, over the remaining life of the asset in
determining whether the asset is recoverable. Charges for impairment
of goodwill would be recorded to the extent unamortized book value
exceeds the related future discounted cash flow, net of tax. The
discount factor to be used would be the long-term debt rate currently
obtainable by the Company. During fiscal 1996, $6,813,562 of goodwill
was written off (see note 14).
(j) Research and Development Costs
All research and development costs are expensed as incurred. Research and
development expenses attributable to research contracts are included
in costs of sales and revenue.
The Company also receives funding for certain research and development
costs which is used to offset its research and development expenses.
The Company incurred research and development expenses, net of
funding received, as follows:
<TABLE>
<CAPTION>
Years ended
-------------------------------------------------
June 28, June 29, July 1,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Research and development costs .................. $ 8,195,367 6,429,083 3,150,284
Less funding .................................... 852,177 1,385,894 310,298
-------------- ------------- -------------
Net research and development costs .......... $ 7,343,190 5,043,189 2,839,986
============== ============= =============
(Continued)
</TABLE>
F-9
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(k) Income Taxes
The Company's income taxes are accounted for under the asset and
liability method. Under this method, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates in effect for the year in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(l) Earnings (Loss) Per Share
Net earnings (loss) per share is computed based on the weighted average
number of common shares outstanding during each period, after giving
effect to stock options, warrants and unconverted preferred shares
considered to be dilutive common stock equivalents. These items are
not included when their effect is anti-dilutive.
(m) Use of Estimates
Management of the Company has made a number of estimates and assumptions
that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
The significant estimates included in the consolidated financial
statements relate to the determination of the 1996 impairment of
goodwill and reserves for excess inventories. Management determined
the impairment of goodwill based upon the expected future cash flows
of ETO and the terminal value of ETO at the end of the remaining
useful life of the goodwill. Management estimated expected future
cash flows of ETO through the use of sales projections and estimated
operating and capital expenditures over the remaining useful life of
the goodwill. Management establishes its reserves for excess
inventories based upon expected future usage and sales of inventories
in the normal course of business as adjusted for anticipated changes
in market demand. Certain of the Company's inventories are product
specific and may not be readily salable in the open market. The
possible loss of sales to certain customers could result in the need
for further adjustment to the carrying value of the Company's
inventories.
(n) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments, defines the fair value of a
financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties.
The carrying amounts of cash and cash equivalents, trade receivables,
prepaid expenses and other assets, accounts payable, and accrued
expenses approximate fair value because of the short maturity of
those instruments.
The carrying amounts of short- and long-term investments approximate fair
value based on quoted market prices.
(Continued)
F-10
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The carrying amounts of the notes receivable and long-term debt
approximate fair value as the rates of interest on these instruments
approximate current market rates of interest for similar instruments
with comparable maturities.
(o) Accounting for Stock Based Compensation
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, Accounting for Stock-Based Compensation
("Statement 123") which established a fair-value based method of
accounting for stock-based compensation plans. Prior to its adoption
of Statement 123, the Company accounted for employee stock options
under APB Opinion No. 25, Accounting for Stock Issued to Employees,
which required the use of an intrinsic-value method of accounting for
stock options. Statement 123 allows the continued use of the
intrinsic-value method of accounting prescribed by APB Opinion No. 25
as long as pro forma disclosures of net earnings (loss) and net
earnings (loss) per share, as if the fair-value method of accounting
for stock options was applied, are presented.
The Company adopted Statement 123 effective June 30, 1996 and has elected
to continue to account for stock options using the methodology
prescribed by APB Opinion No. 25. Accordingly, pro forma disclosures
of net earnings (loss) and net earnings (loss) per share as if the
fair-value method of accounting for stock options was applied are
presented in note 6.
(p) Long-Lived Assets
In 1997, the Company adopted Financial Accounting Standards Board
Statement No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of ("Statement 121").
Statement 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill
related to (1) those assets to be held and used in the business, and
(2) for assets to be disposed of. The adoption of Statement 121 had
no effect on the Company's consolidated financial statements.
(q) Reclassifications
Certain 1996 and 1995 account balances have been reclassified to conform
to the 1997 presentation.
(2) TRADE AND NOTES RECEIVABLE
Trade and notes receivable consist of the following:
<TABLE>
<CAPTION>
June 28, June 29,
1997 1996
---- ----
<S> <C> <C>
Trade receivables $ 11,857,598 9,115,345
Notes receivable, current portion (see note 3) ..... 384,663 158,754
Allowance for doubtful accounts .................... (326,342) (352,209)
------------- -------------
$ 11,915,919 8,921,890
============= =============
(Continued)
</TABLE>
F-11
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
June 28, June 29,
1997 1996
---- ----
<S> <C> <C>
Note receivable from stockholder with interest at 8% per annum,
payable in principal installments of $336,338 and $228,684 in
1998 and 1999, respectively, plus interest, due in August, 1999.
The note is secured by certificates of deposit. ....................... $ 565,022 -
Note receivable with interest at 8% per annum, payable in monthly
installments of $2,327, including interest, with any remaining
balance due on December 2, 2002. The note is secured by real estate. .. 160,181 168,808
Unsecured note receivable with interest at 13% per annum, payable in
monthly installments of $14,488, including interest, due August, 1997. 42,540 181,308
----------- -----------
767,743 350,116
Less current maturities .................................................... 384,663 158,754
----------- -----------
Long-term notes receivable ................................................. $ 383,080 191,362
=========== ===========
</TABLE>
Current maturities of notes receivable have been included in trade
receivables.
(4) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 28, June 29,
1997 1996
---- ----
<S> <C> <C>
Raw materials .............................................................. $ 6,566,718 5,630,926
Work in process ............................................................ 2,534,245 2,249,579
Finished goods ............................................................. 912,459 853,896
----------- -----------
$ 10,013,422 8,734,401
=========== ===========
(Continued)
</TABLE>
F-12
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) LEASES
The Company leases office, research and manufacturing facilities under
operating leases which expire through June, 2001. Future minimum
lease payments under operating leases are as follows:
Year ending June 30:
1998 ........................ $ 920,713
1999 ........................ 814,679
2000 ........................ 789,272
2001 ........................ 36,272
-------------
$ 2,560,936
=============
Rent expense totaled $761,710, $548,259 and $356,207 for the years ended
June 28, 1997, June 29, 1996 and July 1, 1995, respectively.
(6) STOCKHOLDERS' EQUITY
Capital stock consists of the following at June 28, 1997 and June 29,
1996:
<TABLE>
<CAPTION>
Number of shares
issued and outstanding
---------------------------------
Authorized June 28, 1997 June 29, 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Preferred stock:
Preferred stock, $.01 par value ................ 1,000,000 - -
--------------- --------------- ---------------
Total preferred stock .................... 1,000,000 - -
--------------- --------------- ---------------
Common stock:
Common stock, $.01 par value ................... 10,000,000 4,519,006 4,448,375
--------------- --------------- ---------------
Total common stock ....................... 10,000,000 4,519,006 4,448,375
--------------- --------------- ---------------
Total capital stock ...................... 11,000,000 4,519,006 4,448,375
=============== =============== ===============
</TABLE>
The holders of common stock are entitled to one vote for each share of
record held on each matter submitted to a vote of stockholders. There
is no cumulative voting for election of directors. Subject to the
prior rights of any series of preferred stock which may from time to
time be outstanding, holders of common stock are entitled to receive
ratably such dividends as may be declared by the board of directors
out of funds legally available therefrom, and, upon the liquidation,
dissolution or winding up of the Company, are entitled to share
ratably in all assets remaining after payment of liabilities and
payment of accrued dividends and liquidation preference on the
preferred stock, if any. Holders of common stock have no preemptive
rights and have no rights to convert their common stock into any
other securities. The outstanding common stock is validly issued and
nonassessable.
(Continued)
F-13
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The preferred stock may be issued in one or more series, the terms of
which may be determined at the time of issuance by the board of
directors, without further action by stockholders, and may include
voting rights (including the right to vote as a series on particular
matters), preferences as to dividends and liquidation, conversion,
redemption rights and sinking fund provisions.
The future issuance of preferred stock could reduce the rights, including
voting rights, of the holders of common stock, and, therefore, reduce
the value of the common stock. In particular, specific rights granted
to future holders of preferred stock could be used to restrict the
Company's ability to merge with or sell its assets to a third party,
thereby preserving control of the Company by existing management.
In November 1993, the Company completed an initial public offering
(IPO), whereby the Company issued 1,700,050 shares of common stock at
$10.75 per share and 1,955,000 redeemable warrants at $.10 per
warrant. Two redeemable warrants entitle the holder to purchase one
share of common stock at $15.05 through November 9, 1998, subject to
adjustment in accordance with anti-dilution provisions. The
redeemable warrants are subject to redemption at $.10 per warrant on
30 days' prior notice, provided that the average closing price of the
Company's common stock equals or exceeds $19.35 for 20 consecutive
trading days through November 9, 1998. See note 16.
The Company also issued to the underwriter of the IPO, for nominal
consideration, warrants to purchase 170,000 shares of common stock
and 170,000 redeemable warrants (the "Representative's warrants").
The Representative's warrants are initially exercisable at $15.59 per
share of common stock and $.145 per redeemable warrant for a period
of four years commencing November 10, 1994.
In connection with the issuance of preferred stock in 1992, the Company
issued warrants to purchase 193,363 shares of common stock. During
fiscal 1996, 159,237 warrants were exercised at $9.60 per share. The
remaining warrants expired in November 1996.
The Company adopted the 1993 Stock Option Plan in fiscal 1994 and
reserved 250,000 shares of common stock for issuance under the Plan.
In fiscal 1995, the Company adopted the 1994 Formula Stock Option
Plan to award non-employee directors of the Company stock options and
has reserved 100,000 shares for issuance under this plan. During
fiscal 1996, the Company reserved an additional 495,000 shares for
the 1993 Stock Option Plan. The Plans are administered by the
Company's board of directors which has the authority to determine the
recipients, number of shares, and the related terms and provisions of
the options which may be granted.
(Continued)
F-14
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plans. Accordingly, no compensation
cost has been recognized in connection with these plans. Had
compensation cost for the Company's stock option plans been
determined consistent with Statement 123, the Company's net earnings
(loss) and net earnings (loss) per share would have been reduced to
the following pro forma amounts.
<TABLE>
<CAPTION>
Years ended
-------------------------
June 28, June 29,
1997 1996
---- ----
<S> <C> <C>
Net earnings (loss) as reported $ 937,759 (7,296,775)
=========== =============
Pro forma net earnings (loss) $ 225,740 (7,841,368)
=========== =============
Net earnings (loss) per share as reported $ 0.21 (1.74)
=========== =============
Pro forma net earnings (loss) per share $ 0.05 (1.83)
=========== =============
</TABLE>
The effect of applying Statement 123 as shown in the above pro forma
disclosures is not representative of the pro forma effect on net
earnings in future years because it does not take into consideration
pro forma compensation expenses related to stock options granted
prior to fiscal 1996.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants issued in fiscal 1997
and 1996, respectively: no dividend yield for both years; expected
volatility of 75% for both years; risk-free interest rates of 6% for
both years; and expected lives of 3 to 4 years for grants issued in
1997 and 4 to 8 years for grants issued in 1996.
The following is a summary of stock option activity:
<TABLE>
<CAPTION>
Employee stock options
-----------------------------------------------
Option Weighted
shares Options Average
available outstanding Exercise Price
--------- ----------- --------------
<S> <C> <C> <C>
Balance at July 2, 1994 243,500 181,605 $ 6.49
Adoption of plan 100,000 - -
Options granted (52,150) 52,150 7.70
Options exercised - (9,560) 5.82
Options expired 29,165 (29,165) 6.78
----------- -----------
Balance at July 1, 1995 320,515 195,030 6.32
Options added 495,000 - -
Options granted (364,050) 364,050 12.77
Options exercised - (74,350) 6.34
Options expired 7,350 (7,350) 8.47
----------- -----------
Balance at June 29, 1996 458,815 477,380 11.09
Options granted (232,725) 232,725 9.69
Options exercised - (35,310) 8.20
Options expired 32,512 (32,512) 10.69
----------- -----------
Balance at June 28, 1997 258,602 642,283 10.76
=========== ===========
</TABLE>
(Continued)
F-15
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The weighted-average fair value of options granted during fiscal 1997 and
1996 was $5.75 and $8.25, respectively. As of June 28, 1997 and June
29, 1996, 262,828 and 140,103 of the outstanding options were
exercisable, respectively.
The following is a summary of information relating to stock options
outstanding at June 28, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------- --------------------------
Number Weighted- Number Weighted-
Outstanding Weighted- Average Exercisable Average
Range of at June Average Remaining Exercise at June Exercise
Exercise Prices 28, 1997 Contractual Life Price 28, 1997 Price
--------------- -------- ---------------- ----- -------- -----
<S> <C> <C> <C> <C> <C>
$ 5.00-7.88 100,290 2.6 years $ 6.63 72,116 $ 6.63
8.00-10.63 202,423 3.9 9.46 53,492 9.27
11.13-13.50 279,070 3.4 12.06 102,120 12.09
15.88-16.00 60,500 7.3 16.00 35,100 16.00
----------- -----------
642,283 3.8 10.76 262,828 10.54
=========== ===========
</TABLE>
In March 1993, the Company issued 21,750 shares of common stock in
exchange for notes receivable from employees totaling $87,000. In
1996, the remaining outstanding balances of $67,000 were repaid.
In July 1995, the Company issued 9,000 shares of common stock in
exchange for notes receivable from employees of $101,250. The notes
and related interest are to be repaid upon the earlier of (a) July 2,
2000, or (b) one month from the date of termination of employment
with the Company. Interest accrues at 6.28% per year. In 1996,
$10,924 of these notes were repaid.
In August 1995, the Company issued 5,000 shares of common stock in
exchange for a note receivable from an employee of $77,500. In 1997,
all of the shares were returned and the note receivable was canceled.
In October 1995, the Company issued 4,000 shares of common stock in
exchange for notes receivable from employees of $58,000. The notes
and related interest are to be repaid upon the earlier of (a) October
9, 2000 or (b) one month from the date of termination of employment
with the Company. Interest accrues at 6.28% per year.
(Continued)
F-16
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Years ended
-----------------------------------------
June 28, June 29, July 1,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 775,000 1,500,000 369,000
State 214,000 184,000 100,000
----------- ----------- -----------
Total current 989,000 1,684,000 469,000
----------- ----------- -----------
Deferred:
Federal (294,000) (123,000) (52,000)
State (145,000) (20,000) (16,000)
----------- ----------- -----------
Total deferred (439,000) (143,000) (68,000)
----------- ----------- -----------
$ 550,000 1,541,000 401,000
=========== =========== ===========
</TABLE>
The actual tax expense differs from the "expected" tax expense (benefit)
(computed by applying the U.S. federal corporate income tax rate of
34% to earnings (loss) before income taxes) as follows:
<TABLE>
<CAPTION>
Years ended
------------------------------------
June 28, June 29, July 1,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $ 505,838 (1,956,964) 519,774
Increase (reduction) in income taxes resulting from:
State taxes, net of federal benefit 45,540 108,783 66,197
Goodwill amortization and write-off -- 2,396,649 --
Acquisition related expenses -- 981,800 --
Research and experimentation tax credit (44,000) (133,000) (111,852)
Valuation reserve movement -- -- (83,936)
Other 42,622 143,732 10,817
----------- ----------- -----------
$ 550,000 1,541,000 401,000
=========== =========== ===========
</TABLE>
Total income tax expense was allocated as follows:
<TABLE>
<CAPTION>
Years ended
------------------------------------
June 28, June 29, July 1,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income from operations $ 550,000 1,541,000 401,000
Stockholders' equity, for compensation expense
for tax purposes in excess of amounts
recognized for financial statement
purposes. (62,242) (284,101) -
----------- ----------- ----------
$ 487,758 1,256,899 401,000
=========== =========== ===========
</TABLE>
(Continued)
F-17
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
as follows:
<TABLE>
<CAPTION>
June 28, June 29,
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 881,558 1,042,407
Accrued liabilities 271,797 359,906
Inventory reserves 547,934 454,755
Accounts receivable, principally due to allowance for
doubtful accounts 128,249 155,080
------------- -------------
Total deferred tax assets 1,829,538 2,012,148
Less: valuation allowance (270,000) (270,000)
------------- -------------
Net deferred tax assets $ 1,559,538 1,742,148
============= =============
Deferred tax liabilities:
Property and equipment, principally due to differences
in depreciation methods $ 742,304 808,914
============= =============
</TABLE>
There was no change in the valuation allowance for the year ended June
28, 1997. The valuation allowance is principally attributable to
state loss carryforwards.
At June 28,1997, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $1,800,000 which are
available to offset future taxable income through 2010. Utilization
of the net operating loss carryforwards is subject to an annual
limitation of $1,002,000 under Section 382 of the Internal Revenue
Code.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Based upon the level
of historical taxable income and projections for future taxable
income over the periods during which deferred tax assets are
deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences.
(8) SALES AND REVENUE
Total revenue consists of product sales, research contract revenue and
other revenue. Other revenue includes funded contracts for research
and development, revenues from service and repair activities and
consulting. Sales and revenue to government agencies for the years
ended June 28, 1997, June 29, 1996 and July 1, 1995 were $876,636,
$662,471 and $1,249,498, respectively. At June 28, 1997 and June 29,
1996 accounts receivable from these customers totaled $581,027 and
$516,698, respectively.
One commercial customer accounted for 38%, 45% and 41% of total revenue
for the years ended June 28, 1997, June 29, 1996 and July 1, 1995,
respectively. At June 28, 1997 and June 29, 1996, accounts receivable
from this customer totaled $3,919,586 and $2,726,198, respectively.
In 1997, a second customer accounted for approximately 10% of total
revenue.
(Continued)
F-18
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Sales to customers in foreign countries for the years ended June 28,
1997, June 29, 1996 and July 1, 1995 were $10,082,704, $7,328,015 and
$3,028,541, respectively. At June 28, 1997 and June 29, 1996,
accounts receivable from these customers totaled $1,764,059 and
$1,776,569, respectively.
(9) COMMITMENTS
The Company may borrow up to $8,000,000 from a bank under an unsecured
demand line of credit with interest at the bank's prime rate (8.5% at
June 28, 1997). Borrowings under the line are limited to 100% of the
Company's cash balance plus 80% of domestic accounts receivable under
90 days outstanding. The Company may fix a portion or all of the
outstanding balances under the line for periods of up to the
remaining term of the line. The line may be used for standby letters
of credit. There are fees of 1.5% for any standby letters of credit
and 0.25% on the unused portion of the line. There were no
outstanding borrowings at June 28, 1997 and June 29, 1996. The line
of credit expires in May 2000.
(10) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 28, June 29,
1997 1996
---- ----
<S> <C> <C>
Notepayable to bank, payable in monthly installments of $5,415
including interest, with any remaining balance due in July, 1999.
The interest rate is adjusted annually to the bank's prime rate
with a maximum change of 1% annually (8.75% at June 28, 1997).
The note is secured
by land and building. $ 445,853 472,124
Unsecured note payable to bank with interest at the bank's prime rate
(8.5% at June 28, 1997) payable in monthly principal installments
of $83,051, plus
interest, due June 30, 2002. 4,900,000 -
Unsecured note payable to bank with interest at the bank's prime
rate. In 1997, the remaining principal was repaid in connection
with the issue of the note
payable due June 30, 2002. - 3,661,017
Unsecured note payable to bank with interest at 7.19%, payable in
monthly principal installments of $67,797, plus interest, due
December 31, 2000. This note is subject to a prepayment penalty
equal to the lender's lost net interest income resulting from any
prepayment
as defined in the loan agreement. 2,847,457 3,661,017
------------- -------------
8,193,310 7,794,158
Less current maturities 1,824,397 1,624,641
------------- -------------
Long-term debt, excluding current maturities $ 6,368,913 6,169,517
============= =============
</TABLE>
(Continued)
F-19
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The aggregate maturities of long-term debt are as follows:
Year ending June 30:
1998 ................................... $ 1,824,397
1999 ................................... 1,825,344
2000 ................................... 2,185,924
2001 ................................... 1,444,061
2002 ................................... 913,584
----------------
$ 8,193,310
================
No security pledges of assets can be granted nor dividends paid without
the approval of the bank that issued the unsecured notes payable.
Certain financial covenants must be tested quarterly in connection with
the unsecured notes payable. The Company is in compliance with all
covenants at June 28, 1997.
(11) ACQUISITIONS
On May 9, 1997, the Company completed its acquisition of the net assets
of Converter Power, Inc., a manufacturer of high efficiency, small
form factor power sources used in semiconductor, medical, scientific
and industrial applications. At the acquisition date, the net assets
acquired were transferred to a newly established subsidiary
corporation, ASTeX CPI, Inc.
The Company acquired the net assets, exclusive of certain liabilities of
Converter Power, Inc. for a total purchase price of $7,378,958. The
purchase price included $6,482,933 in cash, of which $4,415,137 was
provided from the Company's current cash reserves while $2,067,796
was provided from increased bank borrowings, and 40,321 shares of
common stock valued at $896,025 issued to the prior owners of CPI.
Costs associated with the acquired in-process research and
development were charged to expense.
The value of the ASTeX shares issued in connection with the acquisition
of CPI is guaranteed by ASTeX to be at least $896,025 on May 8, 1998,
subject to certain adjustments as provided for in the purchase and
sales agreement. If the shares do not have a market value of at least
$896,025 (prior to adjustments) on May 8, 1998, ASTeX will pay the
difference in cash, common stock of ASTeX, or a combination of both
at its discretion.
As of January 2, 1996 the Company completed its acquisition of Ehrhorn
Technological Operations, Inc., a manufacturer of radio frequency
(RF) generators used in semiconductor, medical imaging, medical
sterilization and amateur radio communications applications. At the
acquisition date, Ehrhorn Technological Operations, Inc.'s name was
changed to ETO, Inc.
The Company acquired all of the stock of ETO for a total purchase price
of $16,749,358. The purchase price included $12,600,000 in cash, of
which $4,600,000 was provided from the Company's current cash
reserves while the remaining $8,000,000 was provided from two
unsecured notes from a bank (see note 10), and 328,662 shares of
common stock valued at $4,149,358 issued to the former shareholders
of ETO. Costs associated with acquired in-process research and
development were charged to expense.
(Continued)
F-20
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On November 21, 1995, the Company completed its acquisition of Newton
Engineering Service, Inc. and acquired all of the outstanding shares
of NES. In connection with the acquisition, the Company issued 11,372
shares of common stock valued at $188,703 to the former shareholders
of NES.
All acquisitions have been accounted for by the purchase method of
accounting and, accordingly, the purchase prices have been allocated
to the assets acquired and the liabilities assumed based on their
fair values at the acquisition dates. The consideration paid and the
fair value of the assets acquired and the liabilities assumed at the
acquisition dates are summarized as follows:
<TABLE>
<CAPTION>
Years ended
------------------------------------
June 28, 1997 June 29, 1996
------------- -------------
<S> <C> <C>
Consideration paid:
Cash $ 6,482,933 12,600,000
Common stock (40,321 shares in 1997
and 340,034 shares in 1996) 896,025 4,338,061
-------------- ---------------
Total consideration paid $ 7,378,958 16,938,061
============== ===============
Allocation of purchase price:
Accounts receivable $ 1,254,662 3,171,403
Inventories 2,051,237 3,437,633
Property and equipment and other assets 768,589 5,536,793
Liabilities assumed (957,464) (4,459,280)
Acquisition related expenses, net of tax
benefits where applicable 945,000 2,203,000
Goodwill 3,316,934 7,048,512
------------- ---------------
Total purchase price $ 7,378,958 16,938,061
============== ===============
</TABLE>
The following unaudited pro forma results of operations give effect to
the acquisitions as if the NES and ETO acquisitions had occurred at
the beginning of fiscal 1995 and the CPI acquisition had occurred at
the beginning of fiscal 1996. Such pro forma information reflects
certain adjustments including amortization of goodwill, interest
expense, interest income, income tax effect and an increase in the
number of weighted average shares outstanding. This pro forma
information does not necessarily reflect the results of operations
that would have occurred had the acquisitions taken place as
described and is not necessarily indicative of results that may be
obtained in the future.
<TABLE>
<CAPTION>
Years ended
------------------------------------------------------
June 28, June 29, July 1,
1997 1996 1995
---- ---- ----
(Unaudited)
------------------------------------------------------
<S> <C> <C> <C>
Pro forma total revenue ........................ $ 55,200,669 60,577,113 31,879,730
============== ============== ===============
Pro forma net earnings ......................... $ 1,123,257 3,084,909 897,888
============== ============== ===============
Pro forma net primary earnings per share ....... $ 0.25 0.68 0.21
============== ============== ===============
Pro forma weighted average common
shares outstanding ......................... 4,552,965 4,567,518 4,320,762
============== ============== ===============
</TABLE>
(Continued)
F-21
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) TRANSACTION WITH STOCKHOLDER
In 1997, the Company sold certain assets with a cost of $565,022
consisting of the net assets of ETO's Alpha product line, to
Alpha/Power, Inc. ("API") in exchange for a note receivable in an
equal amount that is to be repaid in installments in 1998 and 1999. A
majority of API is owned by a former owner of ETO who is currently an
ASTeX stockholder. In connection with this sale, API agreed to assume
and indemnify ETO against all obligations to provide warranty for
Alpha products sold prior to the sale. There was no gain or loss
associated with the sale.
(13) NONCASH FINANCING AND INVESTING ACTIVITIES
During the years ended June 29, 1997 and June 28, 1996, the Company
issued 40,321 and 340,034 shares of common stock valued at $896,025
and $4,338,061, respectively, in connection with acquisitions. During
the year ended June 29, 1997, the Company received a note receivable
from a stockholder in the amount of $565,022 in connection with the
sale of the net assets of ETO's Alpha Product line.
During the year ended June 29, 1996, the Company issued 18,000 shares of
common stock in exchange for notes receivable from employees totaling
$236,750.
In connection with the exercise of stock options, a tax benefit of
$62,242 and $284,101 was recorded as additional paid-in capital for
the years ended June 29, 1997 and June 28, 1996, respectively.
(14) GOODWILL WRITE-OFF
In connection with its acquisition of ETO, the Company recorded goodwill
of $7,048,512 which represented the excess of the purchase price over
the fair value of ETO's net assets acquired and in process research
and development. The goodwill was to be amortized over 15 years.
Between the acquisition date and June 28, 1996 there was a
precipitous decline in sales to one of ETO's major customers. In
management's judgment, this decline in revenues was a permanent
impairment of ETO's prospects. Based on this significant change,
which occurred during the Company's fourth quarter of fiscal 1996,
management made a reassessment of its remaining goodwill and recorded
an impairment of goodwill in the amount of $6,813,562, which
represented the goodwill balance at the reassessment date.
In determining the impairment, management estimated ETO's cash flows
over 14-1/2 years which represented the remaining business life cycle
of ETO's existing technology. The cash flow analysis included an
estimate of ETO's terminal value at the end of this period. The
operating cash flow projections were based on ETO's estimated
after-tax operating results less estimated capital expenditures. The
undiscounted cash flows were assumed to be realized in installments
over the 14-1/2 years. Because the undiscounted cash flow was less
than the Company's carrying value of ETO, a charge for impairment of
goodwill was recorded to the extent unamortized book value exceeded
the related discounted cash flow. The cash flow was discounted using
a weighted average borrowing cost of 7.7% which was comparable to
rates available as of the reassessment date.
(Continued)
F-22
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) RETIREMENT PLANS
Prior to January 1, 1997, the Company sponsored two defined contribution
401(k) retirement plans covering substantially all employees of the
Company. The Company contributed 20% of employee voluntary
contributions up to 5% of eligible wages for the plan covering
employees of ASTeX, ASTeX/Gerling Laboratories, and Newton
Engineering Service, Inc. The Company contributed 50% of employee
voluntary contributions up to 6% of eligible wages for the plan
covering employees of ETO. Beginning January 1, 1997, the Company
merged the plans and under the new plan contributes 50% of employee
voluntary contributions up to 6% of eligible wages. Total expense
under the plans amounted to $110,214, $72,547 and $42,673 for the
years ended June 28, 1997, June 29, 1996 and July 1, 1995,
respectively.
(16) SUBSEQUENT EVENTS
In August 1997, the Company signed a binding agreement to acquire
certain assets and assume certain liabilities of a German company for
approximately $4,000,000. The purchase price is to be paid in cash at
closing, subject to adjustment. The Company has adequate financial
resources to complete the acquisition within its existing credit
facilities.
On September 3, 1997, the Company announced that it had met the
requirement for redemption of the 1,955,000 redeemable warrants
issued in connection with the Company's IPO (see note 6) and would
call the warrants for redemption.
(17) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands except per share data)
-----------------------------------------------------------------------
Net
Earnings Net Earnings
Total Gross (Loss) From Earnings (Loss)
Revenue Profit Operations (Loss) Per Share
------- ------ ---------- ------ ---------
<S> <C> <C> <C> <C> <C>
1997
First Quarter ................... $ 9,860 3,813 536 312 0.07
Second Quarter .................. 9,293 3,395 461 280 0.06
Third Quarter ................... 11,013 3,886 658 390 0.09
Fourth Quarter .................. 17,801 6,316 3 (44) (0.01)
Year ended June 28 .............. 47,967 17,410 1,658 938 0.21
1996
First Quarter ................... $ 5,639 2,123 232 299 0.07
Second Quarter .................. 6,859 2,944 (2,358) (2,394) (0.57)
Third Quarter ................... 12,681 4,974 1,183 725 0.16
Fourth Quarter .................. 13,956 5,731 (5,135) (5,927) (1.34)
Year ended June 29 .............. 39,135 15,772 (6,078) (7,297) (1.74)
</TABLE>
(Continued)
F-23
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(18) NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) Statement No. 128,
Earnings Per Share, will become effective during fiscal year 1998. At
that time, the Company will be required to exclude the effect of
dilutive common stock equivalents from its primary earnings per share
calculation and restate all prior periods on that basis. The effect
of implementation of this new standard is not expected to be
material.
SFAS Statement No. 130, Reporting Comprehensive Income, will become
effective during fiscal year 1999. Under the provisions of this
Statement, the Company will be required to report all components of
comprehensive income in a financial statement that is displayed with
the same prominence as other financial statements. In addition to the
net earnings or loss presently displayed in the consolidated
statement of operations, the consolidated statement of comprehensive
income will display items considered to be other comprehensive
income. Such other comprehensive income will include foreign currency
translation adjustments, which are presently displayed in the
consolidated statement of stockholders' equity. The Company will also
be required to display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in
capital in the consolidated balance sheet.
SFAS Statement No. 131, Disclosures about Segments of an Enterprise and
Related Information, will become effective during fiscal year 1999.
At that time, the Company will be required to report financial and
descriptive information about any reportable operating segments.
Reportable operating segments are defined in Statement No. 131 as
components of an enterprise for which separate financial information
is available that is evaluated by senior management to allocate
resources and assess performance.
The Company is evaluating the impact of Statement Nos. 130 and 131.
F-24
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
APPLIED SCIENCE AND TECHNOLOGY, INC.
Date: September 26, 1997 By: /s/ Richard S. Post
--------------------------------
Richard S. Post
President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Name Capacity Date
- ---- -------- -----
<S> <C> <C>
/s/ Richard S. Post Chairman of the Board, Chief September 26, 1997
Richard S. Post Executive Officer and President
(principal executive officer)
/s/ John M. Tarrh Chief Financial Officer, Senior September 26, 1997
- ------------------------------ Vice President of Finance
John M. Tarrh (principal financial and accounting
officer) and Director
/s/ Donald K. Smith Director September 26, 1997
- ------------------------------
Donald K. Smith
/s/ John R. Bertucci Director September 26, 1997
- ------------------------------
John R. Bertucci
/s/ Michel de Beaumont Director September 26, 1997
- ------------------------------
Michel de Beaumont
/s/ Robert R. Anderson Director September 26, 1997
- ------------------------------
Robert R. Anderson
/s/ Hans-Jochen Kahl Director September 26, 1997
- ------------------------------
Hans-Jochen Kahl
</TABLE>
EXHIBIT 10a
-----------
APPLIED SCIENCE AND TECHNOLOGY, INC.
1993 STOCK OPTION PLAN (AS AMENDED)
ARTICLE I
PURPOSE OF THE PLAN
The purpose of this Plan is to encourage and enable employees,
consultants, directors and others who are in a position to make significant
contributions to the success of APPLIED SCIENCE AND TECHNOLOGY, INC. and of its
Affiliated Corporations upon whose judgment, initiative and efforts the
Corporation depends for the successful conduct of its business, to acquire a
closer identification of their interests with those of the Corporation by
providing them with opportunities to purchase stock in the Corporation pursuant
to options granted hereunder, thereby stimulating their efforts on behalf of the
Corporation and strengthening their desire to remain involved with the
Corporation. Any person designated to participate in the Plan is referred to as
a "Participant."
ARTICLE II
DEFINITIONS
2.1 "Affiliated Corporation" means any stock corporation of which a
majority of the voting common or capital stock is owned directly or indirectly
by the Corporation.
2.2 "Award" means an Option granted under Article V.
2.3 "Board" means the Board of Directors of the Corporation or, if one
or more has been appointed, a Committee of the Board of Directors of the
Corporation.
-1-
2.4 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.5 "Committee" means a Committee composed solely of two or more
Non-Employee Directors appointed
by the Board to administer the Plan.
2.6 "Corporation" means APPLIED SCIENCE AND TECHNOLOGY, INC., a
Delaware corporation, or its successor.
2.7 "Employee" means any person who is a regular full-time or part-time
employee of the Corporation or an Affiliated Corporation on or after the
effective date of the Plan.
2.8 "Incentive Stock Option" ("ISO") means an option that qualifies as
an incentive stock option as defined in Section 422 of the Code, as amended.
2.9 "Non-Employee Director" means (unless otherwise provided under Rule
16b-3 of the Securities Exchange Act of 1934) a member of the Board who is not
currently an officer or Employee of the Corporation.
2.10 "Non-Qualified Option" means any option not intended to qualify as
an Incentive Stock Option.
2.11 "Option" means an Incentive Stock Option or Non-Qualified Option
granted by the Board under Article V of this Plan in the form of a right to
purchase Stock evidenced by an instrument containing such provisions as the
Board may establish. Except as otherwise expressly provided with respect to an
Option grant, no Option granted pursuant to the Plan shall be an Incentive Stock
Option.
2.12 "Participant" means a person selected by the Board or by the
Committee to receive an award under the Plan.
2.13 "Plan" means this 1993 Stock Option Plan, as amended.
-2-
2.14 "Restricted Period" means the period of time selected by the
Committee during which an award may be forfeited by the Participant.
2.15 "Stock" means the Common Stock, $.01 par value, of the Corporation
or any successor, including any adjustments in the event of changes in capital
structure of the type described in Article X.
-3-
ARTICLE III
ADMINISTRATION OF THE PLAN
3.1 Administration by Board. This Plan shall be administered by the
Board of Directors of the Corporation. The Board may, from time to time, in its
discretion delegate any of its functions under this Plan to one or more
Committees. All references in this Plan to the Board shall also include the
Committee or Committees, if one or more have been appointed by the Board. From
time to time the Board may increase the size of the Committee or committees and
appoint additional Directors as members thereto, remove members (with or without
cause) and appoint new members in substitution therefor, fill vacancies however
caused, or remove all members of the Committee or committees and thereafter
directly administer the Plan. No member of the Board or a Committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any options granted under it.
If a Committee is appointed by the Board, a majority of the members of
the Committee shall constitute a quorum, and all determinations of the Committee
under the Plan shall be made by a majority of its members and may be made
without notice or meeting of the Committee by a writing signed by a majority of
Committee members.
3.2 Powers. The Board of Directors and/or any Committee appointed by
the Board shall have full and final authority to operate, manage and administer
the Plan on behalf of the Corporation. This authority includes, but is not
limited to:
-4-
(a) The power to grant Awards conditionally or unconditionally,
(b) The power to prescribe the form or forms of any instruments
evidencing Awards granted under this Plan,
(c) The power to interpret the Plan,
(d) The power to provide regulations for the operation of the
incentive features of the Plan, and otherwise to prescribe and
rescind regulations for interpretation, management and
administration of the Plan,
(e) The power to delegate responsibility for Plan operation,
management and administration on such terms, consistent with
the Plan, as the Board may establish,
(f) The power to delegate to other persons the responsibility of
performing ministerial acts in furtherance of the Plan's
purpose, and
(g) The power to engage the services of persons, companies, or
organizations in furtherance of the Plan's purpose, including
but not limited to, banks, insurance companies, brokerage
firms and consultants.
3.3 Additional Powers. In addition, as to each Option to buy Stock of
the Corporation, the Board or any Committee appointed by it shall have full and
final authority in its discretion: (a) to determine the number of shares of
Stock subject to each Option; (b) to determine the time or times at which
Options will be granted; (c) to determine the option price of the shares of
Stock subject to each Option, which price shall be not less than the minimum
price specified in Article V of this Plan; (d) to determine the time or times
when each Option shall become exercisable and the duration of the exercise
period (including the acceleration of any
-6-
exercise period), which shall not exceed the maximum period specified in Article
V; (e) to determine whether each Option granted shall be an Incentive Stock
Option or a Non-Qualified Option; and (f) to waive, generally and in particular
instances, compliance by a Participant with any obligation to be performed by
him under an Option, to waive any condition or provision of an Option, and to
amend or cancel any Option (and if an Option is canceled, to grant a new Option
on such terms as the Board may specify), except that the Board may not take any
action with respect to an outstanding option that would adversely affect the
rights of the Participant under such Option without such Participant's consent.
Nothing in the preceding sentence shall be construed as limiting the power of
the Board to make adjustments required by Article X.
In no event may the Corporation grant an Employee any Incentive Stock
Option that is first exercisable during any one calendar year to the extent the
aggregate fair market value of the Stock (determined at the time the options are
granted) exceeds $100,000 (under all stock option plans of the Corporation and
any Affiliated Corporation); provided, however, that this paragraph shall have
no force and effect if its inclusion in the Plan is not necessary for Incentive
Stock Options issued under the Plan to qualify as such pursuant to Section
422(d)(1) of the Code.
ARTICLE IV
ELIGIBILITY
4.1 Eligible Employees. All Employees (including Directors who are
Employees) are eligible to be granted Incentive Stock Option and Non-Qualified
Option Awards under this Plan. Incentive Stock Options shall be granted only to
Employees.
4.2 Consultants, Directors and other Non-Employees. Any consultant,
Director (whether or not an Employee) and any other non-employee is eligible to
be granted
-6-
Non-Qualified Option Awards under the Plan, provided the person has not
irrevocably elected to be ineligible to participate in the Plan.
4.3 Relevant Factors. In selecting individual Employees, consultants,
Directors and other non-employees to whom Awards shall be granted, the Board
shall weigh such factors as are relevant to accomplish the purpose of the Plan
as stated in Article I. An individual who has been granted an Award may be
granted one or more additional Awards, if the Board so determines. The granting
of an Award to any individual shall neither entitle that individual to, nor
disqualify him from, participation in any other grant of Awards.
ARTICLE V
STOCK OPTION AWARDS
5.1 Number of Shares. Subject to the provisions of Article X of this
Plan, the aggregate number of shares of Stock for which Options may be granted
under this Plan shall not exceed 1,500,000 shares. The shares to be delivered
upon exercise of Options under this Plan shall be made available, at the
discretion of the Board, either from authorized but unissued shares or from
previously issued and reacquired shares of Stock held by the Corporation as
treasury shares, including shares purchased in the open market.
-7-
Stock issuable upon exercise of an Option granted under the Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board of Directors.
5.2 Effect of Expiration, Termination or Surrender. If an Option under
this Plan shall expire or terminate unexercised as to any shares covered
thereby, or shall cease for any reason to be exercisable in whole or in part, or
if the Corporation shall reacquire any unvested shares issued pursuant to
Options under the Plan, such shares shall thereafter be available for the
granting of other Options under this Plan, subject to the limits set forth in
Section 5.1 hereof.
5.3 Term of Options. The full term of each Option granted hereunder
shall be for such period as the Board shall determine. In the case of Incentive
Stock Options granted hereunder, the term shall not exceed ten (10) years from
the date of granting thereof. Each Option shall be subject to earlier
termination as provided in Sections 6.3 and 6.4. Notwithstanding the foregoing,
the term of Options intended to qualify as Incentive Stock Options shall not
exceed five (5) years from the date of granting thereof if such Option is
granted to any Employee who at the time such Option is granted owns, directly or
indirectly, or is deemed to own by reason of the attribution rules set forth in
Section 425(d) of the Code, more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation and its Affiliated
Corporations (a ATen-Percent Shareholder@).
5.4 Option Price. The Option price shall be determined by the Board at
the time any Option is granted. In the case of Incentive Stock Options, the
exercise price shall not be less than l00% of the fair market value of the
shares covered thereby at the time the Incentive Stock Option is granted (but in
no event less than par value), provided that no Incentive Stock Option
-8-
shall be granted hereunder to any Employee who is a Ten-Percent Shareholder
unless the Incentive Stock Option price equals not less than 110% of the fair
market value of the shares covered thereby at the time the Incentive Stock
Option is granted. In the case of Non-Qualified Stock Options, the exercise
price shall not be less than 85% of fair market value.
5.5 Fair Market Value. If, at the time an Option is granted under the
Plan, the Corporation's Stock is publicly traded, then "fair market value" shall
be determined as of the last business day for which the prices or quotes
discussed in this sentence are available prior to the date such Option is
granted and shall mean (i) the average (on that date) of the high and low prices
of the Stock on the principal national securities exchange on which the Stock is
traded, if the Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on that date) of the Stock on the NASDAQ National
Market List, if the Stock is then traded on the NASDAQ National Market System;
or (iii) the closing bid price (or average of bid prices) last quoted (on that
date) by an established quotation service for over-the-counter securities, if
the Stock is not reported on the NASDAQ National Market System. However, if the
Stock is not publicly traded at the time an Option is granted under the Plan,
"fair market value" shall be deemed to be the fair value of the Stock as
determined in good faith by the Board after taking into consideration all
factors that it deems appropriate, including without limitation, recent sale and
offer prices of the Stock in private transactions negotiated at arm's length.
5.6 Non-Transferability of Options. No Incentive Stock Option granted
under this Plan shall be transferable by the grantee otherwise than by will or
the laws of descent and distribution, and such Incentive Stock Option may be
exercised during the grantee's lifetime only by the grantee.
-9-
5.7 Foreign Nationals. Awards may be granted to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable laws.
ARTICLE VI
EXERCISE OF OPTION
6.1 Exercise. Each Option granted under this Plan shall be exercisable
on such date or dates and during such period and for such number of shares as
shall be determined pursuant to the provisions of the instrument evidencing such
Option. The Board shall have the right to accelerate the date of exercise of any
option, provided that, the Board shall not accelerate the exercise date of any
Incentive Stock Option without the optionee's prior written consent if such
acceleration would violate the annual vesting limitation contained in Section
422(d)(1) of the Code.
6.2 Notice of Exercise. A person electing to exercise an Option shall
give written notice to the Corporation of such election and of the number of
shares he or she has elected to purchase and shall at the time of exercise
tender the full purchase price of the shares he or she has elected to purchase.
The purchase price can be paid partly or completely in shares of the
Corporation's stock valued at Fair Market Value as defined in Section 5.5
hereof, or by any such other lawful consideration as the Board may determine.
Until such person has been issued a certificate or certificates for the shares
so purchased, he or she shall possess no rights of a record holder with respect
to any of such shares.
6.3 Option Unaffected by Change in Duties. No Incentive Stock Option
(and, unless
-10-
otherwise determined by the Board of Directors, no Non-Qualified Option granted
to a person who is, on the date of the grant, an Employee of the Corporation or
an Affiliated Corporation) shall be affected by any change of duties or position
of the optionee (including transfer to or from an Affiliated Corporation), so
long as he or she continues to be an Employee. Employment shall be considered as
continuing uninterrupted during any bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service) provided
that the period of such leave does not exceed 90 days or, if longer, any period
during which such optionee's right to reemployment is guaranteed by statute. A
bona fide leave of absence with the written approval of the Board shall not be
considered an interruption of employment under the Plan, provided that such
written approval contractually obligates the Corporation or any Affiliated
Corporation to continue the employment of the optionee after the approved period
of absence.
If the optionee shall cease to be an Employee for any reason other than
death, such Option shall thereafter be exercisable only to the extent of the
purchase rights, if any, which have accrued as of the date of such cessation;
provided that (i) the Board may provide in the instrument evidencing any Option
that the Board may in its absolute discretion, upon any such cessation of
employment, determine (but be under no obligation to determine) that such
accrued purchase rights shall be deemed to include additional shares covered by
such Option; and (ii) unless the Board shall otherwise provide in the instrument
evidencing any Option, upon any such cessation of employment, such remaining
rights to purchase shall in any event terminate upon the earlier of (A) the
expiration of the original term of the Option; or (B) where such cessation of
employment is on account of disability, the expiration of one year from the date
of such cessation of employment and, otherwise, the expiration of three months
from such date. For purposes of
-11-
the
-12-
Plan, the term "disability" shall mean "permanent and total disability" as
defined in Section 22(e)(3) of the Code.
In the case of a Participant who is not an employee, provisions
relating to the exercisability of an Option following termination of service
shall be specified in the award. If not so specified, all Options held by such
Participant shall terminate on termination of service to the Corporation.
6.4 Death of Optionee. Should an optionee die while in possession of
the legal right to exercise an Option or Options under this Plan, such persons
as shall have acquired, by will or by the laws of descent and distribution, the
right to exercise any Options theretofore granted, may, unless otherwise
provided by the Board in any instrument evidencing any Option, exercise such
Options at any time prior to one year from the date of death; provided, that
such Option or Options shall expire in all events no later than the last day of
the original term of such Option; provided, further, that any such exercise
shall be limited to the purchase rights which have accrued as of the date when
the optionee ceased to be an Employee, whether by death or otherwise, unless the
Board provides in the instrument evidencing such Option that, in the discretion
of the Board, additional shares covered by such Option may become subject to
purchase immediately upon the death of the optionee.
ARTICLE VII
TERMS AND CONDITIONS OF OPTIONS
Options shall be evidenced by instruments (which need not be identical)
in such forms as the Board may from time to time approve. Such instruments shall
conform to the terms and conditions set forth in Articles V and VI hereof and
may contain such other provisions as the
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Board deems advisable which are not inconsistent with the Plan, including
restrictions applicable to shares of Stock issuable upon exercise of Options. In
granting any Non-Qualified Option, the Board may specify that such Non-Qualified
Option shall be subject to the restrictions set forth herein with respect to
Incentive Stock Options, or to such other termination and cancellation
provisions as the Board may determine. The Board may from time to time confer
authority and responsibility on one or more of its own members and/or one or
more officers of the Corporation to execute and deliver such instruments. The
proper officers of the Corporation are authorized and directed to take any and
all action necessary or advisable from time to time to carry out the terms of
such instruments.
ARTICLE VIII
BENEFIT PLANS
Awards under the Plan are discretionary and are not a part of regular
salary. Awards may not be used in determining the amount of compensation for any
purpose under the benefit plans of the Corporation, or an Affiliated
Corporation, except as the Board may from time to time expressly provide.
Neither the Plan, an Option or any instrument evidencing an Option confers upon
any Participant any right to continue as an Employee of, or consultant or
advisor to, the Corporation or an Affiliated Corporation or affect the right of
the Corporation or any Affiliated Corporation to terminate them at any time.
Except as specifically provided by the Board in any particular case, the loss of
existing or potential profits granted under this Plan shall not constitute an
element of damages in the event of termination of the relationship of a
Participant even if the termination is in violation of an obligation of the
Corporation to the Participant by contract or otherwise.
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ARTICLE IX
AMENDMENT, SUSPENSION OR TERMINATION
OF THE PLAN
The Board may suspend the Plan or any part thereof at any time or may
terminate the Plan in its entirety. Awards shall not be granted after Plan
termination. The Board may also amend the Plan from time to time, except that
amendments which affect the following subjects must be approved by stockholders
of the Corporation:
(a) Except as provided in Article X relative to capital changes,
the number of shares as to which Options may be granted
pursuant to Article V;
(b) The requirements as to eligibility for participation in the
Plan.
Awards granted prior to suspension or termination of the Plan may not
be canceled solely because of such suspension or termination, except with the
consent of the grantee of the Award.
ARTICLE X
CHANGES IN CAPITAL STRUCTURE
The instruments evidencing Options granted hereunder shall be subject
to adjustment in the event of changes in the outstanding Stock of the
Corporation by reason of stock dividends, stock splits, recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges or other
relevant changes in capitalization occurring after the date of an Award to the
same extent as would affect an actual share of Stock issued and outstanding on
the effective date of such change. Such adjustment to outstanding Options shall
be made without change in the total price applicable to the unexercised portion
of such options, and a corresponding adjustment in the applicable option price
per share shall be made. In the event of any such change, the aggregate
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number and classes of shares for which Options may thereafter be granted under
Section 5.1 of this Plan may be appropriately adjusted as determined by the
Board so as to reflect such change.
Notwithstanding the foregoing, any adjustments made pursuant to this
Article X with respect to Incentive Stock Options shall be made only after the
Board, after consulting with counsel for the Corporation, determines whether
such adjustments would constitute a "modification" of such Incentive Stock
Options (as that term is defined in Section 424 of the Code) or would cause any
adverse tax consequences for the holders of such Incentive Stock Options. If the
Board determines that such adjustments made with respect to Incentive Stock
Options would constitute a modification of such Incentive Stock Options, it may
refrain from making such adjustments.
In the event of the proposed dissolution or liquidation of the
Corporation, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Board.
Except as expressly provided herein, no issuance by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. No adjustments
shall be made for dividends paid in cash or in property other than securities of
the Corporation.
No fractional shares shall be issued under the Plan and the optionee
shall receive from the Corporation cash in lieu of such fractional shares.
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ARTICLE XI
EFFECTIVE DATE AND TERM OF THE PLAN
The Plan shall become effective on September 1, 1993. The Plan shall
continue until such time as it may be terminated by action of the Board or the
Committee; provided, however, that no Options may be granted under this Plan on
or after the tenth anniversary of the date on which the Plan was adopted by the
Board.
ARTICLE XII
CONVERSION OF ISOS INTO NON-QUALIFIED
OPTIONS; TERMINATION OF ISOS
The Board, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's
Incentive Stock Options, that have not been exercised on the date of conversion,
into Non-Qualified Options at any time prior to the expiration of such Incentive
Stock Options, regardless of whether the optionee is an employee of the
Corporation or an Affiliated Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of such Options. At the time of such conversion, the
Board or the Committee (with the consent of the optionee) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the Board
or the Committee in its discretion may determine, provided that such conditions
shall not be inconsistent with the Plan. Nothing in the Plan shall be deemed to
give any optionee the right to have such optionee's Incentive Stock Options
converted into Non-Qualified Options, and no such conversion shall occur until
and unless the Board or the Committee takes appropriate action. The Board, with
the consent of the optionee, may also terminate any portion of any
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Incentive Stock Option that has not been exercised at the time of such
termination.
ARTICLE XIII
APPLICATION OF FUNDS
The proceeds received by the Corporation from the sale of shares
pursuant to Options granted under the Plan shall be used for general corporate
purposes.
ARTICLE XIV
GOVERNMENTAL REGULATION
The Corporation's obligation to sell and deliver shares of Stock under
this Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
ARTICLE XV
WITHHOLDING OF ADDITIONAL INCOME TAXES
Upon the exercise of a Non-Qualified Option or the making of a
Disqualifying Disposition (as defined in Article XVI) the Corporation, in
accordance with Section 3402(a) of the Code, may require the optionee to pay
additional withholding taxes in respect of the amount that is considered
compensation includible in such person's gross income. The Board in its
discretion may condition the exercise of an Option on the payment of such
additional withholding taxes.
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ARTICLE XVI
NOTICE TO CORPORATION OF DISQUALIFYING DISPOSITION
Each Employee who receives an Incentive Stock Option must agree to
notify the Corporation in writing immediately after the employee makes a
Disqualifying Disposition of any Stock acquired pursuant to the exercise of an
Incentive Stock Option. A Disqualifying Disposition is any disposition
(including any sale) of such Stock before the later of (a) two years after the
date the employee was granted the Incentive Stock Option or (b) one year after
the date the Employee acquired Stock by exercising the Incentive Stock Option.
If the Employee has died before such Stock is sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.
ARTICLE XVII
CONDITIONS ON DELIVERY OF STOCK
The Corporation shall not be obligated to deliver any shares of Stock
pursuant to Options granted under the Plan until, (a) in the opinion of the
Corporation's counsel, all applicable federal and state laws and regulations
have been complied with, and (b) all other legal matters in connection with the
issuance and delivery of such shares have been approved by the Corporation's
counsel. If the sale of Stock has not been registered under the Securities Act
of 1933, as amended, the Corporation may require, as a condition to exercise of
the option, such representations or agreements as counsel for the Corporation
may consider appropriate to avoid violation of such Act and may require that the
certificates evidencing such Stock bear an appropriate legend restricting
transfer.
ARTICLE XVIII
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GOVERNING LAW; CONSTRUCTION
The validity and construction of the Plan and the instruments
evidencing Options shall be governed by the laws of the State of Delaware
(without regard to the conflict of law principles thereof). In construing this
Plan, the singular shall include the plural and the masculine gender shall
include the feminine and neuter, unless the context otherwise requires.
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EXHIBIT 10b
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AMENDED KEY EMPLOYEE AGREEMENT
----------
To: Dr. Richard S. Post As of July 1, 1996
33 Fairbanks Road
Lexington, Massachusetts 02173
The undersigned, Applied Science and Technology, Inc., a Delaware
corporation, as well as its successors and assigns(hereinafter collectively
referred to as the "Company"), hereby agree with you as follows:
l. Position and Responsibilities.
1.1 You shall serve as Chairman of the Board and President of the
Company (or in such other executive capacity as shall be designated by the Board
of Directors and reasonably acceptable to you) and shall perform the duties
customarily associated with such capacity from time to time and at such place or
places as the Company shall designate are appropriate and necessary in
connection with such employment; provided, however, that you shall not be
required to relocate your place of employment beyond a 20 mile radius from
Woburn, Massachusetts without your prior written consent.
1.2 You will, to the best of your ability, devote your full time and
best efforts to the performance of your duties hereunder and the business and
affairs of the Company. You agree to perform such executive duties as may be
assigned to you by or on authority of the Company's Board of Directors from time
to time. After receipt of notice of termination of your employment hereunder,
you shall continue to be available to the Company on a part-time basis to assist
in any necessary transition.
1.3 You will duly, punctually and faithfully perform and observe any
and all rules and regulations which the Company may now or shall hereafter
establish governing the conduct of its business.
1.4 You will report directly to the Company's Board of Directors.
2. Term of Employment.
2.1 The initial term of this Agreement shall be for the period of
years set forth on Exhibit "A" annexed hereto commencing with the date hereof.
Thereafter, this Agreement shall be automatically renewed for successive periods
of one year, unless you or the Company shall give the other party not less than
three (3) months written notice of non-renewal. Your employment with the Company
may be terminated at any time as provided in Section 2.2 . If the Company gives
you notice of non-renewal, the Company shall be obligated to pay to you as
Severance Benefits an amount set forth in Sections 7 and 8 of Exhibit "A"
hereto, plus payment in full of any amounts otherwise due you, less applicable
taxes and other required withholdings and any amounts you may owe to the
Company.
2.2 The Company shall have the right, on written notice to you, to
terminate your employment:
(a) immediately at any time for "Cause" (as defined herein
subject to your right of cure and right to dispute as provided in
Section 2.3 herein); or
(b) at any time, upon not less than seven (7) days written
notice, without "Cause" provided the Company shall be obligated to pay
to you as Severance Benefits an amount equal to the sums set forth in
Exhibit "A," plus any sums then due to you, less (i) applicable taxes
and other required withholdings, and (ii) any amounts you may owe to
the Company. Payments under this Section 2.2 (b) shall not be due or
payable if you are terminated at any time for "Cause" or if you
voluntarily resign from your employment.
2.3 For purposes of Section 2.2 (except as provided in Section 8(c)
of Exhibit "A"), the term "Cause" shall mean (a) gross negligence in the
performance of assigned duties; (b) refusal to perform or discharge the duties
or responsibilities assigned by the Board of Directors of Applied Science and
Technology, Inc. provided the same are not illegal, unethical or inconsistent
with the position of Chief Executive Officer of a corporation and the failure to
correct such refusal and perform such duties or responsibilities within two
weeks (14 calendar days) after written notice of such failure; (c) conviction of
a felony involving moral turpitude; (d) willful or prolonged absence from work
not excused by disability; and (e) falseness of any warranty or representation
by you herein or the breach of your obligations under this Agreement or your
duties as an employee of the Company to the material detriment of the Company.
2.4 In the event of the Involuntary Termination of your employment
with the Company at any time, the Company hereby irrevocably agrees to provide
you with Severance Benefits as defined in Section 7 of Exhibit "A" hereto or
payments in the event of a "Change in Control" as defined in Section 8 of
Exhibit "B". In this regard, the phrase "Involuntary Termination" shall mean any
termination of your employment by the Company other than for "cause," as defined
in Section 2.3, any notice by the Company not to renew this Agreement pursuant
to Section 2.1, or any termination of your employment by you due to any of the
following circumstances: (a) a reduction in your Base Salary or Company-paid
benefits, (b) a reduction in your eligibility for any Company bonus or other
benefit program, (c) a material or substantial change in your title, position,
authority or duties, or (d) a change of your principal place of employment from
Woburn, Massachusetts to another location beyond 20 miles of Woburn,
Massachusetts.
3. Compensation You shall receive the compensation and benefits set
forth on Exhibit A hereto ("Compensation") for all services to be rendered by
you hereunder and for your
-2-
transfer of property rights pursuant to an agreement relating to proprietary
information and inventions of even date herewith attached hereto as Exhibit C
between you and the Company (the "Proprietary Information and Inventions
Agreement"). Such Compensation shall be subject to temporary or permanent
reduction by the Board of Directors if the Board shall determine that economic
conditions so warrant.
4. Other Activities During Employment.
4.1 Except for any outside employments and directorships currently
held by you as listed on Exhibit B hereto, and except with the prior written
consent of the Company's Board of Directors, you will not during the term of
this Agreement undertake or engage in any other employment, occupation or
business enterprise other than one in which you are an inactive investor.
4.2 You hereby agree that, except as disclosed on Exhibit B hereto,
during your employment hereunder, you will not, directly or indirectly, engage
(a) individually, (b) as an officer, (c) as a director, (d) as an employee, (e)
as a consultant, (f) as an advisor, (g) as an agent (whether a salesperson or
otherwise), (h) as a broker, or (i) as a partner, coventurer, stockholder or
other proprietor owning directly or indirectly more than five percent (5%)
interest in any firm, corporation, partnership, trust, association, or other
organization which is engaged in the research, development, production,
manufacture or marketing of equipment or processes in direct competition with
the Company or any other line of business engaged in or under demonstrable
development by the Company (such firm, corporation, partnership, trust,
association, or other organization being hereinafter referred to as a
"Prohibited Enterprise"). Except as may be shown on Exhibit B hereto, you hereby
represent that you are not engaged in any of the foregoing capacities (a)
through (i) in any Prohibited Enterprise.
5. Former Employers.
5.1 You represent and warrant that your employment by the Company
will not conflict with and will not be constrained by any prior or current
employment, consulting agreement or relationship whether oral or written. You
represent and warrant that you do not possess confidential information arising
out of any such employment, consulting agreement or relationship which, in your
best judgment, would be utilized in connection with your employment by the
Company in the absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you should
find that confidential information belonging to any other person or entity might
be usable in connection with the Company's business, you will not intentionally
disclose to the Company or use on behalf of the Company any confidential
information belonging to any of your former employers; but during your
employment by the Company you will use in the performance of your duties all
information which is generally known and used by persons with training and
experience comparable to your own all information which is common knowledge in
the industry or otherwise legally in the public domain. 6. Proprietary
Information and Inventions. You agree to execute, deliver and be bound by the
provisions of the Proprietary Information and Inventions Agreement.
-3-
7. Post-Employment Activities.
7.1 For a period of two (2) years after the termination or
expiration, for any reason, of your employment with the Company hereunder,
absent the Company's prior written approval, you will not directly or indirectly
engage in activities similar or reasonably related to those in which you shall
have engaged hereunder during the two years immediately preceding termination or
expiration for, nor render services similar or reasonably related to those which
you shall have rendered hereunder during such two years to, any person or entity
whether now existing or hereafter established which directly competes with (or
proposes or plans to directly compete with) the Company ("Direct Competitor") in
any line of business engaged in or under development by the Company. Nor shall
you entice, induce or encourage any of the Company's other employees to engage
in any activity which, were it done by you, would violate any provision of the
Proprietary Information and Inventions Agreement or this Section 7. As used in
this Section 7.1, the term "any line of business engaged in or under development
by the Company" shall be applied as at the date of termination of your
employment, or, if later, as at the date of termination of any post-employment
consultation.
7.2 For a period of two (2) years after the termination of your
employment with the Company, the provisions of Section 4.2 shall be applicable
to you and you shall comply therewith. As applied to such two (2) year
post-employment period, the term "any other line of business engaged in or under
development by the Company," as used in Section 4.2, shall be applied as at the
date of termination of your employment with the Company or, if later, as at the
date of termination of any post-employment consultation with the Company.
7.3 No provision of this Agreement shall be construed to preclude
you from performing the same services which the Company hereby retains you to
perform for any person or entity which is not a Direct Competitor of the Company
upon the expiration or termination of your employment (or any post-employment
consultation) so long as you do not thereby violate any term of the Proprietary
Information and Inventions Agreement.
8. Remedies. Your obligations under the Proprietary Information and
Inventions Agreement and the provisions of Sections 6,7,8 and 9 of this
Agreement (as modified by Section 10, if applicable) shall survive the
expiration or termination of your employment (whether through your resignation
or otherwise) with the Company. You acknowledge that a remedy at law for any
breach or threatened breach by you of the provisions of the Proprietary
Information and Inventions Agreement or Section 7 would be inadequate and you
therefore agree that the Company shall be entitled to such injunctive relief in
case of any such breach or threatened breach.
The Company's obligations and those of any successors or assignees of
the Company
-4-
under this Agreement, including but not limited to the severance provisions and
other compensation and benefits due to you pursuant to Exhibit "A" hereto, will
be a condition of and are to remain those of any successor or assignee. The
Company acknowledges that a remedy at law for any breach or threatened breach by
the Company, its directors or agents of any of the provisions of Exhibit "A"
hereto or of this Agreement generally, or of any extension of this Agreement,
would be inadequate and the Company therefore agrees that you shall be entitled
to injunctive relief in case of any such breach or threatened breach. In the
event of any dispute pursuant to this Agreement, the prevailing party in any
litigation or arbitration shall be entitled to prompt reimbursement of
reasonable legal fees and related expenses incurred in connection with such
dispute.
9. Assignment. This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation and any
assignee of all or substantially all of its business and properties, but, except
as to any such successor or assignee of the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or by you,
except by operation of law.
10. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it as determined by a court of competent
jurisdiction, so as to be enforceable to the extent compatible with applicable
law.
11. Notices. Any notice which the Company is required to or may desire
to give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at your address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the Company
hereunder shall be given by personal delivery or by registered or certified
mail, return receipt requested, addressed to the Company at its principal
office, or at such other office as the Company may from time to time designate
in writing. The date of personal delivery or the date of mailing any notice
under this Section 11 shall be deemed to be the date of delivery thereof.
12. Waivers. If either party should waive any breach of any provision
of this Agreement, such party shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
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13. Complete Agreement; Amendments. The foregoing including Exhibits A,
B and C hereto, is the entire agreement of the parties with respect to the
subject matter hereof, superseding any previous oral or written communications,
representations, understandings, or agreements with the Company or any officer
or representative thereof. Any amendment to this Agreement or waiver by the
Company of any right hereunder shall be effective only if evidenced by a written
instrument executed by the parties hereto, upon authorization of the Company's
Board of Directors.
14. Headings. The headings of the Sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning of this Agreement.
15. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
16. Governing Law. This Agreement shall be governed by and construed
under Massachusetts law.
17. Arbitration of Disputes. Subject to the rights of the parties to
seek injunctive relief as described herein, any controversy or claim arising out
of, or relating to, any provision of this Agreement shall be settled by binding
arbitration in accordance with the laws of the Commonwealth of Massachusetts by
three arbitrators, one of whom shall be appointed by the Company, one of whom
shall be appointed by you, and the third arbitrator who shall be appointed by
the first two arbitrators. If the first two arbitrators cannot agree on the
appointment of a third arbitrator, then the third arbitrator shall be appointed
by the American Arbitration Association in the City of Boston. Such arbitration
shall be conducted in the City of Boston in accordance with the rules of the
American Arbitration Association, except with respect to the selection of
arbitrators, which shall be as provided in this Section. Judgment on the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof and shall not be appealable. The prevailing party in such arbitration
proceeding shall be entitled to reimbursement by the other party of all
reasonable legal fees and other costs incurred by the prevailing party in
connection with such proceeding, including any legal fees and costs incurred in
connection with the enforcement of any award.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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If you are in agreement with the foregoing, please sign your name below
and also at the bottom of the Proprietary Information and Inventions Agreement,
whereupon this Agreement shall become binding in accordance with its terms.
Please then return this Agreement to the Company. (You may retain for your
records the accompanying counterpart of this Agreement enclosed herewith).
Very truly yours,
APPLIED SCIENCE AND
TECHNOLOGY, INC.
By:
-----------------------------------------
John M. Tarrh, Senior Vice President
Accepted and Agreed:
- ---------------------------------
Richard S. Post, Ph.D.
-7-
EXHIBIT A
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF RICHARD S. POST, Ph.D.
l. Term. The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be for a period from the date of this Agreement
through December 31, 1999.
2. Compensation.
(a) Base Salary. Your Base Salary shall be $170,000.00 per
annum through June 28, 1997, payable in accordance with the Company's
payroll policies. For Fiscal 1998 and 1999, Base Salary shall be as
established by the Board of Directors but in any event in an amount no
less than $170,000.00.
(b) Bonus. You shall be entitled to such bonuses as the Board
of Directors may determine.
(c) Stock Option Grants. In addition to other stock options
now held by you, you shall be entitled to receive additional stock
option grants as determined by the Board of Directors.
3. Vacation. You shall be entitled to all legal and religious holidays,
and four weeks paid vacation per annum. Any unused vacation may be
accrued or cashed in based on your then current Base Salary.
4. Insurance and Benefits. You shall be eligible for participation in any
health, dental and other group insurance plans which may be established
by the Company or which the Company is required to maintain by law.
5. Retirement Plan. You will be eligible to participate in the Company's
401(k) Plan.
6. Other Benefits. You shall be entitled to benefits otherwise available
to all employees.
7. Severance Benefits.
(a) When provided for in this Agreement, you shall be entitled to
"Severance Benefits". When used in this Agreement, the term Severance Benefits
shall mean a total amount equal to (i) your then current annual Base Salary,
plus (ii) your Bonus earned for the Company's most recent fiscal year. This
total amount shall be paid to you in twelve (12) equal monthly installments
commencing within ten (10) days after the date of your termination of active
employment with the Company.
A-1
(b) In addition, the term "Severance Benefits" shall include the
continuation for you and your family, during the Severance Period, as defined
below, of all of the other benefits which are provided or available to you on
the last day of your actual service with the Company, including your continued
accrual and the vesting under the terms of any pension or 401(k) plan then
sponsored by the Company to the maximum extent permitted by law. For purposes of
this Agreement, the term "Severance Period" means the period of twelve (12)
months beginning on the last day of your active service with the Company.
(c) The lump sum payment referred to above will be in addition to, and
not in substitution for, any accrued and unpaid salary, vacation, pension,
retirement or other benefits, unreimbursed expenses or other payments to which
you may be otherwise entitled.
(d) In the event of your death while you are employed by the Company,
your then current Base Salary shall continue to be paid to your legal
representative for a period of 120 days following the date of your death; and
for a period of three (3) years following your death, the Company shall continue
to provide to your spouse the health insurance coverage described above. If you
die during the Severance Period, all cash amounts which would have been payable
to you under this Exhibit "A", unless otherwise provided for herein, shall be
paid in accordance with the terms of this Agreement to your estate.
(e) You shall not be required to mitigate the amount of any payment the
Company becomes obligated to make to you in connection with this Agreement, by
seeking other employment or otherwise.
8. Change in Control.
(a) For purposes of this Agreement, "Change in Control" means and shall
be deemed to occur if any of the following occurs:
(i) the acquisition, after September 30, 1994, by an individual,
entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934 as amended (the "Exchange Act")] of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (A) the outstanding
shares of common stock, par value $ .01 per share, of the Company (the
"Common Stock"), or (B) the combined voting power of the voting
securities of the Company entitled to vote generally in the election of
directors (the "Voting Securities"); or (ii) Individuals who, on
January 1, 1997, constituted the Board of Directors of the Company (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board of Directors of the Company; provided, however,
that any individual becoming a director subsequent to January 1, 1997
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
directors then
A-2
serving and comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents; or (iii) Approval by
the Board of Directors or the shareholders of the Company of a (A)
tender offer to acquire any of the Common Stock or voting securities,
(B) reorganization, (C) merger or (D) consolidation, other than a
reorganization, merger or consolidation with respect to which all or
substantially all of the individuals and entities who were the
beneficial owners, immediately prior to such reorganization, merger or
consolidation, of the Common Stock and voting securities beneficially
own, directly or indirectly, immediately after such reorganization,
merger or consolidation, more than 80% of the then outstanding common
stock and voting securities (entitled to vote generally in the election
of directors) of the Company resulting from such reorganization, merger
or consolidation in substantially the same proportions as their
respective ownership, immediately prior to such reorganization, merger
or consolidation, of the Common Stock and the voting securities; or
(iv) Approval by the Board of Directors or the shareholders of the
Company of (A) a complete or substantial liquidation or dissolution of
the Company, or (B) the sale or other disposition of all or
substantially all of the assets of the Company, excluding a
reorganization of the Corporation under the corporate laws of a state
or province other than Delaware.
(b) In the event of a Change in Control during the term of this
Agreement or any extension hereof and provided you remain employed by the
Company for a period of 12 months, you will receive, at the one-year anniversary
of the Change of Control, a supplemental amount in a lump sum equal to 150% of
your current Base Salary and Bonuses paid during the preceding fiscal year, and
the fair market value of all other benefits then payable, irrespective of
whether you thereafter actually terminate employment with the Company.
(c) In the event of your actual termination of employment
contemporaneous with or following a Change in Control, except (x) because of
your death, (y) by the Company for Cause or Disability (as each is hereinafter
defined) or (z) by you other than for Good Reason (as hereinafter defined): (i)
you shall be entitled to receive, in lieu of the sums described in this Section
7, an amount equal to 299% of Severance Benefits due determined as if payable
under Section 7 above, to be paid in accordance with the terms of this
Agreement; and (ii) the following additional provisions shall apply (which
provisions shall supersede any other provisions of the Agreement, including but
not limited to Section 2 of the Agreement, to the extent such provisions are
inconsistent with the following provisions):
(1) Disability. For purposes of this Section 8(c), termination by
the Company of your employment based on "Disability" shall mean termination
because of your absence from
A-3
your duties with the Company on a full time basis for one hundred eighty (180)
consecutive days as a result of your incapacity due to physical or mental
illness, unless within thirty (30) days after Notice of Termination (as
hereinafter defined) is given to you following such absence, you shall have
returned to the full time performance of your duties.
(2) Cause. For purposes of this Section 8(c), termination by the
Company of your employment for "Cause" shall mean termination or for cause as
defined in Sections 2.2(a), (c) or (d).
(3) Good Reason. Termination by you of your employment for "Good
Reason" shall mean termination based on:
(A) a determination by you, in your reasonable judgment, that
there has been a material adverse change in your status or position(s) as an
executive officer of the Company as in effect immediately prior to the Change in
Control, including, without limitation, a material adverse change in your status
or position as a result of a diminution in your duties or responsibilities
(other than, if applicable, any such change directly attributable to the fact
that the Company is no longer publicly owned) or the assignment to you of any
duties or responsibilities which are inconsistent with such status or
position(s), or any removal of you from, or any failure to reappoint or reelect
you to, such position(s) (except in connection with the termination of your
employment for Cause or Disability or as a result of your death or by you other
than for Good Reason);
(B) a reduction by the Company in your Base Salary as in effect
immediately prior to the Change in Control;
(C) the failure by the Company to continue in effect any Plan
(as hereinafter defined) in which you are participating at the time of the
Change in Control of the company (or Plans providing you with at least
substantially similar benefits) other than as a result of the normal expiration
of any such Plan in accordance with its terms as in effect at the time of the
Change in Control, or the taking of any action, or the failure to act, by the
Company which would adversely affect your continued participation in any of such
Plans on at least as favorable a basis to you as is the case on the date of the
Change in Control or which would materially reduce your benefits in the future
under any of such Plans or deprive you of any material benefit enjoyed by you at
the time of the Change in Control;
(D) the failure by the Company to provide and credit you with
the number of paid vacation days to which you are then entitled in accordance
with the Company's normal vacation policy as in effect immediately prior to the
Change in Control;
(E) the Company's requiring you to be based at any office that
is greater than ten miles from where your office is located immediately prior to
the Change in Control except for required travel on the Company's business to an
extent substantially consistent
A-4
with the business travel obligations which you undertook on behalf of the
Company prior to the Change in Control;
(F) the failure by the Company to obtain from any Successor (as
hereinafter defined) the assent to this Agreement contemplated by Section
8(c)(7) hereof;
(G) any purported termination by the Company of your employment
which is not effected pursuant to a Notice of Termination satisfying the
requirements of Section (8)(c)(4) below (and, if applicable, Section 8(c)(2)
above); and for purposes of this Agreement, no such purported termination shall
be effective; or
(H) any refusal by the Company to continue to allow you to
attend to matters or engage in activities not directly related to the business
of the Company which, prior to the Change in Control, you were permitted by the
Board to attend to or engage in.
For purposes of this Agreement, "Plan" shall mean any compensation plan
or any employee benefit plan such as a thrift, pension, profit sharing, medical,
disability, accident, life insurance plan or a relocation plan or policy or any
other plan, program or policy of the Company intended to benefit employees.
(4) Notice of Termination. Any purported termination by the Company
or by you following a Change in Control shall be communicated by written notice
to the other party hereto which indicates the specific termination provision in
this Agreement relied upon (the "Notice of Termination").
(5) Date of Termination. "Date of Termination" following a Change
in Control shall mean (A) if your employment is to be terminated for Disability,
thirty (30) days after Notice of Termination is given (provided that you shall
not have returned to the performance of your duties on a full-time basis during
such thirty (30) day period), (B) if your employment is to be terminated by the
Company for any reason other than death or Disability or by you pursuant to
Sections 8(c)(3)(F) or 8(c)(7) hereof or for any other Good Reason, the date
specified in the Notice of Termination, or (C) if your employment is terminated
on account of your death, the day after your death. In the case of termination
of your employment by the Company for Cause pursuant to Subsection 8(c)(2)
hereof, if you have not previously expressly agreed in writing to the
termination, then within thirty (30) days after receipt by you of the Notice of
Termination with respect thereto, you may notify the Company that a dispute
exists concerning the Termination, in which event the Date of Termination shall
be the date set either by mutual written agreement of the parties or by such
court having the matter before it. During the pendency of any such dispute, the
Company will continue to pay you your full compensation in effect just prior to
the time the Notice of Termination is given and until the dispute is resolved.
However, if such court issues a final and non-appealable order finding that the
Company had Cause to terminate you, then you must return all compensation paid
to you after the Date of Termination specified in the Notice of Termination
previously received by you.
A-5
(6) Compensation Upon Termination or During Disability; Other
Agreements.
(A) During any period following a Change in Control of the Company
that you fail to perform your duties as a result of incapacity due to physical
or mental illness, you shall continue to receive your Base Salary at the rate
then in effect and any benefits or awards under any Plan shall continue to
accrue during such period, to the extent not inconsistent with such Plans, until
and unless your employment is terminated pursuant to and in accordance with this
Section 8(c). Thereafter, your benefits shall be determined in accordance with
the Plans then in effect.
(B) If your employment is terminated for Cause following a Change
in Control of the Company, the Company shall pay to you your Base Salary through
the Date of Termination at the rate in effect just prior to the time a Notice of
Termination is given plus any benefits or awards (including both the cash and
stock components) which pursuant to the terms of any Plans have been earned or
become payable, but which have not yet been paid to you. Thereupon the Company
shall have no further obligations to you under this Agreement.
(7) Successors, Binding Agreement.
(A) The Company will seek, by written request at least five (5)
business days prior to the time a Person becomes a Successor (as hereinafter
defined), to have such Person, by agreement in form and substance satisfactory
to you, assent to the fulfillment of the Company's obligations under this
Agreement. Failure of such Person to furnish such assent by the later of (i)
three (3) business days prior to the time such Person becomes a Successor or
(ii) two (2) business days after such Person receives a written request to so
assent shall constitute Good Reason for termination by you of your employment if
a Change in Control of the Company occurs or has occurred. For purposes of this
Agreement, "Successor" shall mean any person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
the Company's business directly, by merger or consolidation, or indirectly, by
purchase of the Company's securities eligible to vote for the election of
directors, or otherwise.
(B) This Agreement shall inure to the benefit of and be enforceable
by your personal legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if no
such designee exists, to your estate.
(C) For purposes of this Section 8, the "Company" shall include any
subsidiaries of the Company and any corporation or other entity which is the
surviving or continuing entity in respect of any merger, consolidation or form
of business combination in which the Company ceases to exist; provided, however,
for purposes of determining whether a Change
A-6
in Control has occurred herein, the term "Company" shall refer to Applied
Science and Technology, Inc. or its Successor(s).
(8) Fees and Expenses; Mitigation.
(A) The Company shall reimburse you, on a current basis, for all
reasonable legal fees and related expenses incurred by you in connection with
the Agreement following a Change in Control of the Company, including without
limitation, (i) all such fees and expenses, if any, incurred in contesting or
disputing any termination of your employment or (ii) your seeking to obtain or
enforce any right or benefit provided by this Agreement, in each case,
regardless of whether or not your claim is upheld by a court of competent
jurisdiction; provided, however, you shall be required to repay any such amounts
to the Company to the extent that a court issues a final and non-appealable
order setting forth the determination that the position taken by you was
frivolous or advanced by you in bad faith.
(B) You shall not be required to mitigate the amount of any payment
the Company becomes obligated to make to you in connection with this Agreement,
by seeking other employment or otherwise.
(9) Taxes. All payments to be made to you under this Agreement will
be subject to required withholding of federal, state and local income and
employment taxes.
(d) Notwithstanding any other provision of this Agreement, in the
event that any payment of benefit received or to be received by you as a result
of or in connection with a Change in Control, whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the Company (all
such payment and benefits being hereinafter called the "Total Payments") would
subject you to the excise tax (the "Excise Tax") imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), then, to the extent
necessary to eliminate any such imposition of the Excise Tax (after taking into
account any reduction in the Total Payments in accordance with the provisions of
any other plan, arrangement or agreement, if any), (a) any non-cash severance
payments otherwise payable to you shall first be reduced (if necessary, to
zero), and (b) any cash severance payment otherwise payable to you shall next be
reduced. For purposes of the immediately preceding sentence, (i) no portion of
the Total Payments the receipt or enjoyment of which you shall have effectively
waived in writing shall be taken into account, (ii) no portion of the Total
Payment shall be taken into account which in the opinion of
nationally-recognized tax counsel or certified public accountants (in each case
as selected by you) does not constitute a "parachute payment" within the meaning
of Section 280G of the Code, including, without limitation, by reason of Section
280G(b)(2) or (b)(4)(A) of the Code, (iii) any payments to you shall be reduced
only to the extent necessary so that the Total Payments [other than those
referred to in clauses (i) and (ii)] in their entirety constitute reasonable
compensation for services actually rendered within the meaning of section
280G(4)(B) of the Code or are otherwise not subject to disallowance as
deductions, in the opinion of the tax counsel or the accountants referred to in
clause (ii); and (iv) the value of any
A-7
non-cash benefit or any deferred payment or benefit included in the Total
Payments shall be determined by such accountants in accordance with the
requirements of section 280G(d)(3) and (4) of the Code (and such determination
shall be reviewed by such tax counsel).
A-8
EXHIBIT B
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS OF
RICHARD S. POST, Ph.D.
None
B-1
EXHIBIT C
- --------------------------------------------------------------------------------
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
- --------------------------------------------------------------------------------
To: Applied Science and Technology, Inc.
35 Cabot Road
Woburn, Massachusetts 01757
As of July 1, 1996
The undersigned, in consideration of and as a condition of my
employment or continued employment by you and/or by companies which you own,
control, or are affiliated with or their successors in business (collectively,
the "Company"), hereby agrees as follows:
1. Confidentiality. I agree to keep confidential, except as the Company
may otherwise consent in writing, and, except for the Company's benefit, not to
disclose or make any use of at any time either during or subsequent to my
employment, any Inventions (as hereinafter defined), trade secrets, confidential
information, knowledge, data or other information of the Company relating to
products, processes, know-how, designs, formulas, test data, customer lists,
business plans, marketing plans and strategies, pricing strategies, or other
subject matter pertaining to any business of the Company or any of its
affiliates, which I may produce, obtain, or otherwise acquire during the course
of my employment, except as herein provided. I further agree not to deliver,
reproduce or in any way allow any such trade secrets, confidential information,
knowledge, data or other information, or any documentation relating thereto, to
be delivered to or used by any third parties without specific direction or
consent of a duly authorized representative of the Company.
2. Conflicting Employment; Return of Confidential Material. I agree
that during my employment with the Company I will not engage in any other
employment, occupation, consulting or other activity relating to the business in
which the Company is now or may hereafter become engaged, or which would
otherwise conflict with my obligations to the Company. In the event my
employment with the Company terminates for any reason whatsoever, I agree to
promptly surrender and deliver to the Company all records, materials, equipment,
drawings, documents and data of which I may obtain or produce during the course
of my employment, and I will not take
C-1
with me any description containing or pertaining to any confidential
information, knowledge or data of the Company which I may produce or obtain
during the course of my employment.
3. Assignment of Inventions.
3.1 I hereby acknowledge and agree that the Company is the owner of
all Inventions. In order to protect the Company's rights to such Inventions, by
executing this Agreement I hereby irrevocably assign to the Company all my
right, title and interest in and to all Inventions to the Company.
3.2 For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, technologies, devices, or improvements in any
of the foregoing or other ideas, whether or not patentable and whether or not
reduced to practice, made or conceived by me (whether solely or jointly with
others) during the period of my employment with the Company which relate in any
manner to the actual or demonstrably anticipated business, work, or research and
development of the Company, or result from or are suggested by any task assigned
to me or any work performed by me for or on behalf of the Company.
3.3 Any discovery, process, design, technology, device, or
improvement in any of the foregoing or other ideas, whether or not patentable
and whether or not reduced to practice, made or conceived by me (whether solely
or jointly with others) which I develop entirely on my own time not using any of
the Company's equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such Personal
Invention (a) does not relate to the actual or demonstrably anticipated
business, research and development of the Company, and (b) does not result,
directly or indirectly, from any work performed by me for the Company.
4. Disclosure of Inventions. I agree that in connection with any
Invention, I will promptly disclose such Invention to my immediate superior at
the Company in order to permit the Company to enforce its property rights to
such Invention in accordance with this Agreement. My disclosure shall be
received in confidence by the Company.
5. Patents and Copyrights; Execution of Documents.
5.1 Upon request, I agree to assist the Company or its nominee (at
its expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
Inventions in any and all countries. Such patents and copyrights shall be and
remain the sole and exclusive property of the Company or its nominee. I agree to
perform such lawful acts as the Company deems to be necessary to allow it to
exercise all right, title and interest in and to such patents and copyrights.
5.2 In connection with this Agreement, I agree to execute,
acknowledge and deliver to the Company or its nominee upon request and at its
expense all documents, including
C-2
assignments of title, patent or copyright applications, assignments of such
applications, assignments of patents or copyrights upon issuance, as the Company
may determine necessary or desirable to protect the Company's or its nominee's
interest in Inventions, and/or to use in obtaining patents or copyrights in any
and all countries and to vest title thereto in the Company or its nominee to any
of the foregoing.
6. Maintenance of Records. I agree to keep and maintain adequate and
current written records of all Inventions made by me (in the form of notes,
sketches, drawings and other records as may be specified by the Company), which
records shall be available to and remain the sole property of the Company at all
times.
7. Prior Inventions. It is understood that all Personal Inventions, if
any, whether patented or unpatented, which I made prior to my employment by the
Company, are excluded from this Agreement. To preclude any possible uncertainty,
I have set forth on Schedule A attached hereto a complete list of all of my
prior Personal Inventions, including numbers of all patents and patent
applications and a brief description of all unpatented Personal Inventions which
are not the property of a previous employer. I represent and covenant that the
list is complete and that, if no items are on the list, I have no such prior
Personal Inventions. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company which appears to
threaten or conflict with proprietary rights I claim in any Personal Invention.
In the event of my failure to give such notice, I agree that I will make no
claim against the Company with respect to any such Personal Invention.
8. Other Obligations. I acknowledge that the Company from time to time
may have agreements with other persons or with the U.S. Government or agencies
thereof, which impose obligations or restrictions on the Company regarding
Inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the Company's
obligations.
9. Trade Secrets of Others. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep confidential proprietary information, knowledge or
data acquired by me in confidence or in trust prior to my employment with the
Company, and I will not disclose to the Company, or induce the Company to use,
any confidential or proprietary information or material belonging to any
previous employer or others. I agree not to enter into any agreement either
written or oral in conflict herewith.
10. Modification. I agree that any subsequent change or changes in my
employment duties, salary or compensation or, if applicable, in any Employment
Agreement between the Company and me, shall not affect the validity or scope of
this Agreement.
11. Successors and Assigns. This Agreement shall be binding upon my
heirs,
C-3
executors, administrators or other legal representatives and is for the benefit
of the Company, its successors and assigns.
12. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it in accordance with a judgment of a court
of competent jurisdiction, so as to be enforceable to the extent compatible with
applicable law.
13. Waivers. If either party should waive any breach of any provision
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
14. Complete Agreement, Amendments. I acknowledge receipt of this
Agreement, and agree that with respect to the subject matter thereof it is my
entire agreement with the Company, superseding any previous oral or written
communications, representations, understandings, or agreements with the Company
or any officer or representative thereof. Any amendment to this Agreement or
waiver by either party of any right hereunder shall be effective only if
evidenced by a written instrument executed by the parties hereto, and, in the
case of the Company, upon written authorization of the Company's Board of
Directors.
15. Headings. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
16. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
17. Governing Law. This Agreement shall be governed and construed under
Massachusetts law.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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18. Employment Status. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company to terminate the employment
of the Employee.
EMPLOYEE
----------------------------------------
Richard S. Post, Ph.D.
Accepted and Agreed:
APPLIED SCIENCE AND TECHNOLOGY, INC.
By:
-------------------------------------
John M. Tarrh, Senior Vice President
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SCHEDULE A
LIST OF PRIOR INVENTIONS
Identifying Number of
Title Date Brief Description
- ----- ---- -----------------
NONE
EXHIBIT 10c
-----------
----------
AMENDED KEY EMPLOYEE AGREEMENT
----------
To: Dr. Donald K. Smith As of July 1, 1996
167 Waverly Street
Arlington, Massachusetts 02174
The undersigned, Applied Science and Technology, Inc., a Delaware
corporation, as well as its successors and assigns(hereinafter collectively
referred to as the "Company"), hereby agree with you as follows:
l. Position and Responsibilities.
1.1 You shall serve as Senior Vice President, Advanced Technology,
of the Company (or in such other executive capacity as shall be designated by
the Board of Directors and reasonably acceptable to you) and shall perform the
duties customarily associated with such capacity from time to time and at such
place or places as the Company shall designate are appropriate and necessary in
connection with such employment; provided, however, that you shall not be
required to relocate your place of employment beyond a 20 mile radius from
Woburn, Massachusetts without your prior written consent.
1.2 You will, to the best of your ability, devote your full time and
best efforts to the performance of your duties hereunder and the business and
affairs of the Company. You agree to perform such executive duties as may be
assigned to you by or on authority of the Company's President and Board of
Directors from time to time. After receipt of notice of termination of your
employment hereunder, you shall continue to be available to the Company on a
part-time basis to assist in any necessary transition.
1.3 You will duly, punctually and faithfully perform and observe any
and all rules and regulations which the Company may now or shall hereafter
establish governing the conduct of its business.
1.4 You will report directly to the Company's President.
2. Term of Employment.
2.1 The initial term of this Agreement shall be for the period of
years set forth on Exhibit "A" annexed hereto commencing with the date hereof.
Thereafter, this Agreement shall be automatically renewed for successive periods
of one year, unless you or the Company shall give the other party not less than
three (3) months written notice of non-renewal. Your
employment with the Company may be terminated at any time as provided in Section
2.2 . If the Company gives you notice of non-renewal, the Company shall be
obligated to pay to you as Severance Benefits an amount set forth in Sections 7
and 8 of Exhibit "A" hereto, plus payment in full of any amounts otherwise due
you, less applicable taxes and other required withholdings and any amounts you
may owe to the Company.
2.2 The Company shall have the right, on written notice to you, to
terminate your employment:
(a) immediately at any time for "Cause" (as defined herein
subject to your right of cure and right to dispute as provided in
Section 2.3 herein); or
(b) at any time, upon not less than seven (7) days written
notice, without "Cause" provided the Company shall be obligated to pay
to you as Severance Benefits an amount equal to the sums set forth in
Exhibit "A," plus any sums then due to you, less (i) applicable taxes
and other required withholdings, and (ii) any amounts you may owe to
the Company. Payments under this Section 2.2 (b) shall not be due or
payable if you are terminated at any time for "Cause" or if you
voluntarily resign from your employment.
2.3 For purposes of Section 2.2 (except as provided in Section 8(c)
of Exhibit "A"), the term "Cause" shall mean (a) gross negligence in the
performance of assigned duties; (b) refusal to perform or discharge the duties
or responsibilities assigned by the Board of Directors of Applied Science and
Technology, Inc. provided the same are not illegal, unethical or inconsistent
with the position of Senior Vice President, Advanced Technology, of a
corporation and the failure to correct such refusal and perform such duties or
responsibilities within two weeks (14 calendar days) after written notice of
such failure; (c) conviction of a felony involving moral turpitude; (d) willful
or prolonged absence from work not excused by disability; and (e) falseness of
any warranty or representation by you herein or the breach of your obligations
under this Agreement or your duties as an employee of the Company to the
material detriment of the Company.
2.4 In the event of the Involuntary Termination of your employment
with the Company at any time, the Company hereby irrevocably agrees to provide
you with Severance Benefits as defined in Section 7 of Exhibit "A" hereto or
payments in the event of a "Change in Control" as defined in Section 8 of
Exhibit "B". In this regard, the phrase "Involuntary Termination" shall mean any
termination of your employment by the Company other than for "cause," as defined
in Section 2.3, any notice by the Company not to renew this Agreement pursuant
to Section 2.1, or any termination of your employment by you due to any of the
following circumstances: (a) a reduction in your Base Salary or Company-paid
benefits, (b) a reduction in your eligibility for any Company bonus or other
benefit program, (c) a material or substantial change in your title, position,
authority or duties, or (d) a change of your principal place of employment from
Woburn, Massachusetts to another location beyond 20 miles of Woburn,
Massachusetts.
-2-
3. Compensation. You shall receive the compensation and benefits set
forth on Exhibit A hereto ("Compensation") for all services to be rendered by
you hereunder and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions of even date herewith
attached hereto as Exhibit C between you and the Company (the "Proprietary
Information and Inventions Agreement"). Such Compensation shall be subject to
temporary or permanent reduction by the Board of Directors if the Board shall
determine that economic conditions so warrant.
4. Other Activities During Employment.
4.1 Except for any outside employments and directorships currently
held by you as listed on Exhibit B hereto, and except with the prior written
consent of the Company's Board of Directors, you will not during the term of
this Agreement undertake or engage in any other employment, occupation or
business enterprise other than one in which you are an inactive investor.
4.2 You hereby agree that, except as disclosed on Exhibit B hereto,
during your employment hereunder, you will not, directly or indirectly, engage
(a) individually, (b) as an officer, (c) as a director, (d) as an employee, (e)
as a consultant, (f) as an advisor, (g) as an agent (whether a salesperson or
otherwise), (h) as a broker, or (i) as a partner, coventurer, stockholder or
other proprietor owning directly or indirectly more than five percent (5%)
interest in any firm, corporation, partnership, trust, association, or other
organization which is engaged in the research, development, production,
manufacture or marketing of equipment or processes in direct competition with
the Company or any other line of business engaged in or under demonstrable
development by the Company (such firm, corporation, partnership, trust,
association, or other organization being hereinafter referred to as a
"Prohibited Enterprise"). Except as may be shown on Exhibit B hereto, you hereby
represent that you are not engaged in any of the foregoing capacities (a)
through (i) in any Prohibited Enterprise.
5. Former Employers.
5.1 You represent and warrant that your employment by the Company
will not conflict with and will not be constrained by any prior or current
employment, consulting agreement or relationship whether oral or written. You
represent and warrant that you do not possess confidential information arising
out of any such employment, consulting agreement or relationship which, in your
best judgment, would be utilized in connection with your employment by the
Company in the absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you should
find that confidential information belonging to any other person or entity might
be usable in connection with the Company's business, you will not intentionally
disclose to the Company or use on behalf of the Company any confidential
information belonging to any of your former employers; but during your
employment by the Company you will use in the performance of your duties all
information which is generally known and used by persons with training and
experience
-3-
comparable to your own all information which is common knowledge in the
industry or otherwise legally in the public domain.
6. Proprietary Information and Inventions. You agree to execute,
deliver and be bound by the provisions of the Proprietary Information and
Inventions Agreement.
7. Post-Employment Activities.
7.1 For a period of two (2) years after the termination or
expiration, for any reason, of your employment with the Company hereunder,
absent the Company's prior written approval, you will not directly or indirectly
engage in activities similar or reasonably related to those in which you shall
have engaged hereunder during the two years immediately preceding termination or
expiration for, nor render services similar or reasonably related to those which
you shall have rendered hereunder during such two years to, any person or entity
whether now existing or hereafter established which directly competes with (or
proposes or plans to directly compete with) the Company ("Direct Competitor") in
any line of business engaged in or under development by the Company. Nor shall
you entice, induce or encourage any of the Company's other employees to engage
in any activity which, were it done by you, would violate any provision of the
Proprietary Information and Inventions Agreement or this Section 7. As used in
this Section 7.1, the term "any line of business engaged in or under development
by the Company" shall be applied as at the date of termination of your
employment, or, if later, as at the date of termination of any post-employment
consultation.
7.2 For a period of two (2) years after the termination of your
employment with the Company, the provisions of Section 4.2 shall be applicable
to you and you shall comply therewith. As applied to such two (2) year
post-employment period, the term "any other line of business engaged in or under
development by the Company," as used in Section 4.2, shall be applied as at the
date of termination of your employment with the Company or, if later, as at the
date of termination of any post-employment consultation with the Company.
7.3 No provision of this Agreement shall be construed to preclude
you from performing the same services which the Company hereby retains you to
perform for any person or entity which is not a Direct Competitor of the Company
upon the expiration or termination of your employment (or any post-employment
consultation) so long as you do not thereby violate any term of the Proprietary
Information and Inventions Agreement.
8. Remedies. Your obligations under the Proprietary Information and
Inventions Agreement and the provisions of Sections 6,7,8 and 9 of this
Agreement (as modified by Section 10, if applicable) shall survive the
expiration or termination of your employment (whether through your resignation
or otherwise) with the Company. You acknowledge that a remedy at law for any
breach or threatened breach by you of the provisions of the Proprietary
Information and Inventions Agreement or Section 7 would be inadequate and you
therefore agree that the Company shall be entitled to such injunctive relief in
case of any such breach or threatened
-4-
breach.
The Company's obligations and those of any successors or assignees of
the Company under this Agreement, including but not limited to the severance
provisions and other compensation and benefits due to you pursuant to Exhibit
"A" hereto, will be a condition of and are to remain those of any successor or
assignee. The Company acknowledges that a remedy at law for any breach or
threatened breach by the Company, its directors or agents of any of the
provisions of Exhibit "A" hereto or of this Agreement generally, or of any
extension of this Agreement, would be inadequate and the Company therefore
agrees that you shall be entitled to injunctive relief in case of any such
breach or threatened breach. In the event of any dispute pursuant to this
Agreement, the prevailing party in any litigation or arbitration shall be
entitled to prompt reimbursement of reasonable legal fees and related expenses
incurred in connection with such dispute.
9. Assignment. This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation and any
assignee of all or substantially all of its business and properties, but, except
as to any such successor or assignee of the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or by you,
except by operation of law.
10. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it as determined by a court of competent
jurisdiction, so as to be enforceable to the extent compatible with applicable
law.
11. Notices. Any notice which the Company is required to or may desire
to give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at your address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the Company
hereunder shall be given by personal delivery or by registered or certified
mail, return receipt requested, addressed to the Company at its principal
office, or at such other office as the Company may from time to time designate
in writing. The date of personal delivery or the date of mailing any notice
under this Section 11 shall be deemed to be the date of delivery thereof.
12. Waivers. If either party should waive any breach of any provision
of this Agreement, such party shall not thereby be deemed to have waived any
preceding or succeeding
-5-
breach of the same or any other provision of this Agreement.
13. Complete Agreement; Amendments. The foregoing including Exhibits A,
B and C hereto, is the entire agreement of the parties with respect to the
subject matter hereof, superseding any previous oral or written communications,
representations, understandings, or agreements with the Company or any officer
or representative thereof. Any amendment to this Agreement or waiver by the
Company of any right hereunder shall be effective only if evidenced by a written
instrument executed by the parties hereto, upon authorization of the Company's
Board of Directors.
14. Headings. The headings of the Sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning of this Agreement.
15. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
16. Governing Law. This Agreement shall be governed by and construed
under Massachusetts law.
17. Arbitration of Disputes. Subject to the rights of the parties to
seek injunctive relief as described herein, any controversy or claim arising out
of, or relating to, any provision of this Agreement shall be settled by binding
arbitration in accordance with the laws of the Commonwealth of Massachusetts by
three arbitrators, one of whom shall be appointed by the Company, one of whom
shall be appointed by you, and the third arbitrator who shall be appointed by
the first two arbitrators. If the first two arbitrators cannot agree on the
appointment of a third arbitrator, then the third arbitrator shall be appointed
by the American Arbitration Association in the City of Boston. Such arbitration
shall be conducted in the City of Boston in accordance with the rules of the
American Arbitration Association, except with respect to the selection of
arbitrators, which shall be as provided in this Section. Judgment on the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof and shall not be appealable. The prevailing party in such arbitration
proceeding shall be entitled to reimbursement by the other party of all
reasonable legal fees and other costs incurred by the prevailing party in
connection with such proceeding, including any legal fees and costs incurred in
connection with the enforcement of any award.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-6-
If you are in agreement with the foregoing, please sign your name below
and also at the bottom of the Proprietary Information and Inventions Agreement,
whereupon this Agreement shall become binding in accordance with its terms.
Please then return this Agreement to the Company. (You may retain for your
records the accompanying counterpart of this Agreement enclosed herewith).
Very truly yours,
APPLIED SCIENCE AND
TECHNOLOGY, INC.
By:
------------------------------------
Richard S. Post, Ph.D., President
Accepted and Agreed:
- ---------------------------------------
Donald K. Smith, Ph.D.
-7-
EXHIBIT A
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF DONALD K. SMITH, Ph.D.
l. Term. The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be for a period from the date of this Agreement
through December 31, 1999.
2. Compensation.
(a) Base Salary. Your Base Salary shall be $117,000.00 per
annum through June 28, 1997, payable in accordance with the Company's
payroll policies. For Fiscal 1998 and 1999, Base Salary shall be as
established by the Board of Directors but in any event in an amount no
less than $117,000.00.
(b) Bonus. You shall be entitled to such bonuses as the Board
of Directors may determine.
(c) Stock Option Grants. In addition to other stock options
now held by you, you shall be entitled to receive additional stock
option grants as determined by the Board of Directors.
3. Vacation. You shall be entitled to all legal and religious holidays,
and four weeks paid vacation per annum. Any unused vacation may be
accrued or cashed in based on your then current Base Salary.
4. Insurance and Benefits. You shall be eligible for participation in any
health, dental and other group insurance plans which may be established
by the Company or which the Company is required to maintain by law.
5. Retirement Plan. You will be eligible to participate in the Company's
401(k) Plan.
6. Other Benefits. You shall be entitled to benefits otherwise available
to all employees.
7. Severance Benefits.
(a) When provided for in this Agreement, you shall be entitled to
"Severance Benefits". When used in this Agreement, the term Severance Benefits
shall mean a total amount equal to (i) your then current annual Base Salary,
plus (ii) your Bonus earned for the Company's most recent fiscal year. This
total amount shall be paid to you in twelve (12) equal monthly installments
commencing within ten (10) days after the date of your termination of active
employment with the Company.
A-1
(b) In addition, the term "Severance Benefits" shall include the
continuation for you and your family, during the Severance Period, as defined
below, of all of the other benefits which are provided or available to you on
the last day of your actual service with the Company, including your continued
accrual and the vesting under the terms of any pension or 401(k) plan then
sponsored by the Company to the maximum extent permitted by law. For purposes of
this Agreement, the term "Severance Period" means the period of twelve (12)
months beginning on the last day of your active service with the Company.
(c) The lump sum payment referred to above will be in addition to, and
not in substitution for, any accrued and unpaid salary, vacation, pension,
retirement or other benefits, unreimbursed expenses or other payments to which
you may be otherwise entitled.
(d) In the event of your death while you are employed by the Company,
your then current Base Salary shall continue to be paid to your legal
representative for a period of 120 days following the date of your death; and
for a period of three (3) years following your death, the Company shall continue
to provide to your spouse the health insurance coverage described above. If you
die during the Severance Period, all cash amounts which would have been payable
to you under this Exhibit "A", unless otherwise provided for herein, shall be
paid in accordance with the terms of this Agreement to your estate.
(e) You shall not be required to mitigate the amount of any payment the
Company becomes obligated to make to you in connection with this Agreement, by
seeking other employment or otherwise.
8. Change in Control.
(a) For purposes of this Agreement, "Change in Control" means and shall
be deemed to occur if any of the following occurs:
(i) the acquisition, after September 30, 1994, by an individual,
entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934 as amended (the "Exchange Act")]
of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (A) the outstanding
shares of common stock, par value $ .01 per share, of the Company (the
"Common Stock"), or (B) the combined voting power of the voting
securities of the Company entitled to vote generally in the election
of directors (the "Voting Securities"); or (ii) Individuals who, on
January 1, 1997, constituted the Board of Directors of the Company
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board of Directors of the Company; provided, however,
that any individual becoming a director subsequent to January 1, 1997
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
directors then
A-2
serving and comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents; or (iii) Approval by
the Board of Directors or the shareholders of the Company of a (A)
tender offer to acquire any of the Common Stock or voting securities,
(B) reorganization, (C) merger or (D) consolidation, other than a
reorganization, merger or consolidation with respect to which all or
substantially all of the individuals and entities who were the
beneficial owners, immediately prior to such reorganization, merger or
consolidation, of the Common Stock and voting securities beneficially
own, directly or indirectly, immediately after such reorganization,
merger or consolidation, more than 80% of the then outstanding common
stock and voting securities (entitled to vote generally in the
election of directors) of the Company resulting from such
reorganization, merger or consolidation in substantially the same
proportions as their respective ownership, immediately prior to such
reorganization, merger or consolidation, of the Common Stock and the
voting securities; or (iv) Approval by the Board of Directors or the
shareholders of the Company of (A) a complete or substantial
liquidation or dissolution of the Company, or (B) the sale or other
disposition of all or substantially all of the assets of the Company,
excluding a reorganization of the Corporation under the corporate laws
of a state or province other than Delaware.
(b) In the event of a Change in Control during the term of this
Agreement or any extension hereof and provided you remain employed by the
Company for a period of 12 months, you will receive, at the one-year anniversary
of the Change of Control, a supplemental amount in a lump sum equal to 150% of
your current Base Salary and Bonuses paid during the preceding fiscal year, and
the fair market value of all other benefits then payable, irrespective of
whether you thereafter actually terminate employment with the Company.
(c) In the event of your actual termination of employment
contemporaneous with or following a Change in Control, except (x) because of
your death, (y) by the Company for Cause or Disability (as each is hereinafter
defined) or (z) by you other than for Good Reason (as hereinafter defined): (i)
you shall be entitled to receive, in lieu of the sums described in this Section
7, an amount equal to 299% of Severance Benefits due determined as if payable
under Section 7 above, to be paid in accordance with the terms of this
Agreement; and (ii) the following additional provisions shall apply (which
provisions shall supersede any other provisions of the Agreement, including but
not limited to Section 2 of the Agreement, to the extent such provisions are
inconsistent with the following provisions):
(1) Disability. For purposes of this Section 8(c), termination by
the Company of your employment based on "Disability" shall mean termination
because of your absence from
A-3
your duties with the Company on a full time basis for one hundred eighty (180)
consecutive days as a result of your incapacity due to physical or mental
illness, unless within thirty (30) days after Notice of Termination (as
hereinafter defined) is given to you following such absence, you shall have
returned to the full time performance of your duties.
(2) Cause. For purposes of this Section 8(c), termination by the
Company of your employment for "Cause" shall mean termination or for cause as
defined in Sections 2.2(a), (c) or (d).
(3) Good Reason. Termination by you of your employment for "Good
Reason" shall mean termination based on:
(A) a determination by you, in your reasonable judgment, that
there has been a material adverse change in your status or position(s) as an
executive officer of the Company as in effect immediately prior to the Change in
Control, including, without limitation, a material adverse change in your status
or position as a result of a diminution in your duties or responsibilities
(other than, if applicable, any such change directly attributable to the fact
that the Company is no longer publicly owned) or the assignment to you of any
duties or responsibilities which are inconsistent with such status or
position(s), or any removal of you from, or any failure to reappoint or reelect
you to, such position(s) (except in connection with the termination of your
employment for Cause or Disability or as a result of your death or by you other
than for Good Reason);
(B) a reduction by the Company in your Base Salary as in effect
immediately prior to the Change in Control;
(C) the failure by the Company to continue in effect any Plan
(as hereinafter defined) in which you are participating at the time of the
Change in Control of the company (or Plans providing you with at least
substantially similar benefits) other than as a result of the normal expiration
of any such Plan in accordance with its terms as in effect at the time of the
Change in Control, or the taking of any action, or the failure to act, by the
Company which would adversely affect your continued participation in any of such
Plans on at least as favorable a basis to you as is the case on the date of the
Change in Control or which would materially reduce your benefits in the future
under any of such Plans or deprive you of any material benefit enjoyed by you at
the time of the Change in Control;
(D) the failure by the Company to provide and credit you with
the number of paid vacation days to which you are then entitled in accordance
with the Company's normal vacation policy as in effect immediately prior to the
Change in Control;
(E) the Company's requiring you to be based at any office that
is greater than ten miles from where your office is located immediately prior to
the Change in Control except for required travel on the Company's business to an
extent substantially consistent
A-4
with the business travel obligations which you undertook on behalf of the
Company prior to the Change in Control;
(F) the failure by the Company to obtain from any Successor (as
hereinafter defined) the assent to this Agreement contemplated by Section
8(c)(7) hereof;
(G) any purported termination by the Company of your employment
which is not effected pursuant to a Notice of Termination satisfying the
requirements of Section (8)(c)(4) below (and, if applicable, Section 8(c)(2)
above); and for purposes of this Agreement, no such purported termination shall
be effective; or
(H) any refusal by the Company to continue to allow you to
attend to matters or engage in activities not directly related to the business
of the Company which, prior to the Change in Control, you were permitted by the
Board to attend to or engage in.
For purposes of this Agreement, "Plan" shall mean any compensation plan
or any employee benefit plan such as a thrift, pension, profit sharing, medical,
disability, accident, life insurance plan or a relocation plan or policy or any
other plan, program or policy of the Company intended to benefit employees.
(4) Notice of Termination. Any purported termination by the Company
or by you following a Change in Control shall be communicated by written notice
to the other party hereto which indicates the specific termination provision in
this Agreement relied upon (the "Notice of Termination").
(5) Date of Termination. "Date of Termination" following a Change
in Control shall mean (A) if your employment is to be terminated for Disability,
thirty (30) days after Notice of Termination is given (provided that you shall
not have returned to the performance of your duties on a full-time basis during
such thirty (30) day period), (B) if your employment is to be terminated by the
Company for any reason other than death or Disability or by you pursuant to
Sections 8(c)(3)(F) or 8(c)(7) hereof or for any other Good Reason, the date
specified in the Notice of Termination, or (C) if your employment is terminated
on account of your death, the day after your death. In the case of termination
of your employment by the Company for Cause pursuant to Subsection 8(c)(2)
hereof, if you have not previously expressly agreed in writing to the
termination, then within thirty (30) days after receipt by you of the Notice of
Termination with respect thereto, you may notify the Company that a dispute
exists concerning the Termination, in which event the Date of Termination shall
be the date set either by mutual written agreement of the parties or by such
court having the matter before it. During the pendency of any such dispute, the
Company will continue to pay you your full compensation in effect just prior to
the time the Notice of Termination is given and until the dispute is resolved.
However, if such court issues a final and non-appealable order finding that the
Company had Cause to terminate you, then you must return all compensation paid
to you after the Date of Termination specified in the Notice of Termination
previously received by you.
A-5
(6) Compensation Upon Termination or During Disability; Other
Agreements.
(A) During any period following a Change in Control of the Company
that you fail to perform your duties as a result of incapacity due to physical
or mental illness, you shall continue to receive your Base Salary at the rate
then in effect and any benefits or awards under any Plan shall continue to
accrue during such period, to the extent not inconsistent with such Plans, until
and unless your employment is terminated pursuant to and in accordance with this
Section 8(c). Thereafter, your benefits shall be determined in accordance with
the Plans then in effect.
(B) If your employment is terminated for Cause following a Change
in Control of the Company, the Company shall pay to you your Base Salary through
the Date of Termination at the rate in effect just prior to the time a Notice of
Termination is given plus any benefits or awards (including both the cash and
stock components) which pursuant to the terms of any Plans have been earned or
become payable, but which have not yet been paid to you. Thereupon the Company
shall have no further obligations to you under this Agreement.
(7) Successors, Binding Agreement.
(A) The Company will seek, by written request at least five (5)
business days prior to the time a Person becomes a Successor (as hereinafter
defined), to have such Person, by agreement in form and substance satisfactory
to you, assent to the fulfillment of the Company's obligations under this
Agreement. Failure of such Person to furnish such assent by the later of (i)
three (3) business days prior to the time such Person becomes a Successor or
(ii) two (2) business days after such Person receives a written request to so
assent shall constitute Good Reason for termination by you of your employment if
a Change in Control of the Company occurs or has occurred. For purposes of this
Agreement, "Successor" shall mean any person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
the Company's business directly, by merger or consolidation, or indirectly, by
purchase of the Company's securities eligible to vote for the election of
directors, or otherwise.
(B) This Agreement shall inure to the benefit of and be enforceable
by your personal legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if no
such designee exists, to your estate.
(C) For purposes of this Section 8, the "Company" shall include any
subsidiaries of the Company and any corporation or other entity which is the
surviving or continuing entity in respect of any merger, consolidation or form
of business combination in which the Company ceases to exist; provided, however,
for purposes of determining whether a Change
A-6
in Control has occurred herein, the term "Company" shall refer to Applied
Science and Technology, Inc. or its Successor(s).
(8) Fees and Expenses; Mitigation.
(A) The Company shall reimburse you, on a current basis, for all
reasonable legal fees and related expenses incurred by you in connection with
the Agreement following a Change in Control of the Company, including without
limitation, (i) all such fees and expenses, if any, incurred in contesting or
disputing any termination of your employment or (ii) your seeking to obtain or
enforce any right or benefit provided by this Agreement, in each case,
regardless of whether or not your claim is upheld by a court of competent
jurisdiction; provided, however, you shall be required to repay any such amounts
to the Company to the extent that a court issues a final and non-appealable
order setting forth the determination that the position taken by you was
frivolous or advanced by you in bad faith.
(B) You shall not be required to mitigate the amount of any payment
the Company becomes obligated to make to you in connection with this Agreement,
by seeking other employment or otherwise.
(9) Taxes. All payments to be made to you under this Agreement will
be subject to required withholding of federal, state and local income and
employment taxes.
(d) Notwithstanding any other provision of this Agreement, in the
event that any payment of benefit received or to be received by you as a result
of or in connection with a Change in Control, whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the Company (all
such payment and benefits being hereinafter called the "Total Payments") would
subject you to the excise tax (the "Excise Tax") imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), then, to the extent
necessary to eliminate any such imposition of the Excise Tax (after taking into
account any reduction in the Total Payments in accordance with the provisions of
any other plan, arrangement or agreement, if any), (a) any non-cash severance
payments otherwise payable to you shall first be reduced (if necessary, to
zero), and (b) any cash severance payment otherwise payable to you shall next be
reduced. For purposes of the immediately preceding sentence, (i) no portion of
the Total Payments the receipt or enjoyment of which you shall have effectively
waived in writing shall be taken into account, (ii) no portion of the Total
Payment shall be taken into account which in the opinion of
nationally-recognized tax counsel or certified public accountants (in each case
as selected by you) does not constitute a "parachute payment" within the meaning
of Section 280G of the Code, including, without limitation, by reason of Section
280G(b)(2) or (b)(4)(A) of the Code, (iii) any payments to you shall be reduced
only to the extent necessary so that the Total Payments [other than those
referred to in clauses (i) and (ii)] in their entirety constitute reasonable
compensation for services actually rendered within the meaning of section
280G(4)(B) of the Code or are otherwise not subject to disallowance as
deductions, in the opinion of the tax counsel or the accountants referred to in
clause (ii); and (iv) the value of any
A-7
non-cash benefit or any deferred payment or benefit included in the Total
Payments shall be determined by such accountants in accordance with the
requirements of section 280G(d)(3) and (4) of the Code (and such determination
shall be reviewed by such tax counsel).
A-8
EXHIBIT B
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS OF
DONALD K. SMITH, Ph.D.
None
B-1
EXHIBIT C
- --------------------------------------------------------------------------------
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
- --------------------------------------------------------------------------------
To: Applied Science and Technology, Inc.
35 Cabot Road
Woburn, Massachusetts 01757
As of July 1, 1996
The undersigned, in consideration of and as a condition of my
employment or continued employment by you and/or by companies which you own,
control, or are affiliated with or their successors in business (collectively,
the "Company"), hereby agrees as follows:
1. Confidentiality. I agree to keep confidential, except as the Company
may otherwise consent in writing, and, except for the Company's benefit, not to
disclose or make any use of at any time either during or subsequent to my
employment, any Inventions (as hereinafter defined), trade secrets, confidential
information, knowledge, data or other information of the Company relating to
products, processes, know-how, designs, formulas, test data, customer lists,
business plans, marketing plans and strategies, pricing strategies, or other
subject matter pertaining to any business of the Company or any of its
affiliates, which I may produce, obtain, or otherwise acquire during the course
of my employment, except as herein provided. I further agree not to deliver,
reproduce or in any way allow any such trade secrets, confidential information,
knowledge, data or other information, or any documentation relating thereto, to
be delivered to or used by any third parties without specific direction or
consent of a duly authorized representative of the Company.
2. Conflicting Employment; Return of Confidential Material. I agree
that during my employment with the Company I will not engage in any other
employment, occupation, consulting or other activity relating to the business in
which the Company is now or may hereafter become engaged, or which would
otherwise conflict with my obligations to the Company. In the event my
employment with the Company terminates for any reason whatsoever, I agree to
promptly surrender and deliver to the Company all records, materials, equipment,
drawings, documents and data of which I may obtain or produce during the course
of my employment, and I will not take with me any description containing or
pertaining to any confidential information, knowledge or data of the Company
which I may produce or obtain during the course of my employment.
C-1
3. Assignment of Inventions.
3.1 I hereby acknowledge and agree that the Company is the owner of
all Inventions. In order to protect the Company's rights to such Inventions, by
executing this Agreement I hereby irrevocably assign to the Company all my
right, title and interest in and to all Inventions to the Company.
3.2 For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, technologies, devices, or improvements in any
of the foregoing or other ideas, whether or not patentable and whether or not
reduced to practice, made or conceived by me (whether solely or jointly with
others) during the period of my employment with the Company which relate in any
manner to the actual or demonstrably anticipated business, work, or research and
development of the Company, or result from or are suggested by any task assigned
to me or any work performed by me for or on behalf of the Company.
3.3 Any discovery, process, design, technology, device, or
improvement in any of the foregoing or other ideas, whether or not patentable
and whether or not reduced to practice, made or conceived by me (whether solely
or jointly with others) which I develop entirely on my own time not using any of
the Company's equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such Personal
Invention (a) does not relate to the actual or demonstrably anticipated
business, research and development of the Company, and (b) does not result,
directly or indirectly, from any work performed by me for the Company.
4. Disclosure of Inventions. I agree that in connection with any
Invention, I will promptly disclose such Invention to my immediate superior at
the Company in order to permit the Company to enforce its property rights to
such Invention in accordance with this Agreement. My disclosure shall be
received in confidence by the Company.
5. Patents and Copyrights; Execution of Documents.
5.1 Upon request, I agree to assist the Company or its nominee (at
its expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
Inventions in any and all countries. Such patents and copyrights shall be and
remain the sole and exclusive property of the Company or its nominee. I agree to
perform such lawful acts as the Company deems to be necessary to allow it to
exercise all right, title and interest in and to such patents and copyrights.
5.2 In connection with this Agreement, I agree to execute,
acknowledge and deliver to the Company or its nominee upon request and at its
expense all documents, including assignments of title, patent or copyright
applications, assignments of such applications, assignments of patents or
copyrights upon issuance, as the Company may determine necessary or
C-2
desirable to protect the Company's or its nominee's interest in Inventions,
and/or to use in obtaining patents or copyrights in any and all countries and to
vest title thereto in the Company or its nominee to any of the foregoing.
6. Maintenance of Records. I agree to keep and maintain adequate and
current written records of all Inventions made by me (in the form of notes,
sketches, drawings and other records as may be specified by the Company), which
records shall be available to and remain the sole property of the Company at all
times.
7. Prior Inventions. It is understood that all Personal Inventions, if
any, whether patented or unpatented, which I made prior to my employment by the
Company, are excluded from this Agreement. To preclude any possible uncertainty,
I have set forth on Schedule A attached hereto a complete list of all of my
prior Personal Inventions, including numbers of all patents and patent
applications and a brief description of all unpatented Personal Inventions which
are not the property of a previous employer. I represent and covenant that the
list is complete and that, if no items are on the list, I have no such prior
Personal Inventions. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company which appears to
threaten or conflict with proprietary rights I claim in any Personal Invention.
In the event of my failure to give such notice, I agree that I will make no
claim against the Company with respect to any such Personal Invention.
8. Other Obligations. I acknowledge that the Company from time to time
may have agreements with other persons or with the U.S. Government or agencies
thereof, which impose obligations or restrictions on the Company regarding
Inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the Company's
obligations.
9. Trade Secrets of Others. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep confidential proprietary information, knowledge or
data acquired by me in confidence or in trust prior to my employment with the
Company, and I will not disclose to the Company, or induce the Company to use,
any confidential or proprietary information or material belonging to any
previous employer or others. I agree not to enter into any agreement either
written or oral in conflict herewith.
10. Modification. I agree that any subsequent change or changes in my
employment duties, salary or compensation or, if applicable, in any Employment
Agreement between the Company and me, shall not affect the validity or scope of
this Agreement.
11. Successors and Assigns. This Agreement shall be binding upon my
heirs, executors, administrators or other legal representatives and is for the
benefit of the Company, its successors and assigns.
C-3
12. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it in accordance with a judgment of a court
of competent jurisdiction, so as to be enforceable to the extent compatible with
applicable law.
13. Waivers. If either party should waive any breach of any provision
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
14. Complete Agreement, Amendments. I acknowledge receipt of this
Agreement, and agree that with respect to the subject matter thereof it is my
entire agreement with the Company, superseding any previous oral or written
communications, representations, understandings, or agreements with the Company
or any officer or representative thereof. Any amendment to this Agreement or
waiver by either party of any right hereunder shall be effective only if
evidenced by a written instrument executed by the parties hereto, and, in the
case of the Company, upon written authorization of the Company's Board of
Directors.
15. Headings. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
16. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
17. Governing Law. This Agreement shall be governed and construed under
Massachusetts law.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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18 Employment Status. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company to terminate the employment
of the Employee.
EMPLOYEE
--------------------------------------
Donald K. Smith, Ph.D.
Accepted and Agreed:
APPLIED SCIENCE AND TECHNOLOGY, INC.
By:
---------------------------------
Richard S. Post, Ph.D., President
C-5
SCHEDULE A
LIST OF PRIOR INVENTIONS
Identifying Number of
Title Date Brief Description
- ----- ---- -----------------
NONE
EXHIBIT 10d
-----------
----------
AMENDED KEY EMPLOYEE AGREEMENT
----------
To: Mr. John M. Tarrh As of July 1, 1996
20 Oakland Street
Lexington, Massachusetts 02173
The undersigned, Applied Science and Technology, Inc., a Delaware
corporation, as well as its successors and assigns(hereinafter collectively
referred to as the "Company"), hereby agree with you as follows:
l. Position and Responsibilities.
1.1 You shall serve as Senior Vice President, Finance, of the
Company (or in such other executive capacity as shall be designated by the Board
of Directors and reasonably acceptable to you) and shall perform the duties
customarily associated with such capacity from time to time and at such place or
places as the Company shall designate are appropriate and necessary in
connection with such employment; provided, however, that you shall not be
required to relocate your place of employment beyond a 20 mile radius from
Woburn, Massachusetts without your prior written consent.
1.2 You will, to the best of your ability, devote your full time and
best efforts to the performance of your duties hereunder and the business and
affairs of the Company. You agree to perform such executive duties as may be
assigned to you by or on authority of the Company's President and Board of
Directors from time to time. After receipt of notice of termination of your
employment hereunder, you shall continue to be available to the Company on a
part-time basis to assist in any necessary transition.
1.3 You will duly, punctually and faithfully perform and observe any
and all rules and regulations which the Company may now or shall hereafter
establish governing the conduct of its business.
1.4 You will report directly to the Company's President.
2. Term of Employment.
2.1 The initial term of this Agreement shall be for the period of
years set forth on Exhibit "A" annexed hereto commencing with the date hereof.
Thereafter, this Agreement shall be automatically renewed for successive periods
of one year, unless you or the Company shall give the other party not less than
three (3) months written notice of non-renewal. Your
employment with the Company may be terminated at any time as provided in Section
2.2 . If the Company gives you notice of non-renewal, the Company shall be
obligated to pay to you as Severance Benefits an amount set forth in Sections 7
and 8 of Exhibit "A" hereto, plus payment in full of any amounts otherwise due
you, less applicable taxes and other required withholdings and any amounts you
may owe to the Company.
2.2 The Company shall have the right, on written notice to you, to
terminate your employment:
(a) immediately at any time for "Cause" (as defined herein
subject to your right of cure and right to dispute as provided in
Section 2.3 herein); or
(b) at any time, upon not less than seven (7) days written
notice, without "Cause" provided the Company shall be obligated to pay
to you as Severance Benefits an amount equal to the sums set forth in
Exhibit "A," plus any sums then due to you, less (i) applicable taxes
and other required withholdings, and (ii) any amounts you may owe to
the Company. Payments under this Section 2.2 (b) shall not be due or
payable if you are terminated at any time for "Cause" or if you
voluntarily resign from your employment.
2.3 For purposes of Section 2.2 (except as provided in Section 8(c)
of Exhibit "A"), the term "Cause" shall mean (a) gross negligence in the
performance of assigned duties; (b) refusal to perform or discharge the duties
or responsibilities assigned by the Board of Directors of Applied Science and
Technology, Inc. provided the same are not illegal, unethical or inconsistent
with the position of Senior Vice President, Finance, of a corporation and the
failure to correct such refusal and perform such duties or responsibilities
within two weeks (14 calendar days) after written notice of such failure; (c)
conviction of a felony involving moral turpitude; (d) willful or prolonged
absence from work not excused by disability; and (e) falseness of any warranty
or representation by you herein or the breach of your obligations under this
Agreement or your duties as an employee of the Company to the material detriment
of the Company.
2.4 In the event of the Involuntary Termination of your employment
with the Company at any time, the Company hereby irrevocably agrees to provide
you with Severance Benefits as defined in Section 7 of Exhibit "A" hereto or
payments in the event of a "Change in Control" as defined in Section 8 of
Exhibit "B". In this regard, the phrase "Involuntary Termination" shall mean any
termination of your employment by the Company other than for "cause," as defined
in Section 2.3, any notice by the Company not to renew this Agreement pursuant
to Section 2.1, or any termination of your employment by you due to any of the
following circumstances: (a) a reduction in your Base Salary or Company-paid
benefits, (b) a reduction in your eligibility for any Company bonus or other
benefit program, (c) a material or substantial change in your title, position,
authority or duties, or (d) a change of your principal place of employment from
Woburn, Massachusetts to another location beyond 20 miles of Woburn,
Massachusetts.
-2-
3. Compensation. You shall receive the compensation and benefits set
forth on Exhibit A hereto ("Compensation") for all services to be rendered by
you hereunder and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions of even date herewith
attached hereto as Exhibit C between you and the Company (the "Proprietary
Information and Inventions Agreement"). Such Compensation shall be subject to
temporary or permanent reduction by the Board of Directors if the Board shall
determine that economic conditions so warrant.
4. Other Activities During Employment.
4.1 Except for any outside employments and directorships currently
held by you as listed on Exhibit B hereto, and except with the prior written
consent of the Company's Board of Directors, you will not during the term of
this Agreement undertake or engage in any other employment, occupation or
business enterprise other than one in which you are an inactive investor.
4.2 You hereby agree that, except as disclosed on Exhibit B hereto,
during your employment hereunder, you will not, directly or indirectly, engage
(a) individually, (b) as an officer, (c) as a director, (d) as an employee, (e)
as a consultant, (f) as an advisor, (g) as an agent (whether a salesperson or
otherwise), (h) as a broker, or (i) as a partner, coventurer, stockholder or
other proprietor owning directly or indirectly more than five percent (5%)
interest in any firm, corporation, partnership, trust, association, or other
organization which is engaged in the research, development, production,
manufacture or marketing of equipment or processes in direct competition with
the Company or any other line of business engaged in or under demonstrable
development by the Company (such firm, corporation, partnership, trust,
association, or other organization being hereinafter referred to as a
"Prohibited Enterprise"). Except as may be shown on Exhibit B hereto, you hereby
represent that you are not engaged in any of the foregoing capacities (a)
through (i) in any Prohibited Enterprise.
5. Former Employers.
5.1 You represent and warrant that your employment by the Company
will not conflict with and will not be constrained by any prior or current
employment, consulting agreement or relationship whether oral or written. You
represent and warrant that you do not possess confidential information arising
out of any such employment, consulting agreement or relationship which, in your
best judgment, would be utilized in connection with your employment by the
Company in the absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you should
find that confidential information belonging to any other person or entity might
be usable in connection with the Company's business, you will not intentionally
disclose to the Company or use on behalf of the Company any confidential
information belonging to any of your former employers; but during your
employment by the Company you will use in the performance of your duties all
information which is generally known and used by persons with training and
experience
-3-
comparable to your own all information which is common knowledge in the
industry or otherwise legally in the public domain.
6. Proprietary Information and Inventions. You agree to execute,
deliver and be bound by the provisions of the Proprietary Information and
Inventions Agreement.
7. Post-Employment Activities.
7.1 For a period of two (2) years after the termination or
expiration, for any reason, of your employment with the Company hereunder,
absent the Company's prior written approval, you will not directly or indirectly
engage in activities similar or reasonably related to those in which you shall
have engaged hereunder during the two years immediately preceding termination or
expiration for, nor render services similar or reasonably related to those which
you shall have rendered hereunder during such two years to, any person or entity
whether now existing or hereafter established which directly competes with (or
proposes or plans to directly compete with) the Company ("Direct Competitor") in
any line of business engaged in or under development by the Company. Nor shall
you entice, induce or encourage any of the Company's other employees to engage
in any activity which, were it done by you, would violate any provision of the
Proprietary Information and Inventions Agreement or this Section 7. As used in
this Section 7.1, the term "any line of business engaged in or under development
by the Company" shall be applied as at the date of termination of your
employment, or, if later, as at the date of termination of any post-employment
consultation.
7.2 For a period of two (2) years after the termination of your
employment with the Company, the provisions of Section 4.2 shall be applicable
to you and you shall comply therewith. As applied to such two (2) year
post-employment period, the term "any other line of business engaged in or under
development by the Company," as used in Section 4.2, shall be applied as at the
date of termination of your employment with the Company or, if later, as at the
date of termination of any post-employment consultation with the Company.
7.3 No provision of this Agreement shall be construed to preclude
you from performing the same services which the Company hereby retains you to
perform for any person or entity which is not a Direct Competitor of the Company
upon the expiration or termination of your employment (or any post-employment
consultation) so long as you do not thereby violate any term of the Proprietary
Information and Inventions Agreement.
8. Remedies. Your obligations under the Proprietary Information and
Inventions Agreement and the provisions of Sections 6,7,8 and 9 of this
Agreement (as modified by Section 10, if applicable) shall survive the
expiration or termination of your employment (whether through your resignation
or otherwise) with the Company. You acknowledge that a remedy at law for any
breach or threatened breach by you of the provisions of the Proprietary
Information and Inventions Agreement or Section 7 would be inadequate and you
therefore agree that the Company shall be entitled to such injunctive relief in
case of any such breach or threatened
-4-
breach.
The Company's obligations and those of any successors or assignees of
the Company under this Agreement, including but not limited to the severance
provisions and other compensation and benefits due to you pursuant to Exhibit
"A" hereto, will be a condition of and are to remain those of any successor or
assignee. The Company acknowledges that a remedy at law for any breach or
threatened breach by the Company, its directors or agents of any of the
provisions of Exhibit "A" hereto or of this Agreement generally, or of any
extension of this Agreement, would be inadequate and the Company therefore
agrees that you shall be entitled to injunctive relief in case of any such
breach or threatened breach. In the event of any dispute pursuant to this
Agreement, the prevailing party in any litigation or arbitration shall be
entitled to prompt reimbursement of reasonable legal fees and related expenses
incurred in connection with such dispute.
9. Assignment. This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation and any
assignee of all or substantially all of its business and properties, but, except
as to any such successor or assignee of the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or by you,
except by operation of law.
10. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it as determined by a court of competent
jurisdiction, so as to be enforceable to the extent compatible with applicable
law.
11. Notices. Any notice which the Company is required to or may desire
to give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at your address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the Company
hereunder shall be given by personal delivery or by registered or certified
mail, return receipt requested, addressed to the Company at its principal
office, or at such other office as the Company may from time to time designate
in writing. The date of personal delivery or the date of mailing any notice
under this Section 11 shall be deemed to be the date of delivery thereof.
12. Waivers. If either party should waive any breach of any provision
of this Agreement, such party shall not thereby be deemed to have waived any
preceding or succeeding
-5-
breach of the same or any other provision of this Agreement.
13. Complete Agreement; Amendments. The foregoing including Exhibits A,
B and C hereto, is the entire agreement of the parties with respect to the
subject matter hereof, superseding any previous oral or written communications,
representations, understandings, or agreements with the Company or any officer
or representative thereof. Any amendment to this Agreement or waiver by the
Company of any right hereunder shall be effective only if evidenced by a written
instrument executed by the parties hereto, upon authorization of the Company's
Board of Directors.
14. Headings. The headings of the Sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning of this Agreement.
15. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
16. Governing Law. This Agreement shall be governed by and construed
under Massachusetts law.
17. Arbitration of Disputes. Subject to the rights of the parties to
seek injunctive relief as described herein, any controversy or claim arising out
of, or relating to, any provision of this Agreement shall be settled by binding
arbitration in accordance with the laws of the Commonwealth of Massachusetts by
three arbitrators, one of whom shall be appointed by the Company, one of whom
shall be appointed by you, and the third arbitrator who shall be appointed by
the first two arbitrators. If the first two arbitrators cannot agree on the
appointment of a third arbitrator, then the third arbitrator shall be appointed
by the American Arbitration Association in the City of Boston. Such arbitration
shall be conducted in the City of Boston in accordance with the rules of the
American Arbitration Association, except with respect to the selection of
arbitrators, which shall be as provided in this Section. Judgment on the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof and shall not be appealable. The prevailing party in such arbitration
proceeding shall be entitled to reimbursement by the other party of all
reasonable legal fees and other costs incurred by the prevailing party in
connection with such proceeding, including any legal fees and costs incurred in
connection with the enforcement of any award.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-6-
If you are in agreement with the foregoing, please sign your name below
and also at the bottom of the Proprietary Information and Inventions Agreement,
whereupon this Agreement shall become binding in accordance with its terms.
Please then return this Agreement to the Company. (You may retain for your
records the accompanying counterpart of this Agreement enclosed herewith).
Very truly yours,
APPLIED SCIENCE AND
TECHNOLOGY, INC.
By:
------------------------------------
Richard S. Post, Ph.D., President
Accepted and Agreed:
- ---------------------------------------
John M. Tarrh
-7-
EXHIBIT A
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF JOHN M. TARRH
l. Term. The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be for a period from the date of this Agreement
through December 31, 1999.
2. Compensation.
(a) Base Salary. Your Base Salary shall be $103,000.00 per
annum through June 28, 1997, payable in accordance with the Company's
payroll policies. For Fiscal 1998 and 1999, Base Salary shall be as
established by the Board of Directors but in any event in an amount no
less than $103,000.00.
(b) Bonus. You shall be entitled to such bonuses as the Board
of Directors may determine.
(c) Stock Option Grants. In addition to other stock options
now held by you, you shall be entitled to receive additional stock
option grants as determined by the Board of Directors.
3. Vacation. You shall be entitled to all legal and religious holidays,
and four weeks paid vacation per annum. Any unused vacation may be
accrued or cashed in based on your then current Base Salary.
4. Insurance and Benefits. You shall be eligible for participation in any
health, dental and other group insurance plans which may be established
by the Company or which the Company is required to maintain by law.
5. Retirement Plan. You will be eligible to participate in the Company's
401(k) Plan.
6. Other Benefits. You shall be entitled to benefits otherwise available
to all employees.
7. Severance Benefits.
(a) When provided for in this Agreement, you shall be entitled to
"Severance Benefits". When used in this Agreement, the term Severance Benefits
shall mean a total amount equal to (i) your then current annual Base Salary,
plus (ii) your Bonus earned for the Company's most recent fiscal year. This
total amount shall be paid to you in twelve (12) equal monthly installments
commencing within ten (10) days after the date of your termination of active
employment with the Company.
A-1
(b) In addition, the term "Severance Benefits" shall include the
continuation for you and your family, during the Severance Period, as defined
below, of all of the other benefits which are provided or available to you on
the last day of your actual service with the Company, including your continued
accrual and the vesting under the terms of any pension or 401(k) plan then
sponsored by the Company to the maximum extent permitted by law. For purposes of
this Agreement, the term "Severance Period" means the period of twelve (12)
months beginning on the last day of your active service with the Company.
(c) The lump sum payment referred to above will be in addition to, and
not in substitution for, any accrued and unpaid salary, vacation, pension,
retirement or other benefits, unreimbursed expenses or other payments to which
you may be otherwise entitled.
(d) In the event of your death while you are employed by the Company,
your then current Base Salary shall continue to be paid to your legal
representative for a period of 120 days following the date of your death; and
for a period of three (3) years following your death, the Company shall continue
to provide to your spouse the health insurance coverage described above. If you
die during the Severance Period, all cash amounts which would have been payable
to you under this Exhibit "A", unless otherwise provided for herein, shall be
paid in accordance with the terms of this Agreement to your estate.
(e) You shall not be required to mitigate the amount of any payment the
Company becomes obligated to make to you in connection with this Agreement, by
seeking other employment or otherwise.
8. Change in Control.
(a) For purposes of this Agreement, "Change in Control" means and shall
be deemed to occur if any of the following occurs:
(i) the acquisition, after September 30, 1994, by an individual,
entity or group [within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934 as amended (the "Exchange Act")]
of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (A) the outstanding
shares of common stock, par value $ .01 per share, of the Company (the
"Common Stock"), or (B) the combined voting power of the voting
securities of the Company entitled to vote generally in the election
of directors (the "Voting Securities"); or (ii) Individuals who, on
January 1, 1997, constituted the Board of Directors of the Company
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board of Directors of the Company; provided, however,
that any individual becoming a director subsequent to January 1, 1997
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
directors then
A-2
serving and comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents; or (iii) Approval by
the Board of Directors or the shareholders of the Company of a (A)
tender offer to acquire any of the Common Stock or voting securities,
(B) reorganization, (C) merger or (D) consolidation, other than a
reorganization, merger or consolidation with respect to which all or
substantially all of the individuals and entities who were the
beneficial owners, immediately prior to such reorganization, merger or
consolidation, of the Common Stock and voting securities beneficially
own, directly or indirectly, immediately after such reorganization,
merger or consolidation, more than 80% of the then outstanding common
stock and voting securities (entitled to vote generally in the
election of directors) of the Company resulting from such
reorganization, merger or consolidation in substantially the same
proportions as their respective ownership, immediately prior to such
reorganization, merger or consolidation, of the Common Stock and the
voting securities; or (iv) Approval by the Board of Directors or the
shareholders of the Company of (A) a complete or substantial
liquidation or dissolution of the Company, or (B) the sale or other
disposition of all or substantially all of the assets of the Company,
excluding a reorganization of the Corporation under the corporate laws
of a state or province other than Delaware.
(b) In the event of a Change in Control during the term of this
Agreement or any extension hereof and provided you remain employed by the
Company for a period of 12 months, you will receive, at the one-year anniversary
of the Change of Control, a supplemental amount in a lump sum equal to 150% of
your current Base Salary and Bonuses paid during the preceding fiscal year, and
the fair market value of all other benefits then payable, irrespective of
whether you thereafter actually terminate employment with the Company.
(c) In the event of your actual termination of employment
contemporaneous with or following a Change in Control, except (x) because of
your death, (y) by the Company for Cause or Disability (as each is hereinafter
defined) or (z) by you other than for Good Reason (as hereinafter defined): (i)
you shall be entitled to receive, in lieu of the sums described in this Section
7, an amount equal to 299% of Severance Benefits due determined as if payable
under Section 7 above, to be paid in accordance with the terms of this
Agreement; and (ii) the following additional provisions shall apply (which
provisions shall supersede any other provisions of the Agreement, including but
not limited to Section 2 of the Agreement, to the extent such provisions are
inconsistent with the following provisions):
(1) Disability. For purposes of this Section 8(c), termination by
the Company of your employment based on "Disability" shall mean termination
because of your absence from
A-3
your duties with the Company on a full time basis for one hundred eighty (180)
consecutive days as a result of your incapacity due to physical or mental
illness, unless within thirty (30) days after Notice of Termination (as
hereinafter defined) is given to you following such absence, you shall have
returned to the full time performance of your duties.
(2) Cause. For purposes of this Section 8(c), termination by the
Company of your employment for "Cause" shall mean termination or for cause as
defined in Sections 2.2(a), (c) or (d).
(3) Good Reason. Termination by you of your employment for "Good
Reason" shall mean termination based on:
(A) a determination by you, in your reasonable judgment, that
there has been a material adverse change in your status or position(s) as an
executive officer of the Company as in effect immediately prior to the Change in
Control, including, without limitation, a material adverse change in your status
or position as a result of a diminution in your duties or responsibilities
(other than, if applicable, any such change directly attributable to the fact
that the Company is no longer publicly owned) or the assignment to you of any
duties or responsibilities which are inconsistent with such status or
position(s), or any removal of you from, or any failure to reappoint or reelect
you to, such position(s) (except in connection with the termination of your
employment for Cause or Disability or as a result of your death or by you other
than for Good Reason);
(B) a reduction by the Company in your Base Salary as in effect
immediately prior to the Change in Control;
(C) the failure by the Company to continue in effect any Plan
(as hereinafter defined) in which you are participating at the time of the
Change in Control of the company (or Plans providing you with at least
substantially similar benefits) other than as a result of the normal expiration
of any such Plan in accordance with its terms as in effect at the time of the
Change in Control, or the taking of any action, or the failure to act, by the
Company which would adversely affect your continued participation in any of such
Plans on at least as favorable a basis to you as is the case on the date of the
Change in Control or which would materially reduce your benefits in the future
under any of such Plans or deprive you of any material benefit enjoyed by you at
the time of the Change in Control;
(D) the failure by the Company to provide and credit you with
the number of paid vacation days to which you are then entitled in accordance
with the Company's normal vacation policy as in effect immediately prior to the
Change in Control;
(E) the Company's requiring you to be based at any office that
is greater than ten miles from where your office is located immediately prior to
the Change in Control except for required travel on the Company's business to an
extent substantially consistent
A-4
with the business travel obligations which you undertook on behalf of the
Company prior to the Change in Control;
(F) the failure by the Company to obtain from any Successor (as
hereinafter defined) the assent to this Agreement contemplated by Section
8(c)(7) hereof;
(G) any purported termination by the Company of your employment
which is not effected pursuant to a Notice of Termination satisfying the
requirements of Section (8)(c)(4) below (and, if applicable, Section 8(c)(2)
above); and for purposes of this Agreement, no such purported termination shall
be effective; or
(H) any refusal by the Company to continue to allow you to
attend to matters or engage in activities not directly related to the business
of the Company which, prior to the Change in Control, you were permitted by the
Board to attend to or engage in.
For purposes of this Agreement, "Plan" shall mean any compensation plan
or any employee benefit plan such as a thrift, pension, profit sharing, medical,
disability, accident, life insurance plan or a relocation plan or policy or any
other plan, program or policy of the Company intended to benefit employees.
(4) Notice of Termination. Any purported termination by the Company
or by you following a Change in Control shall be communicated by written notice
to the other party hereto which indicates the specific termination provision in
this Agreement relied upon (the "Notice of Termination").
(5) Date of Termination. "Date of Termination" following a Change
in Control shall mean (A) if your employment is to be terminated for Disability,
thirty (30) days after Notice of Termination is given (provided that you shall
not have returned to the performance of your duties on a full-time basis during
such thirty (30) day period), (B) if your employment is to be terminated by the
Company for any reason other than death or Disability or by you pursuant to
Sections 8(c)(3)(F) or 8(c)(7) hereof or for any other Good Reason, the date
specified in the Notice of Termination, or (C) if your employment is terminated
on account of your death, the day after your death. In the case of termination
of your employment by the Company for Cause pursuant to Subsection 8(c)(2)
hereof, if you have not previously expressly agreed in writing to the
termination, then within thirty (30) days after receipt by you of the Notice of
Termination with respect thereto, you may notify the Company that a dispute
exists concerning the Termination, in which event the Date of Termination shall
be the date set either by mutual written agreement of the parties or by such
court having the matter before it. During the pendency of any such dispute, the
Company will continue to pay you your full compensation in effect just prior to
the time the Notice of Termination is given and until the dispute is resolved.
However, if such court issues a final and non-appealable order finding that the
Company had Cause to terminate you, then you must return all compensation paid
to you after the Date of Termination specified in the Notice of Termination
previously received by you.
A-5
(6) Compensation Upon Termination or During Disability; Other
Agreements.
(A) During any period following a Change in Control of the Company
that you fail to perform your duties as a result of incapacity due to physical
or mental illness, you shall continue to receive your Base Salary at the rate
then in effect and any benefits or awards under any Plan shall continue to
accrue during such period, to the extent not inconsistent with such Plans, until
and unless your employment is terminated pursuant to and in accordance with this
Section 8(c). Thereafter, your benefits shall be determined in accordance with
the Plans then in effect.
(B) If your employment is terminated for Cause following a Change
in Control of the Company, the Company shall pay to you your Base Salary through
the Date of Termination at the rate in effect just prior to the time a Notice of
Termination is given plus any benefits or awards (including both the cash and
stock components) which pursuant to the terms of any Plans have been earned or
become payable, but which have not yet been paid to you. Thereupon the Company
shall have no further obligations to you under this Agreement.
(7) Successors, Binding Agreement.
(A) The Company will seek, by written request at least five (5)
business days prior to the time a Person becomes a Successor (as hereinafter
defined), to have such Person, by agreement in form and substance satisfactory
to you, assent to the fulfillment of the Company's obligations under this
Agreement. Failure of such Person to furnish such assent by the later of (i)
three (3) business days prior to the time such Person becomes a Successor or
(ii) two (2) business days after such Person receives a written request to so
assent shall constitute Good Reason for termination by you of your employment if
a Change in Control of the Company occurs or has occurred. For purposes of this
Agreement, "Successor" shall mean any person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
the Company's business directly, by merger or consolidation, or indirectly, by
purchase of the Company's securities eligible to vote for the election of
directors, or otherwise.
(B) This Agreement shall inure to the benefit of and be enforceable
by your personal legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if no
such designee exists, to your estate.
(C) For purposes of this Section 8, the "Company" shall include any
subsidiaries of the Company and any corporation or other entity which is the
surviving or continuing entity in respect of any merger, consolidation or form
of business combination in which the Company ceases to exist; provided, however,
for purposes of determining whether a Change
A-6
in Control has occurred herein, the term "Company" shall refer to Applied
Science and Technology, Inc. or its Successor(s).
(8) Fees and Expenses; Mitigation.
(A) The Company shall reimburse you, on a current basis, for all
reasonable legal fees and related expenses incurred by you in connection with
the Agreement following a Change in Control of the Company, including without
limitation, (i) all such fees and expenses, if any, incurred in contesting or
disputing any termination of your employment or (ii) your seeking to obtain or
enforce any right or benefit provided by this Agreement, in each case,
regardless of whether or not your claim is upheld by a court of competent
jurisdiction; provided, however, you shall be required to repay any such amounts
to the Company to the extent that a court issues a final and non-appealable
order setting forth the determination that the position taken by you was
frivolous or advanced by you in bad faith.
(B) You shall not be required to mitigate the amount of any payment
the Company becomes obligated to make to you in connection with this Agreement,
by seeking other employment or otherwise.
(9) Taxes. All payments to be made to you under this Agreement will
be subject to required withholding of federal, state and local income and
employment taxes.
(d) Notwithstanding any other provision of this Agreement, in the
event that any payment of benefit received or to be received by you as a result
of or in connection with a Change in Control, whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the Company (all
such payment and benefits being hereinafter called the "Total Payments") would
subject you to the excise tax (the "Excise Tax") imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), then, to the extent
necessary to eliminate any such imposition of the Excise Tax (after taking into
account any reduction in the Total Payments in accordance with the provisions of
any other plan, arrangement or agreement, if any), (a) any non-cash severance
payments otherwise payable to you shall first be reduced (if necessary, to
zero), and (b) any cash severance payment otherwise payable to you shall next be
reduced. For purposes of the immediately preceding sentence, (i) no portion of
the Total Payments the receipt or enjoyment of which you shall have effectively
waived in writing shall be taken into account, (ii) no portion of the Total
Payment shall be taken into account which in the opinion of
nationally-recognized tax counsel or certified public accountants (in each case
as selected by you) does not constitute a "parachute payment" within the meaning
of Section 280G of the Code, including, without limitation, by reason of Section
280G(b)(2) or (b)(4)(A) of the Code, (iii) any payments to you shall be reduced
only to the extent necessary so that the Total Payments [other than those
referred to in clauses (i) and (ii)] in their entirety constitute reasonable
compensation for services actually rendered within the meaning of section
280G(4)(B) of the Code or are otherwise not subject to disallowance as
deductions, in the opinion of the tax counsel or the accountants referred to in
clause (ii); and (iv) the value of any
A-7
non-cash benefit or any deferred payment or benefit included in the Total
Payments shall be determined by such accountants in accordance with the
requirements of section 280G(d)(3) and (4) of the Code (and such determination
shall be reviewed by such tax counsel).
A-8
EXHIBIT B
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS OF
JOHN M. TARRH
None
B-1
EXHIBIT C
- --------------------------------------------------------------------------------
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
- --------------------------------------------------------------------------------
To: Applied Science and Technology, Inc.
35 Cabot Road
Woburn, Massachusetts 01757
As of July 1, 1996
The undersigned, in consideration of and as a condition of my
employment or continued employment by you and/or by companies which you own,
control, or are affiliated with or their successors in business (collectively,
the "Company"), hereby agrees as follows:
1. Confidentiality. I agree to keep confidential, except as the Company
may otherwise consent in writing, and, except for the Company's benefit, not to
disclose or make any use of at any time either during or subsequent to my
employment, any Inventions (as hereinafter defined), trade secrets, confidential
information, knowledge, data or other information of the Company relating to
products, processes, know-how, designs, formulas, test data, customer lists,
business plans, marketing plans and strategies, pricing strategies, or other
subject matter pertaining to any business of the Company or any of its
affiliates, which I may produce, obtain, or otherwise acquire during the course
of my employment, except as herein provided. I further agree not to deliver,
reproduce or in any way allow any such trade secrets, confidential information,
knowledge, data or other information, or any documentation relating thereto, to
be delivered to or used by any third parties without specific direction or
consent of a duly authorized representative of the Company.
2. Conflicting Employment; Return of Confidential Material. I agree
that during my employment with the Company I will not engage in any other
employment, occupation, consulting or other activity relating to the business in
which the Company is now or may hereafter become engaged, or which would
otherwise conflict with my obligations to the Company. In the event my
employment with the Company terminates for any reason whatsoever, I agree to
promptly surrender and deliver to the Company all records, materials, equipment,
drawings, documents and data of which I may obtain or produce during the course
of my employment, and I will not take with me any description containing or
pertaining to any confidential information, knowledge or data of the Company
which I may produce or obtain during the course of my employment.
C-1
3. Assignment of Inventions.
3.1 I hereby acknowledge and agree that the Company is the owner of
all Inventions. In order to protect the Company's rights to such Inventions, by
executing this Agreement I hereby irrevocably assign to the Company all my
right, title and interest in and to all Inventions to the Company.
3.2 For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, technologies, devices, or improvements in any
of the foregoing or other ideas, whether or not patentable and whether or not
reduced to practice, made or conceived by me (whether solely or jointly with
others) during the period of my employment with the Company which relate in any
manner to the actual or demonstrably anticipated business, work, or research and
development of the Company, or result from or are suggested by any task assigned
to me or any work performed by me for or on behalf of the Company.
3.3 Any discovery, process, design, technology, device, or
improvement in any of the foregoing or other ideas, whether or not patentable
and whether or not reduced to practice, made or conceived by me (whether solely
or jointly with others) which I develop entirely on my own time not using any of
the Company's equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such Personal
Invention (a) does not relate to the actual or demonstrably anticipated
business, research and development of the Company, and (b) does not result,
directly or indirectly, from any work performed by me for the Company.
4. Disclosure of Inventions. I agree that in connection with any
Invention, I will promptly disclose such Invention to my immediate superior at
the Company in order to permit the Company to enforce its property rights to
such Invention in accordance with this Agreement. My disclosure shall be
received in confidence by the Company.
5. Patents and Copyrights; Execution of Documents.
5.1 Upon request, I agree to assist the Company or its nominee (at
its expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
Inventions in any and all countries. Such patents and copyrights shall be and
remain the sole and exclusive property of the Company or its nominee. I agree to
perform such lawful acts as the Company deems to be necessary to allow it to
exercise all right, title and interest in and to such patents and copyrights.
5.2 In connection with this Agreement, I agree to execute,
acknowledge and deliver to the Company or its nominee upon request and at its
expense all documents, including assignments of title, patent or copyright
applications, assignments of such applications, assignments of patents or
copyrights upon issuance, as the Company may determine necessary or
C-2
desirable to protect the Company's or its nominee's interest in Inventions,
and/or to use in obtaining patents or copyrights in any and all countries and to
vest title thereto in the Company or its nominee to any of the foregoing.
6. Maintenance of Records. I agree to keep and maintain adequate and
current written records of all Inventions made by me (in the form of notes,
sketches, drawings and other records as may be specified by the Company), which
records shall be available to and remain the sole property of the Company at all
times.
7. Prior Inventions. It is understood that all Personal Inventions, if
any, whether patented or unpatented, which I made prior to my employment by the
Company, are excluded from this Agreement. To preclude any possible uncertainty,
I have set forth on Schedule A attached hereto a complete list of all of my
prior Personal Inventions, including numbers of all patents and patent
applications and a brief description of all unpatented Personal Inventions which
are not the property of a previous employer. I represent and covenant that the
list is complete and that, if no items are on the list, I have no such prior
Personal Inventions. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company which appears to
threaten or conflict with proprietary rights I claim in any Personal Invention.
In the event of my failure to give such notice, I agree that I will make no
claim against the Company with respect to any such Personal Invention.
8. Other Obligations. I acknowledge that the Company from time to time
may have agreements with other persons or with the U.S. Government or agencies
thereof, which impose obligations or restrictions on the Company regarding
Inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the Company's
obligations.
9. Trade Secrets of Others. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep confidential proprietary information, knowledge or
data acquired by me in confidence or in trust prior to my employment with the
Company, and I will not disclose to the Company, or induce the Company to use,
any confidential or proprietary information or material belonging to any
previous employer or others. I agree not to enter into any agreement either
written or oral in conflict herewith.
10. Modification. I agree that any subsequent change or changes in my
employment duties, salary or compensation or, if applicable, in any Employment
Agreement between the Company and me, shall not affect the validity or scope of
this Agreement.
11. Successors and Assigns. This Agreement shall be binding upon my
heirs, executors, administrators or other legal representatives and is for the
benefit of the Company, its successors and assigns.
C-3
12. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it in accordance with a judgment of a court
of competent jurisdiction, so as to be enforceable to the extent compatible with
applicable law.
13. Waivers. If either party should waive any breach of any provision
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
14. Complete Agreement, Amendments. I acknowledge receipt of this
Agreement, and agree that with respect to the subject matter thereof it is my
entire agreement with the Company, superseding any previous oral or written
communications, representations, understandings, or agreements with the Company
or any officer or representative thereof. Any amendment to this Agreement or
waiver by either party of any right hereunder shall be effective only if
evidenced by a written instrument executed by the parties hereto, and, in the
case of the Company, upon written authorization of the Company's Board of
Directors.
15. Headings. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
16. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
17. Governing Law. This Agreement shall be governed and construed under
Massachusetts law.
[THIS SPACE INTENTIONALLY LEFT BLANK]
C-4
18 Employment Status. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company to terminate the employment
of the Employee.
EMPLOYEE
--------------------------------------
John M. Tarrh
Accepted and Agreed:
APPLIED SCIENCE AND TECHNOLOGY, INC.
By:
---------------------------------
Richard S. Post, Ph.D., President
C-5
SCHEDULE A
LIST OF PRIOR INVENTIONS
Identifying Number of
Title Date Brief Description
- ----- ---- -----------------
NONE
EXHIBIT 10e
-----------
----------
KEY EMPLOYEE AGREEMENT
----------
To: Brian R. Chisholm As of November 26, 1996
10150 Parkwood Drive, Apartment 4
Cupertino, California 95014
The undersigned, Applied Science and Technology, Inc., a Delaware
corporation, as well as its successors and assigns (hereinafter collectively
referred to as the "Company"), hereby agree with you as follows:
l. Position and Responsibilities.
1.1 You shall serve as Senior Vice President of Operations of the
Company (or in such other executive capacity as shall be designated by the
President or Board of Directors and be reasonably acceptable to you). You will,
to the best of your ability, devote your full time and best efforts to the
performance of your duties hereunder and the business and affairs of the Company
and perform such executive duties as may be assigned to you by or on authority
of the Company's President and Board of Directors from time to time and the
duties customarily associated with such executive capacity from time to time and
at such place or places as the Company shall designate are appropriate and
necessary in connection with such employment; provided, however, that you shall
not be required to relocate your place of employment beyond a twenty (20) mile
radius from Woburn, Massachusetts without your prior written consent.
1.2 You will duly, punctually and faithfully perform and observe any
and all rules and regulations which the Company may now or shall hereafter
establish governing the conduct of its business.
1.3 You will report directly to the Company's President.
2. Term of Employment.
2.1 The initial term of this Agreement shall be for the period set
forth on Exhibit A annexed hereto commencing with the date hereof. Thereafter,
this Agreement shall be automatically renewed for successive periods of one
year, unless you or the Company shall give the other party not less than thirty
(30) days written notice of non-renewal. Your employment with the Company may be
terminated as provided in Section 2.2 .
-2-
2.2 The Company shall have the right, upon written notice to you, to
terminate your employment:
(a) immediately at any time for "Cause" (as defined herein
subject to your right of cure and right to dispute as provided in
Section 2.3 herein); or
(b) at any time, without "Cause," provided that the Company
shall be obligated to pay to you the Severance Benefits set forth in
Sections 6 or 7, as applicable, of Exhibit A, plus any sums then due
to you, including those expenses as are provided for in Section 8 of
Exhibit A, less (i) applicable taxes and other required withholdings,
and (ii) any amounts you may owe to the Company. Payments under this
Section 2.2 (b) shall not be due or payable if you are terminated at
any time for "Cause" or if you voluntarily resign from your
employment, except as set forth in Section 7 of Exhibit A.
2.3 For purposes of Section 2.2, the term "Cause" shall mean (a)
gross negligence in the performance of assigned duties; (b) material and
repetitive refusal to perform or discharge the duties or responsibilities
assigned by the Board of Directors of the Company provided the same are not
illegal, unethical or inconsistent with the position of Senior Vice President of
Operations of a corporation and the failure to correct such refusal and perform
such duties or responsibilities within a reasonable period of time (but in any
event no less than seven (7) calendar days after written notice of such
failure); (c) conviction of a felony involving moral turpitude; (d) willful or
prolonged absence from work not excused by a bona fide medical disability as
reasonably determined by a qualified physician mutually acceptable to both you
and the Company or other good cause as reasonably determined by the Board of
Directors; and (e) falseness of any warranty or representation by you herein or
the breach of your obligations under this Agreement to the material detriment of
the Company. Any dispute, controversy, or claim arising out of, in connection
with, or in relation to the definition of "Cause" shall be settled by
arbitration in accordance with the terms of Section 17 hereof.
2.4 In the event of the Involuntary Termination (as hereinafter
defined) of your employment with the Company at any time, the Company hereby
irrevocably agrees to provide you with Severance Benefits as defined in Section
6 of Exhibit A hereto or payments in the event of a "Change in Control" as
defined in Section 7 of Exhibit A. In this regard, the phrase "Involuntary
Termination" shall mean (a) any termination of your employment by the Company
other than for "cause," as defined in Section 2.3, (b) any notice by the Company
not to renew this Agreement pursuant to Section 2.1, or (c) for purposes of
Section 7 of Exhibit A (but not Section 6 of Exhibit A) any termination of your
employment by you due to any of the following circumstances: (i) a reduction in
your Base Salary or Company-paid benefits, (ii) a reduction in your eligibility
for any Company bonus or other benefit program, (iii) a material or substantial
change in your title, position, authority or duties, or (iv) a change of your
principal place of employment to a location beyond twenty (20) miles of Woburn,
Massachusetts.
2.5 You shall have the right to terminate this Agreement upon
not less than thirty (30) days prior written notice to the Company.
3. Compensation. You shall receive the compensation and benefits set
forth on Exhibit A ("Compensation") for all services to be rendered by you
hereunder and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions of even date herewith
attached hereto as Exhibit C between you and the Company (the "Proprietary
Information and Inventions Agreement").
4. Other Activities During Employment.
4.1 Except for any outside employments and directorships currently
held by you as listed on Exhibit B, and except with the prior written consent of
the Company's Board of Directors, you will not during the term of this Agreement
undertake or engage in any other employment, occupation or business enterprise
other than one in which you are an inactive investor.
4.2 You hereby agree that, except as disclosed on Exhibit B hereto,
during your employment hereunder, you will not, directly or indirectly, engage
(a) individually, (b) as an officer, (c) as a director, (d) as an employee, (e)
as a consultant, (f) as an advisor, (g) as an agent (whether a salesperson or
otherwise), (h) as a broker, or (i) as a partner, coventurer, stockholder or
other proprietor owning directly or indirectly more than two percent (2%)
interest, in any firm, corporation, partnership, trust, association, or other
organization which is engaged in the research, development, production,
manufacture or marketing of equipment or processes in direct competition with
the Company or any other line of business engaged in or under demonstrable
development by the Company (such firm, corporation, partnership, trust,
association, or other organization being hereinafter referred to as a
"Prohibited Enterprise"). Except as may be shown on Exhibit B, you hereby
represent that you are not engaged in any of the foregoing capacities (a)
through (i) in any Prohibited Enterprise.
5. Former Employers.
5.1 You represent and warrant that your employment by the Company
will not conflict with and will not be constrained by any prior or current
employment, consulting agreement or relationship whether oral or written. You
represent and warrant that you do not possess confidential information arising
out of any such employment, consulting agreement or relationship which, in your
best judgment, would be utilized in connection with your employment by the
Company in the absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you should
find that confidential information belonging to any other person or entity might
be usable in connection with the Company's business, you will not intentionally
disclose to the Company or use on behalf of the Company any confidential
information belonging to any of your former employers; but during your
employment by the Company you will use in the performance of your duties all
information which
-3-
is generally known and used by persons with training and experience comparable
to your own all information which is common knowledge in the industry or
otherwise legally in the public domain.
6. Proprietary Information and Inventions. You agree to execute,
deliver and be bound by the provisions of the Proprietary Information and
Inventions Agreement.
7. Post-Employment Activities.
7.1 For a period of two (2) years (or for a lesser period should the
Company so determine) after the termination or expiration, for any reason, of
your employment with the Company hereunder, absent the Company's prior written
approval, you will not directly or indirectly engage in activities similar or
reasonably related to those in which you shall have engaged hereunder during the
two years immediately preceding termination or expiration for, nor render
services similar or reasonably related to those which you shall have rendered
hereunder during such two years to, any person or entity whether now existing or
hereafter established which directly competes with (or proposes or plans to
directly compete with) the Company ("Direct Competitor") in any line of business
engaged in or under development by the Company. Nor shall you entice, induce or
encourage any of the Company's other employees to engage in any activity which,
were it done by you, would violate any provision of the Proprietary Information
and Inventions Agreement or this Section 7. As used in this Section 7.1, the
term "any line of business engaged in or under development by the Company" shall
be applied as at the date of termination of your employment, or, if later, as at
the date of termination of any post-employment consultation.
7.2 For a period of two (2) years after the termination of your
employment with the Company, the provisions of Section 4.2 shall be applicable
to you and you shall comply therewith. As applied to such two (2) year
post-employment period, the term "any other line of business engaged in or under
development by the Company," as used in Section 4.2, shall be applied as at the
date of termination of your employment with the Company or, if later, as at the
date of termination of any post-employment consultation with the Company.
7.3 No provision of this Agreement shall be construed to preclude
you from performing the same services which the Company hereby retains you to
perform for any person or entity which is not a Direct Competitor of the Company
upon the expiration or termination of your employment (or any post-employment
consultation) so long as you do not thereby violate any term of the Proprietary
Information and Inventions Agreement.
8. Remedies. Your obligations under the Proprietary Information and
Inventions Agreement and the provisions of Sections 4, 6, 7, 8, 9 and 17 of this
Agreement (as modified by Section 10, if applicable) shall survive the
expiration or termination of your employment (whether through your resignation
or otherwise) with the Company. You acknowledge that a remedy at law for any
breach or threatened breach by you of the provisions of the Proprietary
Information and Inventions Agreement or Section 7 hereof would be inadequate and
you therefore agree that the
-4-
Company shall be entitled to such injunctive or other equitable relief in case
of any such breach or threatened breach.
9. Assignment. This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation and any
assignee of all or substantially all of its business and properties, but, except
as to any such successor or assignee of the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or by you,
except by operation of law. The Company's obligations and those of any
successors or assignees of the Company under this Agreement, including but not
limited to the severance provisions and other compensation and benefits due to
you pursuant to Exhibit A hereto, will be a condition of and are to remain those
of any successor or assignee.
10. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it as determined by a court of competent
jurisdiction, so as to be enforceable to the extent compatible with applicable
law.
11. Notices. Any notice which the Company is required to or may desire
to give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at your address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the Company
hereunder shall be given by personal delivery or by registered or certified
mail, return receipt requested, addressed to the Company at its principal
office, or at such other office as the Company may from time to time designate
in writing. The date of personal delivery or the date of mailing any notice
under this Section 11 shall be deemed to be the date of delivery thereof.
12. Waivers. If either party should waive any breach of any provision
of this Agreement, such party shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
13. Complete Agreement; Amendments. The foregoing including Exhibits A,
B and C hereto, is the entire agreement of the parties with respect to the
subject matter hereof, superseding any previous oral or written communications,
representations, understandings, or agreements with the Company or any officer
or representative thereof. Any amendment to this Agreement or waiver by the
Company of any right hereunder shall be effective only if evidenced by a written
instrument executed by the parties hereto, upon authorization of the Company's
Board of Directors.
-5-
14. Headings. The headings of the Sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning of this Agreement.
15. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
16. Governing Law. This Agreement shall be governed by and construed
under Massachusetts law.
17. Arbitration of Disputes. Subject to the rights of the parties to
seek injunctive relief as described herein, any controversy or claim arising out
of, or relating to, any provision of this Agreement shall be settled by binding
arbitration in accordance with the laws of the Commonwealth of Massachusetts by
three arbitrators, one of whom shall be appointed by the Company, one of whom
shall be appointed by you, and the third arbitrator who shall be appointed by
the first two arbitrators. If the first two arbitrators cannot agree on the
appointment of a third arbitrator, then the third arbitrator shall be appointed
by the American Arbitration Association in the City of Boston. Such arbitration
shall be conducted in the City of Boston in accordance with the rules of the
American Arbitration Association, except with respect to the selection of
arbitrators, which shall be as provided in this Section. Judgment on the award
or determination rendered by the arbitrators shall be final, binding and
conclusive upon the parties, and may be entered in any court having jurisdiction
thereof and shall not be appealable. The prevailing party in such arbitration
proceeding shall be entitled to reimbursement by the other party of all
reasonable legal fees and other costs incurred by the prevailing party in
connection with such proceeding, including any legal fees and costs incurred in
connection with the enforcement of any award.
18. Advice of Separate Counsel. The Company has requested that the law
firm of O'Connor, Broude & Aronson prepare this document on behalf of the
Company. You acknowledge that you have been advised to review this Agreement
with your own legal counsel and other advisors of your choosing and that prior
to entering into this Agreement, you have had the opportunity to review this
Agreement with your attorney and other advisors and have not asked (or relied
upon) O'Connor, Broude & Aronson to represent you in this matter.
[THIS SPACE IS INTENTIONALLY LEFT BLANK]
-6-
If you are in agreement with the foregoing, please sign your name below
and also at the bottom of the Proprietary Information and Inventions Agreement,
whereupon this Agreement shall become binding in accordance with its terms.
Please then return this Agreement to the Company. (You may retain for your
records the accompanying counterpart of this Agreement enclosed herewith).
ACCEPTED AND AGREED: APPLIED SCIENCE AND TECHNOLOGY, INC.
By:
- ----------------------------- ------------------------------------
Brian R. Chisholm Dr. Richard S. Post, President
-7-
EXHIBIT A
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF BRIAN R. CHISHOLM
l. Term. The term of the Agreement to which this Exhibit A is attached
and made a part shall be for a period from the date of this Agreement through
December 31, 1997.
2. Compensation.
(a) Base Salary. Your base salary ("Base Salary") shall be
$134,000.00 per annum through April 1, 1997, payable in accordance with the
Company's payroll policies at the rate of $11,166.66 per month. Commencing April
1, 1997, your Base Salary shall be increased to $147,400 per annum, payable at
the rate of $12,283.33 per month and shall thereafter as established by the
Board of Directors or Compensation Committee.
(b) Bonuses. Fiscal 1996 and 1997. The Company shall establish
appropriate incentive compensation plans ("Bonuses") for you each fiscal year
that you are employed hereunder. You shall be entitled to a bonus of up to 35%
of your then current Base Salary by the Company=s Compensation Committee and
ratified by the Company=s Board of Directors. Such Bonuses shall be properly
approved by the Board of Directors or any committee established and authorized
to perform such duties by the Board of Directors.
3. Vacation. You shall be entitled to all legal holidays recognized by
the Company , and 18 days paid vacation per annum. Any unused vacation may be
accrued or used in accordance with Company policy.
4. Insurance and Benefits. You shall be eligible for participation in
any health, dental, and other group insurance plans which may be established and
maintained by the Company for all full-time employees or which the Company is
required to maintain by law. The Company shall provide you with health insurance
for you and your family providing benefits at least equal to the benefits of the
policies currently in place and shall provide you with group life insurance
equal to two times your base salary. You shall also be entitled to participate
in any employee benefit programs which the Company's Board of Directors may
establish for its key employees, or for its employees generally, including, but
not limited to, bonuses and stock purchase or option plans. You will be eligible
to participate in the Company's 401(k) Plan.
5. Relocation Reimbursement. The Company shall pay for the cost of
airfare (in accordance with the Company=s travel policy) for you to travel to
Boston from California on two roundtrips. The Company shall also pay your
reasonable moving and temporary storage expenses (for up to three (3) months),
not to exceed $7,500.00. The Company shall also pay the cost of a mid-
A-1
size car rental for a one month period starting January 5, 1997, and will
reimburse you for temporary housing at the Marriott Residence Inn or similar
temporary residence acceptable to both you and the Company not to exceed ninety
(90) days. Should you incur the loss of your security deposit or other rental
charges associated with terminating your current lease, the Company shall
reimburse you for such costs up to an amount not to exceed $2,800.00.
6. Severance Benefits.
(a) When provided for in this Agreement, you shall be entitled to
"Severance Benefits." When used in this Agreement, the term "Severance Benefits"
shall mean a total amount equal to (i) your then current annual Base Salary,
plus (ii) your Bonuses earned for the Company's most recent fiscal year. If the
Company's fiscal year is changed, the Bonuses shall be based upon your bonuses
received during the Company's most recent fiscal year. The Severance Benefits
shall be paid via check to you in twelve (12) equal monthly installments
commencing within ten (10) days after the date of your termination of employment
with the Company.
(b) In addition, the term "Severance Benefits" shall include the
continuation for you and your family, during the Severance Period, as defined
below, of all of the other benefits which are provided or available to you on
the last day of your actual service with the Company, including your continued
accrual and the vesting under the terms of any pension or 401(k) plan then
sponsored by the Company to the maximum extent permitted by law. For purposes of
this Agreement, the term "Severance Period" means the period of twelve (12)
months beginning on the Date of Termination.
(c) The Severance Benefits referred to above will be in addition to,
and not in substitution for, any accrued and unpaid salary, vacation, pension,
retirement or other benefits, unreimbursed expenses or other payments to which
you may be otherwise entitled.
(d) In the event of your death while you are employed by the
Company, your then current Base Salary shall continue to be paid to your legal
representative for a period of 60 days following the date of your death; and for
a period of one (1) years following your death, the Company shall continue to
provide to your spouse at Company cost the health insurance coverage described
above.
(e) You shall not be required to mitigate the amount of any payment
the Company becomes obligated to make to you in connection with this Agreement,
by seeking other employment or otherwise.
7. Change in Control.
(a) For purposes of this Agreement, "Change in Control" means and
shall be deemed to occur if any of the following occurs: (i) the acquisition by
an individual, entity or group, as defined in Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the
A-2
"Exchange Act"), of beneficial ownership, as defined in Rule 13d-3 promulgated
under the Exchange Act, of 50% or more of either (A) the outstanding shares of
common stock, $ .01 par value per share, of the Company (the "Common Stock"), or
(B) the combined voting power of the voting securities of the Company entitled
to vote generally in the election of directors (the "Voting Securities"); or
(ii) individuals who, on April 30, 1996, constituted the Board of Directors of
the Company (the "Incumbent Board") cease for any reason to constitute at least
a majority of the Board of Directors of the Company; provided, however, that any
individual becoming a director subsequent to July 1, 1995, whose election, or
nomination for election by the Company's shareholders, was approved by a vote of
at least a majority of the directors then serving and comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents; or (iii) approval by the Board of Directors
or the shareholders of the Company of a (A) tender offer to acquire any of the
Common Stock or voting securities, (B) reorganization, (C) merger or (D)
consolidation, other than a reorganization, merger or consolidation with respect
to which all or substantially all of the individuals and entities who were the
beneficial owners, immediately prior to such reorganization, merger or
consolidation, of the Common Stock and voting securities beneficially own,
directly or indirectly, immediately after such reorganization, merger or
consolidation, more than 80% of the then outstanding common stock and voting
securities (entitled to vote generally in the election of directors) of the
Company resulting from such reorganization, merger or consolidation in
substantially the same proportions as their respective ownership, immediately
prior to such reorganization, merger or consolidation, of the Common Stock and
the voting securities; or (iv) Approval by the Board of Directors or the
shareholders of the Company of (A) a complete or substantial liquidation or
dissolution of the Company, or (B) the sale or other disposition of all or
substantially all of the assets of the Company, excluding a reorganization of
the Corporation under the corporate laws of a state of Delaware.
(b) In the event of a Change in Control during the term of this
Agreement or any renewal or extension hereof and provided you remain employed by
the Company for a period of 12 months from the date of the Change in Control,
you will receive, at the one-year anniversary of the Change of Control, a
supplemental amount in a lump sum equal to 50% of your current Base Salary and
Bonuses paid during the preceding fiscal year, and the fair market value of all
other benefits then payable, irrespective of whether you thereafter actually
terminate employment with the Company.
(c) In the event of your actual termination of employment
contemporaneous with or following a Change in Control, except (x) because of
your death, (y) by the Company for Cause or Disability (as hereinafter defined)
or (z) by you other than for Good Reason (as hereinafter defined): (i) you shall
be entitled to receive, in lieu of the sums described in Section 6, an amount
equal to 100% of the Severance Benefits due and determined as if payable under
Section 6 above, for each full year or portion thereof you have been employed by
the Company, up to a maximum of 299% of the severance benefits mentioned in
Section 6 above, to be paid in accordance with the terms of this Agreement; and
(ii) the following additional provisions shall apply (which provisions
A-3
shall supersede any other provisions of the Agreement, including but not limited
to Section 2 of the Agreement, to the extent such provisions are inconsistent
with the following provisions):
(1) Disability. For purposes of this Section 7(c), termination
by the Company of your employment based on "Disability" shall mean termination
because of your absence from your duties with the Company on a full time basis
for one hundred eighty (180) consecutive days as a result of your incapacity due
to physical or mental illness, unless within thirty (30) days after Notice of
Termination (as hereinafter defined) is given to you following such absence, you
shall have returned to the full time performance of your duties.
(2) Good Reason. Termination by you of your employment for "Good
Reason" shall mean termination based on:
(A) a determination by you, in your reasonable judgment,
that there has been a material adverse change in your status or position(s) as
an executive officer of the Company as in effect immediately prior to the Change
in Control, including, without limitation, a material adverse change in your
status or position as a result of a diminution in your duties or
responsibilities (other than, if applicable, any such change directly
attributable to the fact that the Company is no longer publicly owned) or the
assignment to you of any duties or responsibilities which are inconsistent with
such status or position(s), or any removal of you from, or any failure to
reappoint or reelect you to, such position(s) (except in connection with the
termination of your employment for Cause or Disability or as a result of your
death or by you other than for Good Reason) and further provided that you have
given the Company notice of this material adverse change and the Company has
failed to correct such material adverse change within a reasonable period of
time (but at least 14 days after written notice from you);
(B) a reduction by the Company (within three years following
the Change of Control) in your Base Salary as in effect immediately prior to the
Change in Control;
(C) the failure by the Company (within three years following
the Change of Control) to continue in effect any Plan (as hereinafter defined)
in which you are participating at the time of the Change in Control of the
Company (or Plans providing you with at least substantially similar benefits)
other than as a result of the normal expiration of any such Plan in accordance
with its terms as in effect at the time of the Change in Control, or the taking
of any action, or the failure to act, by the Company which would adversely
affect your continued participation in any of such Plans on at least as
favorable a basis to you as is the case on the date of the Change in Control or
which would materially reduce your benefits in the future under any of such
Plans or deprive you of any material benefit enjoyed by you at the time of the
Change in Control;
(D) the failure by the Company to provide and credit you
with the number of paid vacation days to which you are then entitled in
accordance with the Company's normal vacation policy as in effect immediately
prior to the Change in Control;
A-4
(E) the Company's requiring you to be based at any office
that is greater than twenty (20) miles from where your office is located
immediately prior to the Change in Control except for required travel on the
Company's business to an extent substantially consistent with the business
travel obligations which you undertook on behalf of the Company prior to the
Change in Control;
(F) the failure by the Company to obtain from any Successor
(as hereinafter defined) the assent to this Agreement contemplated by Section
7(c)(7) hereof; or
(G) any purported termination by the Company of your
employment which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 7(c)(4) below (and, if applicable, Section 7(c)(1)
above); and for purposes of this Agreement, no such purported termination shall
be effective.
For purposes of this Agreement, "Plan" shall mean any compensation plan
or any employee benefit plan such as a thrift, pension, profit sharing, medical,
disability, accident, life insurance plan or a relocation plan or policy or any
other plan, program or policy of the Company intended to benefit employees.
(3) [INTENTIONALLY LEFT BLANK]
(4) Notice of Termination. Any purported termination by the
Company or by you following a Change in Control shall be communicated by written
notice to the other party hereto which indicates the specific termination
provision in this Agreement relied upon (the "Notice of Termination").
(5) Date of Termination. "Date of Termination" following a
Change in Control shall mean (A) if your employment is to be terminated for
Disability, thirty (30) days after Notice of Termination is given (provided that
you shall not have returned to the performance of your duties on a full-time
basis during such thirty (30) day period), (B) if your employment is to be
terminated by the Company for any reason other than death or Disability or by
you pursuant to Sections 7(c)(2)(F) or 7(c)(7) hereof or for any other Good
Reason, the date specified in the Notice of Termination, or (C) if your
employment is terminated on account of your death, the day after your death. In
the case of termination of your employment by the Company for Cause, if you have
not previously expressly agreed in writing to the termination, then within
thirty (30) days after receipt by you of the Notice of Termination with respect
thereto, you may notify the Company that a dispute exists concerning the
Termination, in which event the Date of Termination shall be the date set either
by mutual written agreement of the parties or by arbitration as described in '17
of the Agreement.
A-5
(6) Compensation Upon Termination or During Disability; Other
Agreements.
(A) During any period following a Change in Control of the
Company that you fail to perform your duties as a result of incapacity due to
physical or mental illness, you shall continue to receive your Base Salary at
the rate then in effect and any benefits or awards under any Plan shall continue
to accrue during such period, to the extent not inconsistent with such Plans,
until and unless your employment is terminated pursuant to and in accordance
with this Section 7(c). Thereafter, your benefits shall be determined in
accordance with the Plans then in effect.
(B) If your employment is terminated for Cause following a
Change in Control of the Company, the Company shall pay to you your Base Salary
through the Date of Termination at the rate in effect just prior to the time a
Notice of Termination is given plus any benefits or awards (including both the
cash and stock components) which pursuant to the terms of any Plans have been
earned or become payable, but which have not yet been paid to you. Thereupon,
the Company shall have no further obligations to you under this Agreement.
(7) Successors, Binding Agreement.
(A) The Company will seek, by written request at least five
(5) business days prior to the time a Person becomes a Successor (as hereinafter
defined), to have such Person, by agreement in form and substance satisfactory
to you, assent to the fulfillment of the Company's obligations under this
Agreement. Failure of such Person to furnish such assent by the later of (i)
three (3) business days prior to the time such Person becomes a Successor or
(ii) two (2) business days after such Person receives a written request to so
assent shall constitute Good Reason for termination by you of your employment if
a Change in Control of the Company occurs or has occurred. For purposes of this
Section 7 of Exhibit A, "Successor" shall mean any person that succeeds to, or
has the practical ability to control, the Company's business directly, by merger
or consolidation, or indirectly, by purchase of the Company's securities
eligible to vote for the election of directors, or otherwise.
(B) This Agreement shall inure to the benefit of and be
enforceable by your personal legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die while
any amount would still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to your devisee, legatee or other designee or,
if no such designee exists, to your estate.
(C) For purposes of this Section 7, the "Company" shall
include any subsidiaries of the Company and any corporation or other entity
which is the surviving or continuing entity in respect of any merger,
consolidation or form of business combination in which the Company ceases to
exist; provided, however, for purposes of determining whether a Change in
A-6
Control has occurred herein, the term "Company" shall refer to Applied Science
and Technology, Inc. or its Successor(s).
(8) Fees and Expenses; Mitigation.
(A) The Company shall reimburse you, on a current basis, for
all reasonable legal fees and related expenses incurred by you in connection
with the Agreement following a Change in Control of the Company, including
without limitation, (i) all such fees and expenses, if any, incurred in
contesting or disputing any termination of your employment or (ii) your seeking
to obtain or enforce any right or benefit provided by this Agreement, in each
case, regardless of whether or not your claim is upheld by a court of competent
jurisdiction; provided, however, you shall be required to repay any such amounts
to the Company to the extent that a court issues a final and non-appealable
order setting forth the determination that the position taken by you was
frivolous or advanced by you in bad faith.
(B) You shall not be required to mitigate the amount of any
payment the Company becomes obligated to make to you in connection with this
Agreement, by seeking other employment or otherwise.
(9) Taxes. All payments to be made to you under this Agreement
will be subject to required withholding of federal, state and local income and
employment taxes.
(d) Notwithstanding any other provision of this Agreement, in the
event that any payment or benefit received or to be received by you as a result
of or in connection with a Change in Control, whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the Company (all
such payment and benefits being hereinafter called the "Total Payments") would
subject you to the excise tax (the "Excise Tax") imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), then, to the extent
necessary to eliminate any such imposition of the Excise Tax (after taking into
account any reduction in the Total Payments in accordance with the provisions of
any other plan, arrangement or agreement, if any), (a) any non-cash severance
payments otherwise payable to you shall first be reduced (if necessary, to
zero), and (b) any cash severance payment otherwise payable to you shall next be
reduced. For purposes of the immediately preceding sentence, (i) no portion of
the Total Payments the receipt or enjoyment of which you shall have effectively
waived in writing shall be taken into account, (ii) no portion of the Total
Payment shall be taken into account which in the opinion of
nationally-recognized certified public accountants (in each case as mutually
selected by you and the Company) does not constitute a "parachute payment"
within the meaning of Section 280G of the Code, including, without limitation,
by reason of Section 280G(b)(2) or (b)(4)(A) of the Code, (iii) any payments to
you shall be reduced only to the extent necessary so that the Total Payments
[other than those referred to in clauses (i) and (ii)] in their entirety
constitute reasonable compensation for services actually rendered within the
meaning of section 280G(4)(B) of the Code or are otherwise not subject to
disallowance as deductions, in the opinion of the tax counsel or the accountants
referred to in clause (ii); and (iv) the value of any non-cash benefit or any
deferred payment
A-7
or benefit included in the Total Payments shall be determined by such
accountants in accordance with the requirements of section 280G(d)(3) and (4) of
the Code (and such determination shall be reviewed by such tax counsel).
8. Expenses. The Company shall reimburse you for all usual and ordinary
business expenses incurred by you in the scope of your employment hereunder.
9. Stock Options. You shall be entitled to receive stock options to
purchase up to an aggregate of 50,000 shares of common stock of the Company
issuable as follows: options to purchase 30,000 shares upon the date you
commence employment with the Company and up to an additional 20,000 shares under
options which may be issued by the Company on July 1, 1997 and/or July 1, 1998.
These options shall vest in accordance with the Company=s normal vesting policy
for stock option grants.
A-8
EXHIBIT B
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS OF
BRIAN R. CHISHOLM
None
B-1
EXHIBIT C
- --------------------------------------------------------------------------------
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
- --------------------------------------------------------------------------------
To: Applied Science and Technology, Inc.
35 Cabot Road
Woburn, Massachusetts 01801
As of November 26, 1996
The undersigned, in consideration of and as a condition of my
employment or continued employment by you and/or by companies which you own,
control, or are affiliated with or their successors in business (collectively,
the "Company"), hereby agrees as follows:
1. Confidentiality. I agree to keep confidential, except as the Company
may otherwise consent in writing, and, except for the Company's benefit, not to
disclose or make any use of at any time either during or subsequent to my
employment, any Inventions (as hereinafter defined), trade secrets, confidential
information, knowledge, data or other information of the Company relating to
products, processes, know-how, designs, formulas, test data, customer lists,
business plans, marketing plans and strategies, pricing strategies, or other
subject matter pertaining to any business of the Company or any of its
affiliates, which I may produce, obtain, or otherwise acquire during the course
of my employment, except as herein provided. I further agree not to deliver,
reproduce or in any way allow any such trade secrets, confidential information,
knowledge, data or other information, or any documentation relating thereto, to
be delivered to or used by any third parties without specific direction or
consent of a duly authorized representative of the Company.
2. Conflicting Employment; Return of Confidential Material. I agree
that during my employment with the Company I will not engage in any other
employment, occupation, consulting or other activity relating to the business in
which the Company is now or may hereafter become engaged, or which would
otherwise conflict with my obligations to the Company. In the event my
employment with the Company terminates for any reason whatsoever, I agree to
promptly surrender and deliver to the Company all records, materials, equipment,
drawings, documents and data of which I may obtain or produce during the course
of my employment, and I will not take with me any description containing or
pertaining to any confidential information, knowledge or data of the Company
which I may produce or obtain during the course of my employment.
C-1
3. Assignment of Inventions.
3.1 I hereby acknowledge and agree that the Company is the owner of
all Inventions. In order to protect the Company's rights to such Inventions, by
executing this Agreement I hereby irrevocably assign to the Company all my
right, title and interest in and to all Inventions to the Company.
3.2 For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, technologies, devices, or improvements in any
of the foregoing or other ideas, whether or not patentable and whether or not
reduced to practice, made or conceived by me (whether solely or jointly with
others) during the period of my employment with the Company which relate in any
manner to the actual or demonstrably anticipated business, work, or research and
development of the Company, or result from or are suggested by any task assigned
to me or any work performed by me for or on behalf of the Company.
3.3 Any discovery, process, design, technology, device, or
improvement in any of the foregoing or other ideas, whether or not patentable
and whether or not reduced to practice, made or conceived by me (whether solely
or jointly with others) which I develop entirely on my own time not using any of
the Company's equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such Personal
Invention (a) does not relate to the actual or demonstrably anticipated
business, research and development of the Company, and (b) does not result,
directly or indirectly, from any work performed by me for the Company.
4. Disclosure of Inventions. I agree that in connection with any
Invention, I will promptly disclose such Invention to my immediate superior at
the Company in order to permit the Company to enforce its property rights to
such Invention in accordance with this Agreement. My disclosure shall be
received in confidence by the Company.
5. Patents and Copyrights; Execution of Documents.
5.1 Upon request, I agree to assist the Company or its nominee (at
its expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
Inventions in any and all countries. Such patents and copyrights shall be and
remain the sole and exclusive property of the Company or its nominee. I agree to
perform such lawful acts as the Company deems to be necessary to allow it to
exercise all right, title and interest in and to such patents and copyrights.
5.2 In connection with this Agreement, I agree to execute,
acknowledge and deliver to the Company or its nominee upon request and at its
expense all documents, including assignments of title, patent or copyright
applications, assignments of such applications, assignments of patents or
copyrights upon issuance, as the Company may determine necessary or desirable to
C-2
protect the Company's or its nominee's interest in Inventions, and/or to use in
obtaining patents or copyrights in any and all countries and to vest title
thereto in the Company or its nominee to any of the foregoing.
6. Maintenance of Records. I agree to keep and maintain adequate and
current written records of all Inventions made by me (in the form of notes,
sketches, drawings and other records as may be specified by the Company), which
records shall be available to and remain the sole property of the Company at all
times.
7. Prior Inventions. It is understood that all Personal Inventions, if
any, whether patented or unpatented, which I made prior to my employment by the
Company, are excluded from this Agreement. To preclude any possible uncertainty,
I have set forth on Schedule A attached hereto a complete list of all of my
prior Personal Inventions, including numbers of all patents and patent
applications and a brief description of all unpatented Personal Inventions which
are not the property of a previous employer. I represent and covenant that the
list is complete and that, if no items are on the list, I have no such prior
Personal Inventions. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company which appears to
threaten or conflict with proprietary rights I claim in any Personal Invention.
In the event of my failure to give such notice, I agree that I will make no
claim against the Company with respect to any such Personal Invention.
8. Other Obligations. I acknowledge that the Company from time to time
may have agreements with other persons or with the U.S. Government or agencies
thereof, which impose obligations or restrictions on the Company regarding
Inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the Company's
obligations.
9. Trade Secrets of Others. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep confidential proprietary information, knowledge or
data acquired by me in confidence or in trust prior to my employment with the
Company, and I will not disclose to the Company, or induce the Company to use,
any confidential or proprietary information or material belonging to any
previous employer or others. I agree not to enter into any agreement either
written or oral in conflict herewith.
10. Modification. I agree that any subsequent change or changes in my
employment duties, salary or compensation or, if applicable, in any Employment
Agreement between the Company and me, shall not affect the validity or scope of
this Agreement.
11. Successors and Assigns. This Agreement shall be binding upon my
heirs, executors, administrators or other legal representatives and is for the
benefit of the Company, its successors and assigns.
C-3
12. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it in accordance with a judgment of a court
of competent jurisdiction, so as to be enforceable to the extent compatible with
applicable law.
13. Waivers. If either party should waive any breach of any provision
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
14. Complete Agreement, Amendments. I acknowledge receipt of this
Agreement, and agree that with respect to the subject matter thereof it is my
entire agreement with the Company, superseding any previous oral or written
communications, representations, understandings, or agreements with the Company
or any officer or representative thereof. Any amendment to this Agreement or
waiver by either party of any right hereunder shall be effective only if
evidenced by a written instrument executed by the parties hereto, and, in the
case of the Company, upon written authorization of the Company's Board of
Directors.
15. Headings. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
16. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
17. Governing Law. This Agreement shall be governed and construed under
Massachusetts law.
18 Employment Status. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company to terminate the employment
of the Employee.
EMPLOYEE
------------------------------------
Brian R. Chisholm
Accepted and Agreed:
APPLIED SCIENCE AND TECHNOLOGY, INC.
By:
-----------------------------------
Dr. Richard S. Post, President
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SCHEDULE A
LIST OF PRIOR INVENTIONS
OF BRIAN R. CHISHOLM
Identifying Number or
Title Date Brief Description
- ----- ---- -----------------
NONE
C-5
EXHIBIT 10f
-----------
--------------------------
KEY EMPLOYEE AGREEMENT
--------------------------
To: Mr. Michael DeLuca As of May 1, 1997
12 Glen Gery Road
Shrewsbury, Massachusetts 01545
The undersigned, Applied Science and Technology, Inc., a Delaware
corporation, as well as its successors and assigns (hereinafter collectively
referred to as the "Company"), hereby agree with you as follows:
l. Position and Responsibilities.
1.1 You shall serve as Vice President of Manufacturing of the
Company (or in such other capacity as shall be designated by the President,
Senior Vice President of Operations, or Board of Directors and be reasonably
acceptable to you). You will, to the best of your ability, devote your full time
and best efforts to the performance of your duties hereunder and the business
and affairs of the Company and perform such executive duties as may be assigned
to you by or on authority of the Company's President or Senior Vice President of
Operations from time to time and the duties customarily associated with such
capacity from time to time and at such place or places as the Company shall
designate are appropriate and necessary in connection with such employment.
1.2 You will duly, punctually and faithfully perform and observe any
and all rules and regulations which the Company may now or shall hereafter
establish governing the conduct of its business.
1.3 You will report directly to the Company's Senior Vice President
of Operations.
2. Term of Employment.
2.1 The initial term of this Agreement shall be for the period set
forth on Exhibit A annexed hereto commencing with the date hereof. Thereafter,
this Agreement shall be automatically renewed for successive periods of one
year, unless you or the Company shall give the other party not less than thirty
(30) days written notice of non-renewal. Your employment with the Company may be
terminated as provided in Section 2.2 .
2.2 The Company shall have the right, upon written notice to you, to
terminate your employment:
(a) immediately at any time for "Cause" (as defined
herein subject to your right of cure and right to dispute as provided
in Section 2.3 herein); or
(b) at any time, without "Cause," provided that the
Company shall be obligated to pay to you the Severance Benefits set
forth in Sections 6 or 7, as applicable, of Exhibit A, plus any sums
then due to you, including those expenses as are provided for in
Section 8 of Exhibit A, less (i) applicable taxes and other required
withholdings, and (ii) any amounts you may owe to the Company. Payments
under this Section 2.2 (b) shall not be due or payable if you are
terminated at any time for "Cause" or if you voluntarily resign from
your employment, except as set forth in Section 7 of Exhibit A.
2.3 For purposes of Section 2.2, the term "Cause" shall mean (a)
gross negligence or willful misconduct in the performance of assigned duties;
(b) material and repetitive refusal to perform or discharge the duties or
responsibilities assigned by the President or Senior Vice President of
Operations of the Company provided the same are not illegal, unethical or
inconsistent with the position of Vice President of Manufacturing of a
corporation and the failure to correct such refusal and perform such duties or
responsibilities within a reasonable period of time (but in any event no less
than seven (7) calendar days after written notice of such failure); (c)
conviction of a felony or misdemeanor involving moral turpitude; (d) willful or
prolonged absence from work not excused by a bona fide medical disability as
reasonably determined by a qualified physician mutually acceptable to both you
and the Company or other good cause as reasonably determined by the Board of
Directors; and (e) falseness of any warranty or representation by you herein or
the breach of your obligations under this Agreement to the material detriment of
the Company. Any dispute, controversy, or claim arising out of, in connection
with, or in relation to the definition of "Cause" shall be settled by
arbitration in accordance with the terms of Section 17 hereof.
2.4 In the event of the Involuntary Termination (as hereinafter
defined) of your employment with the Company at any time, the Company hereby
agrees to provide you with Severance Benefits as defined in Section 6 of Exhibit
A hereto or payments in the event of a "Change in Control" as defined in Section
7 of Exhibit A. In this regard, the phrase "Involuntary Termination" shall mean
(a) any termination of your employment by the Company other than for "cause," as
defined in Section 2.3, (b) any notice by the Company not to renew this
Agreement pursuant to Section 2.1, or (c) for purposes of Section 7 of Exhibit A
(but not Section 6 of Exhibit A) any termination of your employment by you due
to any of the following circumstances: (i) a reduction in your Base Salary or
Company-paid benefits, (ii) a reduction in your eligibility for any Company
bonus or other benefit program, (iii) a material or substantial change in your
title, position, authority or duties, or (iv) a change of your principal place
of employment to a location beyond thirty (30) miles of Woburn, Massachusetts.
2.5 You shall have the right to terminate this Agreement upon not
less than thirty (30) days prior written notice to the Company.
-2-
3. Compensation. You shall receive the compensation and benefits set
forth on Exhibit A ("Compensation") for all services to be rendered by you
hereunder and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions of even date herewith
attached hereto as Exhibit C between you and the Company (the "Proprietary
Information and Inventions Agreement").
4. Other Activities During Employment.
4.1 Except for any outside employments and directorships currently
held by you as listed on Exhibit B, and except with the prior written consent of
the Company's Board of Directors, you will not during the term of this Agreement
undertake or engage in any other employment, occupation or business enterprise
other than one in which you are an inactive investor.
4.2 You hereby agree that, except as disclosed on Exhibit B hereto,
during your employment hereunder, you will not, directly or indirectly, engage
(a) individually, (b) as an officer, (c) as a director, (d) as an employee, (e)
as a consultant, (f) as an advisor, (g) as an agent (whether a salesperson or
otherwise), (h) as a broker, or (i) as a partner, coventurer, stockholder or
other proprietor owning directly or indirectly more than two percent (2%)
interest, in any firm, corporation, partnership, trust, association, or other
organization which is engaged in the research, development, production,
manufacture or marketing of equipment or processes in direct competition with
the Company or any other line of business engaged in or under demonstrable
development by the Company (such firm, corporation, partnership, trust,
association, or other organization being hereinafter referred to as a
"Prohibited Enterprise"). Except as may be shown on Exhibit B, you hereby
represent that you are not engaged in any of the foregoing capacities (a)
through (i) in any Prohibited Enterprise.
5. Former Employers.
5.1 You represent and warrant that your employment by the Company
will not conflict with and will not be constrained by any prior or current
employment, consulting agreement or relationship whether oral or written. You
represent and warrant that you do not possess confidential information arising
out of any such employment, consulting agreement or relationship which, in your
best judgment, would be utilized in connection with your employment by the
Company in the absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you should
find that confidential information belonging to any other person or entity might
be usable in connection with the Company's business, you will not intentionally
disclose to the Company or use on behalf of the Company any confidential
information belonging to any of your former employers; but during your
employment by the Company you will use in the performance of your duties all
information which is generally known and used by persons with training and
experience comparable to your own all information which is common knowledge in
the industry or otherwise legally in the public domain.
-3-
6. Proprietary Information and Inventions. You agree to execute,
deliver and be bound by the provisions of the Proprietary Information and
Inventions Agreement.
7. Post-Employment Activities.
7.1 For a period of two (2) years (or for a lesser period should
the Company so determine) after the termination or expiration, for any reason,
of your employment with the Company hereunder, absent the Company's prior
written approval, you will not directly or indirectly engage in activities
similar or reasonably related to those in which you shall have engaged hereunder
during the two years immediately preceding termination or expiration for, nor
render services similar or reasonably related to those which you shall have
rendered hereunder during such two years to, any person or entity whether now
existing or hereafter established which directly competes with (or proposes or
plans to directly compete with) the Company ("Direct Competitor") in any line of
business engaged in or under development by the Company. Nor shall you entice,
induce or encourage any of the Company's other employees to engage in any
activity which, were it done by you, would violate any provision of the
Proprietary Information and Inventions Agreement or this Section 7 or to work
with you in any other organization. As used in this Section 7.1, the term "any
line of business engaged in or under development by the Company" shall be
applied as at the date of termination of your employment, or, if later, as at
the date of termination of any post-employment consultation.
7.2 For a period of two (2) years after the termination of your
employment with the Company, the provisions of Section 4.2 shall be applicable
to you and you shall comply therewith. As applied to such two (2) year
post-employment period, the term "any other line of business engaged in or under
development by the Company," as used in Section 4.2, shall be applied as at the
date of termination of your employment with the Company or, if later, as at the
date of termination of any post-employment consultation with the Company.
7.3 No provision of this Agreement shall be construed to preclude
you from performing the same services which the Company hereby retains you to
perform for any person or entity which is not a Direct Competitor of the Company
upon the expiration or termination of your employment (or any post-employment
consultation) so long as you do not thereby violate any term of the Proprietary
Information and Inventions Agreement.
8. Remedies. Your obligations under the Proprietary Information and
Inventions Agreement and the provisions of Sections 4, 6, 7, 8, 9 and 17 of this
Agreement (as modified by Section 10, if applicable) shall survive the
expiration or termination of your employment (whether through your resignation
or otherwise) with the Company. You acknowledge that a remedy at law for any
breach or threatened breach by you of the provisions of the Proprietary
Information and Inventions Agreement or Section 7 hereof would be inadequate and
you therefore agree that the Company shall be entitled to such injunctive or
other equitable relief in case of any such breach or threatened breach.
-4-
9. Assignment. This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation and any
assignee of all or substantially all of its business and properties, but, except
as to any such successor or assignee of the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or by you,
except by operation of law. The Company's obligations and those of any
successors or assignees of the Company under this Agreement, including but not
limited to the severance provisions and other compensation and benefits due to
you pursuant to Exhibit A hereto, will be a condition of and are to remain those
of any successor or assignee.
10. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it as determined by a court of competent
jurisdiction, so as to be enforceable to the extent compatible with applicable
law.
11. Notices. Any notice which the Company is required to or may desire
to give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at your address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the Company
hereunder shall be given by personal delivery or by registered or certified
mail, return receipt requested, addressed to the Company at its principal
office, or at such other office as the Company may from time to time designate
in writing. The date of personal delivery or the date of mailing any notice
under this Section 11 shall be deemed to be the date of delivery thereof.
12. Waivers. If either party should waive any breach of any provision
of this Agreement, such party shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
13. Complete Agreement; Amendments. The foregoing including Exhibits A,
B and C hereto, is the entire agreement of the parties with respect to the
subject matter hereof, superseding any previous oral or written communications,
representations, understandings, or agreements with the Company or any officer
or representative thereof. Any amendment to this Agreement or waiver by the
Company of any right hereunder shall be effective only if evidenced by a written
instrument executed by the parties hereto, upon authorization of the Company's
Board of Directors.
14. Headings. The headings of the Sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning of this Agreement.
-5-
15. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
16. Governing Law. This Agreement shall be governed by and construed
under Massachusetts law.
17. Arbitration of Disputes. Subject to the rights of the parties to
seek injunctive relief as described herein, any controversy or claim arising out
of, or relating to, any provision of this Agreement shall be settled by binding
arbitration in accordance with the laws of the Commonwealth of Massachusetts by
three arbitrators, one of whom shall be appointed by the Company, one of whom
shall be appointed by you, and the third arbitrator who shall be appointed by
the first two arbitrators. If the first two arbitrators cannot agree on the
appointment of a third arbitrator, then the third arbitrator shall be appointed
by the American Arbitration Association in the City of Boston. Such arbitration
shall be conducted in the City of Boston in accordance with the rules of the
American Arbitration Association, except with respect to the selection of
arbitrators, which shall be as provided in this Section. Judgment on the award
or determination rendered by the arbitrators shall be final, binding and
conclusive upon the parties, and may be entered in any court having jurisdiction
thereof and shall not be appealable. The prevailing party in such arbitration
proceeding shall be entitled to reimbursement by the other party of all
reasonable legal fees and other costs incurred by the prevailing party in
connection with such proceeding, including any legal fees and costs incurred in
connection with the enforcement of any award.
18. Advice of Separate Counsel. The Company has requested that the law
firm of O'Connor, Broude & Aronson prepare this document on behalf of the
Company. You acknowledge that you have been advised to review this Agreement
with your own legal counsel and other advisors of your choosing and that prior
to entering into this Agreement, you have had the opportunity to review this
Agreement with your attorney and other advisors and have not asked (or relied
upon) O'Connor, Broude & Aronson to represent you in this matter.
[THIS SPACE IS INTENTIONALLY LEFT BLANK]
-6-
If you are in agreement with the foregoing, please sign your name below
and also at the bottom of the Proprietary Information and Inventions Agreement,
whereupon this Agreement shall become binding in accordance with its terms.
Please then return this Agreement to the Company. (You may retain for your
records the accompanying counterpart of this Agreement enclosed herewith).
ACCEPTED AND AGREED: APPLIED SCIENCE AND TECHNOLOGY, INC.
By:
- -------------------------------- ----------------------------------
Michael DeLuca Dr. Richard S. Post, President
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EXHIBIT A
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF MICHAEL DeLUCA
l. Term. The term of the Agreement to which this Exhibit A is attached
and made a part shall be for a period from the date of this Agreement through
April 30, 1998.
2. Compensation.
(a) Base Salary. Your base salary ("Base Salary") shall be
$120,000.00 per annum through April 30, 1998, payable in accordance with the
Company's payroll policies at the rate of $$4,615.38 every other week.
Commencing April 1, 1998, your Base Salary shall be established by the Board of
Directors= Compensation Committee.
(b) Bonuses. Fiscal 1998. The Company shall establish appropriate
incentive compensation plans ("Bonuses") for you each fiscal year that you are
employed hereunder, commencing with Fiscal 1998 which commences on June 29,
1997, under which you shall be entitled to a bonus of up to 25% of your then
current Base Salary by the Company=s Compensation Committee and ratified by the
Company=s Board of Directors based on the Company attaining certain financial
results(for information purposes, a copy of the Company=s Fiscal 1997 Plan has
been provided to you under separate cover). Such Bonuses shall be properly
approved by the Board of Directors or any committee established and authorized
to perform such duties by the Board of Directors.
3. Vacation. You shall be entitled to all legal holidays recognized by
the Company , and 18 days paid vacation per annum. Any unused vacation may be
accrued or used in accordance with Company policy.
4. Insurance and Benefits. You shall be eligible for participation in
any health, dental, and other group insurance plans which may be established and
maintained by the Company for all full-time employees or which the Company is
required to maintain by law. The Company shall provide you with health insurance
for you and your family providing benefits at least equal to the benefits of the
policies currently in place and shall provide you with group life insurance
equal to two times your base salary. You shall also be entitled to participate
in any employee benefit programs which the Company's Board of Directors may
establish for its key employees, or for its employees generally, including, but
not limited to, bonuses and stock purchase or option plans. You will be eligible
to participate in the Company's 401(k) Plan.
5. Stock Options. You shall be entitled to receive stock options to
purchase up to an aggregate of 20,000 shares of common stock of the Company.
These options shall vest in accordance with the Company=s normal vesting policy
for stock option grants. A copy of your option grant letter is attached hereto.
A-1
6. Severance Benefits.
(a) When provided for in this Agreement, you shall be entitled to
"Severance Benefits." When used in this Agreement, the term "Severance Benefits"
shall mean a total amount equal to (i) fifty percent (50%) of your then current
annual Base Salary, plus (ii) your Bonuses earned for the Company's most recent
fiscal year. If the Company's fiscal year is changed, the Bonuses shall be based
upon your bonuses received during the Company's most recent fiscal year. The
Severance Benefits shall be paid via check to you in six (6) equal monthly
installments commencing within ten (10) days after the date of your termination
of employment with the Company.
(b) In addition, the term "Severance Benefits" shall include the
continuation for you and your family, during the Severance Period, as defined
below, of all of the other benefits which are provided or available to you on
the last day of your actual service with the Company. For purposes of this
Agreement, the term "Severance Period" means the period of six (6) months
beginning on the Date of Termination.
(c) The Severance Benefits referred to above will be in addition to,
and not in substitution for, any accrued and unpaid salary, vacation, pension,
retirement or other benefits, unreimbursed expenses or other payments to which
you may be otherwise entitled.
(d) In the event of your death while you are employed by the
Company, your then current Base Salary shall continue to be paid to your legal
representative for a period of 60 days following the date of your death; and for
a period of one (1) years following your death, the Company shall continue to
provide to your spouse at Company cost the health insurance coverage described
above.
(e) You shall not be required to mitigate the amount of any payment
the Company becomes obligated to make to you in connection with this Agreement,
by seeking other employment or otherwise.
7. Change in Control.
(a) For purposes of this Agreement, "Change in Control" means and
shall be deemed to occur if any of the following occurs: (i) the acquisition by
an individual, entity or group, as defined in Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of
beneficial ownership, as defined in Rule 13d-3 promulgated under the Exchange
Act, of 50% or more of either (A) the outstanding shares of common stock, $ .01
par value per share, of the Company (the "Common Stock"), or (B) the combined
voting power of the voting securities of the Company entitled to vote generally
in the election of directors (the "Voting Securities"); or (ii) individuals who,
on May 1,
A-2
1997, constituted the Board of Directors of the Company (the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board of Directors
of the Company; provided, however, that any individual becoming a director
subsequent to May 1, 1997, whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then serving and comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents; or (iii)
approval by the Board of Directors or the shareholders of the Company of a (A)
tender offer to acquire any of the Common Stock or voting securities, (B)
reorganization, (C) merger or (D) consolidation, other than a reorganization,
merger or consolidation with respect to which all or substantially all of the
individuals and entities who were the beneficial owners, immediately prior to
such reorganization, merger or consolidation, of the Common Stock and voting
securities beneficially own, directly or indirectly, immediately after such
reorganization, merger or consolidation, more than 80% of the then outstanding
common stock and voting securities (entitled to vote generally in the election
of directors) of the Company resulting from such reorganization, merger or
consolidation in substantially the same proportions as their respective
ownership, immediately prior to such reorganization, merger or consolidation, of
the Common Stock and the voting securities; or (iv) Approval by the Board of
Directors or the shareholders of the Company of (A) a complete or substantial
liquidation or dissolution of the Company, or (B) the sale or other disposition
of all or substantially all of the assets of the Company, excluding a
reorganization of the Corporation under the corporate laws of a state of
Delaware.
(b) In the event of your actual termination of employment
contemporaneous with or following a Change in Control, except (x) because of
your death, (y) by the Company for Cause or Disability (as hereinafter defined)
or (z) by you other than for Good Reason (as hereinafter defined): (i) you shall
be entitled to receive, in lieu of the sums described in Section 6, an amount
equal to 100% of the Severance Benefits due and determined as if payable under
Section 6 above, for each full year or portion thereof you have been employed by
the Company, up to a maximum of 299% of the severance benefits mentioned in
Section 6 above, to be paid in accordance with the terms of this Agreement; and
(ii) the following additional provisions shall apply (which provisions shall
supersede any other provisions of the Agreement, including but not limited to
Section 2 of the Agreement, to the extent such provisions are inconsistent with
the following provisions):
(1) Disability. For purposes of this Section 7(c),
termination by the Company of your employment based on "Disability" shall mean
termination because of your absence from your duties with the Company on a full
time basis for one hundred eighty (180) consecutive days as a result of your
incapacity due to physical or mental illness, unless within thirty (30) days
after Notice of Termination (as hereinafter defined) is given to you following
such absence, you shall have returned to the full time performance of your
duties.
(2) Good Reason. Termination by you of your employment for
"Good Reason" shall mean termination based on:
A-3
(A) a determination that there has been a material
adverse change in your status or position(s) as an executive officer of the
Company as in effect immediately prior to the Change in Control, including,
without limitation, a material adverse change in your status or position as a
result of a diminution in your duties or responsibilities (other than, if
applicable, any such change directly attributable to the fact that the Company
is no longer publicly owned) or the assignment to you of any duties or
responsibilities which are inconsistent with such status or position(s), or any
removal of you from, or any failure to reappoint or reelect you to, such
position(s) (except in connection with the termination of your employment for
Cause or Disability or as a result of your death or by you other than for Good
Reason) and further provided that you have given the Company notice of this
material adverse change and the Company has failed to correct such material
adverse change within a reasonable period of time (but at least 14 days after
written notice from you);
(B) a reduction by the Company (within three years
following the Change of Control) in your Base Salary as in effect immediately
prior to the Change in Control;
(C) the failure by the Company (within three years
following the Change of Control) to continue in effect any Plan (as hereinafter
defined) in which you are participating at the time of the Change in Control of
the Company (or Plans providing you with at least substantially similar
benefits) other than as a result of the normal expiration of any such Plan in
accordance with its terms as in effect at the time of the Change in Control, or
the taking of any action, or the failure to act, by the Company which would
adversely affect your continued participation in any of such Plans on at least
as favorable a basis to you as is the case on the date of the Change in Control
or which would materially reduce your benefits in the future under any of such
Plans or deprive you of any material benefit enjoyed by you at the time of the
Change in Control;
(D) the failure by the Company to provide and credit you
with the number of paid vacation days to which you are then entitled in
accordance with the Company's normal vacation policy as in effect immediately
prior to the Change in Control;
(E) the Company's requiring you to be based at any
office that is greater than thirty (30) miles from where your office is located
immediately prior to the Change in Control except for required travel on the
Company's business to an extent substantially consistent with the business
travel obligations which you undertook on behalf of the Company prior to the
Change in Control;
(F) the failure by the Company to obtain from any
Successor (as hereinafter defined) the assent to this Agreement contemplated by
Section 7(c)(7) hereof; or
(G) any purported termination by the Company of your
employment which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 7(c)(4) below (and, if applicable, Section 7(c)(1)
above); and for purposes of this Agreement, no such purported termination shall
be effective.
A-4
For purposes of this Agreement, "Plan" shall mean any compensation plan
or any employee benefit plan such as a thrift, pension, profit sharing, medical,
disability, accident, life insurance plan or a relocation plan or policy or any
other plan, program or policy of the Company intended to benefit employees.
(3) [INTENTIONALLY LEFT BLANK]
(4) Notice of Termination. Any purported termination by the
Company or by you following a Change in Control shall be communicated by written
notice to the other party hereto which indicates the specific termination
provision in this Agreement relied upon (the "Notice of Termination").
(5) Date of Termination. "Date of Termination" following a
Change in Control shall mean (A) if your employment is to be terminated for
Disability, thirty (30) days after Notice of Termination is given (provided that
you shall not have returned to the performance of your duties on a full-time
basis during such thirty (30) day period), (B) if your employment is to be
terminated by the Company for any reason other than death or Disability or by
you pursuant to Sections 7(c)(2)(F) or 7(c)(7) hereof or for any other Good
Reason, the date specified in the Notice of Termination, or (C) if your
employment is terminated on account of your death, the day after your death. In
the case of termination of your employment by the Company for Cause, if you have
not previously expressly agreed in writing to the termination, then within
thirty (30) days after receipt by you of the Notice of Termination with respect
thereto, you may notify the Company that a dispute exists concerning the
Termination, in which event the Date of Termination shall be the date set either
by mutual written agreement of the parties or by arbitration as described in '17
of the Agreement.
(6) Compensation Upon Termination or During Disability;
Other Agreements.
(A) During any period following a Change in Control of
the Company that you fail to perform your duties as a result of incapacity due
to physical or mental illness, you shall continue to receive your Base Salary at
the rate then in effect and any benefits or awards under any Plan shall continue
to accrue during such period, to the extent not inconsistent with such Plans,
until and unless your employment is terminated pursuant to and in accordance
with this Section 7(c). Thereafter, your benefits shall be determined in
accordance with the Plans then in effect.
(B) If your employment is terminated for Cause following
a Change in Control of the Company, the Company shall pay to you your Base
Salary through the Date of Termination at the rate in effect just prior to the
time a Notice of Termination is given plus any benefits or awards (including
both the cash and stock components) which pursuant to the terms of any Plans
have been earned or become payable, but which have not yet been paid to you.
Thereupon, the Company shall have no further obligations to you under this
Agreement.
A-5
(7) Successors, Binding Agreement.
(A) The Company will seek, by written request at least
five (5) business days prior to the time a Person becomes a Successor (as
hereinafter defined), to have such Person, by agreement in form and substance
satisfactory to you, assent to the fulfillment of the Company's obligations
under this Agreement. Failure of such Person to furnish such assent by the later
of (i) three (3) business days prior to the time such Person becomes a Successor
or (ii) two (2) business days after such Person receives a written request to so
assent shall constitute Good Reason for termination by you of your employment if
a Change in Control of the Company occurs or has occurred. For purposes of this
Section 7 of Exhibit A, "Successor" shall mean any person that succeeds to, or
has the practical ability to control, the Company's business directly, by merger
or consolidation, or indirectly, by purchase of the Company's securities
eligible to vote for the election of directors, or otherwise.
(B) This Agreement shall inure to the benefit of and be
enforceable by your personal legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die while
any amount would still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to your devisee, legatee or other designee or,
if no such designee exists, to your estate.
(C) For purposes of this Section 7, the "Company" shall
include any subsidiaries of the Company and any corporation or other entity
which is the surviving or continuing entity in respect of any merger,
consolidation or form of business combination in which the Company ceases to
exist; provided, however, for purposes of determining whether a Change in
Control has occurred herein, the term "Company" shall refer to Applied Science
and Technology, Inc. or its Successor(s).
(8) Fees and Expenses; Mitigation.
(A) The Company shall reimburse you, on a current basis,
for all reasonable legal fees and related expenses incurred by you in connection
with the Agreement following a Change in Control of the Company, including
without limitation, (i) all such fees and expenses, if any, incurred in
contesting or disputing any termination of your employment or (ii) your seeking
to obtain or enforce any right or benefit provided by this Agreement, in each
case, regardless of whether or not your claim is upheld by a court of competent
jurisdiction; provided, however, you shall be required to repay any such amounts
to the Company to the extent that a court issues a final and non-appealable
order setting forth the determination that the position taken by you was
frivolous or advanced by you in bad faith.
A-6
(B) You shall not be required to mitigate the amount of
any payment the Company becomes obligated to make to you in connection with this
Agreement, by seeking other employment or otherwise.
(9) Taxes. All payments to be made to you under this
Agreement will be subject to required withholding of federal, state and local
income and employment taxes.
(d) Notwithstanding any other provision of this Agreement, in the
event that any payment or benefit received or to be received by you as a result
of or in connection with a Change in Control, whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the Company (all
such payment and benefits being hereinafter called the "Total Payments") would
subject you to the excise tax (the "Excise Tax") imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), then, to the extent
necessary to eliminate any such imposition of the Excise Tax (after taking into
account any reduction in the Total Payments in accordance with the provisions of
any other plan, arrangement or agreement, if any), (a) any non-cash severance
payments otherwise payable to you shall first be reduced (if necessary, to
zero), and (b) any cash severance payment otherwise payable to you shall next be
reduced. For purposes of the immediately preceding sentence, (i) no portion of
the Total Payments the receipt or enjoyment of which you shall have effectively
waived in writing shall be taken into account, (ii) no portion of the Total
Payment shall be taken into account which in the opinion of
nationally-recognized certified public accountants (in each case as mutually
selected by you and the Company) does not constitute a "parachute payment"
within the meaning of Section 280G of the Code, including, without limitation,
by reason of Section 280G(b)(2) or (b)(4)(A) of the Code, (iii) any payments to
you shall be reduced only to the extent necessary so that the Total Payments
[other than those referred to in clauses (i) and (ii)] in their entirety
constitute reasonable compensation for services actually rendered within the
meaning of section 280G(4)(B) of the Code or are otherwise not subject to
disallowance as deductions, in the opinion of the tax counsel or the accountants
referred to in clause (ii); and (iv) the value of any non-cash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by such accountants in accordance with the requirements of section 280G(d)(3)
and (4) of the Code (and such determination shall be reviewed by such tax
counsel).
8. Expenses. The Company shall reimburse you for all usual and ordinary
business expenses incurred by you in the scope of your employment hereunder.
[THIS SPACE INTENTIONALLY LEFT BLANK]
A-7
EXHIBIT B
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS OF
MICHAEL DeLUCA
None
B-1
EXHIBIT C
- --------------------------------------------------------------------------------
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
To: Applied Science and Technology, Inc.
35 Cabot Road
Woburn, Massachusetts 01801
As of May 1, 1997
The undersigned, in consideration of and as a condition of my
employment or continued employment by you and/or by companies which you own,
control, or are affiliated with or their successors in business (collectively,
the "Company"), hereby agrees as follows:
1. Confidentiality. I agree to keep confidential, except as the Company
may otherwise consent in writing, and, except for the Company's benefit, not to
disclose or make any use of at any time either during or subsequent to my
employment, any Inventions (as hereinafter defined), trade secrets, confidential
information, knowledge, data or other information of the Company relating to
products, processes, know-how, designs, formulas, test data, customer lists,
business plans, marketing plans and strategies, pricing strategies, or other
subject matter pertaining to any business of the Company or any of its
affiliates, which I may produce, obtain, or otherwise acquire during the course
of my employment, except as herein provided. I further agree not to deliver,
reproduce or in any way allow any such trade secrets, confidential information,
knowledge, data or other information, or any documentation relating thereto, to
be delivered to or used by any third parties without specific direction or
consent of a duly authorized representative of the Company.
2. Conflicting Employment; Return of Confidential Material. I agree
that during my employment with the Company I will not engage in any other
employment, occupation, consulting or other activity relating to the business in
which the Company is now or may hereafter become engaged, or which would
otherwise conflict with my obligations to the Company. In the event my
employment with the Company terminates for any reason whatsoever, I agree to
promptly surrender and deliver to the Company all records, materials, equipment,
drawings, documents and data of which I may obtain or produce during the course
of my employment, and I will not take with me any description containing or
pertaining to any confidential information, knowledge or data of the Company
which I may produce or obtain during the course of my employment.
C-1
3. Assignment of Inventions.
3.1 I hereby acknowledge and agree that the Company is the owner of
all Inventions. In order to protect the Company's rights to such Inventions, by
executing this Agreement I hereby irrevocably assign to the Company all my
right, title and interest in and to all Inventions to the Company.
3.2 For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, technologies, devices, or improvements in any
of the foregoing or other ideas, whether or not patentable and whether or not
reduced to practice, made or conceived by me (whether solely or jointly with
others) during the period of my employment with the Company which relate in any
manner to the actual or demonstrably anticipated business, work, or research and
development of the Company, or result from or are suggested by any task assigned
to me or any work performed by me for or on behalf of the Company.
3.3 Any discovery, process, design, technology, device, or
improvement in any of the foregoing or other ideas, whether or not patentable
and whether or not reduced to practice, made or conceived by me (whether solely
or jointly with others) which I develop entirely on my own time not using any of
the Company's equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such Personal
Invention (a) does not relate to the actual or demonstrably anticipated
business, research and development of the Company, and (b) does not result,
directly or indirectly, from any work performed by me for the Company.
4. Disclosure of Inventions. I agree that in connection with any
Invention, I will promptly disclose such Invention to my immediate superior at
the Company in order to permit the Company to enforce its property rights to
such Invention in accordance with this Agreement. My disclosure shall be
received in confidence by the Company.
5. Patents and Copyrights; Execution of Documents.
5.1 Upon request, I agree to assist the Company or its nominee (at
its expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
Inventions in any and all countries. Such patents and copyrights shall be and
remain the sole and exclusive property of the Company or its nominee. I agree to
perform such lawful acts as the Company deems to be necessary to allow it to
exercise all right, title and interest in and to such patents and copyrights.
5.2 In connection with this Agreement, I agree to execute,
acknowledge and deliver to the Company or its nominee upon request and at its
expense all documents, including assignments of title, patent or copyright
applications, assignments of such applications, assignments of patents or
copyrights upon issuance, as the Company may determine necessary or desirable to
C-2
protect the Company's or its nominee's interest in Inventions, and/or to use in
obtaining patents or copyrights in any and all countries and to vest title
thereto in the Company or its nominee to any of the foregoing.
6. Maintenance of Records. I agree to keep and maintain adequate and
current written records of all Inventions made by me (in the form of notes,
sketches, drawings and other records as may be specified by the Company), which
records shall be available to and remain the sole property of the Company at all
times.
7. Prior Inventions. It is understood that all Personal Inventions, if
any, whether patented or unpatented, which I made prior to my employment by the
Company, are excluded from this Agreement. To preclude any possible uncertainty,
I have set forth on Schedule A attached hereto a complete list of all of my
prior Personal Inventions, including numbers of all patents and patent
applications and a brief description of all unpatented Personal Inventions which
are not the property of a previous employer. I represent and covenant that the
list is complete and that, if no items are on the list, I have no such prior
Personal Inventions. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company which appears to
threaten or conflict with proprietary rights I claim in any Personal Invention.
In the event of my failure to give such notice, I agree that I will make no
claim against the Company with respect to any such Personal Invention.
8. Other Obligations. I acknowledge that the Company from time to time
may have agreements with other persons or with the U.S. Government or agencies
thereof, which impose obligations or restrictions on the Company regarding
Inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the Company's
obligations.
9. Trade Secrets of Others. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep confidential proprietary information, knowledge or
data acquired by me in confidence or in trust prior to my employment with the
Company, and I will not disclose to the Company, or induce the Company to use,
any confidential or proprietary information or material belonging to any
previous employer or others. I agree not to enter into any agreement either
written or oral in conflict herewith.
10. Modification. I agree that any subsequent change or changes in my
employment duties, salary or compensation or, if applicable, in any Employment
Agreement between the Company and me, shall not affect the validity or scope of
this Agreement.
11. Successors and Assigns. This Agreement shall be binding upon my
heirs, executors, administrators or other legal representatives and is for the
benefit of the Company, its successors and assigns.
C-3
12. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it in accordance with a judgment of a court
of competent jurisdiction, so as to be enforceable to the extent compatible with
applicable law.
13. Waivers. If either party should waive any breach of any provision
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
14. Complete Agreement, Amendments. I acknowledge receipt of this
Agreement, and agree that with respect to the subject matter thereof it is my
entire agreement with the Company, superseding any previous oral or written
communications, representations, understandings, or agreements with the Company
or any officer or representative thereof. Any amendment to this Agreement or
waiver by either party of any right hereunder shall be effective only if
evidenced by a written instrument executed by the parties hereto, and, in the
case of the Company, upon written authorization of the Company's Board of
Directors.
15. Headings. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
16. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
17. Governing Law. This Agreement shall be governed and construed under
Massachusetts law.
18 Employment Status. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company to terminate the employment
of the Employee.
EMPLOYEE
---------------------------------
Michael DeLuca
Accepted and Agreed:
APPLIED SCIENCE AND TECHNOLOGY, INC.
By:
------------------------------------------
Dr. Richard S. Post, President
C-4
SCHEDULE A
LIST OF PRIOR INVENTIONS
OF MICHAEL DeLUCA
Identifying Number or
Title Date Brief Description
----- ---- -----------------
NONE
C-5
EXHIBIT 11
----------
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Years ended
--------------------------------------
June 28, June 29, July 1,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net earnings (loss) $ 937,759 (7,296,775) 1,127,748
========== ========== ==========
Primary earnings (loss) per share:
Weighted average common shares outstanding 4,457,501 4,204,764 3,889,000
Dilutive stock options and warrants 60,792 -- 17,800
---------- ---------- ----------
4,518,293 4,204,764 3,906,800
========== ========== ==========
Net earnings (loss) per share $ 0.21 (1.74) .29
========== ========== ==========
Fully diluted earnings per share:
Weighted average common shares outstanding 4,457,502 4,204,764 3,889,000
Dilutive stock options and warrants 371,612 -- 103,100
---------- ---------- ----------
4,829,114 4,204,764 3,992,100
========== ========== ==========
Net earnings (loss) per share $ 0.19 (1.74) .28
========== ========== ==========
</TABLE>
EXHIBIT 21
----------
LIST OF SUBSIDIARIES
--------------------
ASTEX CPI, Inc.
ETO, Inc.
Newton Engineering Service, Inc.
Applied Science and Technology, GmbH
ASTEX/Gerling Laboratories, Inc.
EXHIBIT 23
----------
KPMG Peat Marwick LLP
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 33-80135 and Form S-8 No. 33-97566) of Applied Science and
Technology, Inc. of our report dated July 30, 1997 except as to note 16, which
is as of September 3, 1997, relating to the consolidated balance sheets of
Applied Science and Technology, Inc. and Subsidiaries as of June 28, 1997 and
June 29, 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended June 28, 1997 which report appears in the June 28, 1997, annual
report on Form 10-K of Applied Science and Technology, Inc.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Boston, Massachusetts
September 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANYS
FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 28, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> JUN-28-1997
<CASH> 3,246,337
<SECURITIES> 0
<RECEIVABLES> 12,242,261
<ALLOWANCES> (326,342)
<INVENTORY> 10,013,422
<CURRENT-ASSETS> 26,347,597
<PP&E> 12,654,130
<DEPRECIATION> (5,150,881)
<TOTAL-ASSETS> 39,327,221
<CURRENT-LIABILITIES> 9,391,295
<BONDS> 6,368,913
0
0
<COMMON> 45,190
<OTHER-SE> 23,443,820
<TOTAL-LIABILITY-AND-EQUITY> 39,327,221
<SALES> 46,984,755
<TOTAL-REVENUES> 47,967,138
<CGS> 30,052,877
<TOTAL-COSTS> 30,557,234
<OTHER-EXPENSES> 15,751,099
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 585,462
<INCOME-PRETAX> 1,487,759
<INCOME-TAX> 550,000
<INCOME-CONTINUING> 1,487,759
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 937,599
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.19
</TABLE>
