SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
__________________________________________
FORM 10-K
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 28, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-13876
THERMOSPECTRA CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-3242970
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
81 Wyman Street, P.O. Box 9046
Waltham, Massachusetts 02254-9046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
---------------------------- -----------------------
Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to
the filing requirements for at least the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference into Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant as of January 24, 1997, was approximately $46,430,000.
As of January 24, 1997, the Registrant had 12,448,000 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year
ended December 28, 1996, are incorporated by reference into Parts I and
II.
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on June 2, 1997, are incorporated by
reference into Part III.
PAGE
<PAGE>
PART I
Item 1. Business
(a) General Development of Business
ThermoSpectra Corporation (the Company or the Registrant) develops,
manufactures, and markets precision imaging, inspection, and measurement
instrumentation that uses high-speed data acquisition and digital
processing technologies. These instruments are generally combined with
proprietary operations and analysis software to provide industrial and
research customers with integrated systems that address their specific
needs. The Company was incorporated in Delaware in August 1994 as an
indirect, wholly owned subsidiary of Thermo Instrument Systems Inc.
(Thermo Instrument), a publicly traded subsidiary of Thermo Electron
Corporation (Thermo Electron).
The Company has achieved and maintains its competitive position
primarily by addressing specific customer needs through the application
of advanced technologies in instrument design. The Company has identified
a number of strategies to grow its business, including developing new
applications for its technology to address related market segments,
identifying and acquiring complementary businesses, and strengthening its
presence in selected geographic markets.
On March 12, 1997, the Company acquired Park Scientific Instruments
Corporation (PSI), for $16.9 million in cash, including the repayment of
$1.3 million in debt, subject to a post-closing adjustment. In addition,
the Company assumed outstanding PSI stock options that are exercisable
into 183,940 shares of Company common stock at a weighted average
exercise price of $3.44 per share, with an aggregate value of
approximately $2.1 million as of the date of the merger agreement. PSI is
a manufacturer of scanning probe microscopes used in industry and
academia to test and measure the topography and other surface properties
of materials.
On March 29, 1996, Thermo Instrument acquired a substantial portion
of the businesses comprising the Scientific Instruments Division of
Fisons plc (Fisons), a wholly owned subsidiary of Rhone-Poulenc Rorer,
Inc. Pursuant to an agreement executed on August 5, 1996, the Company
acquired Kevex Instruments and Kevex X-Ray (the Kevex businesses), which
were formerly part of Fisons, from Thermo Instrument for $21.5 million in
cash. The purchase price is subject to a post-closing adjustment based on
a post-closing adjustment to be negotiated with Fisons by Thermo
Instrument in connection with the negotiations for the settlement of the
final purchase price for all of the businesses of Fisons acquired by
Thermo Instrument in March 1996. Kevex Instruments is a manufacturer of
X-ray microanalyzers and X-ray fluorescence instruments and Kevex X-Ray
is a manufacturer of specialty X-ray sources.
As of December 28, 1996, Thermo Instrument owned 8,998,936 shares of
the common stock of the Company, representing 72% of such stock
outstanding. Thermo Instrument develops, manufactures, and markets
instruments used to detect and measure air pollution, radioactivity,
complex chemical compounds, toxic metals, and other elements in a broad
range of liquids and solids, as well as to control and monitor various
industrial processes. As of December 28, 1996, Thermo Electron owned
2PAGE
<PAGE>
109,153 shares of the common stock of the Company, representing 0.9% of
such stock outstanding. During 1996*, Thermo Electron purchased 108,000
shares in the open market for a total purchase price of $1,591,000.
Thermo Electron is a world leader in environmental monitoring and
analysis instruments, biomedical products such as heart-assist devices
and mammography systems, paper-recycling and papermaking equipment,
biomass electric power generation, and other specialized products and
technologies. Thermo Electron also provides a range of services related
to environmental quality.
Forward-looking Statements
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Annual Report
on Form 10-K. For this purpose, any statements contained herein that are
not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "believes,"
"anticipates," "plans," "expects," "seeks," "estimates," and similar
expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause the results of the
Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the caption "Forward-looking
Statements" in the Registrant's 1996 Annual Report to Shareholders
incorporated herein by reference.
(b) Financial Information About Industry Segments
The Company is engaged in one business segment: developing,
manufacturing, and marketing precision imaging, inspection, and
measurement instrumentation.
(c) Description of Business
(i) Principal Products and Services
Digital Signal Measurement Instruments
Digital Storage Oscilloscopes. The Company develops, manufactures,
and markets digital storage oscilloscopes (DSOs), which measure both
transient and repetitive, time-varying electrical, mechanical, or
physical phenomena. Key technologies in a DSO include the ability to
collect and convert large amounts of data quickly into a usable format
for analysis, display, and storage. These functions are accomplished
using state-of-the-art, application-specific integrated circuits designed
and developed in-house. Examples of applications for high-accuracy DSOs
include the recording and analysis of automotive crash-test data to
determine the level of safety provided by the material surrounding
passengers; the testing of airbags and anti-lock braking systems by
automotive design engineers; and the measurement of electrical and
electronic parameters in control circuits, telecommunications, radar, and
automotive electronics.
* References to 1996, 1995, and 1994 herein are for the fiscal years
ended December 28, 1996, December 30, 1995, and December 31, 1994,
respectively.
3PAGE
<PAGE>
The Company manufactures and sells a broad line of high-accuracy and
general-purpose DSOs for worldwide distribution. The Company's
entry-level product is a two-channel, portable DSO. The mid-level product
line is available in numerous configurations of speed, memory, and
analysis capability to suit a broad range of applications. In the
high-end, high-accuracy segment, the Company offers a variety of
configurations of its Pro Series models.
Digital Oscillographic Recorders. The Company markets a family of
portable and benchtop oscillographic recording instruments addressing
everything from field service applications to laboratory research and
development. These products are primarily used to measure physical
parameters such as stress, pressure, displacement, acceleration, voltage,
and current. They provide real-time, continuous monitoring for periods
ranging from seconds to hours. Oscillographic recorders receive signals
from sensors attached directly to the device under test. These physical
signals are converted to electrical signals by signal conditioning
modules, and are displayed and recorded as continuously varying
waveforms. They typically utilize recording paper for both acquisition
and analysis of data.
In the past, oscillographic recorders were entirely analog with the
signal from the sensor causing a pen to move back and forth on a moving
strip of paper. Analysis was performed by observation and manual
measurement of the waveform. New products use digital technology to
display, record, and store data. All of the Company's new instruments
offer these capabilities along with the ability to transfer this acquired
data to a personal computer for analysis using proprietary software
optimized for handling large data files. These products are used in a
wide variety of applications including medical and pharmaceutical
research, automotive engine performance testing, electric power condition
monitoring, and machinery testing. Recording systems are often configured
for specific applications such as flight telemetry recording and
automotive emission testing.
The market for traditional paper oscillographic recorders has
declined during recent years, however, the requirement for instruments
capable of recording data digitally, along with the associated benefits
of this technology, has steadily increased. This is particularly true for
software-based instruments that allow users to customize the data
acquisition and analysis to their specific application needs.
Data Acquisition Systems. The Company has recently developed systems
to address the broad-based data acquisition marketplace. Data acquisition
systems are increasing in popularity as replacement instruments for
traditional measurement solutions such as digital recorders and
instrument tape recorders, and are often used in the research,
development, and verification of new products.
The Company sells a line of data hardware and software products. The
entry-level product offering is a line of PC acquisition cards. Mid-level
products offer features such as continuous recording to disk and signal
conditioning for process and medical applications. High-end systems
include an instrument designed for continuous recording of physical data,
a multichannel transient recorder product to complement the Company's
4PAGE
<PAGE>
high-accuracy DSO line, and an ultraportable, hardened data acquisition
system for monitoring data in remote or harsh environments, such as
in-vehicle applications. Software offered by the Company ranges from
simple control and display programs to more extensive analysis and custom
report generation packages.
The Company markets its digital signal measurement instruments in the
United States and Europe through a combination of direct salespeople,
distributors, and sales representatives, and in the rest of the world
through over 90 distributors and sales representatives. Revenues from
digital signal measurement instruments represented 45%, 51%, and 30% of
the Company's total revenues in 1996, 1995, and 1994, respectively.
Imaging and Inspection Systems
X-ray Microanalyzers. The Company develops, manufactures, and markets
X-ray microanalysis instruments that analyze the elemental composition of
microscopic samples by detecting, collecting, sorting, and measuring
X-rays emitted by a sample excited by an energy source. The technology is
based on the principle that the pattern of X-rays emitted by each
element, when stimulated to do so, is unique and characteristic of that
element; thus, the X-ray microanalyzer can construct a spectral image and
elemental concentration map of a precise area (i.e., one micron) on a
sample surface.
X-ray microanalysis is used in materials science and industrial
laboratories for failure analysis, advanced materials characterization,
and purity control analysis. For example, integrated circuit
manufacturers utilize X-ray microanalysis to identify and analyze
imperfections and contaminants in semiconductor devices, and aerospace
companies use it to examine composite materials to determine strength and
stress resistance.
The Company manufactures X-ray microanalyzers, including energy-
dispersive spectrometers (EDS) and wavelength-dispersive spectrometers
(WDS), that primarily operate as accessories to electron microscopes,
providing elemental materials analysis as a supplement to the
microscopes' imaging capabilities. The Company's EDS systems collect
emitted X-rays of all wavelengths and sort them electronically. The
instruments are considered easier to use than WDS and have the advantage
of being able to analyze all elements simultaneously. The Company's WDS
separate the X-rays emitted by the sample into their component
wavelengths by a diffraction crystal, and then detect and measure them
quantitatively, usually one element at a time. WDS offers higher
resolution than EDS and better detection of light elements, an important
advantage for samples with very low concentrations of certain elements.
The key technology in an X-ray microanalyzer is an X-ray detector
that converts the energy of an X-ray into an electrical signal to be
processed and quantified by an analyzer. The X-ray detector is comprised
of silicon or germanium crystals enclosed behind a protective window. The
Company manufactures its own crystals to ensure product quality. In
addition, the Company's detectors have a high-quality protective window
that provides superior light element sensitivity.
5PAGE
<PAGE>
Industrial customers, universities, and government laboratories
represent the majority of the end users of X-ray microanalysis systems.
The Company estimates that the U.S., Europe, and Japan represent most of
the worldwide market. Historically, the Company has had a strong
competitive position in the U.S. and Europe, and has recently
strengthened its presence in the Pacific Rim. Over 50% of the Company's
sales of X-ray microanalyzers are to electron microscope manufacturers,
including Japan Electro Optical Laboratories, Hitachi, Ltd., and Amray,
for resale to end users. The Company sells its X-ray microanalyzers in
the U.S. through a direct sales force; through a combination of direct
salespeople, distributors, and sales representatives in Europe, Japan,
and the rest of the Pacific Rim; and through original equipment
manufacturer (OEM) relationships with electron microscope manufacturers.
X-ray Fluorescence Instruments. The Company also manufactures a range
of X-ray fluorescence instruments that incorporate an X-ray source into
the instrument to excite the sample. Some applications involve bulk
sample analysis but the instruments are primarily used for microanalysis
in the semiconductor and electronics industries. Applications include the
nondestructive measurement of film thickness and composition for the
control of manufacturing processes, particularly semiconductor silicon
wafer manufacturing.
The Company's X-ray fluorescence instruments utilize energy
dispersive X-ray technology to allow the rapid analysis and
identification of materials on a micro scale and on a nondestructive
basis. The combination of X-ray source and detector technology allows the
Company to offer products with unique capabilities for industrial process
analysis. In the area of semiconductor thin film metrology, the Company's
X-ray fluorescence instruments are used for the nondestructive analysis
of the thickness and composition of metallic films and coatings in
semiconductor wafers and devices. This analysis allows the manufacturer
greater control of the manufacturing process, which ultimately will
improve yields.
The Company markets its X-ray fluorescence instruments through a
combination of direct sales people, distributors, and representatives.
Specialty X-ray Sources. The Company designs, manufactures, and sells
a range of microfocus X-ray tubes, power supplies, and integrated units
that include a high voltage power supply, control electronics, and an
X-ray tube. The Company's X-ray tubes offer high stability and small
focal spots, making them ideal for industrial and medical applications,
including quality control and inspection, thickness gauging, chemical
analysis, clinical fluoroscopy, and bone densitometry.
The Company sells its X-ray sources primarily to OEMs through a
direct sales force in the United States, a distributor in Japan, and
through both direct sales and distributors in the remainder of the world.
X-ray Inspection Systems. The Company designs, manufactures, and
sells real-time, nondestructive, high-resolution X-ray imaging systems
for process monitoring and quality control applications within the
electronic assembly and light industrial markets.
6PAGE
<PAGE>
Such X-ray systems are used in applications where it is necessary to
see through an object and view the internal structure. For example, in
the surface mount assembly of printed circuit boards, the solder joints
are hidden underneath the components attached to the board and can only
be inspected with the use of X-ray. Within the semiconductor market,
X-ray systems are used to detect assembly problems associated with the
attachment of the silicon die to the package substrate, electrical wire
replacements, and identification of porosity in the plastic cover, all of
which could lead to failure of the device. Manufacturers are increasingly
using X-ray systems where component failure would result in safety or
liability issues. Many automotive electronics and airbag components are
100% inspected with X-rays for this reason. The performance benefit of
real-time X-ray imaging lies in its ability to produce clear images of
the internal structure of hidden or encapsulated objects.
The Company focuses on the following four segments of the market for
nonmedical X-ray systems used in nondestructive testing applications:
assembled printed circuit boards; semiconductor fabrication and
packaging; multilayer bare board production; and targeted light
industrial applications, such as automotive airbag component inspection.
The customers for the Company's products are mainly automotive electronic
manufacturers, telecommunication companies, contract printed circuit
board assemblers, computer manufacturers, and media and data storage
companies.
The Company's product line offers a full range of models covering
applications from entry-level, manually-operated systems to full in-line
automation. The Company currently offers four manual systems targeted at
electronics and light industrial applications. The manual products are
qualitative tools that offer high-resolution imaging, which enables an
operator to take measurements and manually interpret the image. The
Company also offers four fully automated product families targeted
specifically to the assembled printed circuit board and automotive airbag
markets. These in-line systems are quantitative tools utilizing
computer-aided design programming interfaces, automated computer image
analysis, and networked defect data reporting to meet the real-time
process monitoring needs of the targeted market segments.
The Company markets its X-ray inspection systems worldwide through a
network of 20 domestic and 19 international sales representatives.
Confocal Laser Scanning Microscopes. The Company develops,
manufactures, and markets confocal laser scanning microscopy equipment.
Confocal laser scanning microscopy is a relatively new imaging technology
that involves a research-grade optical microscope equipped with
additional optical elements and a laser light source to enhance depth
resolution and create more sharply focused images from thick specimens,
as well as sharp contrast surface imaging of opaque materials.
Applications range from neurobiology research to analysis of chocolate
fat composition for optimal texture.
The Company's confocal microscopy products offer high quality
confocal digital imaging with flexible scanning capabilities, ranging
from a few frames per second to super-video speeds of 480 frames per
second. Super-video imaging speeds allow users to observe dynamic events
7PAGE
<PAGE>
that occur faster than can be seen by the human eye. In response to
customer demand for a system that could meet the needs of multiple users,
the Company has introduced a confocal laser scanning microscope that
produces both super-video rates and high-resolution images.
The U.S., Europe, and Japan represent an estimated 30%, 30%, and 35%,
respectively, of the worldwide market for confocal microscopes. Life
science research represents an estimated 75% of the market for confocal
microscopes and the materials science market represents the balance.
Within the life science segment of the market, an estimated 60% of units
are sold to universities, 15% to government laboratories, and the balance
to the pharmaceutical and food processing industries.
The Company sells its confocal laser scanning microscope directly
through three employees in the United States, one in England, and through
a network of distributors and sales representatives in the rest of the
world.
Scanning Probe Microscopes. Through its recently acquired PSI
subsidiary, the Company designs, manufactures, and sells a family of
scanning probe microscopes, including vacuum, ambient air, and liquid
cell systems. Scanning probe microscopy is a new imaging tool that offers
three-dimensional resolution used for studying the surface properties of
materials down to the atomic level. Scanning probe microscope
capabilities include measuring physical surface properties such as
magnetic fields, surface conductivity, and static charge distribution.
Applications range from analyzing roughness to imaging micron-sized
protrusions on the surface of a living cell.
The Company's instruments are used for academic, semiconductor,
computer storage, materials science, optics, and life science
applications. The Company sells its scanning probe microscopes through a
direct sales force, representatives, and distributors throughout the
world.
Revenues from imaging and inspection systems represented 55%, 49%,
and 70% of the Company's total revenues in 1996, 1995, and 1994,
respectively.
(ii) and (xi) New Products; Research and Development
The Company maintains active programs for the development of both
hardware and software to create new applications for its instruments that
address related market segments and to enhance existing applications.
Research and development expenses for the Company were $12,910,000,
$9,036,000, and $4,149,000 in 1996, 1995, and 1994, respectively.
(iii) Raw Materials
Raw materials, components, and supplies purchased by the Company are
either available from a number of different suppliers or from alternative
sources that could be developed without a material adverse effect on the
Company's business. To date, the Company has experienced no difficulties
in obtaining these materials.
8PAGE
<PAGE>
(iv) Patents, Licenses, and Trademarks
The Company's policy is to protect its intellectual property rights
and to apply for patent protection when appropriate. The Company is the
owner of a number of patents. Patent protection provides the Company with
competitive advantages with respect to certain instruments. The Company
believes, however, that technical know-how and trade secrets are more
important to its business than patent protection.
(v) Seasonal Influences
There are no significant seasonal influences on the Company's sales
of its products.
(vi) Working Capital Requirements
There are no special inventory requirements or credit terms extended
to customers that would have a material adverse effect on the Company's
working capital requirements.
(vii) Dependency on a Single Customer
No single customer accounted for more than 10% of the Company's total
revenues in any of the past three years.
(viii) Backlog
The Company's backlog of firm orders was $24.5 million as of December
28, 1996, and $14.3 million as of December 30, 1995. The Company believes
that substantially all of the backlog as of December 28, 1996, will be
shipped during 1997. The Company does not believe that the size of its
backlog is necessarily indicative of intermediate or long-term trends in
its business.
(ix) Government Contracts
Not applicable.
(x) Competition
The Company competes primarily on the basis of technical advances
that result in new products and improved price/performance ratios and
reputation among customers as a quality leader for products and services.
To a lesser extent, the Company competes on the basis of price. The
Company is not aware of any other company that competes with it in all of
its product lines. Some of the Company's competitors have resources
substantially greater than those of the Company.
Digital Signal Measurement Instruments
In the digital signal measurement instrument market, the Company
competes on the basis of its software capability, which provides
real-time analysis and permits nontechnical personnel to operate its
instruments, the quality of its signal conditioning, its range of
analysis capabilities, and its ability to offer fully integrated systems.
9PAGE
<PAGE>
To a lesser extent, the Company competes on price. In addition to the
Company, the market for digital oscillographic recorders is characterized
by competition among a number of competitors, including Astro-Med, Inc.
and Yokogawa Corporation. The general purpose DSO market is dominated by
Tektronix, Inc. and Hewlett-Packard Co. (HP). Competitors in the
high-accuracy line include companies whose participation in this business
is secondary to their focus on one or more vertical markets, and several
small companies which directly compete with the Company. Competition for
data acquisition systems ranges from manufacturers of entire systems,
such as HP, to manufacturers of specialty printed circuit boards and
software and analysis packages, such as National Instruments Corporation.
Imaging and Inspection Systems
The Company competes in both the high- and mid-ends of the X-ray
microanalysis market. In the high end of this market, the Company offers
superior imaging and user-interface software. By incorporating computer
workstations in its systems, the Company believes it offers its customers
superior ability to collect, analyze, and display images, and to network
into a broader laboratory environment. The Company also offers mid-level
products in this market, with instruments that operate on a personal
computer platform. The Company competes in the mid end of this market on
the basis of quality, performance, and price. The primary competitor in
this segment is Link Analytical Limited, a wholly owned subsidiary of
Oxford Instruments plc (Oxford).
The Company's X-ray fluorescence product offerings compete in the
high end of this market. The Company believes that its combination of
world-leading X-ray source and detector technology gives its products
unique capabilities for industrial process analysis. The Company competes
on the basis of quality, performance, technology, and price. The primary
competitors in this segment are Horiba Ltd., Seiko Instruments Inc.
(Seiko), and Jordan Valley Applied Radiation, Ltd.
The Company competes in the specialty X-ray source market on the
basis of quality and price. The Company believes that the compact nature
of its portable X-ray products make them suitable for a wider variety of
applications than the products of its competitors. Competitors in such
markets include True Focus Inc., Oxford, and Hamamatsu Photonics KK.
In the X-ray inspection market, the Company competes on the basis of
superior imaging performance, imaging analysis algorithms, customer
applications expertise, overall machine flexibility and quality, and
price. In the manual segment of the X-ray inspection market, the Company
competes primarily with a few small companies. In the automated segment,
its main competitor is Four Pi, a subsidiary of HP. No company occupies
an across-the-board dominant position. Competitors also include
manufacturers of visible and laser-based inspection systems.
The Company competes primarily in the digital video imaging segment
of the confocal microscopy market. The Company believes that its ability
to capture 480 images per second makes its microscopes attractive to
customers in the market place. The Company also competes by offering a
highly integrated software package to its customers. The Company competes
only to a lesser extent on the basis of price. The Company believes it
10PAGE
<PAGE>
holds a minor market share of the overall confocal life sciences market,
and a significant share of the smaller digital video imaging segment.
Major competitors include Bio-Rad Laboratories, Inc., Carl Zeiss, Inc.,
and Leica PLC. In the digital video imaging segment, Nikon, Inc. is the
Company's primary competitor.
The Company competes in the scanning probe microscope market on the
basis of quality and, to a lesser extent, price. The dominant competitor
in this market is Digital Instruments Inc. Other competitors include
Seiko and Topometrix Corporation.
(xii) Environmental Protection Regulations
The Company believes that compliance by the Company with federal,
state, and local environmental protection regulations will not have a
material adverse effect on its capital expenditures, earnings, or
competitive position.
(xiii) Number of Employees
As of December 28, 1996, the Company employed approximately 790
people.
(d) Financial Information About Exports by Domestic Operations and About
Foreign Operations
Financial information about exports by domestic operations and about
foreign operations is summarized in Note 11 to Consolidated Financial
Statements in the Registrant's 1996 Annual Report to Shareholders and is
incorporated herein by reference.
(e) Executive Officers of the Registrant
Present Title (Year First Became
Name Age Executive Officer)
-----------------------------------------------------------------------
Theo Melas-Kyriazi 37 President and Chief Executive Officer
(1994)
Christopher J. Barron 48 Vice President (1994)
Ronald W. Lindell 45 Vice President (1994)
John N. Hatsopoulos 62 Vice President and Chief Financial
Officer (1994)
Paul F. Kelleher 54 Chief Accounting Officer (1994)
Each executive officer serves until his successor is chosen or
appointed by the Board of Directors and qualified or until earlier
resignation, death, or removal. Messrs. Hatsopoulos and Kelleher have
held comparable positions for at least five years with Thermo Instrument
and Thermo Electron. Mr. Melas-Kyriazi has been President and Chief
Executive Officer of the Company since August 1994 and, from 1988 to
August 1994, was the Treasurer of Thermo Instrument and Thermo Electron.
Mr. Barron has been a Vice President of the Company since August 1994 and
President of Nicolet Instrument Technologies, Inc. since August 1993. Mr.
Barron held various positions within Nicolet Instrument Corporation
(Nicolet) from May 1988 to August 1993. Nicolet is a wholly owned
11PAGE
<PAGE>
subsidiary of Thermo Optek Corporation, a publicly traded, majority-owned
subsidiary of Thermo Instrument. Mr. Lindell has been a Vice President of
the Company since August 1994 and President of Nicolet Imaging Systems
since January 1994. Mr. Lindell was a founder of Imaging Systems
International, Inc. and its President from November 1992 to January 1994.
From November 1989 to March 1992, he was Senior Vice President and
General Manager of the Industrial Products Division of IRT Corporation.
Each of the above-named officers is a full-time employee of the Company
except for Messrs. Hatsopoulos and Kelleher, who are full-time employees
of Thermo Electron, but devote such time to the affairs of the Company as
the Company's needs reasonably require.
Item 2. Properties
The Company owns approximately 230,000 square feet of office,
engineering, laboratory, and manufacturing space in Middleton, Wisconsin;
Hainault, England; Valencia, California; and San Diego, California. The
Company leases approximately 230,000 square feet of additional office,
engineering, laboratory, and manufacturing space under leases expiring
from 1997 through 2005, principally in Valley View, Ohio; San Diego,
California; Sunnyvale, California; Scotts Valley, California; and in
Madison, Wisconsin. The Company believes that its facilities are in good
condition and are suitable and adequate for its present operations.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
12PAGE
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Information concerning the market and market price for the
Registrant's Common Stock, $.01 par value, and dividend policy is
included under the sections labeled "Common Stock Market Information" and
"Dividend Policy" in the Registrant's 1996 Annual Report to Shareholders
and is incorporated herein by reference.
Item 6. Selected Financial Data
The information required under this item is included under the
sections labeled "Selected Financial Information" and "Dividend Policy"
in the Registrant's 1996 Annual Report to Shareholders and is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required under this item is included under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Registrant's 1996 Annual Report to
Shareholders and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Registrant's Consolidated Financial Statements as of December 28,
1996, and Supplementary Data are included in the Registrant's 1996 Annual
Report to Shareholders and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
13PAGE
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information concerning directors required under this item is
incorporated herein by reference from the material contained under the
caption "Election of Directors" in the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A, not later than 120 days after the close of
the fiscal year. The information concerning delinquent filers pursuant to
Item 405 of Regulation S-K is incorporated herein by reference from the
material contained under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance" under the caption "Stock Ownership" in the
Registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, not later than 120
days after the close of the fiscal year.
Item 11. Executive Compensation
The information required under this item is incorporated herein by
reference from the material contained under the caption "Executive
Compensation" in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is incorporated herein by
reference from the material contained under the caption "Stock Ownership"
in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later
than 120 days after the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required under this item is incorporated herein by
reference from the material contained under the caption "Relationship
with Affiliates" in the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission pursuant to Regulation
14A, not later than 120 days after the close of the fiscal year.
14PAGE
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a,d) Financial Statements and Schedules
(1) The consolidated financial statements set forth in the list
below are filed as part of this Report.
(2) The consolidated financial statement schedules set forth in
the list below are filed as part of this Report.
(3) Exhibits filed herewith or incorporated herein by reference
are set forth in Item 14(c) below.
List of Financial Statements and Schedules Referenced in this
Item 14
Information incorporated by reference from Exhibit 13 filed
herewith:
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Shareholders' Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Statement Schedules filed herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable
or not required, or because the required information is shown
either in the financial statements or in the notes thereto.
(b) Reports on Form 8-K
On August 19, 1996, the Company filed a Current Report on Form
8-K pertaining to its acquisition of substantially all of the
assets of NK Instruments Inc., a wholly owned subsidiary of the
Company's parent, Thermo Instruments Inc. On October 1, 1996,
the Company filed an amendment on Form 8-K/A, the purpose of
which was to file the financial information required by Form 8-K
concerning this acquisition.
(c) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
15PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed by the undersigned, thereunto duly authorized.
Date: March 17, 1997 THERMOSPECTRA CORPORATION
By:Theo Melas-Kyriazi
--------------------------------
Theo Melas-Kyriazi
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated, as of March 17, 1997.
Signature Title
--------- -----
By: Theo Melas-Kyriazi President, Chief Executive Officer,
--------------------
Theo Melas-Kyriazi and Director
By: John N. Hatsopoulos Vice President and Chief Financial
-------------------
John N. Hatsopoulos Officer
By: Paul F. Kelleher Chief Accounting Officer
--------------------
Paul F. Kelleher
By: Elias P. Gyftopoulos Director
--------------------
Elias P. Gyftopoulos
By: Earl R. Lewis Chairman of the Board and Director
--------------------
Earl R. Lewis
By: Arvin H. Smith Director
--------------------
Arvin H. Smith
By: Michael P. Stansky Director
--------------------
Michael P. Stansky
16PAGE
<PAGE>
Report of Independent Public Accountants
----------------------------------------
To the Shareholders and Board of Directors of ThermoSpectra Corporation:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in
ThermoSpectra Corporation's Annual Report to Shareholders incorporated by
reference in this Form 10-K, and have issued our report thereon dated
February 11, 1997 (except with respect to certain matters discussed in
Note 13, as to which the date is March 12, 1997). Our audits were made
for the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in Item 14 on page 15 is the responsibility of
the Company's management and is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the
basic consolidated financial statements. This schedule has been subjected
to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly states in
all material respects the consolidated financial data required to be set
forth therein in relation to the basic consolidated financial statements
taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
February 11, 1997
17PAGE
<PAGE>
SCHEDULE II
THERMOSPECTRA CORPORATION
Valuation And Qualifying Accounts
(In thousands)
Balance Provision
at Charged Accounts Balance
Beginning to Accounts Written at End
Description of Year Expense Recovered Off Other(a) of Year
-----------------------------------------------------------------------------
Year Ended
December 28, 1996
Allowance for
Doubtful
Accounts $1,095 $ 199 $ 1 $ (436) $ 657 $1,516
Year Ended
December 30, 1995
Allowance for
Doubtful
Accounts $1,007 $ 192 $ - $ (559) $ 455 $1,095
Year Ended
December 31, 1994
Allowance for
Doubtful
Accounts $ 89 $ 375 $ 20 $ (17) $ 540 $1,007
(a) Includes allowance of businesses acquired during the year as described
in Note 2 to Consolidated Financial Statements in the Registrant's 1996
Annual Report to Shareholders and the effect of foreign currency
translation.
18PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
2.1 Asset Purchase Agreement dated as of August 5, 1996, between
the Registrant and Thermo Instrument Systems Inc. for the
purchase of the Kevex businesses (filed as Exhibit 2 to the
Registrant's Quarterly Report on form 10-Q for the quarter
ended June 29, 1996 [File No. 1-13876] and incorporated
herein by reference).
2.2 Agreement and Plan of Merger dated as of January 30, 1997, by
and among the Registrant, Park Acquisition Corp., and Park
Scientific Instruments Corporation. Pursuant to Item
601(b)(2) of Regulation S-K, schedules to this Agreement have
been omitted. The Registrant hereby undertakes to furnish
supplementally a copy of such schedules to the Commission
upon request.
3.1 Certificate of Incorporation of the Registrant (filed as
Exhibit 3.1 to the Registrant's Registration Statement on
Form S-1 [Reg. No. 33-93778] and incorporated herein by
reference).
3.2 By-Laws of the Registrant (filed as Exhibit 3.2 to the
Registrant's [Reg. No. 33-93778] and incorporated herein by
reference).
10.1 Corporate Services Agreement dated as of August 10, 1994,
between the Registrant and Thermo Electron Corporation (filed
as Exhibit 10.1 to the Registrant's Registration Statement on
Form S-1 [Reg. No. 33-93778] and incorporated herein by
reference).
10.2 Thermo Electron Corporate Charter, as amended and restated
effective January 3, 1993 (filed as Exhibit 10.1 to Thermo
Electron's Annual Report on Form 10-K for the fiscal year
ended January 2, 1993 [File No. 1-8002] and incorporated
herein by reference).
10.3 Tax Allocation Agreement dated as of August 10, 1994, between
the Registrant and Thermo Electron (filed as Exhibit 10.3 to
the Registrant's Registration Statement on Form S-1 [Reg. No.
33-93778] and incorporated herein by reference).
10.4 Amended and Restated Master Repurchase Agreement dated as of
December 28, 1996, between the Registrant and Thermo
Electron.
10.5 Master Guarantee Reimbursement Agreement dated as of August
10, 1994, between the Registrant and Thermo Electron (filed
as Exhibit 10.5 to the Registrant's Registration Statement on
Form S-1 [Reg. No. 33-93778] and incorporated herein by
reference).
19PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.6 Master Guarantee Reimbursement Agreement dated as of August
10, 1994, between the Registrant and Thermo Instrument (filed
as Exhibit 10.6 to the Registrant's Registration Statement on
Form S-1 [Reg. No. 33-93778] and incorporated herein by
reference).
10.7 ThermoSpectra - Park Scientific Instruments Corporation 1988
Incentive Stock Option Plan.
10.8 Lease Agreement dated as of November 30, 1995, between
Nicolet Instrument Corporation and Nicolet Instrument
Technologies, Inc. (filed as Exhibit 10.8 to the Registrant's
1995 Annual Report on Form 10-K [File No. 1-13876] and
incorporated herein by reference).
10.9 Lease Agreement dated as of July 26, 1989, between Gould
Instrument Systems, Inc. (successor-in-interest to Gould,
Inc.) and Linclay (filed as Exhibit 10.9 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-93778] and
incorporated herein by reference).
10.10 Lease Agreement dated as of October 19, 1994, between RREEF
West-VI, Inc. and Thermo Instrument (filed as Exhibit 10.10
to the Registrant's Registration Statement on Form S-1 [Reg.
No. 33-93778] and incorporated herein by reference).
10.11 Stock Purchase Agreement dated as of May 10, 1995, among the
Registrant, Thermo Instrument, and Japan Energy Corporation
(filed as Exhibit 10.11 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-93778] and incorporated
herein by reference).
10.12 $7.3 Million Note due September 2001 issued to Thermo
Instrument (filed as Exhibit 10.17 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-93778] and
incorporated herein by reference).
10.13 Equity Incentive Plan of the Registrant (filed as Exhibit
10.18 to the Registrant's Registration Statement on Form S-1
[Reg. No. 33-93778] and incorporated herein by reference).
In addition to the stock-based compensation plans of the
Registrant, the executive officers of the Registrant may be
granted awards under stock-based compensation plans of Thermo
Electron and Thermo Instrument for services rendered to the
Registrant or such affiliated corporations. Thermo Electron's
plans were filed as Exhibits 10.21 through 10.44 to the
Annual Report on Form 10-K of Thermo Electron for the fiscal
year ended December 30, 1995 [File No. 1-8002] and as Exhibit
10.19 to the Annual Report on Form 10-K of Trex Medical
Corporation for the fiscal year ended September 28, 1996
20PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
[File No. 1-11827], and Thermo Instrument's plans were filed
as Exhibits 10.18 through 10.27 to the Annual Report on Form
10-K of Thermo Instrument for the fiscal year ended December
28, 1996 [File No. 1-9786], and are incorporated herein by
reference.
10.14 Deferred Compensation Plan for Directors of the Registrant
(filed as Exhibit 10.19 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-93778] and incorporated
herein by reference).
10.15 Directors' Stock Option Plan of the Registrant (filed as
Exhibit 10.20 to the Registrant's Registration Statement on
Form S-1 [Reg. No. 33-93778] and incorporated herein by
reference).
10.16 Form of Indemnification Agreement for Officers and Directors
(filed as Exhibit 10.21 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-93778] and incorporated
herein by reference).
10.17 Restated Stock Holdings Assistance Plan and Form of
Promissory Note.
10.18 $15,000,000 Promissory Note dated as of August 5, 1996,
issued by the Registrant to Thermo Electron (filed as Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 29, 1996 [File No. 1-13876] and
incorporated herein by reference).
10.19 $10,000,000 Promissory Note dated as of March 12, 1997,
issued by the Registrant to Thermo Electron.
11 Statement re: Computation of earnings per share.
13 Annual Report to Shareholders for the year ended December 28,
1996 (only those portions incorporated herein by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
Exhibit 2.2
Execution Copy
AGREEMENT AND PLAN OF MERGER
Agreement entered into as of January 30, 1997 by and among
ThermoSpectra Corporation, a Delaware corporation (the
"Buyer"), Park Acquisition Corp., a Delaware corporation and
a wholly-owned subsidiary of the Buyer (the "Transitory
Subsidiary"), and Park Scientific Instruments Corporation, a
California corporation (the "Company"). The Buyer, the
Transitory Subsidiary and the Company are referred to
collectively herein as the "Parties."
This Agreement contemplates a merger of the Transitory
Subsidiary into the Company. In such merger, the
shareholders of the Company will receive cash in exchange
for their capital stock of the Company.
Now, therefore, in consideration of the representations,
warranties and covenants herein contained, the Parties agree
as follows.
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in
Section 1.3 below), in accordance with this Agreement, the
General Corporation Law of the State of California (the
"California Law") and the Delaware General Corporation Law
(the "Delaware Law"), the Transitory Subsidiary shall be
merged with and into the Company (the "Merger"), the
separate existence of the Transitory Subsidiary shall cease
and the Company shall continue as the surviving corporation.
The Company is hereinafter sometimes referred to as the
"Surviving Corporation." At the election of the Buyer, any
direct or indirect wholly-owned subsidiary of the Buyer
organized under the laws of a state of the United States may
be substituted for the Transitory Subsidiary as a
constituent corporation in the Merger for purposes of this
Section 1.1. At the election of the Buyer, the Merger may be
structured so that the Company shall be merged with and into
the Transitory Subsidiary with the result that the
Transitory Subsidiary shall be the "Surviving Corporation."
If the Buyer elects to structure the Merger so that the
Transitory Subsidiary, rather than the Company, is the
Surviving Corporation, (a) the inaccuracy of any
representation or warranty of the Company which is premised
on the assumption that the Company shall be the Surviving
Corporation, which representation or warranty becomes
inaccurate solely as the result of the Transitory
Subsidiary, rather than the Company, being the Surviving
Corporation, shall not be deemed to be a breach of such
representation or warranty and shall not release Buyer and
the Transitory Subsidiary from their duties and obligations
1PAGE
<PAGE>
under this Agreement, (b) the other provisions of this
Agreement relating to the Merger (including without
limitation Section 1.4) shall be deemed to be appropriately
modified to reflect such alternative structure and (c) any
Taxes incurred by the Company that would not have been
incurred had the Company been the Surviving Corporation
shall be the responsibility of Buyer and Transitory
Subsidiary and such Taxes shall not give rise to any
obligation on the part of the Company Shareholders, as
defined below, or to any liability to be reflected in the
Closing Balance Sheet, as defined below.
1.2 EFFECT OF THE MERGER. At the Effective Time, the
Surviving Corporation shall continue its corporate existence
under the laws of the State of California and the Merger
shall have the effects set forth in Section 259 of the
Delaware Law and Section 1107 of the California Law.
1.3 CONSUMMATION OF THE MERGER. At the Closing (as defined
in Section 1.6), the Parties will cause the Merger to be
consummated by delivering to the Secretary of State of the
State of Delaware a certificate of merger and by delivering
to the Secretary of State of the State of California an
agreement of merger, together with officer's certificates,
each in such form or forms as may be required by, and
executed and acknowledged in accordance with, the relevant
provisions of the Delaware Law and the California Law (such
documents being referred to collectively as the "Merger
Documents"), and shall make all other filings and recordings
required by the Delaware Law and the California Law in
connection with the Merger. The Merger shall become
effective at the time of filing of the appropriate Merger
Documents with the Secretary of State of the State of
California, or at such later time, which shall be as soon as
reasonably practicable, specified as the effective time in
the Merger Documents (the "Effective Time").
1.4 ARTICLES OF INCORPORATION; BYLAWS; DIRECTORS AND
OFFICERS. The Articles of Incorporation and Bylaws of the
Surviving Corporation shall be the Articles of Incorporation
and Bylaws of the Company as in effect immediately prior to
the Effective Time until thereafter amended as provided
under the California Law. The directors of the Transitory
Subsidiary immediately prior to the Effective Date will be
the initial directors of the Surviving Corporation, and the
officers of the Company immediately prior to the Effective
Time will be the initial officers of the Surviving
Corporation, in each case until their successors are elected
and qualified.
1.5 CONVERSION OF SHARES.
(a) At the Effective Time, by virtue of the Merger and
without any action on the part of the Transitory Subsidiary,
2PAGE
<PAGE>
the Company, the Surviving Corporation or the holder of any
of the following securities:
(i) Subject to Section 1.5(b), (c) and (d), each share
(other than shares to be canceled pursuant to clause (vi)
below) of the Company's common stock (the "Company Common
Stock") issued and outstanding immediately prior to the
Effective Time (the "Outstanding Common Stock") shall be
canceled and extinguished and be converted into and become
the right to receive that amount of cash, without interest
(the "Common Stock Consideration"), equal to the quotient of
(A) $16,055,656 less all payments made pursuant to clauses
(ii) through (v) below, divided by (B) the sum of the total
shares of Outstanding Common Stock and the total number of
shares of Company Common Stock underlying the Company
Options (as defined below) which are granted, vested and
outstanding immediately prior to the Effective Time (the
"Vested Option Shares").
(ii) Subject to Section 1.5(b), (c) and (d), each share
(other than shares to be canceled pursuant to clause (vi)
below) of the Company's Series B Preferred Stock ("Series B
Stock") issued and outstanding immediately prior to the
Effective Time (the "Outstanding Series B Stock") shall be
canceled and extinguished and be converted into the right to
receive $2.00 in cash, without interest.
(iii) Subject to Section 1.5(b), (c) and (d), each share
(other than shares to be canceled pursuant to clause (vi)
below) of the Company's Series C Preferred Stock (the
"Series C Stock") issued and outstanding immediately prior
to the Effective Time (the "Outstanding Series C Stock")
shall be canceled and extinguished and be converted into the
right to receive $1.25 in cash, without interest.
(iv) Subject to Section 1.5(b), (c) and (d), each share
(other than shares to be canceled pursuant to clause (vi)
below) of the Company's Series D Preferred Stock (the
"Series D Stock") issued and outstanding immediately prior
to the Effective Time (the "Outstanding Series D Stock")
shall be canceled and extinguished and be converted into the
right to receive $1.274 in cash, without interest.
(v) Subject to Section 1.5(b), (c) and (d), each share
(other than shares to be canceled pursuant to clause (vi)
below) of the Company's Series E Preferred Stock ("Series E
Stock") issued and outstanding immediately prior to the
Effective Time (the "Outstanding Series E Stock") shall be
canceled and extinguished and be converted into the right to
receive $1.274 in cash, without interest. The Outstanding
Common Stock, Outstanding Series B Stock, Outstanding Series
C Stock, Outstanding Series D Stock and Outstanding Series E
Stock are sometimes collectively referred to herein as the
"Company Shares."
3PAGE
<PAGE>
(vi) Each Company Share that is issued and outstanding
immediately prior to the Effective Time and owned by the
Buyer, the Transitory Subsidiary or the Company or any
direct or indirect subsidiary of the Buyer, the Transitory
Subsidiary or the Company, shall be canceled and retired,
and no payment shall be made with respect thereto.
(vii) Each share of the Transitory Subsidiary's capital
stock issued and outstanding immediately prior to the
Effective Time shall be converted into and become one
validly issued, fully paid and nonassessable share of the
same class of capital stock of the Surviving Corporation.
(b) The aggregate amount of cash paid in consideration for
the Company Shares (the "Merger Consideration") shall be
subject to adjustment after the Closing Date as follows:
(i) Within 60 days after the Closing Date (as defined in
Section 1.6), the Buyer shall prepare and deliver to Craig
Taylor, as representative of the Company Shareholders (the
"Company Shareholder Representative"), a balance sheet
reflecting the Net Assets (as defined below) of the Company
as of the Closing Date (the "Draft Closing Balance Sheet").
The Buyer shall prepare the Draft Closing Balance Sheet in
accordance with GAAP (as defined in Section 2.6 below) as
applied consistent with the Company's past accounting
periods. For purposes of this Agreement "Net Assets" shall
mean total assets of the Company (excluding any cash
resulting from the exercise of Company Options prior to the
Closing) minus total liabilities of the Company (excluding
any liability to Needham & Company, Inc. or to John
Schwabacher pursuant to engagement letters dated March 4,
1996 and January 1, 1996, respectively (together, the
"Engagement Letters")).
(ii) On the same day on which the Buyer delivers the Draft
Closing Balance Sheet to the Company Shareholder
Representative, the Buyer shall also deliver to the Company
Shareholder Representative a statement (the "Draft Closing
Backlog Statement") reflecting, as of the Closing Date, the
Company's backlog of binding purchase orders from customers
in the United States with firm shipment dates no later than
120 days after the Closing Date and the Company's backlog of
orders from its Subsidiaries, provided that any such
Subsidiary has binding purchase orders from third party
customers with firm shipment dates no later than 120 days
after the Closing Date equal to such backlog (collectively,
the "Closing Backlog"). Closing Backlog shall also include
all verbal purchase orders received by the Company and
assigned purchase order numbers by customers as of the
Closing Date, provided that the Company shall receive within
five business days after the Closing Date a binding written
purchase order with firm shipment date no later than 120
4PAGE
<PAGE>
days after the Closing Date relating to any such verbal
purchase order. Immediately prior to the Closing, the chief
financial officer of the Company shall deliver to the Buyer
and the Transitory Subsidiary a certificate setting forth
the verbal purchase orders outstanding as of the Closing
Date. For purposes of determining verbal purchase orders
received as of the Closing Date such certificate shall be
conclusive.
(iii) The Company Shareholder Representative shall deliver
to the Buyer within 60 days after receiving the Draft
Closing Balance Sheet and the Draft Closing Backlog
Statement a detailed statement describing his objections (if
any) thereto. Failure of the Company Shareholder
Representative so to object to the Draft Closing Balance
Sheet or the Draft Closing Backlog Statement shall
constitute acceptance thereof, whereupon the Draft Closing
Balance Sheet and the Draft Closing Backlog Statement shall
be deemed to be the "Closing Balance Sheet" and the "Closing
Backlog Statement," respectively . The Buyer and the Company
Shareholder Representative shall use reasonable efforts to
resolve any such objections, but if they do not reach a
final resolution within 30 days after the Buyer has received
the statement of objections, the Buyer and the Company
Shareholder Representative shall select an internationally
recognized accounting firm mutually acceptable to them (the
"Neutral Auditors") to resolve any remaining objections. If
the Buyer and the Company Shareholder Representative are
unable to agree on the choice of Neutral Auditors, they
shall select by lot a "big six" accounting firm other than
Deloitte & Touche LLP and Arthur Andersen LLP as Neutral
Auditors. The Draft Closing Balance Sheet shall be adjusted
by the Neutral Auditors only to conform to GAAP and, as so
adjusted, shall constitute the Closing Balance Sheet. The
Draft Closing Backlog Statement shall be adjusted by the
Neutral Auditors only to conform to the definition of
Closing Backlog and, as so adjusted, shall constitute the
Closing Backlog Statement. All such adjustments by the
Neutral Auditors shall be conclusive and binding upon the
Buyer and the shareholders of the Company as of the
Effective Time (the "Company Shareholders"). The Buyer, on
one hand, and the Company Shareholders, on the other, shall
share equally the fees and expenses of the Neutral Auditors.
The Company Shareholders' portion of such fees and expenses
shall be deducted from the Escrow Amount (as defined in
Section 1.10) and returned by the Escrow Agent (as defined
in Section 1.7) to the Buyer, as provided in the Escrow
Agreement (as defined in Section 1.7), which will pay such
amount to the Neutral Auditors.
(iv) During the period of any dispute referred to above,
the Buyer shall cooperate fully with the Company Shareholder
Representative and the Company Shareholder Representative's
accountants. The Company Shareholder Representative and the
5PAGE
<PAGE>
Company Shareholder Representative's accountants shall have
access to all books and records and other information of the
Company reasonably necessary for the evaluation of the Draft
Closing Balance Sheet and the Draft Closing Backlog
Statement; provided, however, that any such access shall be
allowed only in such manner as not to interfere unreasonably
with the operations of the Company.
(v) If the Net Assets as shown on the Closing Balance Sheet
are less than $2,772,500 then an amount equal to such
shortfall shall be deducted from the Escrow Amount and
returned by the Escrow Agent to the Buyer as provided in the
Escrow Agreement, and such amount shall not be paid in
consideration for the Company Shares in the Merger.
(vi) Provided that Closing Backlog is greater than or equal
to $2,150,000, if the Net Assets as shown on the Closing
Balance Sheet are more than $2,772,500 then an amount equal
to such excess shall be added to the Escrow Amount and, at
the discretion of the Company Shareholder Representative,
either (A) paid to the Company Shareholder Representative
(for distribution to the Company Shareholders) by the Escrow
Agent within twenty (20) business days following the
acceptance of the Closing Balance Sheet, provided that the
Escrow Agent and the Buyer are notified by the Company
Shareholder Representative of such payment at least ten (10)
business days prior to the date of such payment or (B) held
by the Escrow Agent pursuant to the Escrow Agreement, in
which case such amount shall be deemed to have been paid in
consideration for the Company Shares in the Merger.
(vii) If the Closing Backlog as shown on the Closing
Backlog Statement is less than $1,900,000, then an amount
equal to fifty percent (50%) of such shortfall shall be
deducted from the Escrow Amount and returned by the Escrow
Agent to the Buyer as provided in the Escrow Agreement, and
such amount shall not be paid in consideration for the
Company Shares in the Merger.
(viii) If the Closing Backlog as shown on the Closing
Backlog Statement is greater than $2,150,000, then an amount
equal to fifty percent (50%) of such excess shall be added
to the Escrow Amount and, at the discretion of the Company
Shareholder Representative, either (A) paid to the Company
Shareholder Representative (for distribution to the Company
Shareholders) by the Escrow Agent within twenty (20)
business days following the acceptance of the Closing
Balance Sheet, provided that the Escrow Agent and the Buyer
are notified by the Company Shareholder Representative of
such payment at least ten (10) business days prior to the
date of such payment or (B) held by the Escrow Agent
pursuant to the Escrow Agreement, in which case such amount
shall be deemed to have been paid in consideration for the
Company Shares in the Merger.
6PAGE
<PAGE>
(ix) If the Closing Backlog is greater than or equal to the
sum set forth in (vii) above and less than or equal to the
sum set forth in (viii) above, then no amount shall be
deducted from or added to the Escrow Amount.
(x) The adoption of this Agreement and the approval of the
Merger by the shareholders of the Company shall constitute
approval of the appointment of the Company Shareholder
Representative and ratification of all actions taken by the
Company Shareholder Representative pursuant to this Section
1.5(b).
(c) Upon the payment of the Merger Consideration as
provided in Section 1.9, $3,518,800 of such consideration
(the "Initial Escrow Amount") shall be withheld from the
payment that Company Shareholders are entitled to receive
pursuant to Section 1.5(a), and placed in an escrow account
as described in Section 1.10. Such withholding shall be
made pro rata based on the portion of Merger Consideration
that each Company Shareholder would have been entitled to
receive but for the creation of such escrow. The
consideration paid net of the Initial Escrow Amount is
referred to as the "Closing Consideration."
(d) (i) Company Shares held by a holder who, subject to and
in accordance with Section 1300 et seq. of the California
Law, has demanded and perfected his right to an appraisal of
his Company Shares and has not effectively withdrawn or lost
his right to such appraisal ("Dissenting Shares"), shall not
be converted into a right to receive Merger Consideration
and such holder shall be entitled only to such rights as are
granted by Section 1300 et seq. of the California Law. If
after the Effective Time such holder withdraws, with the
consent of the Surviving Corporation, or loses his right to
appraisal for his Company Shares, such Company Shares shall
be treated as if they had been converted as of the Effective
Time into the right to receive the amount payable in respect
of such Company Shares pursuant to Section 1.5.
(ii) The Company shall give the Buyer and the Transitory
Subsidiary prompt notice of any demands for purchase, or
notices of intent to demand purchase, received by the
Company with respect to Company Shares, and the Buyer and
the Transitory Subsidiary shall have the right to control
all negotiations and proceedings with respect to such
demands. The Company shall not, except with the prior
written consent of the Buyer and the Transitory Subsidiary
or as otherwise required by law, make any payment with
respect to, or settle, or offer to settle, any such demands.
1.6 THE CLOSING. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take
place at the offices of the Buyer in Waltham, Massachusetts,
7PAGE
<PAGE>
commencing at 2:00 p.m. local time on, March 5, 1997 or, if
all of the conditions to the obligations of the Parties to
consummate the transactions contemplated hereby have not
been satisfied or waived by such date, on such mutually
agreeable later date as soon as practicable after the
satisfaction or waiver of all conditions to the obligations
of the Parties to consummate the transactions contemplated
hereby (the "Closing Date").
1.7 ACTIONS AT THE CLOSING. At the Closing, (a) the
Company shall deliver to the Buyer and the Transitory
Subsidiary the various certificates, instruments and
documents referred to in Section 5.2, (b) the Buyer and the
Transitory Subsidiary shall deliver to the Company the
various certificates, instruments and documents referred to
in Section 5.3, (c) the Company and the Transitory
Subsidiary shall file the Merger Documents as provided in
Section 1.3, (d) the Buyer, the Company Shareholder
Representative and the Escrow Agent (as defined therein)
shall execute and deliver the Indemnification and Escrow
Agreement attached hereto as Exhibit A (the "Escrow
Agreement") and (e) the Buyer shall pay the Closing
Consideration to the Paying Agent (defined below) and the
Initial Escrow Amount to the Escrow Agent.
1.8 ADDITIONAL ACTION. The Surviving Corporation may, at
any time after the Effective Time, take any action,
including executing and delivering any document, in the name
and on behalf of either the Company or the Transitory
Subsidiary, in order to consummate the transactions
contemplated by this Agreement.
1.9 PAYMENT FOR SHARES
(a) Immediately prior to the Closing, the chief financial
officer of the Company shall deliver to the Buyer and the
Transitory Subsidiary a closing certificate (the "Closing
Certificate"), which shall set forth (i) the total number of
Vested Option Shares and the total number of Outstanding
Common Stock, Outstanding Series B Stock, Outstanding
Series C Stock, Outstanding Series D Stock and Outstanding
Series E Stock, and (ii) the Merger Consideration payable
with respect to each share of Outstanding Common Stock,
computed in the manner set forth in Section 1.5 hereof. The
Closing Certificate shall be accompanied by appropriate
documentation supporting such computations. For purposes of
determining the Merger Consideration payable to holders of
Company Common Stock, the Closing Certificate shall be
conclusive and binding upon the Company, the Company
Shareholders, the Buyer and the Transitory Subsidiary. The
determination of the Merger Consideration payable to the
holders of the Company Common Stock shall be included in the
Merger Documents.
8PAGE
<PAGE>
(b) Within five (5) business days following the Closing
Date, American Stock Transfer & Trust Company (the "Paying
Agent"), shall transmit to each Company Shareholder a form
of letter of transmittal (the "Letter of Transmittal") and
instructions for use in effecting the surrender of each
certificate representing Company Shares (a "Certificate")
held by such Company Shareholder in exchange for the Closing
Consideration represented by such Company Shares. Upon the
proper surrender of a Certificate, a duly executed Letter of
Transmittal and any required tax certifications to the
Paying Agent by a Company Shareholder in accordance with
such instructions, the Paying Agent shall deliver to such
Company Shareholder a check for the Closing Consideration
that such Company Shareholder is entitled to receive,
without interest. It shall be a condition of such payment
and delivery that the surrendered Certificate be properly
endorsed or otherwise in proper form for transfer and that
the person surrendering such shall pay any transfer or other
taxes required by reason of such payment or delivery or
establish to the satisfaction of the Paying Agent, the Buyer
and/or the Surviving Corporation that such tax has been paid
or is not applicable. Until so surrendered for payment, each
Certificate heretofore representing Company Shares (other
than Dissenting Shares) shall, subject to Section 1.10
hereof, be deemed for all purposes to evidence the right to
receive cash as described in accordance with Section 1.5
above and until so surrendered for payment, the holder of
such outstanding Certificate shall not have any rights as a
shareholder of the Company, except such rights, if any, as
such holder may have with respect to Dissenting Shares and
shall not be entitled to receive any consideration from the
Surviving Corporation and/or the Buyer with respect to the
Company Shares represented by such Certificate. If
outstanding Certificates are not surrendered, or the cash
payment therefor is not claimed prior to thirty (30) months
after the Effective Time (or, in any particular case, prior
to such earlier date on which such cash payment would
otherwise escheat to or become the property of any
governmental unit or agency), the unclaimed amounts shall,
to the extent permitted by applicable law, become the
property of the Buyer, free and clear of all claims or
interest of any person previously entitled thereto, provided
that the Buyer shall have given written notice of such event
to the Company Shareholder Representative at least sixty
(60) days prior to such transfer.
(c) In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming such Certificate to be lost,
stolen or destroyed, the Buyer shall issue in exchange for
such lost, stolen or destroyed Certificate the cash payable
in exchange therefor as provided in Section 1.5. The Buyer
may, in its discretion and as a condition precedent to the
payment thereof, require the owner of such lost, stolen or
9PAGE
<PAGE>
destroyed Certificate to give the Buyer a bond in such sum
as it may direct as indemnity against any claim that may be
made against the Buyer with respect to the Certificate
alleged to have been lost, stolen or destroyed.
1.10 ESCROW.
(a) The Escrow Amount (as defined in the Escrow Agreement)
shall be held by the Escrow Agent under the Escrow Agreement
pursuant to the terms thereof. The Escrow Amount, which
shall initially consist of the Initial Escrow Amount, shall
be held as a trust fund and shall not be subject to any
lien, attachment, trustee process or any other judicial
process of any creditor of any party, and shall be held and
disbursed solely for the purposes and in accordance with the
terms of the Escrow Agreement. It is intended that the
assets held in escrow as above provided shall facilitate the
ability of the Buyer and the Surviving Corporation to
recover amounts to which they are entitled under this
Agreement or the Escrow Agreement as a result of
misrepresentations, breaches of warranties and breaches of
covenants contained in this Agreement and to satisfy claims
of the Buyer and the Surviving Corporation arising as a
result of this Agreement or the Escrow Agreement, including
satisfaction of the Company's or Company Shareholders'
obligations under Sections 1.5(b), 8.2 or 8.12 hereof.
Accordingly, and to the extent necessary to provide such
protection to the Buyer and the Surviving Corporation,
property held in escrow thereunder shall be available to
satisfy claims of the Buyer and the Surviving Corporation
under this Agreement or the Escrow Agreement to the extent
provided in such agreements.
(b) The adoption of this Agreement and the approval of the
Merger by the Company Shareholders shall constitute approval
of the Escrow Agreement and of all of the arrangements
relating thereto, including without limitation the placement
of the Initial Escrow Amount in escrow and the appointment
of the Company Shareholder Representative.
1.11 CLOSING OF TRANSFER BOOKS. At the Effective Time, the
stock transfer books of the Company shall be closed and no
transfer of Company Shares shall thereafter be made. If,
after the Effective Time, Certificates are presented to the
Surviving Corporation they shall be canceled and exchanged
for cash in accordance with Section 1.5, subject to Section
1.10 and to applicable law in the case of Dissenting Shares.
1.12 STOCK OPTIONS. At or prior to the Effective Time,
Buyer and the Company shall take all action necessary to
cause the assumption by the Buyer as of the Effective Time
of the options to purchase Company Common Stock outstanding
as of the Effective Time (the "Company Options"). The
Company Options shall be converted without any action on the
10PAGE
<PAGE>
part of the holders thereof into options (the "Buyer
Options") to purchase shares of the common stock of the
Buyer, $.01 par value per share (the "Buyer Common Stock")
as of the Effective Time. Under the Buyer Options, the
number of shares of Buyer Common Stock that each record
holder of an option agreement which represents a Company
Option (the "Optionholders") shall be entitled to receive
upon the exercise of such Buyer Option shall be a number of
whole and fractional shares of Buyer Common Stock determined
by multiplying the number of shares of Company Common Stock
subject to such Company Option, determined immediately
before the Effective Time, by the ratio equal to the Common
Stock Consideration divided by $14.75, the closing price of
the Buyer's Common Stock as quoted on the American Stock
Exchange on the trading day immediately before the date
hereof (the "Option Exchange Ratio"). The option exercise
price of each share of Buyer Common Stock subject to any
Buyer Option shall be the amount (rounded up to the nearest
whole cent) obtained by dividing the exercise price per
share of Company Common Stock at which the assumed Company
Option was exercisable immediately before the Effective Time
by the Option Exchange Ratio. The assumption and conversion
of Company Options to Buyer Options as provided herein shall
not give the Optionholders additional benefits which they
did not have immediately prior to the Effective Time, result
in any acceleration of any vesting schedule for any Company
Option, or relieve the Optionholders of any obligations or
restrictions applicable to their options or the shares
obtainable upon exercise of the options. The parties intend
that the assumption and conversion of Company Options shall
be treated as an issuance or assumption of stock options in
a transaction to which Section 424(a) applies within the
meaning of Section 424(a) of the Code (as defined below) and
this Section 1.12 shall be interpreted and applied
consistent with such intention. Only whole shares of Buyer
Common Stock shall be issued upon exercise of any Buyer
Option and in lieu of receiving any fractional share of
Buyer Common Stock, the holder of such option shall receive
in cash the fair market value of the fractional share, net
of the applicable exercise price of the fractional share and
applicable withholding taxes.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer that the
statements contained in this Article II are true and
correct, except as set forth in the disclosure schedule
attached hereto as Exhibit B (the "Disclosure Schedule").
The Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs
contained in this Article II, and the disclosures in any
paragraph of the Disclosure Schedule shall qualify only the
corresponding paragraph in this Article II. Each individual
11PAGE
<PAGE>
representation and warranty contained herein shall be
interpreted and enforced separately and no representation or
warranty contained herein shall be construed as limiting any
other representation and warranty contained herein. The
Buyer shall be assumed to have relied upon the
representations and warranties contained herein,
notwithstanding any investigation of the Company made by the
Buyer prior to the Closing. The term "ordinary course of
business", when used in this Article II, shall mean the
ordinary course of business of the Company consistent with
its past custom and practice (including with respect to
frequency and amount).
2.1 ORGANIZATION, QUALIFICATION AND CORPORATE POWER. The
Company is a corporation duly organized, validly existing
and in corporate and tax good standing under the laws of the
state of California. The Company is duly qualified to
conduct business and is in corporate and tax good standing
as a foreign corporation in each jurisdiction in which the
failure to so qualify would have a Material Adverse Effect
(as defined below). The Company has all requisite corporate
power and authority to carry on the businesses in which it
is engaged and to own and use the properties owned and used
by it. The Company has furnished to the Buyer true and
complete copies of its Amended and Restated Articles of
Incorporation together with the Certificate of Determination
filed November 15, 1995 (collectively, the "Amended and
Restated Articles of Incorporation") and Bylaws, each as
amended and as in effect on the date hereof. Each amendment
to the Company's Amended and Restated Articles of
Incorporation has been duly adopted by all requisite
director and shareholder action and in accordance with all
applicable law. The Company is not in default under or in
violation of any provision of its Amended and Restated
Articles of Incorporation or Bylaws or any other instrument,
document or agreement setting forth the terms and conditions
of any shares of capital stock or other securities of the
Company, or the rights and obligations of any holder of such
shares or other securities, including, without limitation,
the Series B Preferred Stock Purchase Agreement dated as of
October 23, 1992 among the Company and the Purchasers listed
in the Schedule of Purchasers thereto (the "Series B
Agreement"), the Series C Preferred Stock and Warrant
Purchase Agreement dated as of November 22, 1992 among the
Company and the Purchasers listed in the Schedule of
Purchasers thereto (the "Series C Agreement"), the Series D
Preferred Stock Purchase Agreement dated as of June 29, 1994
among the Company and the Purchasers listed in the Schedule
of Purchasers thereto (the Series D Agreement") and the
Series E Preferred Stock Purchase Agreement dated as of
December 29, 1995 among the Company and the Purchasers
listed in the Schedule of Purchasers thereto (the "Series E
Agreement").
12PAGE
<PAGE>
2.2 CAPITALIZATION. The authorized capital stock of the
Company consists of (i) 20,000,000 shares of Company Common
Stock, of which 6,774,688 shares are issued and outstanding
and (ii) 4,000,000 shares of preferred stock ("Preferred
Stock"), of which (a) 250,000 shares have been designated
Series A Preferred Stock, of which no shares are issued and
outstanding, (b) 940,602 shares have been designated Series
B Stock, of which 273,935 shares are issued and outstanding,
(c) 280,000 shares have been designated Series C Stock, of
which all shares are issued and outstanding, (d) 1,400,000
shares have been designated Series D Stock, of which
1,237,016 shares are issued and outstanding, and (e) 382,653
shares have been designated Series E Stock, of which 353,571
shares are issued and outstanding. The shares of Series B
Stock, Series C Stock and Series D Stock issued and
outstanding are convertible into an aggregate of 1,790,951
shares of Company Common Stock, representing the conversion
of each share of Series B Stock, Series C Stock and Series D
Stock into 1.0 share of Company Common Stock. The
liquidation preferences (including any declared or
accumulated but unpaid dividends through the date hereof)
for the Series B Stock, Series C Stock, Series D Stock and
the Series E Stock are $2.00, $1.25, $.1274 and $1.274,
respectively, per share. Under the terms of the Series B
Stock, Series C Stock, Series D Stock and Series E Stock,
the Merger will be considered to be a liquidation of the
Company. Section 2.2 of the Disclosure Schedule sets forth a
complete and accurate list of (i) all shareholders of the
Company, indicating the type and number of shares held by
each shareholder, and (ii) all Optionholders and all holders
of warrants to purchase Company Common Stock (the "Company
Warrants") indicating the type and number of shares subject
to each Company Option and Company Warrant and the exercise
price, vesting status and termination date of each Company
Option and Company Warrant. All of the issued and
outstanding shares of Company Common Stock, Series B Stock,
Series C Stock, Series D Stock and Series E Stock are, and
all shares of Company Common Stock that may be issued upon
exercise of Company Options and Company Warrants or upon
conversion of Series B Stock, Series C Stock and Series D
Stock will be, upon such exercise or conversion, duly
authorized, validly issued, fully paid, nonassessable and
free of all preemptive rights. Except as set forth in
Section 2.2 of the Disclosure Schedule, there are no
outstanding or authorized shares of capital stock or other
securities or options, warrants, rights, agreements or
commitments to which the Company is a party or which are
binding upon the Company providing for the issuance,
disposition or acquisition of any of its capital stock or
other securities. There are no outstanding or authorized
stock appreciation, phantom stock or similar rights with
respect to the Company. There are no agreements, voting
trusts, proxies, or understandings with respect to the
voting or registration under the Securities Act of 1933 (the
13PAGE
<PAGE>
"Securities Act"), of any shares of any capital stock of the
Company to which the Company is party. To the Company's
knowledge, no agreements, voting trusts, proxies, or
understandings with respect to the voting or registration
under the Securities Act, of any shares of any capital stock
of the Company otherwise exist. All of the issued and
outstanding shares of Company Common Stock, Series B Stock,
Series C Stock, Series D Stock and Series E Stock and other
outstanding securities of the Company were issued in
compliance with applicable federal and state securities
laws. No repurchase of capital stock by the Company (i)
violated the Company's Amended and Restated Articles of
Incorporation or Bylaws or any laws, rules or regulations
applicable to the Company or (ii) caused any breach of any
agreement to which the Company is or was a party.
2.3 AUTHORIZATION OF TRANSACTION. The Company has all
requisite corporate power and authority to execute and
deliver this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement and,
subject to the adoption of this Agreement and the approval
of the Merger by (a) the holders of a majority of the shares
of Company Common Stock, (b) the holders of a majority of
the shares of Company Common Stock and the Preferred Stock
(calculated on an as converted basis) issued and outstanding
and entitled to vote, voting together as a single class (c)
the holders of a majority of the shares of each series of
Preferred Stock issued and outstanding and entitled to vote,
voting separately and (d) the holders of a majority of the
shares of Preferred Stock issued and outstanding and
entitled to vote, voting together as a single class
(collectively, the "Requisite Shareholder Approval"), the
performance by the Company of this Agreement and the
consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all
necessary corporate action on the part of the Company. This
Agreement has been duly and validly executed and delivered
by the Company and constitutes a valid and binding
obligation of the Company, enforceable in accordance with
its terms. The Board of Directors of the Company unanimously
has, after due consideration of its fiduciary duties, (i)
determined that this Agreement and the transactions
contemplated hereby, including the Merger, are fair to the
Company and the shareholders of the Company, (ii) approved
this Agreement and the transactions contemplated hereby,
including the Merger and (iii) resolved to recommend
approval and adoption of this Agreement and the Merger by
the shareholders of the Company.
2.4 NONCONTRAVENTION. Subject to compliance with the
applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "Hart-Scott-Rodino
Act"), and the filing of the Merger Documents with the
Secretary of State of the State of California and the
14PAGE
<PAGE>
Secretary of State of the State of Delaware, neither the
execution and delivery of this Agreement by the Company, nor
the consummation by the Company of the transactions
contemplated hereby, will (a) require on the part of the
Company or any corporation with respect to which the
Company, directly or indirectly, has the power to vote or
direct the voting of sufficient securities to elect a
majority of the directors (any of the foregoing being
referred to herein as a "Subsidiary") any filing with, or
any permit, authorization, consent or approval of, any
court, arbitration tribunal, administrative agency or
commission or other governmental or regulatory authority or
agency (a "Governmental Entity"), (b) conflict with or
violate any provision of the charter or Bylaws of the
Company or any Subsidiary, (c) conflict with, result in a
breach of, constitute (with or without due notice or lapse
of time or both) a default under, result in the acceleration
of, create in any party the right to accelerate, terminate,
modify or cancel, or require any notice, consent or waiver
under, any material contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness,
Security Interest (as defined below) or other arrangement to
which the Company or any Subsidiary is a party or by which
the Company or any Subsidiary is bound or to which any of
their assets is subject except as provided in Section 2.4 of
the Disclosure Schedule, (d) result in the imposition of any
Security Interest (as defined below) upon any assets of the
Company or any Subsidiary or (e) violate any order, writ,
injunction, decree, statute, rule or regulation applicable
to the Company, any Subsidiary or any of their properties or
assets or (f) entitle any employee of the Company or any
Subsidiary to severance or other payments or to any increase
in compensation or benefits. For purposes of this Agreement,
"Security Interest" means any mortgage, pledge, security
interest, encumbrance, charge, or other lien (whether
arising by contract or by operation of law), other than (i)
mechanic's, materialmen's, and similar liens, (ii) liens
arising under worker's compensation, unemployment insurance,
social security, retirement, and similar legislation, and
(iii) liens on goods in transit incurred pursuant to
documentary letters of credit, in each case arising in the
ordinary course of business of the Company or any Subsidiary
and not material to the Company and its Subsidiaries taken
as a whole. Section 2.4 of the Disclosure Schedule sets
forth a true, correct and complete list of all consents and
approvals of non-governmental third parties that are
required in connection with the consummation by the Company
and the Subsidiaries of the transactions contemplated by
this Agreement.
2.5 SUBSIDIARIES. Section 2.5 of the Disclosure Schedule
sets forth for each Subsidiary (a) its name and jurisdiction
of incorporation, (b) the number of shares of authorized
15PAGE
<PAGE>
capital stock of each class of its capital stock, (c) the
number of issued and outstanding shares of each class of its
capital stock, the names of the holders thereof and the
number of shares held by each such holder, (d) the number of
shares of its capital stock held in treasury, and (e) its
directors and officers. Each Subsidiary is a corporation
duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or
organization. Each Subsidiary is duly qualified to conduct
business and is in corporate and tax good standing in each
jurisdiction in which the failure to so qualify would have a
Material Adverse Effect. Each Subsidiary has all requisite
corporate power and authority to carry on the businesses in
which it is engaged and to own and use the properties owned
and used by it. The Company has delivered to the Buyer
correct and complete copies of the charter and Bylaws of
each Subsidiary, as amended to date. No Subsidiary is in
default under or in violation of any provision of its
charter or Bylaws. All of the issued and outstanding shares
of capital stock of each Subsidiary are duly authorized,
validly issued, fully paid, nonassessable and free of
preemptive rights. All shares of each Subsidiary that are
held of record or owned beneficially by either the Company
or any Subsidiary are held or owned free and clear of any
restrictions on transfer (other than restrictions under the
Securities Act and state securities laws), claims, Security
Interests, options, warrants, rights, contracts, calls,
commitments, equities and demands. There are no outstanding
or authorized options, warrants, rights, agreements or
commitments (contingent or otherwise) to which the Company
or any Subsidiary is a party or which are binding on any of
them providing for the issuance, disposition or acquisition
of any capital stock of any Subsidiary. There are no
outstanding stock appreciation, phantom stock or similar
rights with respect to any Subsidiary. There are no voting
trusts, proxies, or other agreements or understandings with
respect to the voting of any capital stock of any
Subsidiary. The Company does not control directly or
indirectly or have any direct or indirect equity
participation in any corporation, partnership, trust, or
other business association which is not a Subsidiary.
2.6 REPORTS AND FINANCIAL STATEMENTS. The Company has
provided to the Buyer (i) the audited consolidated balance
sheets and statements of operations, changes in
shareholders' equity and cash flows for each of the last
three fiscal years for the Company and the Subsidiaries (or
such shorter periods as such Subsidiaries have been in
existence); and (ii) the unaudited consolidated balance
sheet and statements of income as of and for the quarter
ended as of December 31, 1996 (the "Most Recent Fiscal
Quarter End"). Such financial statements (collectively, the
"Financial Statements") have been prepared in accordance
with United States generally accepted accounting principles
16PAGE
<PAGE>
applied on a consistent basis throughout the periods covered
thereby ("GAAP"), fairly present the consolidated financial
condition, results of operations and cash flows of the
Company and the Subsidiaries as of the respective dates
thereof and for the periods referred to therein and are
consistent with the books and records of the Company and the
Subsidiaries, provided, however, that the Financial
Statements referred to in clause (ii) above are subject to
normal recurring year-end adjustments (which will not be
material) and do not include footnotes or statements of cash
flows and changes in shareholders' equity.
2.7 ABSENCE OF CERTAIN CHANGES. Since the Most Recent
Fiscal Quarter End, (a) there has not been any material
adverse change in the assets, business, prospects, financial
condition or results of operations of the Company or its
Subsidiaries, nor has there occurred any event or
development which could reasonably be foreseen to result in
such a material adverse change in the future, and (b)
neither the Company nor any Subsidiary has taken any of the
actions set forth in paragraphs (a) through (o) of Section
4.5.
2.8 UNDISCLOSED LIABILITIES. Neither the Company nor any
of its Subsidiaries has any liability, whether absolute or
contingent, liquidated or unliquidated, accrued or unaccrued
and whether due or to become due, except for (a) liabilities
shown on the balance sheet referred to in clause (ii) of
Section 2.6 (the "Most Recent Balance Sheet"), (b)
liabilities which have arisen since the Most Recent Fiscal
Quarter End in the ordinary course of business and which are
similar in nature and amount to the liabilities which arose
during the comparable period of time in the immediately
preceding fiscal year and (c) contractual liabilities
incurred in the ordinary course of business which are not
required by GAAP to be reflected on a balance sheet.
2.9 TAX MATTERS.
(a) Each of the Company and the Subsidiaries has filed in a
timely manner (including permitted extensions) all Tax
Returns (as defined below) that it was required to file and
all such Tax Returns were correct and complete in all
material respects. All Taxes shown on such Tax Returns have
been paid in full on a timely basis or have been accrued on
the Most Recent Balance Sheet, and no other Taxes are owed
by the Company with respect to items or periods covered by
such Returns. The unpaid Taxes of the Company and the
Subsidiaries for Tax periods through the date of the Most
Recent Balance Sheet do not exceed the accruals and reserves
for Taxes set forth on the Most Recent Balance Sheet.
Neither the Company nor any Subsidiary has any actual or
potential liability for any Tax obligation of any taxpayer
(including without limitation any affiliated group of
17PAGE
<PAGE>
corporations or other entities that included the Company or
any Subsidiary during a prior period) other than the Company
and the Subsidiaries. All Taxes that the Company or any
Subsidiary is or was required by law to withhold or collect
have been duly withheld or collected and, to the extent
required, have been paid to the proper Governmental Entity.
There are no liens for Taxes on the assets of the Company or
any Subsidiary other than liens for Taxes not yet due and
payable. For purposes of this Agreement, "Taxes" means all
taxes, charges, fees, levies or other similar assessments or
liabilities, including without limitation income, gross
receipts, ad valorem, premium, value-added, excise, real
property, personal property, sales, use, transfer,
withholding, employment, payroll and franchise taxes imposed
by the United States of America or any state, local or
foreign government, or any agency thereof, or other
political subdivision of the United States or any such
government, and any interest, fines, penalties, assessments
or additions to tax resulting from, attributable to or
incurred in connection with any tax or any contest or
dispute thereof. For purposes of this Agreement, "Tax
Returns" means all reports, returns, declarations,
statements or other information required to be supplied to a
taxing authority in connection with Taxes.
(b) The Company has delivered to the Buyer correct and
complete copies of all federal income Tax Returns,
examination reports and statements of deficiencies assessed
against or agreed to by any of the Company or any Subsidiary
since December 31, 1992. The federal income Tax Returns of
the Company have never been audited by the Internal Revenue
Service. No examination or audit of any Tax Returns of the
Company or any Subsidiary by any Governmental Entity is
currently in progress or, to the knowledge of the Company
and the Subsidiaries, threatened or contemplated. Neither
the Company nor any Subsidiary has waived any statute of
limitations with respect to Taxes or agreed to an extension
of time with respect to a Tax assessment or deficiency,
which waiver or extension is still in effect. There is no
dispute or claim concerning any Tax liability of any of the
Company and its Subsidiaries, either raised or claimed in
writing by any authority or as to which the Company, its
Subsidiaries or their directors, officers or employees have
knowledge based upon personal contact with any agent of any
such authority. No claim has ever been made by an authority
in a jurisdiction where any of the Company and its
Subsidiaries does not file Tax Returns that it is or may be
subject to Tax in that jurisdiction.
(c) Neither the Company nor any Subsidiary is a "consenting
corporation" within the meaning of Section 341(f) of the
Internal Revenue Code of 1986 (the "Code") and none of the
assets of the Company nor the Subsidiaries are subject to an
election under Section 341(f) of the Code. None of the
18PAGE
<PAGE>
Company and its Subsidiaries has made any payments or is a
party to any agreement that under certain circumstances
could obligate it to make any payments that will not be
deductible under Section 280G of the Code. Neither the
Company nor any Subsidiary has been a United States real
property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified
in Section 897(c)(l)(A)(ii) of the Code. Neither the Company
nor any Subsidiary is a party to any Tax allocation or
sharing agreement.
(d) Neither the Company nor any Subsidiary is or has ever
been a member of an "affiliated group" of corporations
(within the meaning of Section 1504 of the Code), other than
a group of which only the Company and the Subsidiaries are
members. Neither the Company nor any Subsidiary has made an
election under Treasury Reg. Section 1.1502-20(g). Neither
the Company nor any Subsidiary is or has been required to
make a basis reduction pursuant to Treasury Reg. Section
1.1502-20(b) or Treasury Reg. Section 1.337(d)-2T(b).
(e) All material elections with respect to Taxes, other than
those elections reflected in the Tax Returns referred to in
subsection (b), as of the date hereof are set forth in
Section 2.9 of the Disclosure Schedule. None of the assets
of the Company nor any Subsidiary is property that the
Company or any Subsidiary is required to treat as being
owned by any other person pursuant to the "safe harbor
lease" provisions of former Section 168(f)(8) of the Code.
None of the assets of the Company nor any Subsidiary
directly or indirectly secures any debt the interest on
which is tax exempt under Section 103(a) of the Code. None
of the assets of the Company nor any Subsidiary is "tax
exempt use property" within the meaning of Section 168(h) of
the Code. Neither the Company nor any Subsidiary has agreed
to make or is required to make any adjustment under Section
481 of the Code by reason of a change in accounting method
or otherwise. Neither the Company nor any Subsidiary has
participated in an international boycott within the meaning
of Section 999 of the Code. Except as set forth in Section
2.5(e) of the Disclosure Schedule, neither the Company nor
any Subsidiary has or has had a permanent establishment in
any foreign country, as defined in any applicable treaty or
convention between the United States and such foreign
country. Neither the Company nor any Subsidiary is a party
to any joint venture, partnership or other arrangement or
contract that could be treated as a partnership for federal
income tax purposes.
2.10 ASSETS. Each of the Company and the Subsidiaries owns
or leases all tangible assets necessary for the conduct of
its businesses as presently conducted and as presently
proposed to be conducted. Each such tangible asset is free
from material defects, has been maintained in accordance
19PAGE
<PAGE>
with normal industry practice, is in good operating
condition and repair (subject to normal wear and tear) and
is suitable for the purposes for which it presently is used.
Except as described in Section 2.10 of the Disclosure
Schedule, no asset of the Company (tangible or intangible)
is subject to any Security Interest.
2.11 OWNED REAL PROPERTY. Neither the Company nor any
Subsidiary owns any real property.
2.12 INTELLECTUAL PROPERTY.
(a) Each of the Company and the Subsidiaries owns, or is
licensed or otherwise possesses legally enforceable rights
to use, all Intellectual Property (as defined below) that is
used to conduct its business as currently conducted or
planned to be conducted. For purposes of this Agreement, the
term "Intellectual Property" means all (i) patents, patent
applications, patent disclosures and all related
continuation, continuation-in-part, divisional, reissue,
reexamination, utility, model, certificate of invention and
design patents, patent applications, registrations and
applications for registrations, (ii) trademarks, service
marks, trade dress, logos, trade names and corporate names
and registrations and applications for registration thereof,
(iii) copyrights and registrations and applications for
registration thereof, (iv) mask works and registrations and
applications for registration thereof, (v) computer software
(other than software that is generally commercially
available), data and documentation, (vi) trade secrets and
confidential business information, whether patentable or
unpatentable and whether or not reduced to practice,
know-how, manufacturing and production processes and
techniques, research and development information,
copyrightable works, financial, marketing and business data,
pricing and cost information, business and marketing plans
and customer and supplier lists and information, (vii) other
proprietary rights relating to any of the foregoing and
(viii) copies and tangible embodiments thereof. Section 2.12
of the Disclosure Schedule lists (i) all patents and patent
applications, all trademarks, all registered copyrights, and
all trade names and service marks which are used in the
business of the Company or the Subsidiaries, including the
jurisdictions in which each such Intellectual Property right
has been issued or registered or in which any such
application for such issuance or registration has been
filed, (ii) all material written licenses, sublicenses and
other agreements to which the Company or a Subsidiary is a
party and pursuant to which any person is authorized to use
any Intellectual Property rights, and (iii) all material
written licenses, sublicenses and other agreements as to
which the Company or a Subsidiary is a party and pursuant to
which the Company or a Subsidiary is authorized to use any
third party Intellectual Property ("Third Party Intellectual
20PAGE
<PAGE>
Property Rights") which is used in the business of the
Company or any Subsidiary or which form a part of any
product or service of the Company or any Subsidiary. The
Company has made available to the Buyer correct and complete
copies of all such patents, registrations, applications,
licenses and agreements (as amended to date) and related
documentation. Except pursuant to the Contracts listed on
Section 2.14 of the Disclosure Schedule and except pursuant
to the licenses listed on Section 2.12 of the Disclosure
Schedule, neither the Company nor any Subsidiary has agreed
to indemnify any person or entity for or against any
infringement, misappropriation or other conflict with
respect to any item of Intellectual Property that the
Company or any Subsidiary owns or uses. Neither the Company
nor any Subsidiary is a party to any oral license,
sublicense or agreement which, if reduced to written form,
would be required to be listed in Section 2.12 of the
Disclosure Schedule under the terms of this Section 2.12(a).
(b) Neither the Company nor any of the Subsidiaries is, nor
will any of them be as a result of the execution and
delivery of this Agreement or the performance of the
Company's obligations under this Agreement, in breach of any
license, sublicense or other agreement relating to the
Intellectual Property or Third Party Intellectual Property
Rights.
(c) Neither the Company nor any of the Subsidiaries has been
named in any suit, action or proceeding which involves a
claim of infringement of any Intellectual Property right of
any third party. Except as set forth on Section 12.2(c) of
the Disclosure Schedule, no person or entity has alleged,
either orally or in writing, that the manufacturing,
marketing, licensing or sale of the products or performance
of the service offerings of the Company and the Subsidiaries
infringes any Intellectual Property right of any third
party. Except as set forth on Section 12.2(c) of the
Disclosure Schedules, to the knowledge of the Company and
the Subsidiaries, the Intellectual Property rights of the
Company and the Subsidiaries are not being infringed by
activities, products or services of any third party.
2.13 REAL PROPERTY LEASES. Section 2.13 of the Disclosure
Schedule lists and describes briefly all real property
leased or subleased to the Company or any Subsidiary and
lists the term of such lease or sublease, any extension and
expansion options, and the rent payable thereunder. The
Company has delivered to the Buyer correct and complete
copies of the leases and subleases (as amended to date)
listed in Section 2.13 of the Disclosure Schedule. With
respect to each lease and sublease listed in Section 2.13 of
the Disclosure Schedule:
21PAGE
<PAGE>
(a) the lease or sublease is legal, valid, binding,
enforceable and in full force and effect;
(b) the lease or sublease will continue to be legal, valid,
binding, enforceable and in full force and effect
immediately following the Closing in accordance with the
terms thereof as in effect prior to the Closing;
(c) neither the Company or any Subsidiary nor, to the best
knowledge of the Company, any other party to the lease or
sublease is in breach or default in any material respect,
and no event has occurred which, with notice or lapse of
time, would constitute any such breach or default, or permit
termination, modification, or acceleration thereunder;
(d) there are no disputes, oral agreements or forbearance
programs in effect as to the lease or sublease;
(e) neither the Company nor any Subsidiary has assigned,
transferred, conveyed, mortgaged, deeded in trust or
encumbered any interest in the leasehold or subleasehold;
(f) all facilities leased or subleased thereunder are
supplied with utilities and other services necessary for the
operation of said facilities;
(g) to the knowledge of the Company, the owner of the
facility leased or subleased has good and clear record and
marketable title to the parcel of real property, free and
clear of any Security Interest, easement, covenant or other
restriction, except for recorded easements, covenants, and
other restrictions which do not impair the intended use,
occupancy or value of the property subject thereto; and
(h) the Company and the Subsidiaries have obtained
non-disturbance agreements from the holder of each superior
Security Interest and ground lease in connection with each
such lease or sublease (each of which is listed in Section
2.13 of the Disclosure Schedule); and the representations
and warranties set forth in clauses (a) through (d) of this
Section 2.13 with respect to leases and subleases are true
and correct with respect to such non-disturbance agreements.
2.14 CONTRACTS. Section 2.14 of the Disclosure Schedule
lists the following written arrangements to which the
Company or any Subsidiary is a party:
(a) any written arrangement pursuant to which any party is
indemnified for or against any liability under Environmental
Laws (as defined in Section 2.21 below);
(b) any written arrangement (or group of related written
arrangements) for the lease of personal property from or to
22PAGE
<PAGE>
third parties providing for lease payments in excess of
$50,000 per annum;
(c) any written arrangement (or group of related written
arrangements) for the purchase or sale of raw materials,
commodities, supplies, products or other personal property
or for the furnishing or receipt of services (i) which calls
for performance over a period of more than one year, (ii)
which involves more than the sum of $50,000, or (iii) in
which the Company or any Subsidiary has granted
manufacturing rights, "most favored nation" pricing
provisions or marketing or distribution rights relating to
any products or territory or has agreed to purchase a
minimum quantity of goods or services or has agreed to
purchase goods or services exclusively from a certain party;
(d) any written arrangement establishing a partnership or
joint venture;
(e) any written arrangement (or group of related written
arrangements) under which it has created, incurred, assumed,
or guaranteed (or may create, incur, assume, or guarantee)
indebtedness (including capitalized lease obligations)
involving more than $50,000 or under which it has imposed
(or may impose) a Security Interest on any of its assets,
tangible or intangible;
(f) any written arrangement concerning confidentiality
(other than those entered into the ordinary course of
business) or noncompetition;
(g) any written arrangement involving any shareholder of the
Company or their affiliates, as defined in Rule 12b-2 under
the Securities Exchange Act of 1934 (as amended, the
"Exchange Act") ("Affiliates");
(h) any written arrangement for the purchase or sale of
assets or businesses, or for the purchase or sale of
securities;
(i) any written arrangement under which the consequences of
a default or termination could have a material adverse
effect on the assets, business, financial condition, results
of operations or future prospects of the Company and the
Subsidiaries, taken as a whole (a "Material Adverse
Effect"); and
(j) any other written arrangement (or group of related
written arrangements) either involving more than $50,000 or
not entered into in the ordinary course of business.
The Company has delivered to the Buyer a correct and
complete copy of each written arrangement (as amended to
date) listed in Section 2.14 of the Disclosure Schedule.
23PAGE
<PAGE>
With respect to each written arrangement so listed: (i) the
written arrangement is legal, valid, binding and enforceable
and in full force and effect; (ii) the written arrangement
will continue to be legal, valid, binding and enforceable
and in full force and effect immediately following the
Closing in accordance with the terms thereof as in effect
prior to the Closing; and (iii) no party is in material
breach or default, and no event has occurred which with
notice or lapse of time would constitute a material breach
or default or permit termination, modification, or
acceleration, under the written arrangement. Neither the
Company nor any Subsidiary is a party to any oral contract,
agreement or other arrangement which, if reduced to written
form, would be required to be listed in Section 2.14 of the
Disclosure Schedule under the terms of this Section 2.14.
2.15 ACCOUNTS RECEIVABLE. All accounts receivable of the
Company and the Subsidiaries reflected on the Most Recent
Balance Sheet (except for those that have been collected
since the Most Recent Fiscal Quarter End) are valid
receivables subject to no setoffs or counterclaims and are
current and collectible (within 90 days after the date on
which it first became due and payable) net of the applicable
reserve for bad debts on the Most Recent Balance Sheet. All
accounts receivable reflected in the financial or accounting
records of the Company that have arisen since the Most
Recent Fiscal Quarter End (except for those that have been
collected since the Most Recent Fiscal Quarter End) are
valid receivables subject to no setoffs or counterclaims and
are collectible (within 90 days after the date on which it
first became due and payable), net of a reserve for bad
debts in an amount proportionate to the reserve shown on the
Most Recent Balance Sheet.
2.16 POWERS OF ATTORNEY. Except as set forth in Section
2.16 of the Disclosure Schedules, there are no outstanding
powers of attorney executed on behalf of the Company or any
Subsidiary.
2.17 INSURANCE. Section 2.17 of the Disclosure Schedule
sets forth the following information with respect to each
insurance policy (including fire, theft, casualty, general
liability, workers compensation, business interruption,
environmental, product liability and automobile insurance
policies and bond and surety arrangements) to which the
Company or any Subsidiary has been a party, a named insured,
or otherwise the beneficiary of coverage at any time within
the past five years:
(a) the name of the insurer, the name of the policyholder
and the name of each covered insured;
(b) the policy number and the period of coverage;
24PAGE
<PAGE>
(c) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis)
and amount (including a description of how deductibles and
ceilings are calculated and operate) of coverage; and
(d) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
Each such insurance policy (i) is enforceable and in full
force and effect; and (ii) will continue to be enforceable
and in full force and effect immediately following the
Closing in accordance with the terms thereof as in effect
prior to the Closing. Neither the Company nor any Subsidiary
(A) is in breach or default (including with respect to the
payment of premiums or the giving of notices) under such
policy, and no event has occurred which, with notice or the
lapse of time, would constitute such a breach or default or
permit termination, modification or acceleration, under such
policy; (B) has received any notice from the insurer
disclaiming coverage or reserving rights with respect to a
particular claim or such policy in general; or (C) has
incurred any loss, damage, expense or liability covered by
any such insurance policy for which it has not properly
asserted a claim under such policy. Each of the Company and
the Subsidiaries is covered by insurance in scope and amount
customary and reasonable for the businesses in which it is
engaged.
2.18 LITIGATION. Section 2.18 of the Disclosure Schedule
identifies, and contains a brief description of, (a) any
unsatisfied judgment, or any order, decree, stipulation or
injunction to which the Company or any Subsidiary is subject
and (b) any claim, complaint, action, suit, proceeding,
hearing or investigation by or before any Governmental
Entity or before any arbitrator to which the Company or any
Subsidiary is a party or, to the knowledge of the Company
and the Subsidiaries, is threatened to be made a party or
which would otherwise have a Material Adverse Effect.
2.19 EMPLOYEES. Section 2.19 of the Disclosure Schedule
contains a list of all employees of the Company and each
Subsidiary, indicating, with respect to each such employee,
his or her position, annual rate of compensation, bonus for
the last fiscal year of the Company, method for calculating
bonus for the current fiscal year and any other arrangement
under which cash compensation is payable by the Company.
Each such employee has entered into a
confidentiality/assignment of inventions agreement with the
Company or a Subsidiary, a copy of which has previously been
delivered to the Buyer. To the knowledge of the Company and
its Subsidiaries, no employee has any plans to terminate
employment with the Company or any Subsidiary. Neither the
Company nor any Subsidiary is a party to or bound by any
collective bargaining agreement, nor has any of them
25PAGE
<PAGE>
experienced any strikes, grievances, claims of unfair labor
practices or other collective bargaining disputes. The
Company and the Subsidiaries have no knowledge of any
organizational effort made or threatened, either currently
or within the past five years, by or on behalf of any labor
union with respect to employees of the Company or any
Subsidiary.
2.20 EMPLOYEE BENEFITS.
(a) Section 2.20(a) of the Disclosure Schedule contains a
complete and accurate list of all Employee Benefit Plans (as
defined below) maintained, or contributed to, by the
Company, any Subsidiary, or any ERISA Affiliate (as defined
below). For purposes of this Agreement, "Employee Benefit
Plan" means any "employee pension benefit plan" (as defined
in Section 3(2) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), any "employee welfare
benefit plan" (as defined in Section 3(1) of ERISA), and any
other written or oral plan, agreement or arrangement
involving direct or indirect compensation, including without
limitation insurance coverage, severance benefits,
disability benefits, deferred compensation, bonuses, stock
options, stock purchase, phantom stock, stock appreciation
or other forms of incentive compensation or post-retirement
compensation. For purposes of this Agreement, "ERISA
Affiliate" means any entity which is a member of (i) a
controlled group of corporations (as defined in Section
414(b) of the Code), (ii) a group of trades or businesses
under common control (as defined in Section 414(c) of the
Code), or (iii) an affiliated service group (as defined
under Section 414(m) of the Code or the regulations under
Section 414(o) of the Code), any of which includes the
Company or a Subsidiary. Complete and accurate copies of (i)
all Employee Benefit Plans which have been reduced to
writing, (ii) written summaries of all unwritten Employee
Benefit Plans, (iii) all related trust agreements, insurance
contracts and summary plan descriptions, and (iv) all annual
reports filed on IRS Form 5500, 5500C or 5500R for the last
five plan years for each Employee Benefit Plan, have been
delivered to the Buyer. Each Employee Benefit Plan has been
administered in all material respects in accordance with its
terms and each of the Company, the Subsidiaries and the
ERISA Affiliates has in all material respects met its
obligations with respect to such Employee Benefit Plan and
has made all required contributions thereto. The Company and
all Employee Benefit Plans are in compliance in all material
respects with the currently applicable provisions of ERISA
and the Code and the regulations thereunder.
(b) There are no investigations by any Governmental Entity,
termination proceedings or other claims (except claims for
benefits payable in the normal operation of the Employee
Benefit Plans and proceedings with respect to qualified
26PAGE
<PAGE>
domestic relations orders), suits or proceedings against or
involving any Employee Benefit Plan or asserting any rights
or claims to benefits under any Employee Benefit Plan that
could give rise to any material liability.
(c) All the Employee Benefit Plans that are intended to be
qualified under Section 401(a) of the Code have received
determination letters from the Internal Revenue Service to
the effect that such Employee Benefit Plans are qualified
and the plans and the trusts related thereto are exempt from
federal income taxes under Sections 401(a) and 501(a),
respectively, of the Code, no such determination letter has
been revoked and revocation has not been threatened, and no
such Employee Benefit Plan has been amended since the date
of its most recent determination letter or application
therefor in any respect, and no act or omission has
occurred, that would adversely affect its qualification or
materially increase its cost.
(d) Neither the Company, any Subsidiary, nor any ERISA
Affiliate has ever maintained an Employee Benefit Plan
subject to Section 412 of the Code or Title IV of ERISA.
(e) At no time has the Company, any Subsidiary or any ERISA
Affiliate been obligated to contribute to any
"multi-employer plan" (as defined in Section 4001(a)(3) of
ERISA).
(f) There are no unfunded obligations under any Employee
Benefit Plan providing benefits after termination of
employment to any employee of the Company or any Subsidiary
(or to any beneficiary of any such employee), including but
not limited to retiree health coverage and deferred
compensation, but excluding continuation of health coverage
required to be continued under Section 4980B of the Code and
insurance conversion privileges under state law.
(g) No act or omission has occurred and no condition exists
with respect to any Employee Benefit Plan maintained by the
Company, any Subsidiary or any ERISA Affiliate that would
subject the Company, any Subsidiary or any ERISA Affiliate
to any material fine, penalty, tax or liability of any kind
imposed under ERISA or the Code.
(h) No Employee Benefit Plan is funded by, associated with,
or related to a "voluntary employee's beneficiary
association" within the meaning of Section 501(c)(9) of the
Code.
(i) No Employee Benefit Plan, plan documentation or
agreement, summary plan description or other written
communication distributed generally to employees by its
terms prohibits the Company from amending or terminating any
such Employee Benefit Plan except as required by law.
27PAGE
<PAGE>
(j) Section 2.20(j) of the Disclosure Schedule discloses
each: (i) agreement with any director, executive officer or
other key employee of the Company or any Subsidiary (A) the
benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction
involving the Company or any Subsidiary of the nature of any
of the transactions contemplated by this Agreement, (B)
providing any term of employment or compensation guarantee
or (C) providing severance benefits or other benefits after
the termination of employment of such director, executive
officer or key employee; (ii) agreement, plan or arrangement
under which any person may receive payments from the Company
or any Subsidiary that may be subject to the tax imposed by
Section 4999 of the Code or included in the determination of
such person's "parachute payment" under Section 280G of the
Code; and (iii) agreement or plan binding the Company or any
Subsidiary, including without limitation any stock option
plan, stock appreciation right plan, restricted stock plan,
stock purchase plan, severance benefit plan, or any Employee
Benefit Plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
2.21 ENVIRONMENTAL MATTERS.
(a) Each of the Company and the Subsidiaries has complied
with all Environmental Laws (as defined below) applicable to
their business operations. For purposes of this Agreement,
"Environmental Law" means any federal, state or local law,
statute, rule or regulation or the common law relating to
the environment or occupational health and safety, including
without limitation any statute, regulation or order
pertaining to (i) treatment, storage, disposal, generation
and transportation of Materials of Environmental Concern (as
defined below); (ii) air, water and noise pollution; (iii)
groundwater and soil contamination; (iv) the release or
threatened release into the environment of Materials of
Environmental Concern, including without limitation
emissions, discharges, injections, spills, escapes or
dumping of pollutants, contaminants or chemicals; (v) the
protection of wild life, marine sanctuaries and wetlands,
including without limitation all endangered and threatened
species; (vi) storage tanks, vessels and containers; (vii)
underground and other storage tanks or vessels, abandoned,
disposed or discarded barrels, containers and other closed
receptacles; (viii) health and safety of employees and other
persons; and (ix) manufacture, processing, use,
distribution, treatment, storage, disposal, transportation
or handling of Materials of Environmental Concern. As used
above, the terms "release" and "environment" shall have the
28PAGE
<PAGE>
meaning set forth in the federal Comprehensive Environmental
Compensation, Liability and Response Act of 1980, as amended
("CERCLA").
(b) There have been no releases of any Materials of
Environmental Concern into the environment, at any parcel of
real property or any facility formerly or currently owned or
leased by the Company or a Subsidiary. There has been no
release of Materials of Environmental Concern for which
liability can be imposed on the Company or the Subsidiary
under any Environmental Law. For purposes of this Agreement,
"Materials of Environmental Concern" means any chemicals,
pollutants or contaminants, hazardous substances (as such
term is defined under CERCLA), solid wastes and hazardous
wastes (as such terms are defined under the federal Resource
Conservation and Recovery Act), toxic materials, industrial
materials, oil or petroleum and petroleum products, or any
other material subject to regulation under any Environmental
Law.
(c) There is no pending or, to the knowledge of the Company
and the Subsidiaries, threatened civil or criminal
litigation, written notice of violation or noncompliance,
formal administrative or judicial proceeding, claim, cause
of action, liability, investigation, citation, order,
consent order, consent decree, inquiry or information
request by any Governmental Entity, involving the Company or
any Subsidiary relating to any of the following: (i)
violation of any Environmental Law; (ii) violation of any
permit, license or registration issued under any
Environmental Law; (iii) the disposal, discharge or release
of Materials of Environmental Concern, whether or not in
compliance with Environmental Laws; (iv) the generation,
storage, treatment, transportation, reclamation, recycling
or other handling of Materials of Environmental Concern,
whether or not in compliance with Environmental Laws; (v)
the ownership, operation or use of any landfill, surface
impoundment, pit, pond, lagoon, underground injection well,
waste pile, land treatment unit, wastewater treatment plant,
air pollution control equipment, or any other unit used for
the storage, disposal, handling or treatment of Materials of
Environmental Concern; (vi) the exacerbation of previously
existing environmental contamination; or (vii) exposure to
any Materials of Environmental Concern, noises, odors, or
vibrations at or from any real property or facility formerly
or currently owned or leased by the Company or a Subsidiary.
Without limiting the foregoing, none of the Company nor any
Subsidiary has been named a "potentially responsible party"
under any Environmental Law or has received any
correspondence or notice that it may be named a "potentially
responsible party."
(d) The Company and the Subsidiaries possess all permits,
licenses and/or registrations required under Environmental
29PAGE
<PAGE>
Laws for their business operations, and all such permits,
licenses and/or registrations are valid and in full force
and effect.
(e) Set forth in Section 2.21(e) of the Disclosure Schedule
is a list of all environmental, health and safety reports,
investigations, audits, assessments, surveys and analyses,
relating to premises currently or previously owned or
occupied by the Company or a Subsidiary which the Company
has possession of or access to. Complete and accurate copies
of each such report, or the results of each such
investigation have been provided to the Buyer.
(f) To the knowledge of the Company and its Subsidiaries,
all entities, including without limitation transporters,
treatment, storage and disposal facilities, and remediation
companies, used by the Company or a Subsidiary, for the
transportation, storage, disposal, treatment or other
handling of Materials of Environmental Concern possess all
permits, licenses and registrations required under
Environmental Laws. None of the Company or any of its
Subsidiaries have or will have any liability as a result of
any act or omission by any of such entities. To the
knowledge of the Company, there is no previous, pending or
threatened civil or criminal litigation, written notice of
violation or noncompliance, formal administrative or
judicial proceeding, investigation, citation, order, consent
order, consent decree, inquiry or information request by any
Governmental Entity, relating to such entities for any
violations of Environmental Laws.
2.22 LEGAL COMPLIANCE. Each of the Company and the
Subsidiaries, and the conduct and operation of their
respective businesses, are in compliance in all material
respects with all laws (including rules and regulations
thereunder) of any federal, state or local government or
foreign government of a country in which the Company or any
of its Subsidiaries does business, or any Governmental
Entity, which are applicable to the Company or such
Subsidiary, and none of the Company or any Subsidiaries has
received any notice from any Governmental Entity that it is
in violation of, or has violated any such laws (including
rules and regulations thereunder).
2.23 PERMITS. Section 2.23 of the Disclosure Schedule sets
forth a list of all material permits, licenses,
registrations, certificates, orders or approvals from any
Governmental Entity (including without limitation those
issued or required under Environmental Laws and those
relating to the occupancy or use of owned or leased real
property) ("Permits") issued to or held by the Company or
any Subsidiary. Such listed Permits are the only Permits
that are required for the Company and the Subsidiaries to
conduct their respective businesses as presently conducted
30PAGE
<PAGE>
or as proposed to be conducted, except for those the absence
of which would not have any Material Adverse Effect. Each
such Permit is in full force and effect and, to the best of
the knowledge of the Company or any Subsidiary, no
suspension or cancellation of such Permit is threatened and,
to the best knowledge of the Company or any Subsidiary,
there is no basis for believing that such Permit will not be
renewable upon expiration. Each such Permit will continue in
full force and effect following the Closing.
2.24 CERTAIN BUSINESS RELATIONSHIPS WITH AFFILIATES. No
Affiliate of the Company or of any Subsidiary (a) owns any
property or right, tangible or intangible, which is used in
the business of the Company or any Subsidiary, (b) has any
claim or cause of action against the Company or any
Subsidiary, or (c) owes any money to, or is owed by money
by, the Company or any Subsidiary. Section 2.24 of the
Disclosure Schedule describes any transactions or
relationships between the Company and any Affiliate thereof
which are reflected in the statements of operations of the
Company included in the Financial Statements.
2.25 BROKERS' FEES. Neither the Company nor any Subsidiary
has any liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to
the transactions contemplated by this Agreement except that
the Company is obligated to pay Needham & Company, Inc. and
John Schwabacher the fees described in Section 2.25 of the
Disclosure Schedule. Except for such fees, the Company shall
have no liability to Needham & Company, Inc. nor to John
Schwabacher under the Engagement Letters or otherwise
arising out of the transactions contemplated hereby or
thereby.
2.26 BOOKS AND RECORDS. The minute books and other similar
records of the Company and each Subsidiary contain true and
complete records of all actions taken at any meetings of the
Company's or such Subsidiary's shareholders, Board of
Directors or any committee thereof and of all written
consents executed in lieu of the holding of any such
meeting. The books and records of the Company and each
Subsidiary accurately reflect in all material respects the
assets, liabilities, business, financial condition and
results of operations of the Company or such Subsidiary and
have been maintained in accordance with good business and
bookkeeping practices.
2.27 CUSTOMERS AND SUPPLIERS. No material purchase order
or commitment of the Company or any Subsidiary is in excess
of normal requirements, nor are prices provided therein in
excess of current market prices for the products or services
to be provided thereunder. No material supplier of the
Company or any Subsidiary has indicated to the Company or
such Subsidiary within the past year that it will stop, or
31PAGE
<PAGE>
decrease the rate of, supplying materials, products or
services to them and no material customer of the Company or
any Subsidiary has indicated to the Company or such
Subsidiary within the past year that it will stop, or
decrease the rate of, buying, leasing or licensing
materials, products or services from them. Section 2.27 of
the Disclosure Schedule sets forth a list of (a) each
customer that accounted for more than 5% of the consolidated
revenues of the Company during the last full fiscal year or
the interim period through the Most Recent Fiscal Quarter
End and the amount of revenues accounted for by such
customer during each such period and (b) each supplier that
is the sole supplier of any significant product or component
to the Company or a Subsidiary.
2.28 BANKING FACILITIES.
(a) Section 2.28 of the Disclosure Schedule sets forth a
true, correct and complete list of: (i) each bank, savings
and loan or similar financial institution at which the
Company or any Subsidiary has an account, safety deposit
box, line of credit or credit facility and the numbers of
the accounts or safety deposit boxes maintained by the
Company or any Subsidiary thereat and details, including
terms, of any line of credit or credit facility; and (ii)
the names of all persons authorized to draw on each such
account or to have access to any such safety deposit box
facility, together with a description of the authority (and
conditions thereof, if any) of each such person with respect
thereto.
(b) All of the outstanding indebtedness (secured or
unsecured) for borrowed money of the Company may be prepaid
without the consent or approval of, or prior notice to, any
other person, and without payment of any premium or penalty.
2.29 SURETYSHIPS. Except as set forth in Section 2.29 of
the Disclosure Schedule, none of the Company or any
Subsidiary has any obligation or liability (whether actual,
accrued, accruing, contingent or otherwise) as guarantor,
surety, co-signer, endorser, co-maker, indemnitor or
otherwise in respect of the obligation of any person,
corporation, partnership, joint venture, association,
organization or other entity, except as endorser or maker of
checks or letters of credit, respectively, endorsed or made
in the ordinary course of business.
2.30 BACKLOG. As of December 31, 1996, the Company's
backlog of binding purchase orders with firm shipment dates
no later than March 30, 1997 was at least $1.297 million.
2.31 GOVERNMENT CONTRACTS. The Company has not been
suspended or debarred from bidding on contracts or
subcontracts with any Governmental Entity and no such
32PAGE
<PAGE>
suspension or debarment has been initiated or, to the
Company's knowledge, threatened. The consummation of the
transactions contemplated by this Agreement will not result
in any such suspension or debarment. The Company has not
been audited or investigated and is not now being audited or
investigated by the U.S. Government Accounting Office, the
U.S. Department of Defense or any of its agencies, the
Defense Contract Audit Agency, the U.S. Department of
Justice, the Inspector General of any U.S. Governmental
Entity, any similar agencies or instrumentalities of any
foreign Governmental Entity, or any price contractor with a
Governmental Entity nor, to the Company's knowledge, has any
such audit or investigation been threatened. To the
Company's knowledge, there is no valid basis for (a) the
suspension or debarment of the Company from bidding on
contracts or subcontracts with any Governmental Entity or
(b) any claim pursuant to an audit or investigation by any
of the entities named in the foregoing sentence. The Company
has no agreements, contracts or commitments which require it
to obtain or maintain a security clearance with any
Governmental Entity.
2.32 INVENTORIES. All Inventories (as defined below) are
of a quality and quantity usable and salable in the Ordinary
Course of Business. Items included in such Inventories are
carried on the books of the Company at the lower of cost or
market and, with respect to Inventories existing as of the
Most Recent Fiscal Quarter End, are reflected on the Most
Recent Balance Sheet, net of applicable reserves for excess
and obsolete items. Such reserves have been determined in
accordance with past practices and conform to GAAP. The
term "Inventories" includes all stock of raw materials,
work-in-process and finished goods, including demonstration
inventory, owned by the Company, for manufacturing,
assembly, processing, finishing, demonstration and sale or
resale to others.
2.33 DISCLOSURE. No representation or warranty of the
Company in this Agreement and no statement in the Disclosure
Schedule omits to state a material fact necessary to make
the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY
Each of the Buyer and the Transitory Subsidiary represents
and warrants to the Company as follows:
3.1 ORGANIZATION. Each of the Buyer and the Transitory
Subsidiary is a corporation duly organized, validly existing
and in corporate good standing under the laws of the state
of its incorporation. Buyer and Transitory Subsidiary have
33PAGE
<PAGE>
delivered to the Company true and correct copies of their
Certificates of Incorporation and By-laws, as amended.
3.2 AUTHORIZATION OF TRANSACTION. Each of the Buyer and
the Transitory Subsidiary has all requisite power and
authority to execute and deliver this Agreement and (in the
case of the Buyer) the Escrow Agreement and to perform its
obligations hereunder and thereunder. The execution and
delivery of this Agreement and (in the case of the Buyer)
the Escrow Agreement by the Buyer and the Transitory
Subsidiary, the performance of this Agreement and (in the
case of the Buyer) the Escrow Agreement and the consummation
of the transactions contemplated hereby and thereby by the
Buyer and the Transitory Subsidiary have been duly and
validly authorized by all necessary corporate action on the
part of the Buyer and the Transitory Subsidiary. This
Agreement has been duly and validly executed and delivered
by the Buyer and the Transitory Subsidiary and constitutes a
valid and binding obligation of the Buyer and the Transitory
Subsidiary, enforceable against them in accordance with its
terms. The Board of Directors of each of the Buyer and the
Transitory Subsidiary has approved this Merger and the
transactions contemplated hereby and the approval of the
stockholders of the Buyer is not required for this Merger.
3.3 NONCONTRAVENTION. Subject to compliance with the
applicable requirements of the Hart-Scott-Rodino Act and
the filing of the Merger Documents with the Secretary of
State of the State of California and the Secretary of State
of the State of Delaware, neither the execution and delivery
of this Agreement or (in the case of the Buyer) the Escrow
Agreement by the Buyer or the Transitory Subsidiary, nor the
consummation by the Buyer or the Transitory Subsidiary of
the transactions contemplated hereby or thereby, will (a)
conflict or violate any provision of the charter or Bylaws
of the Buyer or the Transitory Subsidiary, (b) require on
the part of the Buyer or the Transitory Subsidiary any
filing with, or permit, authorization, consent or approval
of any Governmental Entity, (c) conflict with, result in
breach of, constitute (with or without due notice or lapse
of time or both) a default under, result in the acceleration
of, create in any party any right to accelerate, terminate,
modify or cancel, or require any notice, consent or waiver
under, any contract, lease, sublease, license, sublicense,
franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, Security
Interest or other arrangement to which the Buyer or the
Transitory Subsidiary is a party or by which either is bound
or to which any of their assets are subject, or (d) violate
any order, writ, injunction, decree, statute, rule or
regulation applicable to the Buyer or the Transitory
Subsidiary or any of their properties or assets.
34PAGE
<PAGE>
3.4 BROKERS' FEES. Neither the Buyer nor the Transitory
Subsidiary has any liability or obligation to pay any fees
or commissions to any broker, finder or agent with respect
to the transactions contemplated by this Agreement.
ARTICLE IV
COVENANTS
4.1 BEST EFFORTS. Each of the Parties shall use its best
efforts to take all actions and to do all things necessary,
proper or advisable to consummate the transactions
contemplated by this Agreement; provided, however, that
notwithstanding anything in this Agreement to the contrary,
the Buyer shall not be required to sell or dispose of or
hold separately (through a trust or otherwise) any assets or
businesses of the Buyer or its Affiliates.
4.2 NOTICES AND CONSENTS. The Company shall use its best
efforts to obtain, at its expense, all such waivers,
permits, consents, approvals or other authorizations from
third parties and Governmental Entities, and to effect all
such registrations, filings and notices with or to third
parties and Governmental Entities, as may be required by or
with respect to the Company in connection with the
transactions contemplated by this Agreement (including
without limitation those listed in Section 2.4 of the
Disclosure Schedule).
4.3 SHAREHOLDERS' APPROVAL. The Company shall take all
action necessary in accordance with applicable law to
convene the Shareholder Meeting at the earliest possible
time after the date hereof for the purpose of approving the
Merger. The Company shall submit the Merger to its
shareholders for their approval, and its Board of Directors
shall recommend to the shareholders, and continue to
recommend until the completion of the Shareholder Meeting,
the adoption of this Agreement and the approval of the
Merger. The Company shall use all reasonable efforts to
solicit proxies from its shareholders and otherwise to
obtain all votes and approvals of the shareholders necessary
for the approval and adoption of the Merger under California
Law and its Amended and Restated Articles of Incorporation
and Bylaws.
4.4 HART-SCOTT-RODINO ACT. Each of the Parties shall file
at the earliest possible time after the date hereof, the
Notification and Report Forms and related material (if any)
required to be filed by it with the Federal Trade Commission
and the Antitrust Division of the United States Department
of Justice under the Hart-Scott-Rodino Act, and each shall
use its best efforts to obtain an early termination of the
applicable waiting period, and shall make promptly any
further filings or information submissions pursuant thereto
that may be necessary, proper or advisable; provided,
35PAGE
<PAGE>
however, that the Buyer shall not be obligated to respond to
formal requests for additional information or documentary
material pursuant to 16 C.F.R. 803.20 under the
Hart-Scott-Rodino Act except to the extent it elects to do
so in its sole discretion.
4.5 OPERATION OF BUSINESS. Except as contemplated by this
Agreement, during the period from the date of this Agreement
to the Effective Time, the Company shall (and shall cause
each Subsidiary to) conduct its operations in the ordinary
course of business and in compliance with all applicable
laws and regulations and, to the extent consistent
therewith, use all reasonable efforts to preserve intact its
current business organization, keep its physical assets in
good working condition, keep available the services of its
current officers and employees and preserve its
relationships with customers, suppliers and others having
business dealings with it to the end that its goodwill and
ongoing business shall not be impaired in any material
respect. Without limiting the generality of the foregoing,
prior to the Effective Time or termination of this Agreement
pursuant to Section 6.1 hereof, neither the Company nor any
Subsidiary shall, without the written consent of the Buyer:
(a) issue, sell, deliver or agree or commit to issue, sell
or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to
purchase or otherwise) or authorize the issuance, sale or
delivery of, or redeem or repurchase, any stock of any class
or any other securities or any rights, warrants or options
to acquire any such stock or other securities (except
pursuant to the conversion or exercise of Series B Stock,
Series C Stock, Series D Stock, Company Options or Company
Warrants outstanding on the date hereof in accordance with
their terms), or amend any of the terms of any such stock,
securities, rights, warrants or options, except that the
Company may issue to employees hired after the date hereof
options (subject to standard vesting) to purchase an
aggregate of not more than 10,000 shares of Common Stock
pursuant to the Company's 1988 Incentive Stock Option Plan;
(b) split, combine or reclassify any shares of its capital
stock; or declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock;
(c) create, incur or assume any debt not currently
outstanding (including obligations in respect of capital
leases) except in the ordinary course of business; assume,
guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the
obligations of any other person or entity; or make any
loans, advances or capital contributions to, or investments
in, any other person or entity;
36PAGE
<PAGE>
(d) enter into, adopt or amend any Employee Benefit Plan or
any employment or severance agreement or arrangement of the
type described in Section 2.20(j) or (except for normal
increases in the ordinary course of business and consistent
with past practices) increase in any manner the compensation
or fringe benefits of, or modify the employment terms of,
its directors, officers or employees, generally or
individually, or pay any benefit not required by the terms
in effect on the date hereof of any existing Employee
Benefit Plan;
(e) acquire, sell, lease, encumber or dispose of any assets
or property (including without limitation any shares or
other equity interests in or securities of any Subsidiary or
any corporation, partnership, association or other business
organization or division thereof), other than purchases and
sales of assets in the ordinary course of business;
(f) amend its Amended and Restated Articles of Incorporation
or Bylaws;
(g) change in any material respect its accounting methods,
principles or practices, except insofar as may be required
by a generally applicable change in GAAP;
(h) discharge or satisfy any Security Interest or pay any
obligation or liability other than in the ordinary course of
business;
(i) mortgage or pledge any of its property or assets or
subject any such assets to any Security Interest other than
in the ordinary course of business;
(j) sell, assign, transfer or license any Intellectual
Property, other than in the ordinary course of business
other than the license of SPM-related technology in
connection with the establishment of PSI Korea on terms
substantially as provided to the Buyer in a memo dated
December 6, 1996;
(k) enter into any contract of the kind described in Section
2.14 or, amend, terminate, take or omit to take any action
that would constitute a violation of or default under, or
waive any rights under, any contract or agreement listed in
Section 2.14 of the Disclosure Schedule;
(l) make or commit to make any capital expenditure in excess
of $25,000 per item;
(m) make any Tax election or, except in the ordinary course
of business, settle or compromise any federal, state, local
or foreign Tax liability;
37PAGE
<PAGE>
(n) take any action or fail to take any action permitted by
this Agreement with the knowledge that such action or
failure to take action would result in (i) any of the
representations and warranties of the Company set forth in
this Agreement becoming untrue or (ii) any of the conditions
to the Merger set forth in Article V not being satisfied; or
(o) agree in writing or otherwise to take any of the
foregoing actions.
4.8 FULL ACCESS. The Company shall (and shall cause each
Subsidiary to) permit representatives of the Buyer to have
full access (at all reasonable times, and in a manner so as
not to interfere with the normal business operations of the
Company and the Subsidiaries) to all premises, properties,
financial and accounting records, contracts, other records
and documents, and personnel, of or pertaining to the
Company and each Subsidiary.
4.9 NOTICE OF BREACHES. The Company shall promptly deliver
to the Buyer written notice of any event or development that
would (a) render any statement, representation or warranty
of the Company in this Agreement (including the Disclosure
Schedule) inaccurate or incomplete in any material respect,
or (b) constitute or result in a breach by the Company of,
or a failure by the Company to comply with, any agreement or
covenant in this Agreement applicable to the Company. The
Buyer or the Transitory Subsidiary shall promptly deliver to
the Company written notice of any event or development that
would (i) render any statement, representation or warranty
of the Buyer or the Transitory Subsidiary in this Agreement
inaccurate or incomplete in any material respect, or (ii)
constitute or result in a breach by the Buyer or the
Transitory Subsidiary of, or a failure by the Buyer or the
Transitory Subsidiary to comply with, any agreement or
covenant in this Agreement applicable to such party. No such
disclosure shall be deemed to avoid or cure any such
misrepresentation or breach.
4.10 EXCLUSIVITY. Neither the Company nor any Subsidiary
shall, and the Company shall use its best efforts and shall
cause its subsidiaries to use best efforts to cause their
respective Affiliates and each of their respective officers,
directors, employees, representatives and agents not to,
directly or indirectly, (a) encourage, solicit, initiate,
engage or participate in discussions or negotiations with
any person or entity (other than the Buyer) concerning any
merger, consolidation, sale of material assets, tender
offer, recapitalization, accumulation of shares of the
Company's capital stock, proxy solicitation or other
business combination involving the Company, any Subsidiary
or any division of the Company or any Subsidiary or (b)
provide any non-public information concerning the business,
38PAGE
<PAGE>
properties or assets of the Company or any Subsidiary to any
person or entity (other than the Buyer).
4.11 PROXY STATEMENT OR INFORMATION STATEMENT. None of
the information included in or incorporated by reference in
the proxy statement or information statement relating to the
meeting of the Company's shareholders (the "Shareholder
Meeting") to be held in connection with the Merger (the
"Proxy Statement") will, at the date it or any amendments or
supplements thereto are mailed to shareholders, at the time
of the Shareholder Meeting and at the Effective Time,
contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary in order to make the statements therein, in light
of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any
event relating to the Company or any of its respective
Affiliates, officers or directors should be discovered by
the Company which should be set forth in an amendment or
supplement to the Proxy Statement, the Company shall
promptly inform the Buyer. Notwithstanding the foregoing,
the Company makes no representation or warranty with respect
to any information supplied by the Buyer or the Transitory
Subsidiary which is contained in any of the foregoing
documents.
4.12 BENEFIT ARRANGEMENTS. Buyer covenants and agrees
that to the extent the existing benefit plans and
arrangements provided by the Company to its employees are
terminated on or after the Effective Time, such employees
shall be entitled to participate in benefit plans and
arrangements which are, in the aggregate, comparable to the
benefit plans and arrangements which are available and
subsequently become available to employees of the Buyer's
Subsidiaries.
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective
obligations of each Party to consummate the Merger are
subject to the satisfaction of the following conditions:
(a) this Agreement and the Merger shall have received the
Requisite Shareholder Approval;
(b) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired
or otherwise been terminated;
(c) no action, suit or proceeding shall be pending or
threatened by or before any Governmental Entity wherein an
unfavorable judgment, order, decree, stipulation or
injunction would (i) prevent consummation of any of the
39PAGE
<PAGE>
transactions contemplated by this Agreement or (ii) cause
any of the transactions contemplated by this Agreement to be
rescinded following consummation.
5.2 CONDITIONS TO OBLIGATIONS OF THE BUYER AND THE
TRANSITORY SUBSIDIARY. The obligation of each of the Buyer
and the Transitory Subsidiary to consummate the Merger is
subject to the satisfaction of the following additional
conditions:
(a) the holders of at least ninety percent (90%) of the
outstanding shares of the Company Common Stock and 90% of
the outstanding shares of each series of Preferred Stock
entitled to vote therefor, shall have voted in favor of the
Merger;
(b) the Company and the Subsidiaries shall have obtained all
of the waivers, permits, consents, approvals or other
authorizations, and effected all of the registrations,
filings and notices, referred to in Section 4.2;
(c) no action, suit or proceeding shall be pending or
threatened by or before any Governmental Entity wherein an
unfavorable judgment, order, decree, stipulation or
injunction would affect adversely the right of the Buyer to
own, operate or control any of the assets and operations of
the Surviving Corporation and the Subsidiaries following the
Merger, and no such judgment, order, decree, stipulation or
injunction shall be in effect; provided that any suit or
action filed prior to the Effective Time against the Company
by Digital Instruments Corporation asserting any patent
infringement claim made by Digital Instruments Corporation
related to the allegations described in Section 2.12(c) of
the Disclosure Schedules shall be deemed not to adversely
affect the rights of the Buyer following the Merger;
(d) the representations and warranties of the Company set
forth in Article II shall be true and correct when made on
the date hereof and shall be true and correct in all
material respects as of the Effective Time as if made as of
the Effective Time, except for representations and
warranties made as of a specific date, which shall be true
and correct as of such date; provided that any suit or
action filed by Digital Instruments Corporation described in
Section 5.2(c) shall not be deemed to make any
representation untrue in any material respect.
(e) the Company shall have performed or complied with its
agreements and covenants required to be performed or
complied with under this Agreement as of or prior to the
Effective Time;
(f) the Company shall have delivered to the Buyer and the
Transitory Subsidiary a certificate (without qualification
40PAGE
<PAGE>
as to knowledge or materiality or otherwise) to the effect
that each of the conditions specified in clauses (a) through
(d) of this Section 5.2 is satisfied in all respects;
(g) the Buyer and the Transitory Subsidiary shall have
received from Venture Law Group, counsel to the Company, an
opinion dated as of the Closing Date in the form attached as
Exhibit C;
(h) the Buyer and the Transitory Subsidiary shall have
received the resignations, effective as of the Effective
Time, of each director and officer of the Company and the
Subsidiaries specified by the Buyer in writing at least five
business days prior to the Closing;
(i) all agreements between the Company and the Company
Shareholders, including, without limitation, the Series B
Agreement, the Series C Agreement, the Series D Agreement
and the Series E Agreement shall have been terminated prior
to, or shall terminate effective upon, the Effective Time
with the effect that the Company shall have no further
obligation or liability thereunder;
(j) all Company Warrants shall have been exercised prior to,
or shall be exercised effective upon, the Effective Time
with the effect that the Company shall have no further
obligation or liability thereunder;
(k) each of Stan Yarbro, Michael Kirk, James A. Bly, Wilbur
Sattler, William Muller and Raoul Jobin shall have executed
a non-competition agreement in substantially the form
attached hereto as Exhibit D;
(l) in response to its recent application, the Company shall
have received Export Commodity Control Number
classifications for the Company's products from the United
States Department of Commerce, which classifications shall
be reasonably satisfactory to Buyer;
(m) the Company's Closing Backlog shall be at least
$1,500,000;
(n) the Company shall have signed a license agreement and
side letter with IBM in the form attached hereto as Exhibit
F, Exhibit 2 of which shall require total payments of not
more than $120,000 per year from the Company to IBM; and
(o) all actions to be taken by the Company in connection
with the consummation of the transactions contemplated
hereby and all certificates, opinions, instruments and other
documents required to effect the transactions contemplated
hereby shall be reasonably satisfactory in form and
substance to the Buyer.
41PAGE
<PAGE>
5.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligation of the Company to consummate the Merger is
subject to the satisfaction of the following additional
conditions:
(a) the representations and warranties of the Buyer and the
Transitory Subsidiary set forth in Article III shall be true
and correct when made on the date hereof and shall be true
and correct in all material respects as of the Effective
Time as if made as of the Effective Time, except for
representations and warranties made as of a specific date,
which shall be true and correct as of such date;
(b) each of the Buyer and the Transitory Subsidiary shall
have performed or complied with its agreements and covenants
required to be performed or complied with under this
Agreement as of or prior to the Effective Time;
(c) each of the Buyer and the Transitory Subsidiary shall
have delivered to the Company a certificate (without
qualification as to knowledge or materiality or otherwise)
to the effect that each of the conditions specified in
clauses (a) and (b) of this Section 5.3 is satisfied in all
respects; and
(d) the Company shall have received from Seth H. Hoogasian,
General Counsel of the Buyer, an opinion dated as of the
Closing Date in the form attached as Exhibit E.
(e) all actions to be taken by the Buyer and the Transitory
Subsidiary in connection with the consummation of the
transactions contemplated hereby and all certificates,
instruments and other documents required to effect the
transactions contemplated hereby shall be reasonably
satisfactory in form and substance to the Company.
ARTICLE VI
TERMINATION
6.1 TERMINATION OF AGREEMENT. The Parties may terminate
this Agreement prior to the Effective Time (whether before
or after Requisite Shareholder Approval) as provided below:
(a) the Parties may terminate this Agreement by mutual
written consent duly authorized by all necessary corporate
actions;
(b) the Buyer may terminate this Agreement by giving written
notice to the Company in the event the Company is in breach
of any material representation, warranty or covenant
contained in this Agreement, and such breach is not remedied
within 10 days of delivery of written notice thereof, and
the Company may terminate this Agreement by giving written
notice to the Buyer and the Transitory Subsidiary in the
42PAGE
<PAGE>
event the Buyer or the Transitory Subsidiary is in breach of
any material representation, warranty or covenant contained
in this Agreement, and such breach is not remedied within 10
days of delivery of written notice thereof;
(c) any Party may terminate this Agreement by giving written
notice to the other Parties at any time after the Company
Shareholders have voted on whether to approve this Agreement
and the Merger in the event this Agreement and the Merger
fail to receive the Requisite Shareholder Approval;
(d) any Party may terminate this Agreement if (i) there
shall be an order of a court in effect to prevent
consummation of this Agreement or (ii) there shall be any
action taken, or any statute, rule, regulation or order
enacted, promulgated, issued or deemed applicable to this
Agreement or the transactions contemplated hereby, by any
Governmental Entity that would make the consummation of this
Agreement illegal;
(e) the Buyer may terminate this Agreement by giving written
notice to the Company if the Closing shall not have occurred
on or before March 31, 1997 by reason of the failure of any
condition precedent under Section 5.1 or 5.2 hereof (unless
the failure results from a breach by the Buyer or the
Transitory Subsidiary of any representation, warranty or
covenant contained in this Agreement); or
(f) the Company may terminate this Agreement by giving
written notice to the Buyer and the Transitory Subsidiary if
the Closing shall not have occurred on or before March 31,
1997 by reason of the failure of any condition precedent
under Section 5.1 or 5.3 hereof (unless the failure results
from a breach by the Company of any representation, warranty
or covenant contained in this Agreement).
6.2 EFFECT OF TERMINATION. If any Party terminates this
Agreement pursuant to Section 6.1, all obligations of the
Parties hereunder shall terminate without any liability of
any Party or its officers or directors, to any other Party,
except to the extent such termination results from the
breach by such Party of any material representation,
warranty or covenant contained in this Agreement, provided
that the obligations under Section 8.1 shall survive the
termination of this Agreement.
ARTICLE VII
DEFINITIONS
For purposes of this Agreement, each of the following
defined terms is defined in the Section of this Agreement
indicated below.
43PAGE
<PAGE>
DEFINED TERM SECTION
SECTION
Affiliate 2.14(g)
Amended and Restated Articles of 2.1
Incorporation
Buyer Introduction
Buyer Common Stock 1.12
Buyer Options 1.12
California Law 1.1
CERCLA 2.21(a)
Certificate 1.9(b)
Closing 1.6
Closing Backlog 1.5(b)
Closing Backlog Statement 1.5(b)
Closing Balance Sheet 1.5(b)
Closing Certificate 1.9(a)
Closing Date 1.6
Closing Consideration 1.5(c)
Code 2.9(c)
Common Stock Consideration 1.5(a)
Company Introduction
Company Common Stock 1.5(a)
Company Options 1.12
Company Shares 1.5(a)
Company Shareholder 1.5(b)
Company Shareholder Representative 1.5(b)
Company Warrants 2.2
Delaware Law 1.1
Disclosure Schedule Article II
Dissenting Shares 1.5(d)
Draft Closing Backlog Statement 1.5(b)
Draft Closing Balance Sheet 1.5(b)
Effective Time 1.3
Employee Benefit Plan 2.20(a)
Engagement Letters 1.5(b)
Environmental Law 2.21(a)
ERISA 2.20(a)
ERISA Affiliate 2.20(a)
Escrow Agreement 1.7
Escrow Agent 1.7
44PAGE
<PAGE>
Escrow Amount 1.1
Exchange Act 2.14(g)
Financial Statements 2.6
GAAP 2.6
Governmental Entity 2.4
Hart-Scott-Rodino Act 2.4
Initial Escrow Amount 1.5(c)
Intellectual Property 2.12(a)
Inventories 2.32
Letter of Transmittal 1.9(b)
Material Adverse Effect 2.14
Materials of Environmental Concern 2.21(b)
Merger 1.1
Merger Consideration 1.5(b)
Merger Documents 1.3
Most Recent Balance Sheet 2.8
Most Recent Fiscal Quarter End 2.6
Net Assets 1.5(b)
Neutral Auditors 1.5(b)
Option Exchange Ratio 1.12
Optionholders 1.12
Ordinary Course of Business Article II
Outstanding Common Stock 1.5(a)
Outstanding Series B Stock 1.5(a)
Outstanding Series C Stock 1.5(a)
Outstanding Series D Stock 1.5(a)
Outstanding Series E Stock 1.5(a)
Party Introduction
Paying Agent 1.9(b)
Permit 2.23
Proxy Statement 2.34
Requisite Shareholder Approval 2.3
Securities Act 2.2
Security Interest 2.4
Series B Agreement 2.1
Series C Agreement 2.1
Series D Agreement 2.1
Series E Agreement 2.1
Series B Stock 1.5(a)
45PAGE
<PAGE>
Series C Stock 1.5(a)
Series D Stock 1.5(a)
Series E Stock 1.5(a)
Shareholder Meeting 2.34
Subsidiary 2.4
Surviving Corporation 1.1
Taxes 2.9(a)
Tax Returns 2.9(a)
Third Party Intellectual Property Rights 2.12(a)
Transitory Subsidiary Introduction
ARTICLE VIII
MISCELLANEOUS
8.1 PRESS RELEASES AND ANNOUNCEMENTS. No Party shall issue
any press release or public disclosure relating to the
subject matter of this Agreement without the prior approval
of the other Parties, which shall not unreasonably be
withheld; provided, however, that the Buyer may make any
public disclosure it believes in good faith is required by
law, regulation or stock exchange rule (in which case the
Buyer shall advise the other Parties and provide them with a
copy of the proposed disclosure prior to making the
disclosure).
8.2 TAX PAYMENTS.
(a) Except as provided in Section 8.2(b) hereof:
(i) The Company Shareholders shall be liable for any
and all claims, losses, liabilities, obligations, damages,
impositions, assessments, demands, judgments, settlements,
costs and expenses (including reasonable attorneys',
accountants' and experts' fees and expenses) with respect to
Taxes of the Company or for which the Company may be liable
with respect to any and all periods (Taxes attributable to
any portions thereof to be determined in accordance with
subsection (b)) ending before the Effective Time
("Pre-Closing Periods"), except to the extent such Taxes are
specifically accrued on the face of the Closing Balance
Sheet.
(ii) The Buyer shall be liable for any and all claims,
losses, liabilities, obligations, damages, impositions,
assessments, demands, judgments, settlements, costs and
expenses (including reasonable attorneys', accountants' and
experts' fees and expenses and any applicable assessments of
interest and penalties) with respect to Taxes attributable
to the Company or for which the Company may be liable with
respect to any and all periods, or portions thereof,
46PAGE
<PAGE>
beginning on or after the Effective Time ("Post-Closing
Periods") and with respect to any Taxes arising from the
Merger solely due to the substitution of the Transitory
Subsidiary for the Company as the Surviving Corporation.
(b) In the case of any Tax that is attributable to a
taxable period which begins before the Closing Date and ends
on or after the Closing Date, the amount of Taxes
attributable to the Pre-Closing Period shall be determined
as follows:
(i) In the case of ad valorem Taxes imposed on the
Company and franchise or similar Taxes imposed on the
Company based on capital (including net worth or long-term
debt) or number of shares of stock authorized, issued or
outstanding, the portion attributable to the Pre-Closing
Period shall be the amount of such Taxes for the entire
taxable period multiplied by a fraction, the numerator of
which is the number of days in the Pre-Closing Period and
the denominator of which is the number of days in the entire
taxable period.
(ii) In the case of all other Taxes, the portion
attributable to the Pre-Closing Period shall be determined
on the basis of an interim closing of the books of the
Company as of the Effective Time, and the determination of
the hypothetical Tax for such Pre-Closing Period, determined
on the basis of such interim closing of the books, without
annualization.
(c) For purposes of this Section 8.2, any and all
transactions or events contemplated by this Agreement that
occur prior to the Effective Time shall be deemed to have
occurred in the Pre-Closing Period.
(d) To the maximum extent permitted by applicable law,
neither the Buyer nor any of the Buyer's Affiliates or
Subsidiaries (including, with respect to Post-Closing
Periods, the Company) will carry back to any Pre-Closing
Period of the Company, any loss, credit or deduction
incurred or generated in, or attributable to, any
Post-Closing Period that would affect any Tax Return of the
Company for such period, and the Buyer agrees to make or
exercise, or cause to be made or exercised, any and all
necessary or permitted elections or options available under
applicable law to avoid any such carryback.
(e) Any payments to be made by the Company Shareholders
under this Section 8.2 shall be deducted from the Escrow
Amount and returned by the Escrow Agent to the Buyer, as
provided in the Escrow Agreement.
47PAGE
<PAGE>
(f) All payments under Sections 1.5(b), 8.2 or 8.12 of this
Agreement and under the Escrow Agreement shall be deemed
adjustments to the Merger Consideration for Tax purposes.
8.3 NO THIRD PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any person other than the
Parties and their respective successors and permitted
assigns.
8.4 ENTIRE AGREEMENT. This Agreement (including the
documents referred to herein) constitutes the entire
agreement among the Parties and supersedes any prior
understandings, agreements, or representations by or among
the Parties, written or oral, with respect to the subject
matter hereof.
8.5 SUCCESSION AND ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the Parties named
herein and their respective successors and permitted
assigns. No Party may assign either this Agreement or any of
its rights, interests, or obligations hereunder without the
prior written approval of the other Parties; provided that
the Transitory Subsidiary may assign its rights, interests
and obligations hereunder to an Affiliate of the Buyer.
8.6 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original
but all of which together shall constitute one and the same
instrument.
8.7 HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this
Agreement.
8.8 NOTICES. All notices, requests, demands, claims, and
other communications hereunder shall be in writing. Any
notice, request, demand, claim, or other communication
hereunder shall be deemed duly delivered two business days
after it is sent by registered or certified mail, return
receipt requested, postage prepaid, or one business day
after it is sent via a reputable nationwide overnight
courier service, in each case to the intended recipient as
set forth below:
If to the Company: Copy to:
Park Scientific Instruments Venture Law Group
1171 Borregas Avenue 2800 Sand Hill Road
Sunnyvale, CA 94089 Menlo Park, CA 94025
48PAGE
<PAGE>
Attention: President Attention: Stanley F.
Pierson, Esq.
If to the Buyer or the Copy to:
Transitory Subsidiary:
ThermoSpectra Corporation Thermo Electron
Corporation
81 Wyman Street 81 Wyman Street
Waltham, MA 02254 Waltham, MA 02254
Attention: President Attention: General
Counsel
Any Party may give any notice, request, demand, claim, or
other communication hereunder using any other means
(including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic
mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless
and until it actually is received by the party for whom it
is intended. Any Party may change the address to which
notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
8.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the
law of conflicts) of the State of Delaware.
8.10 AMENDMENTS AND WAIVERS. The Parties may mutually
amend any provision of this Agreement at any time prior to
the Effective Time; provided, however, that any amendment
effected subsequent to the Requisite Shareholder Approval
shall be subject to the restrictions contained in the
California Law. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing
and signed by all of the Parties. No waiver by any Party of
any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default,
misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
8.11 SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any
jurisdiction shall not affect the validity or enforceability
of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any
other situation or in any other jurisdiction. If the final
judgment of a court of competent jurisdiction declares that
any term or provision hereof is invalid or unenforceable,
49PAGE
<PAGE>
the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to
reduce the scope, duration, or area of the term or
provision, to delete specific words or phrases, or to
replace any invalid or unenforceable term or provision with
a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time
within which the judgment may be appealed.
8.12 EXPENSES. Except as set forth in the Escrow
Agreement, each of the Parties shall bear its own costs and
expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions
contemplated hereby; provided, however, that if the Merger
is consummated, the Company and the Subsidiaries shall not
incur more than an aggregate of $75,000 in legal and
accounting fees and expenses in connection with the Merger,
and any fees and expenses incurred by the Company or its
Subsidiaries in excess of such amount shall be deducted from
the Escrow Amount and returned by the Escrow Agent to the
Buyer, as provided in the Escrow Agreement.
8.13 SPECIFIC PERFORMANCE. Each of the Parties
acknowledges and agrees that one or more of the other
Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance
with their specific terms or otherwise are breached.
Accordingly, each of the Parties agrees that the other
Parties shall be entitled to an injunction or injunctions to
prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in any court of
the United States or any state thereof having jurisdiction
over the Parties and the matter, in addition to any other
remedy to which it may be entitled, at law or in equity.
8.14 CONSTRUCTION. The language used in this Agreement
shall be deemed to be the language chosen by the Parties
hereto to express their mutual intent, and no rule of strict
construction shall be applied against any Party. Any
reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context
requires otherwise.
8.15 INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits
and Schedules identified in this Agreement are incorporated
herein by reference and made a part hereof.
8.16 SURVIVAL OF THE REPRESENTATIONS AND WARRANTIES. All
of the Company's representations and warranties in this
Agreement, as modified by the Disclosure Schedule, shall
50PAGE
<PAGE>
survive the Effective Time and continue until the earlier of
(i) the date two years from the Effective Time or (ii) the
release of the escrow established pursuant to the Escrow
Agreement, whereupon the representations and warranties
shall expire.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
51PAGE
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the date first above written.
THERMOSPECTRA CORPORATION
By: /s/ Theo Melas-Kyriazi
----------------------
Name: Theo Melas-Kyriazi
Title: President
PARK ACQUISITION CORP.
By: /s/ Theo Melas-Kyriazi
----------------------
Name: Theo Melas-Kyriazi
Title: President
PARK SCIENTIFIC INSTRUMENTS CORPORATION
By: /s/ Stanley K. Yarbro
---------------------
Name: Stanley K. Yarbro
Title: President
Exhibit 10.4
AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT
The Master Repurchase Agreement dated as of August 10, 1994 between
Thermo Electron Corporation, a Delaware corporation ("Seller"), and
ThermoSpectra Corporation, a Delaware corporation (the "Buyer"), is
hereby amended and restated in its entirety as follows on and as of
December 28, 1996.
1. Applicability
From time to time Buyer and Seller may enter into transactions in
which Seller agrees to transfer to Buyer certain securities and/or
financial instruments ("Securities") against the transfer of funds by
Buyer, with a simultaneous agreement by Buyer to transfer to Seller such
Securities on demand, against the transfer of funds by Seller. Each such
transaction shall be referred to herein as a "Transaction" and shall be
governed by this Agreement, unless otherwise agreed in writing.
2. Definitions
(a) "Act of Insolvency", with respect to either party (i) the
commencement by such party as debtor of any case or proceeding under any
bankruptcy, insolvency, reorganization, liquidation, dissolution or
similar law, or such party seeking the appointment of a receiver,
trustee, custodian or similar official for such party or any substantial
part of its property; or (ii) the commencement of any such case or
proceeding against such party, or another seeking such an appointment,
which (A) is consented to or not timely contested by such party, (B)
results in the entry of an order for relief, such an appointment or the
entry of an order having a similar effect, or (C) is not dismissed within
15 days; or (iii) the making by a party of a general assignment for the
benefit of creditors; or (iv) the admission in writing by a party of such
party's inability to pay such party's debts as they become due;
(b) "Additional Purchased Securities", Securities provided by
Seller to Buyer pursuant to Paragraph 4(a) hereof;
(c) "Income", with respect to any Security at any time, any
principal thereof then payable and all interest, dividends or other
distributions thereon;
(d) "Market Value", with respect to any Securities as of any date,
the price for such Securities on such date obtained from a generally
recognized source agreed to by the parties or the most recent closing bid
quotation from such a source, plus accrued Income to the extent not
included therein (other than any Income transferred to Seller pursuant to
Paragraph 6 hereof) as of such date (unless contrary to market practice
for such Securities);
(e) "Other Buyers", third parties that have entered into an
agreement with Seller that is substantially similar to this Agreement;
PAGE
<PAGE>
(f) "Pricing Rate", a rate equal to the Commercial Paper Composite
rate for 90-day maturities provided by Merrill Lynch, Pierce, Fenner &
Smith Incorporated (or, if such rate is not available, a substantially
equivalent rate agreed to by Buyer and Seller) plus 25 basis points,
which rate shall be adjusted on the first business day of each fiscal
quarter and shall be in effect for the entirety such fiscal quarter;
(g) "Purchase Price", the price at which Purchased Securities are
transferred by Seller to Buyer;
(h) "Purchased Securities", the Securities transferred by Seller to
Buyer in a Transaction hereunder, and any Securities substituted therefor
in accordance with Paragraph 9 hereof. The term "Purchased Securities"
with respect to any Transaction at any time also shall include Additional
Purchase Securities transferred pursuant to Paragraph 4(a) and shall
exclude Securities returned pursuant to Paragraph 4(b);
(i) "Repurchase Collateral Account", a book account maintained by
Seller containing, among other Securities, the Purchased Securities; and
(j) "Repurchase Price", for any Purchased Security, an amount equal
to the Purchase Price paid by Buyer to Seller for such Purchased
Security.
3. Transactions
(a) A Transaction may be initiated by Buyer upon the transfer of
the Purchase Price to Seller's account. Upon such transfer, Seller shall
transfer to Buyer Purchased Securities having a Market Value equal to
103% of the Purchase Price.
(b) Purchased Securities shall be held in custody for Buyer by
Seller in the Repurchase Collateral Account. Seller shall indicate on
its books for such account Buyer's ownership of the Purchased Securities.
Upon reasonable request from Buyer, Seller shall provide Buyer with a
complete list of Purchased Securities owned by Buyer.
(c) Upon demand by Buyer or Seller, Seller shall repurchase from
Buyer, and Buyer shall sell to Seller, for the Repurchase Price all or
any part of the Purchased Securities then owned by Buyer.
4. Margin Maintenance
(a) If at any time the aggregate Market Value of all Purchased
Securities then owned by Buyer is less than 103% of the aggregate
Repurchase Price for such Purchased Securities, then Seller shall
transfer to Buyer additional Securities ("Additional Purchased
Securities"), so that the aggregate Market Value of such Purchased
Securities, including any such Additional Purchased Securities, will
thereupon equal or exceed 103% of such aggregate Repurchase Price.
(b) If at any time the aggregate Market Value of all Purchased
Securities then owned by Buyer exceeds 103% of the aggregate Repurchase
Price for such Purchased Securities, then Seller may transfer Purchased
Securities to Seller, so that the aggregate Market Value of such
PAGE
<PAGE>
Purchased Securities will thereupon not exceed 103% of such aggregate
Repurchase Price.
5. Interest Payments
If during any fiscal month Buyer owned Purchased Securities, then on
the first day of the next following fiscal month Seller shall pay to
Buyer an amount equal to the sum of the aggregate Repurchase Prices of
the Purchased Securities owned by Buyer at the close of each day during
the preceding fiscal month divided by the number of days in such month
and the product multiplied by the Pricing Rate times the number of days
in such month divided by 360.
6. Income Payments and Voting Rights
Where a particular Transaction's term extends over an Income payment
date on the Purchased Securities subject to that Transaction, Buyer
shall, on the date such Income is payable, transfer to Seller an amount
equal to such Income payment or payments with respect to any Purchased
Securities subject to such Transaction. Seller shall retain all voting
rights with respect to Purchased Securities sold to Buyer under this
Agreement.
7. Security Interest
Although the parties intend that all Transactions hereunder be sales
and purchases and not loans, in the event any such Transactions are
deemed to be loans, Seller shall be deemed to have pledged to Buyer as
security for the performance by Seller of its obligations under each such
Transaction and this Agreement, and shall be deemed to have granted to
Buyer a security interest in, all of the Purchased Securities with
respect to all Transactions hereunder and all proceeds thereof.
8. Payment and Transfer
Unless otherwise mutually agreed, all transfers of funds hereunder
shall be in immediately available funds. As used herein with respect to
Securities, "transfer" is intended to have the same meaning as when used
in Section 8-313 of the Massachusetts Uniform Commercial Code or, where
applicable, in any federal regulation governing transfers of the
Securities.
9. Substitution
Buyer hereby grants Seller the authority to manage, in Seller's sole
discretion, the Purchased Securities held in custody for Buyer by Seller
in the Repurchase Collateral Account. Buyer expressly agrees that Seller
may (i) substitute other Securities for any Purchased Securities and (ii)
commingle Purchased Securities with other Securities held in the
Repurchase Collateral Account. Substitutions shall be made by transfer
to Buyer of such other Securities and transfer to Seller of the Purchased
Securities for which substitution is being made. After substitution, the
PAGE
<PAGE>
substituted Securities shall be deemed to be Purchased Securities.
Securities which are substituted for Purchased Securities shall have a
Market Value at the time of substitution equal to or greater than the
Market Value of the Purchase Securities for which such Securities were
substituted.
10. Representations
Each of Buyer and Seller represents and warrants to the other that
(i) it is duly authorized to execute and deliver this Agreement, to enter
into the Transactions contemplated hereunder and to perform its
obligations hereunder and has taken all necessary action to authorize
such execution, delivery and performance, (ii) the person signing this
Agreement on its behalf is duly authorized to do so on its behalf, (iii)
it has obtained all authorizations of any governmental body required in
connection with this Agreement and the Transactions hereunder and such
authorizations are in full force and effect and (iv) the execution,
delivery and performance of this Agreement and the Transactions hereunder
will not violate any law, ordinance, charter, by-law or rule applicable
to it or any agreement by which it is bound or by which any of its assets
are affected. On the date for any Transaction Buyer and Seller shall
each be deemed to repeat all the foregoing representations made by it.
11. Events of Default
In the event that (i) Seller fails to repurchase or Buyer fails to
transfer Purchased Securities upon demand for repurchase from either
Buyer or Seller, (ii) Seller or Buyer fails, after one business day's
notice, to comply with Paragraph 4 hereof, (iii) Buyer fails to make
payment to Seller pursuant to Paragraph 6 hereof, (iv) Seller fails to
comply with Paragraph 5 hereof, (v) an Act of Insolvency occurs with
respect to Seller or Buyer, (vi) any representation made by Seller or
Buyer shall have been incorrect or untrue in any material respect when
made or repeated or deemed to have been made or repeated, or (vii) Seller
or Buyer shall admit to the other its inability to, or its intention not
to, perform any of its obligations hereunder (each an "Event of
Default"):
(a) At the option of the nondefaulting party, exercised by written
notice to the defaulting party (which option shall be deemed to have been
exercised, even if no notice is given, immediately upon the occurrence of
any Act of Insolvency), Seller shall become obligated to repurchase, and
Buyer shall become obligated to sell, all Purchased Securities then owned
by Buyer for the Repurchase Price of such Purchased Securities.
(b) If Seller is the defaulting party and Buyer exercises or is
deemed to have exercised the option referred to in subparagraph (a) of
this Paragraph, (i) the Seller's obligations hereunder to repurchase all
Purchased Securities in such Transactions shall thereupon become
immediately due and payable, (ii) all Income paid after such exercise or
deemed exercise shall be retained by Buyer and applied to the aggregate
unpaid Repurchase Prices owed by Seller, and (iii) Seller shall
immediately deliver to Buyer any Purchased Securities subject to such
Transactions then in Seller's possession.
PAGE
<PAGE>
(c) In all Transactions in which Buyer is the defaulting party,
upon tender by Seller of payment of the aggregate Repurchase Prices for
all such Transactions, Buyer's right, title and interest in all Purchased
Securities subject to such Transactions shall be deemed transferred to
Seller, and Buyer shall deliver all such Purchased Securities to Seller.
(d) After one business day's notice to the defaulting party (which
notice need not be given if an Act of Insolvency shall have occurred, and
which may be the notice given under subparagraph (a) of this Paragraph or
the notice referred to in clause (ii) of the first sentence of this
Paragraph), the nondefaulting party may:
(i) as to Transactions in which Seller is the defaulting
party, (A) immediately sell, in a recognized market at such price or
prices as Buyer may reasonably deem satisfactory, any or all Purchased
Securities subject to such Transactions and apply the proceeds thereof to
the aggregate unpaid Repurchase Prices and any other amounts owing by
Seller hereunder or (B) in its sole discretion elect, in lieu of selling
all or a portion of such Purchased Securities, to give Seller credit for
such Purchased Securities in an amount equal to the price therefor on
such date, obtained from a generally recognized source or the most recent
closing bid quotation from such a source, against the aggregate unpaid
Repurchase Prices and any other amounts owing by Seller hereunder; and
(ii) as to Transactions in which Buyer is the defaulting
party, (A) purchase securities ("Replacement Securities") of the same
class and amount as any Purchased Securities that are not delivered by
Buyer to Seller as required hereunder or (B) in its sole discretion
elect, in lieu of purchasing Replacement Securities, to be deemed to have
purchased Replacement Securities at the price therefor on such date,
obtained from a generally recognized source or the most recent closing
bid quotation from such a source.
(e) As to Transactions in which Buyer is the defaulting party,
Buyer shall be liable to Seller (i) with respect to Purchased Securities
(other than Additional Purchased Securities), for any excess of the price
paid (or deemed paid) by Seller for Replacement Securities therefor over
the Repurchase Price for such Purchased Securities and (ii) with respect
to Additional Purchased Securities, for the price paid (or deemed paid)
by Seller for the Replacement Securities therefor.
(g) The defaulting party shall be liable to the nondefaulting party
for the amount of all reasonable legal or other expenses incurred by the
nondefaulting party in connection with or as a consequence of an Event of
Default.
(h) The nondefaulting party shall have, in addition to its rights
hereunder, any rights otherwise available to it under any other agreement
or applicable law.
12. Single Agreement
Buyer and Seller acknowledge that, and have entered hereinto and
will enter into each Transaction hereunder in consideration of and in
reliance upon the fact that, all Transactions hereunder constitute a
PAGE
<PAGE>
single business and contractual relationship and have been made in
consideration of each other. Accordingly, each of Buyer and Seller
agrees (i) to perform all of its obligations in respect of each
Transaction hereunder, and that a default in the performance of any such
obligations shall constitute a default by it in respect of all
Transactions hereunder, (ii) that each of them shall be entitled to set
off claims and apply property held by them in respect of any Transaction
against obligations owing to them in respect of any other Transactions
hereunder and (iii) that payments, deliveries and other transfers made by
either of them in respect of any Transaction shall be deemed to have been
made in consideration of payments, deliveries and other transfers in
respect of any other Transactions hereunder, and the obligations to make
any such payments, deliveries and other transfers may be applied against
each other and netted.
13. Entire Agreement; Severability
This Agreement shall supersede any existing agreements between the
parties containing general terms and conditions for repurchase
transactions. Each provision and agreement and agreement herein shall be
treated as separate and independent from any other provision or agreement
herein and shall be enforceable notwithstanding the unenforceability of
any such other provision or agreement.
14. Non-assignability; Termination
The rights and obligations of the parties under this Agreement and
under any Transactions shall not be assigned by either party without the
prior written consent of the other party. Subject to the foregoing, this
Agreement and any Transactions shall be binding upon and shall inure to
the benefit of the parties and their respective successors and assigns.
This Agreement may be canceled by either party upon giving written notice
to the other, except that this Agreement shall, notwithstanding such
notice, remain applicable to any Transactions then outstanding.
15. Governing Law
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts without giving effect to the conflict of law principles
thereof.
16. No Waivers, Etc.
No express or implied waiver of any Event of Default by either party
shall constitute a waiver of any other Event of Default and no exercise
of any remedy hereunder by any party shall constitute a wavier of its
right to exercise any other remedy hereunder. No modification or waiver
of any provision of this Agreement and no consent by any party to a
departure herefrom shall be effective unless and until such shall be in
writing and duly executed by both of the parties hereto.
17. Intent
(a) The parties recognize that each Transaction is a "repurchase
agreement" as that term is defined in Section 101 of Title 11 of the
PAGE
<PAGE>
United States Code, as amended (except insofar as the type of Securities
subject to such Transaction or the term of such Transaction would render
such definition inapplicable), and a "securities contract" as that term
is defined in Section 741 of Title 11 of the United States Code, as
amended.
(b) It is understood that either party's right to liquidate
Securities delivered to it in connection with Transactions hereunder or
to exercise any other remedies pursuant to Paragraph 11 hereof, is a
contractual right to liquidate such Transaction as described in Sections
555 and 559 of Title 11 of the United States Code, as amended.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
December 28, 1996.
THERMO ELECTRON CORPORATION THERMOSPECTRA CORPORATION
By: Jonathan W. Painter By: Theo Melas-Kyriazi
----------------------- ----------------------
Name: Jonathan W. Painter Name: Theo Melas-Kyriazi
Title:Treasurer Title:President
Exhibit 10.7
PARK SCIENTIFIC INSTRUMENTS CORPORATION
1988 INCENTIVE STOCK PLAN
1. Purposes of the Plan. The purposes of this Incentive Stock
Plan are to attract and retain the best available personnel, to provide
additional incentive to the Employees of Park Scientific Instruments
Corporation (the "Company") and to promote the success of the Company's
business.
Options granted hereunder may be either Incentive Stock Options
or Nonstatutory Stock Options, at the discretion of the Board and as
reflected in the terms of the written option agreement. The Board also
has the discretion to grant Stock Purchase Rights.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" shall mean the Committee, if one has been
appointed, or the Board of Directors of the Company, if no Committee is
appointed.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Committee" shall mean the Committee appointed by the
Board of Directors in accordance with Section 4(a) of the Plan, if one is
appointed.
(d) "Common Stock" shall mean the Common Stock of the Company.
(e) "Company" shall mean Park Scientific Instrument
Corporation, a California corporation.
(f) "Consultant" shall mean any person who is engaged by the
Company or any Parent or Subsidiary to render consulting services and is
compensated for such consulting services, and any director of the Company
whether compensated for such services or not; provided that if and in the
event the Company registers any class of any equity security pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the term Consultant shall thereafter not include
directors who are not compensated for their services or are paid only a
director's fee by the Company.
(g) "Continuous Status as an Employee or Consultant" shall
mean the absence of any interruption or termination of service as an
Employee or Consultant, as applicable. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of sick
leave, military leave, or any other leave of absence approved by the
Board; provided that such leave is for a period of not more than 90 days
or reemployment upon the expiration of such leave is guaranteed by
contract or statute.
PAGE
<PAGE>
(h) "Employee" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the
Company. The payment of a director's fee by the Company shall not be
sufficient to constitute "employment" by the Company.
(i) "Incentive Stock Option" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422A
of the Code.
(j) "Nonstatutory Stock Option" shall mean an Option not
intended to qualify as an Incentive Stock Option.
(k) "Option" shall mean a stock option granted pursuant to the
Plan.
(l) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(m) "Optionee" shall mean an Employee or Consultant who
receives an Option.
(n) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 425(e) of the Code.
(o) "Plan" shall mean this 1988 Incentive Stock Plan.
(p) "Purchaser" shall mean an Employee or Consultant who
exercises a Stock Purchase Right.
(q) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 11 of the Plan.
(r) "Stock purchase Right" shall mean a right to purchase
Common Stock pursuant to the Plan or the right to receive a bonus of
Common Stock for past services.
(s) "Subsidiary" shall mean a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 425(f) of the
Code.
3. Stock Subject to the Plan. Subject to the provisions of
Section 11 of the Plan, the maximum aggregate number of shares under the
Plan is 2,000,000 shares of Common Stock. The Shares may be authorized,
but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right should expire or become
unexercisable for any reason without having been exercised in full, then
the unpurchased Shares which were subject thereto shall, unless the Plan
shall have been terminated, become available for future grant or sale
under the Plan. Notwithstanding any other provision of the Plan, shares
issued under the Plan and later repurchased by the Company shall not
become available for future grant or sale under the Plan.
4. Administration of the Plan.
PAGE
<PAGE>
(a) Procedure. The Plan shall be administered by the Board of
Directors of the Company.
(i) Subject to subparagraph (ii), the Board of Directors
may appoint a Committee consisting of not less than two members of the
Board of Directors to administer the Plan on behalf of the Board of
Directors, subject to such terms and conditions as the Board of Directors
may prescribe. Once appointed, the Committee shall continue to serve
until otherwise directed by the Board of Directors. Members of the Board
who are either eligible for Options and/or Stock Purchase Rights or have
been granted Options and/or Stock Purchase Rights may vote on any matters
affecting the administration of the Plan or the grant of any Options
and/or Stock Purchase Rights pursuant to the Plan, except that no such
member shall act upon the granting of an Option and/or Stock Purchase
Right to such member, but any such member may be counted in determining
the existence of a quorum at any meeting of the Board during which action
is taken with respect to the granting of Options and/or Stock Purchase
Rights to the member.
(ii) Notwithstanding the foregoing subparagraph (i), if
and in any event the Company registers any class of any equity security
pursuant to Section 12 of the Exchange Act, from the effective date of
such registration until six months after the termination of such
registration, any grants of Options and/or Stock Purchase Rights to
officers or directors shall only be made by the Board of Directors;
provided, however, that if a majority of the Board of Directors is
eligible to participate in this Plan or any other stock option or other
stock plan of the Company or any of its affiliates, or has been eligible
at any time during the prior one-year period (or, if shorter, the period
following the initial registration of the Company's equity securities
under Section 12 of the Exchange Act) any grants of Options and/or Stock
Purchase Rights to directors must be made by, or only in accordance with
the recommendation of, a Committee consisting of three or more persons,
who may but need not be directors or employees of the Company, appointed
by the Board of Directors and having full authority to act in the matter,
none of whom is eligible to participate in this Plan or any other stock
option or other stock plan of the Company or any of its affiliates, or
has been eligible at any time during the prior one-year period (or, if
shorter, the period following the initial registration of the Company's
equity securities under Section 12 of the Exchange Act). Any Committee
administering the Plan with respect to grants to officers who are not
also directors shall conform to the requirements of the preceding
sentence. Once appointed, the Committee shall continue to serve until
otherwise directed by the Board of Directors.
(iii) Subject to the foregoing subparagraphs (i) and
(ii), from time to time the Board of Directors may increase the size of
the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor,
fill vacancies however caused, or remove all members of the Committee and
thereafter directly administer the Plan.
(b) Powers of the Board. Subject to the provisions of the
Plan, the Board shall have the authority, in its discretion: (i) to
grant Incentive Stock Options, Nonstatutory Stock Options or Stock
PAGE
<PAGE>
Purchase Rights, (ii) to determine, upon review of relevant information
and in accordance with Section 7 of the Plan, the fair market value of
the Common Stock; (iii) to determine the exercise price per share of
Options or Stock Purchase Rights, to be granted, which exercise price
shall be determined in accordance with Section 7 of the Plan; (iv) to
determine the Employees or Consultants to whom, and the time or times at
which, Options or Stock Purchase Rights shall be granted and the number
of shares to be represented by each Option or Stock Purchase Right, (v)
to interpret the Plan; (vi) to prescribe, amend and rescind rules and
regulations relating to the Plan; (vii) to determine the terms and
provisions of each Option and Stock Purchase Right granted (which need
not be identical) and, with the consent of the holder thereof, modify or
amend any provisions (including provisions relating to exercise price) of
any Option or Stock Purchase Right; (viii) to authorize any person to
execute on behalf of the Company any instrument required to effectuate
the grant of an Option or Stock Purchase Right previously granted by the
Board, and (ix) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(c) Effect of Board's Decision. All decisions, determinations
and interpretations of the Board shall be final and binding on all
Optionees, Purchasers and any other holders of any Options or Stock
Purchase Rights granted under the Plan.
5. Eligibility.
(a) Options and Stock Purchase Rights may be granted to
Employees and Consultants, provided that Incentive Stock Options may only
be granted to Employees. An Employee or Consultant who has been granted
an Option or Stock Purchase Right may, if such Employee or Consultant is
otherwise eligible, be granted additional Option(s) or Stock Purchase
Right(s).
(b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designations, to the extent that
the aggregate fair market value of the Shares with respect to which
Options designated as Incentive Stock Options are exercisable for the
first time by any Optionee during any calendar year (under all plans of
the Company) exceeds $100,000, such Options shall be treated as
Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Options shall be taken into
account in the order in which they were granted, and the fair market
value of the Shares shall be determined as of the time the Option with
respect to such Shares is granted.
(d) The Plan shall not confer upon any Optionee or holder of a
Stock Purchase Right any right with respect to continuation of employment
by or the rendition of consulting services to the Company, nor shall it
interfere in any way with his or her right or the Company's right to
terminate his or her employment or services at any time, with or without
cause.
PAGE
<PAGE>
6. Term of Plan. The Plan shall become effective upon the earlier
to occur of its adoption by the Board of Directors or its approval by
vote of the holders of a majority of the outstanding shares of the
Company entitled to vote on the adoption of the Plan. It shall continue
in effect for a term of ten (10) years unless sooner terminated under
Section 14 of the Plan.
7. Exercise Price and Consideration.
(a) The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option or Stock Purchase Right shall be such
price as is determined by the Board, but shall be subject to the
following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the
grant of such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price shall
be no less than 110% of the fair market value per Share on the date of
grant.
(B) granted to any Employee, the per Share exercise
price shall be no less than 100% of the fair market value per Share on
the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the
grant of such Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of
the fair market value per Share on the date of the grant.
(B) granted to any person, the per Share exercise
price shall be no less than 85% of the fair market value per Share on the
date of grant.
(iii) In the case of a Stock Purchase Right
(A) granted to a person who, at the time of the
grant of such Stock Purchase Right, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company
or any Parent or Subsidiary, the per Share exercise price shall be no
less than 110% of the fair market value per Share on the date of the
grant.
(B) granted to any person, the per Share exercise
price shall be no less than 85% of the fair market value per Share on the
date of grant.
For purposes of this Section 7(a), in the event that an Option
or Stock Purchase Right is amended to reduce the exercise price, the date
PAGE
<PAGE>
of grant of such Option or Stock Purchase Right shall thereafter be
considered to be the date of such amendment.
(b) The fair market value shall be determined by the Board in
its discretion; provided, however, that where there is a public market
for the Common Stock, the fair market value per Share shall be the mean
of the bid and asked prices (or the closing price per share if the Common
Stock is listed on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") National Market System of the Common Stock
for the date of grant, as reported in the Wall Street Journal (or, if not
so reported, as otherwise reported by the NASDAQ System) or, in the event
the Common Stock is listed on a stock exchange, the fair market value per
Share shall be the closing price on such exchange on the date of grant of
the Option or Stock Purchase Right, as reported in the Wall Street
Journal.
(c) The consideration to be paid for the Shares to be issued
upon exercise of an Option or Stock Purchase Right, including the method
of payment, shall be determined by the Board and may consist entirely of
cash, check, promissory note, other Shares of Common Stock which (i)
either have been owned by the Optionee for more than six (6) months on
the date of surrender or were not acquired directly or indirectly, from
the Company, and (ii) have a fair market value on the date of surrender
equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised, or any combination of such methods of payment,
or such other consideration and method of payment for the issuance of
Shares to the extent permitted under Sections 408 and 409 of the
California General Corporation Law. In making its determination as to
the type of consideration to accept, the Board shall consider if
acceptance of such consideration may be reasonably expected to benefit
the Company (Section 315(b) of the California General Corporation Law).
8. Options.
(a) Term of Option. The term of each Incentive Stock Option
shall be ten (10) years from the date of grant thereof or such shorter
term as may be provided in the Incentive Stock Option Agreement. The
term of each Option that is not an Incentive Stock Option shall be ten
(10) years and one (1) day from the date of grant thereof or such shorter
term as may be provided in the Stock Option Agreement. However, in the
case of an Option granted to an Optionee who, at the time the Option is
granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, (i) if the Option is an Incentive Stock Option, the term of
the Option shall be five (5) years from the date of grant thereof or such
shorter time as may be provided in the Stock Option Agreement, or (ii) if
the Option is a Nonstatutory Stock Option, the term of the Option shall
be five (5) years and one (1) day from the date of grant thereof or such
other term as may be provided in the Stock Option Agreement.
(b) Exercise of Option.
(i) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times and under
such conditions as determined by the Board, including performance
PAGE
<PAGE>
criteria with respect to the Company and/or the Optionee, and as shall be
permissible under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the Option and
full payment for the Shares with respect to which the Option is exercised
has been received by the Company. Full payment may, as authorized by the
Board, consist of any consideration and method of payment allowable under
Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such
Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or
cause to be issued) such stock certificate promptly upon exercise of the
Option. In the event that the exercise of an Option is treated in part
as the exercise of an Incentive Stock Option and in part as the exercise
of a Nonstatutory Stock Option pursuant to Section 5(b), the Company
shall issue a separate stock certificate evidencing the Shares treated as
acquired upon exercise of an Incentive Stock Option and a separate stock
certificate evidencing the Shares treated as acquired upon exercise of a
Nonstatutory Stock Option and shall identify each such certificate
accordingly in its stock transfer records. No adjustment will be made
for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 11 of
the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both
for purposes of the Plan and for sale under the Option, by the number of
Shares as to which the Option is exercised.
(ii) Termination of Status as an Employee or Consultant.
In the event of termination of an Optionee's Continuous Status as an
Employee or Consultant (as the case may be), such Optionee may, but only
within thirty (30) days (or such other period of time not exceeding three
(3) months in the case of an Incentive Stock Option or six (6) months in
the case of a Nonstatutory Stock Option, as is determined by the Board,
with such determination in the case of an Incentive Stock Option being
made at the time of grant of the Option) after the date of such
termination (but in no event later than the date of expiration of the
term of such Option as set forth in the Option Agreement, exercise the
Option to the extent that such Employee or Consultant was entitled to
exercise it at the date of such termination. To the extent that such
Employee or Consultant was not entitled to exercise the Option at the
date of such termination, or if such Employee or Consultant does not
exercise such Option (which such Employee or Consultant was entitled to
exercise) within the time specified herein, the Option shall terminate.
(iii) Disability of Optionee. Notwithstanding the
provisions of Section 8(b)(ii) above, in the event of termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of
PAGE
<PAGE>
his or her total and permanent disability (within the meaning of Section
22(e)(3) of the Code), Optionee may, but only within twelve (12) months
from the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent such Optionee was otherwise
entitled to exercise it at the date of such termination. To the extent
that Optionee was not entitled to exercise the Option at the date of
termination, or if Optionee does not exercise such Option to the extent
so entitled within the time specified herein, the Option shall terminate.
In the event of termination of an Optionee's Continuous
Status as an Employee or Consultant as a result of a disability which
does not fall within the meaning of total and permanent disability (as
set forth in Section 22(e)(3) of the Code), Optionee may, but only within
six (6) months from the date of such termination (but in no event later
than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise the Option to the extent such Optionee was
otherwise entitled to exercise it at the date of such termination.
However, to the extent that such Optionee fails to exercise an Option
which is an Incentive Stock Option within three (3) months of the date of
such termination, the Option will not qualify for ISO treatment under the
Code. To the extent that Optionee was not entitled to exercise the
Option at the date of termination, or if Optionee does not exercise such
Option to the extent so entitled within six months (6) from the date of
termination, the Option shall terminate.
(iv) Death of Optionee. In the event of the death of an
Optionee:
(a) during the term of the Option who is at the time of
his or her death an Employee or Consultant of the Company and who shall
have been in Continuous Status as an Employee or Consultant since the
date of grant of the Option, the Option may be exercised, at any time
within six (6) months (but in no event later than the date of expiration
of the term of such Option as set forth in the Option Agreement), by
Optionees estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the right to
exercise that would have accrued had the Optionee continued living and
remained in Continuous Status as an Employee or Consultant six (6) months
(or such other period of time as is determined by the Board at the time
of grant of the Option) after the date of death; or
(b) within thirty (30) days (or such other period of time
not exceeding three (3) months as is determined by the Board, with such
determination in the case of an Incentive Stock Option being made at the
time of grant of the Option) after the termination of Continuous Status
as an Employee or Consultant, the Option may be exercised, at any time
within six (6) months (or such other period of time as is determined by
the Board at the time of grant of the Option) following the date of death
(but in no event later than the date of expiration of the term of such
Option as set forth in the Option Agreement), by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that had
accrued at the date of termination.
PAGE
<PAGE>
9. Stock Purchase Rights.
(a) Rights to Purchase. After the Board of Directors
determines that it will offer an Employee or Consultant a Stock Purchase
Right, it shall deliver to the offeree a stock purchase agreement or
stock bonus agreement, as the case may be, setting forth the terms,
conditions and restrictions relating to the offer, including the number
of Shares which such person shall be entitled to purchase, and the time
within which such person must accept such offer, which shall in no event
exceed six (6) months from the date upon which the Board of Directors or
its Committee made the determination to grant the Stock Purchase Right.
The offer shall be accepted by execution of a stock purchase agreement or
stock bonus agreement in the form determined by the Board of Directors.
(b) Issuance of Shares. Forthwith after payment therefor, the
Shares purchased shall be duly issued; provided, however, that the Board
may require that the Purchaser make adequate provision for any Federal
and State withholding obligations of the Company as a condition to the
Purchaser purchasing such Shares.
(c) Repurchase Option. Unless the Board determines otherwise,
the stock purchase agreement or stock bonus agreement shall grant the
Company a repurchase option exercisable upon the voluntary or involuntary
termination of the Purchaser's employment with the Company for any reason
(including death or disability). If the Board so determines, the
purchase price for shares repurchased may be paid by cancellation of any
indebtedness of the Purchaser to the Company. The repurchase option
shall lapse at such rate as the Board may determine.
(d) Other Provisions. The stock purchase agreement or stock
bonus agreement shall contain such other terms, provisions and conditions
not inconsistent with the Plan as may be determined by the Board of
Directors.
10. Non-Transferability of Options and Stock Purchase Right. The
Options and Stock Purchase Rights may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee or Purchaser, only by the Optionee or
Purchaser.
11. Adjustments Upon Changes in Capitalization or Merger. Subject
to any required action by the shareholders of the Company, the number of
shares of Common Stock covered by each outstanding Option and Stock
Purchase Right, and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options or
Stock Purchase Rights have yet been granted or which have been returned
to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, or repurchase of Shares from a Purchaser upon termination
of employment, as well as the price per share of Common Stock covered by
each such outstanding Option or Stock Purchase Right, shall be
proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Common
Stock of the Company or the payment of a stock dividend with respect to
PAGE
<PAGE>
the Common Stock or any other increase or decrease in the number of
issued shares of Common Stock effected without receipt of consideration
by the Company; provided, however, that conversion of any convertible
securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the
Company 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 of
Common Stock subject to an Option or Stock Purchase Right.
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Optionee at least fifteen (15) days
prior to such proposed action. To the extent, it has not been previously
exercised, the Option will terminate immediately prior to the
consummation of such proposed action. In the event of a merger of the
Company with or into another corporation, the Option shall be assumed or
an equivalent option shall be substituted by such successor corporation
or a parent or subsidiary of such successor corporation.
12. Time of Granting Options. The date of grant of an Option or
Stock Purchase Right shall, for all purposes, be the date on which the
Board makes the determination granting such Option or Stock Purchase
Right. Notice of the determination shall be given to each Employee or
Consultant to whom an Option or Stock Purchase Right is so granted within
a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or
terminate the Plan from time to time in such respects as the Board may
deem advisable; provided that, the following revisions or amendments
shall require approval of the shareholders of the Company in the manner
described in Section 17 of the Plan:
(i) any increase in the number of Shares subject to the Plan,
other than in connection with an adjustment under Section 11 of the Plan;
(ii) any change in the designation of the class of persons
eligible to be granted Options and Stock Purchase Rights; or
(iii) if the Company has a class of equity securities
registered under Section 12 of the Exchange Act at the time of such
revision or amendment, any material increase in the benefits accruing to
participants under the Plan.
(b) Shareholder Approval. If any amendment requiring
shareholder approval under Section 13(a) of the Plan is made subsequent
to the first registration of any class of equity securities by the
Company under Section 12 of the Exchange Act, such shareholder approval
shall be solicited as described in Section 17 of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options or Stock Purchase Rights
PAGE
<PAGE>
already granted and such Options or Stock Purchase Rights shall remain in
full force and effect as if this Plan had not been amended or terminated,
unless mutually agreed otherwise between the Optionee or Purchaser (as
the case may be) and the Board, which agreement must be in writing and
signed by the Optionee or Purchaser (as the case may be) and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Rights unless the
exercise of such Option or Stock Purchase Rights and the issuance and
delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the
Shares may then be listed, and shall be further subject to the approval
of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option or Stock Purchase
Rights, the Company may require the person exercising such Option or
Stock Purchase Rights to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in
the opinion of counsel for the Company, such a representation is required
by any of the aforementioned relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares
as shall be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any
Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
16. Option, Stock Purchase and Stock Bonus Agreements. Options
shall be evidenced by written option agreements in such form as the Board
shall approve. Upon the exercise of Stock Purchase Rights, the Purchaser
shall sign a stock purchase agreement or stock bonus agreement in such
form as the Board shall approve.
17. Shareholder Approval.
(a) Continuance of the Plan shall be subject to approval by
the shareholders of the Company within twelve (12) months before or after
the date the Plan is adopted. If such shareholder approval is obtained
at a duly held shareholders' meeting, it must be obtained by the
affirmative vote of the holders of a majority of the outstanding shares
of the Company, or if such shareholder approval is obtained by written
consent, it must be obtained by the unanimous written consent of all
shareholders of the Company, provided, however, that approval at a
meeting or by written consent may be obtained by a lesser degree of
shareholder approval, if the Board determines, in its discretion after
consultation with the Company's legal counsel, that such a lesser degree
of shareholder approval will comply with all applicable laws and will not
PAGE
<PAGE>
adversely affect the qualification of the Plan under Section 422A of the
Code.
(b) If and in the event that the Company registers any class
of equity securities pursuant to Section 12 of the Exchange Act, any
required approval of the shareholders of the Company obtained after such
registration shall be solicited substantially in accordance with Section
14(a) of the Exchange Act and the rules and regulations promulgated
thereunder.
(c) If any required approval by the shareholders of the Plan
itself or of any amendment thereto is solicited at any time otherwise
than in the manner described in Section 17(b) hereof, then the Company
shall, at or prior to the first annual meeting of shareholders held
subsequent to the later of (1) the first registration of any class of
equity securities of the Company under Section 12 of the Exchange Act or
(2) the granting of an Option hereunder to an officer or director after
such registration, do the following:
(i) furnish in writing to the holders entitled to vote
for the Plan substantially the same information which would be required
(if proxies to be voted with respect to approval or disapproval of the
Plan or amendment were then being solicited) by the rules and regulations
in effect under Section 14(a) of the Exchange Act at the time such
information is furnished; and
(ii) file with, or mail for filing to, the Securities and
Exchange Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information
is first sent or given to shareholders.
18. Information to Optionees and Purchasers. The Company shall
provide financial statements at least annually to each Optionee and
Purchaser during the period for which such Optionee or Purchaser has one
or more Options or Stock Purchase Rights outstanding. The Company shall
not be required to provide such information if the issuance of Options or
Stock Purchase Rights under the Plan is limited to key employees whose
duties in connection with the Company assure their access to equivalent
information.
Exhibit 10.17
THERMOSPECTRA CORPORATION
RESTATED STOCK HOLDING ASSISTANCE PLAN
SECTION 1. Purpose.
The purpose of this Plan is to benefit ThermoSpectra
Corporation (the "Company") and its stockholders by encouraging
Key Employees to acquire and maintain share ownership in the
Company, by increasing such employees' proprietary interest in
promoting the growth and performance of the Company and its
subsidiaries and by providing for the implementation of the Stock
Holding Policy.
SECTION 2. Definitions.
The following terms, when used in the Plan, shall have the
meanings set forth below:
Committee: The Human Resources Committee of the Board of
Directors of the Company as appointed from time to time.
Common Stock: The common stock of the Company and any
successor thereto.
Company: ThermoSpectra Corporation, a Delaware
corporation.
Stock Holding Policy: The Stock Holding Policy of the
Company, as adopted by the Committee and as in effect from time
to time.
Key Employee: Any employee of the Company or any of its
subsidiaries, including any officer or member of the Board of
Directors who is also an employee, as designated by the
Committee, and who, in the judgment of the Committee, will be in
a position to contribute significantly to the attainment of the
Company's strategic goals and long-term growth and prosperity.
Loans: Loans extended to Key Employees by the Company
pursuant to this Plan.
Plan: The ThermoSpectra Corporation Stock Holding
Assistance Plan, as amended from time to time.
SECTION 3. Administration.
The Plan and the Stock Holding Policy shall be administered
by the Committee, which shall have authority to interpret the
Plan and the Stock Holding Policy and, subject to their
provisions, to prescribe, amend and rescind any rules and
regulations and to make all other determinations necessary or
desirable for the administration thereof. The Committee's
PAGE
<PAGE>
interpretations and decisions with regard to the Plan and the
Stock Holding Policy and such rules and regulations as may be
established thereunder shall be final and conclusive. The
Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or the Stock Holding
Policy, or in any Loan in the manner and to the extent the
Committee deems desirable to carry it into effect. No member of
the Committee shall be liable for any action or omission in
connection with the Plan or the Stock Holding Policy that is made
in good faith.
SECTION 4. Loans and Loan Limits.
The Committee has determined that the provision of Loans
from time to time to Key Employees in such amounts as to cause
such Key Employees to comply with the Stock Holding Policy is, in
the judgment of the Committee, reasonably expected to benefit the
Company and authorizes the Company to extend Loans from time to
time to Key Employees in such amounts as may be requested by such
Key Employees in order to comply with the Stock Holding Policy.
Such Loans may be used solely for the purpose of acquiring Common
Stock (other than upon the exercise of stock options or under
employee stock purchase plans) in open market transactions or
from the Company.
Each Loan shall be full recourse and evidenced by a
non-interest bearing promissory note substantially in the form
attached hereto as Exhibit A (the "Note") and maturing in
accordance with the provisions of Section 6 hereof, and
containing such other terms and conditions, which are not
inconsistent with the provisions of the Plan and the Stock
Holding Policy, as the Committee shall determine in its sole and
absolute discretion.
SECTION 5. Federal Income Tax Treatment of Loans.
For federal income tax purposes, interest on Loans shall be
imputed on any interest free Loan extended under the Plan. A Key
Employee shall be deemed to have paid the imputed interest to the
Company and the Company shall be deemed to have paid said imputed
interest back to the Key Employee as additional compensation.
The deemed interest payment shall be taxable to the Company as
income, and may be deductible to the Key Employee to the extent
allowable under the rules relating to investment interest. The
deemed compensation payment to the Key Employee shall be taxable
to the employee and deductible to the Company, but shall also be
subject to employment taxes such as FICA and FUTA.
SECTION 6. Maturity of Loans.
Each Loan to a Key Employee hereunder shall be due and
payable on demand by the Company. If no such demand is made,
then each Loan shall mature and the principal thereof shall
become due and payable in five equal annual installments from the
2PAGE
<PAGE>
payment of annual cash incentive compensation (referred to as
bonus) to the Key Employee by the Company, beginning with the
first such bonus payment to occur after the date of the Note
evidencing the Loan, and on each of the next four bonus payment
dates, provided that the Committee may, in its sole and absolute
discretion, authorize such other maturity and repayment schedule
as the Committee may determine. Each Loan shall also become
immediately due and payable in full, without demand, upon the
occurrence of any of the events set forth in the Note; provided
that the Committee may, in its sole and absolute discretion,
authorize an extension of the time for repayment of a Loan upon
such terms and conditions as the Committee may determine.
SECTION 7. Amendment and Termination of the Plan.
The Committee may from time to time alter or amend the Plan
or the Stock Holding Policy in any respect, or terminate the Plan
or the Stock Holding Policy at any time. No such amendment or
termination, however, shall alter or otherwise affect the terms
and conditions of any Loan then outstanding to Key Employee
without such Key Employee's written consent, except as otherwise
provided herein or in the promissory note evidencing such Loan.
SECTION 8. Miscellaneous Provisions.
(a) No employee or other person shall have any claim or
right to receive a Loan under the Plan, and no employee shall
have any right to be retained in the employ of the Company due to
his or her participation in the Plan.
(b) No Loan shall be made hereunder unless counsel for the
Company shall be satisfied that such Loan will be in compliance
with applicable federal, state and local laws.
(c) The expenses of the Plan shall be borne by the Company.
(d) The Plan shall be unfunded, and the Company shall not
be required to establish any special or separate fund or to make
any other segregation of assets to assure the making of any Loan
under the Plan.
(e) Except as otherwise provided in Section 7 hereof, by
accepting any Loan under the Plan, each Key Employee shall be
conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under the Plan
or the Stock Holding Policy by the Company, the Board of
Directors of the Company or the Committee.
(f) The appropriate officers of the Company shall cause to
be filed any reports, returns or other information regarding
Loans hereunder, as may be required by any applicable statute,
rule or regulation.
SECTION 9. Effective Date.
3PAGE
<PAGE>
The Plan and the Stock Holding Policy shall become effective
upon approval and adoption by the Committee.
4PAGE
<PAGE>
EXHIBIT A TO STOCK HOLDING ASSISTANCE PLAN
THERMOSPECTRA CORPORATION
Promissory Note
$_________
Dated:____________
For value received, ________________, an individual whose
residence is located at _______________________ (the "Employee"),
hereby promises to pay to ThermoSpectra Corporation (the
"Company"), or assigns, ON DEMAND, but in any case on or before
[insert date which is the fifth anniversary of date of issuance]
(the "Maturity Date"), the principal sum of [loan amount in
words] ($_______), or such part thereof as then remains unpaid,
without interest. Principal shall be payable in lawful money of
the United States of America, in immediately available funds, at
the principal office of the Company or at such other place as the
Company may designate from time to time in writing to the
Employee.
Unless the Company has already made a demand for payment in
full of this Note, the Employee agrees to repay the Company an
amount equal to 20% of the initial principal amount of the Note
from the payment of annual cash incentive compensation (referred
to as bonus) to the Employee by the Company, beginning with the
first such bonus payment to occur after the date of this Note,
and on each of the next four bonus payment dates. Any amount
remaining unpaid under this Note, if no demand has been made by
the Company, shall be due and payable on the Maturity Date.
This Note may be prepaid at any time or from time to time,
in whole or in part, without any premium or penalty. The
Employee acknowledges and agrees that the Company has advanced to
the Employee the principal amount of this Note pursuant to the
Company's Stock Holding Assistance Plan, and that all terms and
conditions of such Plan are incorporated herein by reference.
The unpaid principal amount of this Note shall be and become
immediately due and payable without notice or demand, at the
option of the Company, upon the occurrence of any of the
following events:
(a) the termination of the Employee's employment with
the Company, with or without cause, for any reason or for no
reason;
(b) the death or disability of the Employee;
5PAGE
<PAGE>
(c) the failure of the Employee to pay his or her
debts as they become due, the insolvency of the Employee, the
filing by or against the Employee of any petition under the
United States Bankruptcy Code (or the filing of any similar
petition under the insolvency law of any jurisdiction), or the
making by the Employee of an assignment or trust mortgage for the
benefit of creditors or the appointment of a receiver, custodian
or similar agent with respect to, or the taking by any such
person of possession of, any property of the Employee; or
(d) the issuance of any writ of attachment, by trustee
process or otherwise, or any restraining order or injunction not
removed, repealed or dismissed within thirty (30) days of
issuance, against or affecting the person or property of the
Employee or any liability or obligation of the Employee to the
Company.
In case any payment herein provided for shall not be paid
when due, the Employee further promises to pay all costs of
collection, including all reasonable attorneys' fees.
No delay or omission on the part of the Company in
exercising any right hereunder shall operate as a waiver of such
right or of any other right of the Company, nor shall any delay,
omission or waiver on any one occasion be deemed a bar to or
waiver of the same or any other right on any future occasion.
The Employee hereby waives presentment, demand, notice of
prepayment, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or
enforcement of this Note. The undersigned hereby assents to any
indulgence and any extension of time for payment of any
indebtedness evidenced hereby granted or permitted by the
Company.
This Note has been made pursuant to the Company's Stock
Holding Assistance Plan and shall be governed by and construed in
accordance with, such Plan and the laws of the State of Delaware
and shall have the effect of a sealed instrument.
_______________________________
Employee Name: _________________
________________________
Witness
Exhibit 10.19
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT, AND NOT WITH A VIEW
TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, PLEDGED,
MORTGAGED, HYPOTHECATED OR OTHERWISE TRANSFERRED (1) WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING THESE
SECURITIES OR (2) UNLESS AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
ThermoSpectra Corporation
Promissory Note Due March 12, 1999
Waltham, Massachusetts
March 13, 1997
For value received, ThermoSpectra, a Delaware corporation
(the "Company"), hereby promises to pay to Thermo Electron
Corporation (hereinafter referred to as the "Payee"), or
registered assigns, on March 12, 1999, as described below, the
principal sum of ten million dollars ($10,000,000) or such part
thereof as then remains unpaid, to pay interest from the date
hereof on the whole amount of said principal sum remaining from
time to time unpaid at a rate per annum equal to the rate of the
Commercial Paper Composite Rate as reported by Merrill Lynch
Capital Markets, as an average of the last five business days of
the fiscal quarter, plus twenty-five (25) basis points, such
interest to be payable in arrears on the first day of each fiscal
quarter of the Company during the term set forth herein, until
the whole amount of the principal hereof remaining unpaid shall
become due and payable, and to pay interest on all overdue
principal and interest at a rate per annum equal to the rate of
interest announced from time to time by The First National Bank
of Boston at its head office in Boston, Massachusetts as its
"base rate" plus one percent (1%). Principal and all accrued but
unpaid interest shall be repaid on March 12, 1999. Principal and
interest shall be payable in lawful money of the United States of
America, in immediately available funds, at the principal office
of the Payee or at such other place as the legal holder may
designate from time to time in writing to the Company. Interest
shall be computed on an actual 360-day basis.
This Note may be prepaid at any time or from time to time,
in whole or in part, without any premium or penalty. All
prepayments shall be applied first to accrued interest and then
to principal.
1PAGE
<PAGE>
The then unpaid principal amount of, and interest
outstanding on, this Note shall be and become immediately due and
payable without notice or demand, at the option of the holder
hereof, upon the occurrence of any of the following events:
(a) the failure of the Company to pay any amount due
hereunder within ten (10) days of the date when due;
(b) any representation, warranty or statement made or
furnished to the Payee by the Company in connection with
this Note or the transaction from which it arises shall
prove to have been false or misleading in any material
respect as of the date when made or furnished;
(c) the failure of the Company to pay its debts as
they become due, the insolvency of the Company, the filing
by or against the Company of any petition under the U.S.
Bankruptcy Code (or the filing of any similar petition under
the insolvency law of any jurisdiction), or the making by
the Company of an assignment or trust mortgage for the
benefit of creditors or the appointment of a receiver,
custodian or similar agent with respect to, or the taking by
any such person of possession of, any property of the
Company;
(d) the sale by the Company of all or substantially
all of its assets;
(e) the merger or consolidation of the Company with or
into any other corporation in a transaction in which the
Company is not the surviving entity;
(f) the issuance of any writ of attachment, by trustee
process or otherwise, or any restraining order or injunction
not removed, repealed or dismissed within thirty (30) days
of issuance, against or affecting the person or property of
the Company or any liability or obligation of the Company to
the holder hereof; and
(g) the suspension of the transaction of the usual
business of the Company.
Upon surrender of this Note for transfer or exchange, a new
Note or new Notes of the same tenor dated the date to which
interest has been paid on the surrendered Note and in an
aggregate principal amount equal to the unpaid principal amount
of the Note so surrendered will be issued to, and registered in
the name of, the transferee or transferees. The Company may
treat the person in whose name this Note is registered as the
owner hereof for the purpose of receiving payment and for all
other purposes.
2PAGE
<PAGE>
In case any payment herein provided for shall not be paid
when due, the Company further promises to pay all cost of
collection, including all reasonable attorneys' fees.
No delay or omission on the part of the Payee in exercising
any right hereunder shall operate as a waiver of such right or of
any other right of the Payee, nor shall any delay, omission or
waiver on any one occasion be deemed a bar to or waiver of the
same or any other right on any future occasion. The Company
hereby waives presentment, demand, notice of prepayment, protest
and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this
Note. The undersigned hereby assents to any indulgence and any
extension of time for payment of any indebtedness evidenced
hereby granted or permitted by the Payee.
This Note shall be governed by and construed in accordance
with, the laws of the Commonwealth of Massachusetts and shall
have the effect of a sealed instrument.
THERMOSPECTRA CORPORATION
By:
__________________________________
Theo Melas-Kyriazi
President
[Corporate Seal]
Attest:
____________________________
Sandra L. Lambert
Secretary
cc: Patrice Barnes
Seth Hoogasian
Maureen Jacobs
Sandra Lambert
Karen Levin
Andy Pilla
Gina Silvestri
Chris Vinchesi
Exhibit 11
THERMOSPECTRA CORPORATION
Computation of Earnings per Share
1996 1995 1994
--------------------------------------------------------------------------
Computation of Primary Earnings
per Share
Net Income (a) $ 6,617,000 $ 4,594,000 $ 2,368,000
----------- ----------- -----------
Shares:
Weighted average shares
outstanding 12,436,817 11,229,039 9,383,379
Add: Shares issuable from assumed
exercise of options (as
determined by the
application of the
treasury stock method) - 20,858 83,430
----------- ----------- -----------
Weighted average
shares outstanding,
as adjusted (b) 12,436,817 11,249,897 9,466,809
----------- ----------- -----------
Primary Earnings per Share
(a) / (b) $ .53 $ .41 $ .25
=========== =========== ===========
Exhibit 13
THERMOSPECTRA CORPORATION
Consolidated Financial Statements
1996
PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Consolidated Statement of Income
(In thousands except per share amounts) 1996 1995 1994
------------------------------------------------------------------------
Revenues (Notes 7 and 11) $123,199 $ 91,714 $ 42,142
-------- -------- --------
Costs and Operating Expenses:
Cost of revenues (Note 7) 62,900 46,384 21,759
Selling, general, and administrative
expenses (Note 7) 36,493 28,501 12,136
Research and development
expenses 12,910 9,036 4,149
Other nonrecurring expense, net
(Note 3) 171 - -
-------- -------- --------
112,474 83,921 38,044
-------- -------- --------
Operating Income 10,725 7,793 4,098
Interest Income 935 820 226
Interest Expense, Related Party (Note 7) (773) (707) (114)
-------- -------- --------
Income Before Provision for Income Taxes 10,887 7,906 4,210
Provision for Income Taxes (Note 5) 4,270 3,312 1,842
-------- -------- --------
Net Income $ 6,617 $ 4,594 $ 2,368
======== ======== ========
Earnings per Share $ .53 $ .41 $ .25
======== ======== ========
Weighted Average Shares 12,437 11,250 9,467
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
2PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Consolidated Balance Sheet
(In thousands) 1996 1995
------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 16,580 $ 20,306
Accounts receivable, less allowances of
$1,516 and $1,095 32,327 23,653
Inventories 27,042 18,272
Prepaid income taxes (Note 5) 5,931 4,376
Other current assets 1,722 1,015
-------- --------
83,602 67,622
-------- --------
Property, Plant, and Equipment, at Cost, Net 20,169 15,348
-------- --------
Patents, Trademarks, and Other Assets 5,556 4,571
-------- --------
Equity Investment in Joint Venture 2,382 2,429
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Notes 2, 3, and 5) 40,776 32,947
-------- --------
$152,485 $122,917
======== ========
3PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Consolidated Balance Sheet (continued)
(In thousands except share amounts) 1996 1995
------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Note payable (Note 8) $ 591 $ -
Accounts payable 11,508 7,719
Accrued payroll and employee benefits 5,334 3,627
Accrued installation and warranty expenses 3,396 2,310
Deferred revenue 3,453 2,216
Accrued income taxes 1,792 2,120
Other accrued expenses (Notes 2 and 3) 9,586 11,368
Due to affiliated companies 3,259 2,301
-------- --------
38,919 31,661
-------- --------
Deferred Income Taxes (Note 5) 268 178
-------- --------
Other Deferred Items 1,377 1,253
-------- --------
Long-term Obligations, Due to Thermo Instrument
and Thermo Electron (Note 7) 22,300 7,300
-------- --------
Commitments (Note 6)
Shareholders' Investment (Notes 4 and 9):
Common stock, $.01 par value, 25,000,000 shares
authorized; 12,439,950 and 12,432,000 shares
issued 124 124
Capital in excess of par value 77,416 76,955
Retained earnings 12,345 5,728
Treasury stock at cost, 305 shares (5) -
Cumulative translation adjustment (259) (282)
-------- --------
89,621 82,525
-------- --------
$152,485 $122,917
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Consolidated Statement of Cash Flows
(In thousands) 1996 1995 1994
------------------------------------------------------------------------
Operating Activities:
Net income $ 6,617 $ 4,594 $ 2,368
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 4,493 3,720 1,273
Restructuring reserve (Note 3) 1,038 - -
Provision for losses on accounts
receivable 199 192 375
Other noncash expenses 839 430 303
Deferred income tax (benefit)
expense (796) 75 382
Changes in current accounts,
excluding the effects of
acquisitions:
Accounts receivable (3,444) 739 559
Inventories (3,105) (1,106) 270
Other current assets 335 (173) (223)
Accounts payable 2,123 (3,116) (157)
Other current liabilities (2,850) (34) 1,799
Other (21) - (26)
-------- -------- --------
Net cash provided by operating activities 5,428 5,321 6,923
-------- -------- --------
Investing Activities:
Acquisitions, net of cash acquired
(Note 2) (22,521) (26,142) (7,433)
Refund of acquisition purchase price
(Note 3) 1,103 - -
Purchases of available-for-sale
investments (3,000) - (4,855)
Proceeds from sale and maturities of
available-for-sale investments 3,000 4,855 -
Purchases of property, plant, and
equipment (2,762) (1,254) (584)
Proceeds from sale of property, plant,
and equipment 168 452 -
Investment in joint venture - (2,017) -
Other (733) 34 (98)
-------- -------- --------
Net cash used in investing activities $(24,745) $(24,072) $(12,970)
-------- -------- --------
5PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Consolidated Statement of Cash Flows (continued)
(In thousands) 1996 1995 1994
------------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of Company
common stock (Note 9) $ 74 $ 24,880 $ 13,993
Proceeds from issuance of long-term
obligations to Thermo Instrument and
Thermo Electron (Note 7) 15,000 15,000 7,300
Repayment of long-term obligation to
Thermo Electron - (15,000) -
Proceeds from issuance of note
payable (Note 8) 552 - -
Net transfer to parent company - - (866)
-------- -------- --------
Net cash provided by financing activities 15,626 24,880 20,427
-------- -------- --------
Exchange Rate Effect on Cash (35) (262) 59
-------- -------- --------
Increase (Decrease) in Cash and Cash
Equivalents (3,726) 5,867 14,439
Cash and Cash Equivalents at Beginning of
Year 20,306 14,439 -
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 16,580 $ 20,306 $ 14,439
======== ======== ========
Cash Paid For:
Interest $ 774 $ 806 $ 15
Income taxes $ 3,419 $ 1,796 $ 230
Noncash Activities:
Transfer of acquired businesses from
parent company (Notes 1 and 2) $ - $ - $ 23,255
Contribution of inventory to joint
venture $ - $ 412 $ -
Fair value of assets of acquired
companies $ 29,757 $ 47,597 $ 11,138
Cash paid for acquired companies (22,525) (28,098) (7,433)
-------- -------- --------
Liabilities assumed of acquired
companies $ 7,232 $ 19,499 $ 3,705
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Consolidated Statement of Shareholders' Investment
(In thousands) 1996 1995 1994
------------------------------------------------------------------------
Common Stock, $.01 Par Value
Balance at beginning of year $ 124 $ 105 $ -
Issuance of Company
common stock (Note 9) - 19 15
Capitalization of Company - - 90
-------- -------- --------
Balance at end of year 124 124 105
-------- -------- --------
Capital in Excess of Par Value
Balance at beginning of year 76,955 52,005 -
Issuance of Company
common stock (Note 9) 79 24,861 13,978
Capitalization of Company - - 38,027
Tax benefit related to employees'
and directors' stock plans 382 89 -
-------- -------- --------
Balance at end of year 77,416 76,955 52,005
-------- -------- --------
Retained Earnings
Balance at beginning of year 5,728 1,134 -
Net income 6,617 4,594 -
Net income after capitalization
of Company - - 1,134
-------- -------- --------
Balance at end of year 12,345 5,728 1,134
-------- -------- -------
Treasury Stock
Balance at beginning of year - - -
Purchases of Company common stock (5) - -
-------- -------- --------
Balance at end of year (5) - -
-------- -------- --------
Cumulative Translation Adjustment
Balance at beginning of year (282) 69 -
Translation adjustment 23 (351) 69
-------- -------- --------
Balance at end of year $ (259) $ (282) $ 69
-------- -------- --------
7PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Consolidated Statement of Shareholders' Investment (continued)
(In thousands) 1996 1995 1994
------------------------------------------------------------------------
Net Parent Company Investment
Balance at beginning of year $ - $ - $ 14,494
Net income prior to capitalization
of Company - - 1,234
Net transfer to parent company - - (866)
Transfer of acquired businesses from
parent company (Note 2) - - 23,255
Capitalization of Company - - (38,117)
-------- -------- --------
Balance at end of year - - -
-------- -------- --------
Total Shareholders' Investment $ 89,621 $ 82,525 $ 53,313
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
8PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
ThermoSpectra Corporation (the Company) develops, manufactures, and
markets precision imaging, inspection, and measurement instrumentation
that uses high-speed data acquisition and digital processing technologies
for industrial and research applications. The Company's products include
digital signal measurement instruments and imaging and inspection
systems, representing approximately 45% and 55% of the Company's 1996
revenues, respectively. The Company's imaging and inspection systems
include X-ray microanalyzers, X-ray fluorescence instruments, specialty
X-ray sources, nondestructive X-ray inspection systems, and confocal
laser scanning microscopes. The Company sells its products on a worldwide
basis (Note 11).
Relationship with Thermo Instrument Systems Inc. and Thermo Electron
Corporation
The Company was incorporated in August 1994 as an indirect, wholly
owned subsidiary of Thermo Instrument Systems Inc. (Thermo Instrument) at
which time Thermo Instrument transferred to the Company the assets,
liabilities, and businesses of NORAN Instruments, Inc. (NORAN) (Note 2),
Nicolet Instrument Technologies Inc. (NIT), and Nicolet Imaging Systems,
Inc. (NIS) in exchange for 9,000,000 shares of the Company's common
stock. As of December 28, 1996, Thermo Instrument owned 8,998,936 shares
of the Company's common stock, representing 72% of such stock
outstanding. Thermo Instrument is an 82%-owned subsidiary of Thermo
Electron Corporation (Thermo Electron). As of December 28, 1996, Thermo
Electron owned 109,153 shares of the Company's common stock, representing
0.9% of such stock outstanding.
Principles of Consolidation
The accompanying financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany
accounts and transactions have been eliminated.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest
December 31. References to 1996, 1995, and 1994 are for the fiscal years
ended December 28, 1996, December 30, 1995, and December 31, 1994,
respectively.
Revenue Recognition
The Company recognizes product revenue upon shipment. The Company
provides a reserve for its estimate of warranty and installation costs at
the time of shipment. Deferred revenue in the accompanying balance sheet
consists of unearned revenue on service contracts, which is recognized as
revenue over the life of the service contract. Substantially all of the
deferred revenue included in the accompanying 1996 balance sheet will be
recognized within one year.
9PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Software Development Costs
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed," software development costs are expensed
as incurred until technological feasibility has been established. The
Company believes that, under its current process for developing software,
the software is essentially completed concurrently with the establishment
of technological feasibility. Accordingly, no software development costs
have been capitalized.
Stock-based Compensation Plans
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based compensation plans (Note 4). Accordingly,
no accounting recognition is given to stock options granted at fair
market value until they are exercised. Upon exercise, net proceeds,
including tax benefits realized, are credited to equity.
Income Taxes
The Company and Thermo Instrument entered into a tax allocation
agreement under which both the Company and Thermo Instrument were
included in Thermo Electron's consolidated federal and certain state
income tax returns. The agreement provided that, in years that the
Company had taxable income, the Company would pay to Thermo Instrument
amounts comparable to the taxes the Company would have paid if it had
filed separate tax returns. Subsequent to the Company's initial public
offering in August 1995, Thermo Instrument's equity ownership of the
Company was reduced below 80% and, as a result, the Company is required
to file its own federal and certain state income tax returns.
In accordance with SFAS No. 109, "Accounting for Income Taxes," the
Company recognizes deferred income taxes based on the expected future tax
consequences of differences between the financial statement basis and the
tax basis of assets and liabilities, calculated using enacted tax rates
in effect for the year in which the differences are expected to be
reflected in the tax return.
Earnings per Share
Earnings per share has been computed based on the weighted average
number of shares outstanding during the year. Weighted average shares for
1995 and 1994 include the effect of the assumed exercise of stock options
issued within one year prior to the Company's initial public offering.
Because the effect of the assumed exercise of stock options would be
immaterial, they have been excluded from the calculation of weighted
average shares subsequent to the Company's initial public offering.
Cash and Cash Equivalents
As of December 28, 1996, $11,858,000 of the Company's cash
equivalents were invested in a repurchase agreement with Thermo Electron.
Under this agreement, the Company in effect lends excess cash to Thermo
10PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Electron, which Thermo Electron collateralizes with investments
principally consisting of U.S. government agency securities, corporate
notes, commercial paper, money market funds, and other marketable
securities, in the amount of at least 103% of such obligation. The
Company's funds subject to the repurchase agreement are readily
convertible into cash by the Company. The repurchase agreement earns a
rate based on the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter. As of December 28, 1996,
the Company's cash equivalents also included investments in short-term
certificates of deposit at the Company's foreign operations, which have
an original maturity of three months or less. Cash equivalents are
carried at cost, which equals market value.
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out
basis) or market value and include materials, labor, and manufacturing
overhead. The components of inventories are as follows:
(In thousands) 1996 1995
-----------------------------------------------------------------------
Raw materials and supplies $12,047 $ 7,973
Work in process 6,941 3,949
Finished goods 8,054 6,350
------- -------
$27,042 $18,272
======= =======
Property, Plant, and Equipment
The costs of additions and improvements are capitalized, while
maintenance and repairs are charged to expense as incurred. The Company
provides for depreciation and amortization using the straight-line method
over the estimated useful lives of the property as follows: buildings and
improvements, 5 to 30 years; machinery and equipment, 2 to 10 years; and
leasehold improvements, the shorter of the term of the lease or the life
of the asset. Property, plant, and equipment consists of the following:
(In thousands) 1996 1995
-----------------------------------------------------------------------
Land $ 3,372 $ 1,621
Buildings 7,896 3,687
Machinery, equipment, and leasehold improvements 16,111 14,188
------- -------
27,379 19,496
Less: Accumulated depreciation and amortization 7,210 4,148
------- -------
$20,169 $15,348
======= =======
11PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Patents, Trademarks, and Other Assets
Patents, trademarks, and other assets in the accompanying balance
sheet includes the costs of acquired patents and trademarks that are
amortized using the straight-line method over an estimated useful life of
3 to 20 years. These assets were $4,695,000 and $4,227,000, net of
accumulated amortization of $1,473,000 and $953,000, at year-end 1996 and
1995, respectively.
Equity Investment in Joint Venture
The Company uses the equity method to account for its 49% interest in
a German joint venture. The excess of cost over the Company's underlying
equity in the net assets of the joint venture of $1,438,000 is amortized
using the straight-line method over 20 years. Accumulated amortization
was $54,000 at year-end 1996.
Cost in Excess of Net Assets of Acquired Companies
The excess of cost over the fair value of net assets of acquired
companies is amortized using the straight-line method over 40 years.
Accumulated amortization was $2,360,000 and $1,400,000 at year-end 1996
and 1995, respectively. The Company assesses the future useful life of
this asset whenever events or changes in circumstances indicate that the
current useful life has diminished. The Company considers the future
undiscounted cash flows of the acquired businesses in assessing the
recoverability of this asset. If impairment occurs, any excess of
carrying value over fair value is recorded as a loss.
Foreign Currency
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are
translated at average exchange rates for the year in accordance with SFAS
No. 52, "Foreign Currency Translation." Resulting translation adjustments
are reflected as a separate component of shareholders' investment titled
"Cumulative translation adjustment." Foreign currency transaction gains
and losses are included in the accompanying statement of income and are
not material for the three years presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
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.
12PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
2. Acquisitions
On March 29, 1996, Thermo Instrument acquired a substantial portion
of the businesses comprising the Scientific Instruments Division of
Fisons plc (Fisons), a wholly owned subsidiary of Rhone-Poulenc Rorer,
Inc. Pursuant to an agreement executed on August 5, 1996, the Company
acquired Kevex Instruments and Kevex X-Ray (the Kevex businesses), which
were formerly part of Fisons, from Thermo Instrument for $21,527,000 in
cash. To partially finance the acquisition, the Company borrowed
$15,000,000 from Thermo Electron (Note 7). The purchase price was
determined based on the net book value of the Kevex businesses at March
29, 1996, and a pro rata allocation of Thermo Instrument's total cost in
excess of the net assets of acquired companies recorded in connection
with the acquisition of the Fisons businesses. The purchase price is
subject to a post-closing adjustment based on a post-closing adjustment
to be negotiated with Fisons by Thermo Instrument in connection with the
negotiations for settlement of the final purchase price for all of the
businesses of Fisons acquired by Thermo Instrument in March 1996. Kevex
Instruments is a manufacturer of X-ray microanalyzers and X-ray
fluorescence instruments and Kevex X-Ray is a manufacturer of specialty
X-ray sources.
Because the Company and the Kevex businesses were deemed for
accounting purposes to be under control of their common majority owner,
Thermo Instrument, the August 1996 transaction has been accounted for in
a manner similar to a pooling of interests. Accordingly, the Company's
1996 financial statements include the results of the Kevex businesses
from March 29, 1996, the date these businesses were acquired by Thermo
Instrument. During 1996, the Company acquired two additional companies
for an aggregate $900,000 in cash.
In May 1995, the Company acquired Gould Instrument Systems, Inc.
(GIS) for $25,758,000 in cash, which included the repayment of $6,000,000
of bank debt. In 1996, the Company recorded a $1,103,000 reduction in the
purchase price of GIS (Note 3). To partially finance the acquisition of
GIS, the Company borrowed $15,000,000 from Thermo Electron pursuant to a
promissory note that was repaid in August 1995 with proceeds from the
Company's initial public offering (Note 7). GIS develops, manufactures,
and sells data acquisition systems, oscillographic recorders, and digital
storage oscilloscopes (DSOs) for industrial, medical, scientific, and
government applications. During 1995, the Company acquired one additional
company for $2,340,000 in cash.
In September 1994, the Company acquired the assets of IRT Corporation
(IRT) for $7,268,000 in cash. To finance the acquisition, the Company
borrowed $7,300,000 from Thermo Instrument pursuant to a promissory note
(Note 7). IRT is a manufacturer of automated X-ray inspection systems for
discrete manufacturing processes, including the examination of printed
circuit boards for solder joint integrity and the placement of
components.
In March 1994, Thermo Instrument acquired substantially all the
assets, subject to certain liabilities, of NORAN as part of its
acquisition of several businesses within the EnviroTech Measurements &
Controls group of Baker Hughes Incorporated. NORAN designs, manufactures,
and distributes X-ray microanalyzers and confocal laser scanning
13PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
2. Acquisitions (continued)
microscopes. In January 1994, Thermo Instrument acquired the outstanding
capital stock of Imaging Systems International, Inc. (ISI), a
manufacturer of manual X-ray inspection instrumentation. Subsequent to
the acquisition, ISI's name was changed to Nicolet Imaging Systems (NIS).
In connection with the Company's incorporation in August 1994, Thermo
Instrument contributed NIS and NORAN to the Company.
These acquisitions have been accounted for using the purchase method
of accounting and their results of operations have been included in the
accompanying financial statements from their respective dates of
acquisition by the Company or by Thermo Instrument. The aggregate cost of
these acquisitions exceeded the estimated fair value of the acquired net
assets by $38,042,000, which is being amortized over 40 years. Allocation
of the purchase price for these acquisitions was based on estimates of
the fair value of the net assets acquired and, for businesses acquired in
1996, is subject to adjustment upon finalization of the purchase price
allocation.
Based on unaudited data, the following table presents selected
financial information for the Company, the Kevex businesses, GIS, IRT,
and NORAN on a pro forma basis, assuming that the Company and the Kevex
businesses had been combined since the beginning of 1995 and the Company,
GIS, IRT, and NORAN had been combined since the beginning of 1994. The
Company's other acquisitions were not material to the Company's results
of operations and financial position.
(In thousands except per share amounts) 1996 1995 1994
-----------------------------------------------------------------------
Revenues $129,190 $138,876 $107,770
Net income (loss) 4,548 2,259 (9,099)
Earnings (loss) per share .37 .20 (.96)
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
acquisition of the Kevex businesses been made at the beginning of 1995,
or the acquisitions of GIS, IRT, and NORAN been made at the beginning of
1994.
In connection with the acquisition of GIS, the Company established
reserves totaling $2,650,000 for estimated severance, relocation, and
exit costs, of which $1,212,000 and $1,147,000 were expended during 1996
and 1995, respectively. Other accrued expenses in the accompanying
balance sheet includes reserves of $1,127,000 and $1,937,000 at year-end
1996 and 1995, respectively, for estimated severance, relocation, and
exit costs associated with acquired companies, including $291,000 for
remaining exit costs at GIS to be paid in 1997.
14PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
3. Other Nonrecurring Expense, Net
In 1996, the Company finalized negotiations in connection with
amounts claimed for the discontinuance of the Acqulab product line, which
was sold to the Company as part of the purchase of GIS. Of the $1,970,000
settlement received, $1,103,000 was related to a reduction of the
purchase price principally for the unrealized earning potential of the
Acqulab product line and $867,000 was related to a reimbursement of
expenses incurred subsequent to the acquisition of GIS for the ongoing
development of Acqulab.
In 1996, the Company's GIS subsidiary commenced a $1,038,000
restructuring plan, which included the termination of approximately 40
employees.
The Company recorded the $867,000 reimbursement and the $1,038,000
restructuring reserve as "Other nonrecurring expense, net" in the
accompanying 1996 statement of income. The remaining $1,103,000 received
under the settlement agreement was recorded as an adjustment to the
purchase price paid for GIS, resulting in a reduction of "Cost in excess
of net assets of acquired companies" in the accompanying 1996 balance
sheet. "Other accrued expenses" in the accompanying 1996 balance sheet
includes a remaining reserve of $790,000 associated with the staff
reductions described above.
4. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
------------------
The Company has a stock-based compensation plan for its key
employees, directors, and others, which permits the grant of a variety of
stock and stock-based awards as determined by the human resources
committee of the Company's Board of Directors (the Board Committee),
including restricted stock, stock options, stock bonus shares, or
performance-based shares. To date, only nonqualified stock options have
been awarded under this plan. The option recipients and the terms of
options granted under this plan are determined by the Board Committee.
Generally, options granted to date are exercisable immediately, but are
subject to certain transfer restrictions and the right of the Company to
repurchase shares issued upon exercise of the options at the exercise
price, upon certain events. The restrictions and repurchase rights
generally lapse ratably over a five to ten year period, depending on the
term of the option, which generally ranges from ten to twelve years.
Nonqualified stock options may be granted at any price determined by the
Board Committee, although incentive stock options must be granted at not
less than the fair market value of the Company's stock on the date of
grant. To date, all options have been granted at fair market value. The
Company also has a directors' stock option plan, adopted in 1994, that
provides for the grant of stock options to outside directors pursuant to
a formula approved by the Company's shareholders. Options granted to date
under this plan have the same general terms as options granted to date
under the stock-based compensation plan described above, except that the
restrictions and repurchase rights generally lapse ratably over a
four-year period and the option term is five years. In addition to the
15PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
Company's stock-based compensation plans, certain officers and key
employees may also participate in the stock-based compensation plans of
Thermo Electron and Thermo Instrument.
Employee Stock Purchase Program
-------------------------------
Effective November 1, 1996, substantially all of the Company's
full-time U.S. employees are eligible to participate in an employee stock
purchase program sponsored by the Company and Thermo Electron, under
which employees can purchase shares of the Company's and Thermo
Electron's common stock. Prior to November 1, 1996, the program was
sponsored by Thermo Instrument and Thermo Electron. Under this program,
the applicable shares of common stock can be purchased at the end of a
12-month period at 95% of the fair market value at the beginning of the
period, and the shares purchased are subject to a six-month resale
restriction. Prior to November 1, 1995, the applicable shares of common
stock could be purchased at 85% of the fair market value at the beginning
of the period, and the shares purchased were subject to a one-year resale
restriction. Shares are purchased through payroll deductions of up to 10%
of each participating employee's gross wages.
Pro Forma Stock-based Compensation Expense
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which sets forth a
fair-value based method of recognizing stock-based compensation expense.
As permitted by SFAS No. 123, the Company has elected to continue to
apply APB No. 25 to account for its stock-based compensation plans. Had
compensation cost for awards granted in 1996 and 1995 under the Company's
stock-based compensation plans been determined based on the fair value at
the grant dates consistent with the method set forth under SFAS No. 123,
the effect on the Company's net income and earnings per share would have
been as follows:
(In thousands except per share amounts) 1996 1995
----------------------------------------------------------------------
Net income:
As reported $6,617 $4,594
Pro forma 6,277 4,475
Earnings per share:
As reported .53 .41
Pro forma .50 .40
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation expense may not be representative of the amount to be
expected in future years. Pro forma compensation expense for options
granted is reflected over the vesting period; therefore, future pro forma
compensation expense may be greater as additional options are granted.
16PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
The fair value of each option grant was estimated on the grant date
using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
1996 1995
------------------------------------------------------------------------
Volatility 26% 26%
Risk-free interest rate 6.6% 6.4%
Expected life of options 5.4 years 6.7 years
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option-pricing
models require the input of highly subjective assumptions, including
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
17PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
Stock Option Activity
A summary of the Company's stock option activity is as follows:
1996 1995 1994
---------------- ---------------- ----------------
Weighted Weighted
Number Average Number Average Number
of Exercise of Exercise of Exercise
(Shares in thousands) Shares Price Shares Price Shares Price
-------------------------------------------------------------------------
Options outstanding,
beginning of year 862 $11.32 578 $10.00 - $ -
Granted 183 15.26 315 13.68 578 10.00
Exercised (8) 10.00 - - - -
Forfeited (66) 10.89 (31) 10.75 -
------ ------ ----- ------ ----- ------
-
Options outstanding,
end of year 971 $12.10 862 $11.32 578 $10.00
====== ====== ===== ====== ===== ======
Options exercisable 971 $12.10 862 $11.32 - $ -
====== ====== ===== ====== ===== ======
Options available
for grant 121 238 522
====== ===== =====
Weighted average fair
value per share of
options granted
during year $ 5.80 $ 5.93
====== ======
As of December 28, 1996, the options outstanding were exercisable at
prices ranging from $10.00 to $17.15 and had a weighted-average remaining
contractual life of 8.6 years.
401(k) Savings Plans
Substantially all of the Company's full-time U.S. employees are
eligible to participate in either Thermo Electron's or Nicolet Instrument
Corporation's (Nicolet) 401(k) savings plan. Nicolet is a wholly owned
subsidiary of Thermo Instrument. Contributions to the 401(k) savings plans
are made by both the employee and the Company. Company contributions are
based upon the level of employee contributions. For these plans, the
Company contributed and charged to expense $689,000, $493,000, and $250,000
in 1996, 1995, and 1994, respectively.
18PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
5. Income Taxes
The components of income before provision for income taxes are as
follows:
(In thousands) 1996 1995 1994
---------------------------------------------------------------------
Domestic $ 8,969 $ 5,835 $ 3,154
Foreign 1,918 2,071 1,056
------- ------- -------
$10,887 $ 7,906 $ 4,210
======= ======= =======
The components of the provision for income taxes are as follows:
(In thousands) 1996 1995 1994
---------------------------------------------------------------------
Currently payable:
Federal $ 3,427 $ 1,651 $ 727
State 774 349 262
Foreign 865 1,237 471
------- ------- -------
5,066 3,237 1,460
------- ------- -------
Net deferred (prepaid):
Federal (608) 125 270
State (129) 27 112
Foreign (59) (77) -
------- ------- -------
(796) 75 382
------- ------- -------
$ 4,270 $ 3,312 $ 1,842
======= ======= =======
The provision for income taxes that is currently payable does not
reflect $1,024,000 of tax benefits used to reduce cost in excess of net
assets of acquired companies in 1996.
In addition, the Company receives a tax deduction upon exercise of
nonqualified stock options by employees for the difference between the
exercise price and the market price of the underlying common stock on the
date of exercise. The provision for income taxes that is currently
payable does not reflect $382,000 and $89,000 of such benefits that have
been allocated to capital in excess of par value in 1996 and 1995,
respectively.
19PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
5. Income Taxes (continued)
The provision for income taxes in the accompanying statement of
income differs from the provision calculated by applying the statutory
federal income tax rate of 34% to income before provision for income
taxes due to the following:
(In thousands) 1996 1995 1994
-----------------------------------------------------------------------
Provision for income taxes at
statutory rate $ 3,702 $ 2,688 $ 1,431
Increases (decreases) resulting from:
State income taxes, net of federal tax 426 248 247
Net foreign losses not benefited and
tax rate differential 154 456 112
Tax benefit of foreign sales
corporation (268) (201) (178)
Amortization of cost in excess of
net assets of acquired companies 146 155 85
Other, net 110 (34) 145
------- ------- ------
$ 4,270 $ 3,312 $ 1,842
======= ======= =======
Prepaid income taxes and deferred income taxes in the accompanying
balance sheet consist of the following:
(In thousands) 1996 1995
-------------------------------------------------------------
Prepaid income taxes:
Tax loss carryforwards $ 9,334 $ 8,714
Reserves and accruals 3,726 2,203
Inventory basis difference 1,983 1,495
Allowance for doubtful accounts 222 191
Depreciation - 487
------- -------
15,265 13,090
Less: Valuation allowance 9,334 8,714
------- -------
$ 5,931 $ 4,376
======= =======
Deferred income taxes:
Intangible assets $ 176 $ 47
Other 92 131
------- -------
$ 268 $ 178
======= =======
20PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
5. Income Taxes (continued)
At year-end 1996, the Company had foreign and federal tax loss
carryforwards of $21,128,000 and $6,405,000, respectively. The valuation
allowance relates to uncertainty surrounding the realization of the
carryforwards, for which realization is limited to the future income of
certain subsidiaries. The federal tax loss carryforwards expire in the
years 2008 through 2010. The foreign tax loss carryforwards do not
expire. Any resulting benefit from the loss carryforwards will first be
used to reduce "Cost in excess of net assets of acquired companies," with
any remaining benefit used to reduce other acquired intangible assets.
A provision has not been made for U.S. or additional foreign taxes on
$4,000,000 of undistributed earnings of foreign subsidiaries that could
be subject to taxation if remitted to the U.S. because the Company
currently plans to keep these amounts permanently reinvested overseas.
6. Commitments
The Company leases portions of its office and operating facilities
under various operating lease arrangements. The accompanying statement of
income includes expenses from operating leases of $2,818,000, $2,066,000,
and $688,000 in 1996, 1995, and 1994, respectively, net of sublease
income of $185,000 in 1996. Future minimum payments due under
noncancelable operating leases at December 28, 1996, were $2,277,000 in
1997; $1,795,000 in 1998; $1,408,000 in 1999; $1,298,000 in 2000;
$1,205,000 in 2001; and $3,463,000 in 2002 and thereafter. Total future
minimum lease payments are $11,446,000 and have not been reduced by
minimum sublease rental income of $2,483,000 due through 2001 under
noncancelable operating subleases. See Note 7 for office and
manufacturing space leased from a related party.
7. Related Party Transactions
Corporate Services Agreement
The Company and Thermo Electron have a corporate services agreement
under which Thermo Electron's corporate staff provides certain
administrative services, including certain legal advice and services,
risk management, certain employee benefit administration, tax advice and
preparation of tax returns, centralized cash management, and certain
financial and other services, for which the Company pays Thermo Electron
annually an amount equal to 1.0% of the Company's revenues. The Company
paid an annual fee equal to 1.20% and 1.25% of the Company's revenues in
fiscal 1995 and 1994, respectively. The annual fee is reviewed and
adjusted annually by mutual agreement of the parties. For these services,
the Company was charged $1,232,000, $1,101,000, and $527,000, in 1996,
1995, and 1994, respectively. The corporate services agreement is renewed
annually but can be terminated upon 30 days' prior notice by the Company
or upon the Company's withdrawal from the Thermo Electron Corporate
Charter (the Thermo Electron Corporate Charter defines the relationship
among Thermo Electron and its majority-owned subsidiaries). Management
believes that the service fee charged by Thermo Electron is reasonable
21PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
7. Related Party Transactions (continued)
and that such fees are representative of the expenses the Company would
have incurred on a stand-alone basis. For additional items such as
employee benefit plans, insurance coverage, and other identifiable costs,
Thermo Electron charges the Company based upon costs attributable to the
Company.
Operating Leases
The Company leases certain office and manufacturing space from
Nicolet. Effective January 1, 1996, the annual rent expense is $208,000.
Prior to January 1, 1996, rent expense was determined as the Company's
allocated share of total occupancy expenses. The accompanying statement
of income includes expenses from this operating lease of $208,000,
$218,000, and $257,000 in 1996, 1995, and 1994, respectively. This lease
is effective until December 31, 1998, but may be terminated by the
Company upon 90 days' prior notice to Nicolet.
Other Related Party Transactions
The Company purchases and sells products and services in the ordinary
course of business with other companies affiliated with Thermo Electron.
Sales of products to such affiliated companies totaled $240,000,
$118,000, and $57,000, in 1996, 1995, and 1994, respectively. Purchases
of products and services from such affiliated companies totaled
$1,310,000, $1,090,000, and $1,872,000 in 1996, 1995, and 1994,
respectively.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.
Long-term Obligations
The Company borrowed funds from Thermo Instrument and Thermo Electron
to finance the acquisitions of certain companies (Note 2). In connection
with the 1996 acquisition of the Kevex businesses, the Company borrowed
$15,000,000 from Thermo Electron pursuant to a promissory note due August
1998. To finance the acquisition of GIS in May 1995, the Company borrowed
$15,000,000 from Thermo Electron pursuant to a promissory note that was
repaid in August 1995 with proceeds from the Company's initial public
offering (Note 9). To finance the acquisition of IRT in 1994, the Company
borrowed $7,300,000 from Thermo Instrument pursuant to a promissory note
due September 2001.
These notes bear interest at the 90-day Commercial Paper Composite
Rate plus 25 basis points, set at the beginning of each quarter. The
interest rate for the notes outstanding at year-end 1996 and 1995 was
5.77% and 6.01%, respectively.
22PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
8. Note Payable
Note payable in the accompanying balance sheet at December 28, 1996,
represents borrowings under a 1.2 million British pounds sterling line of
credit facility. The interest rate for this line of credit was 7.0% at
December 28, 1996.
9. Common Stock
In 1995, the Company sold 1,725,000 shares of its common stock in its
initial public offering at $14.00 per share for net proceeds of
$21,858,000, and the Company sold an additional 202,000 shares of its
common stock in a private placement at $15.72 per share for net proceeds
of $3,022,000.
In 1994, the Company sold 1,505,000 shares of its common stock in
private placements at $10.00 per share for net proceeds of $13,993,000.
At December 28, 1996, the Company had reserved 1,267,000 unissued
shares of its common stock for possible issuance under stock-based
compensation plans.
10. Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and
cash equivalents, accounts receivable, note payable, accounts payable,
due to affiliated companies, long-term obligations due to Thermo
Instrument and Thermo Electron, and forward exchange contracts. The
Company's long-term obligations (Note 7) bear interest at a variable
market rate and therefore the carrying amounts approximate fair value.
The carrying amounts of the Company's remaining financial instruments,
with the exception of forward exchange contracts, approximate fair value
due to their short-term nature.
The Company enters into forward exchange contracts to hedge certain
firm purchase and sale commitments denominated in currencies other than
its subsidiaries' local currencies, principally U.S. dollars, Japanese
yen, German Deutsche marks, and British pounds sterling. The purpose of
the Company's foreign currency hedging activities is to protect the
Company's local currency cash flows related to these commitments from
fluctuations in foreign exchange rates. The amounts of such forward
exchange contracts at year-end 1996 and 1995 were $2,185,000 and
$3,337,000, respectively. The fair value of the Company's forward
exchange contracts receivable was $138,000 and $24,000 at year-end 1996
and 1995, respectively. The fair value of forward exchange contracts is
the estimated amount that the Company would receive upon termination of
the contract, taking into account the change in foreign exchange rates.
23PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
11. Geographical Information
The Company is engaged in one business segment: developing,
manufacturing, and marketing precision imaging, inspection, and
measurement instrumentation. The following table shows data for the
Company by geographical area:
(In thousands) 1996 1995 1994
-----------------------------------------------------------------------
Revenues:
United States $ 94,493 $ 63,675 $ 33,372
Germany 14,673 12,952 4,551
England 14,260 12,759 3,327
Other Europe 13,698 14,545 4,653
Other 5,593 3,609 1,726
Transfers among geographical areas (a) (19,518) (15,826) (5,487)
-------- -------- --------
$123,199 $ 91,714 $ 42,142
======== ======== ========
Income before provision for income taxes:
United States (b) $ 9,072 $ 5,586 $ 3,527
Germany 867 975 764
England 253 (70) 361
Other Europe 697 1,297 (69)
Other (164) 5 (485)
-------- -------- --------
Total operating income 10,725 7,793 4,098
Interest income, net 162 113 112
-------- -------- --------
$ 10,887 $ 7,906 $ 4,210
======== ======== ========
Identifiable assets:
United States $121,891 $ 89,951 $ 69,628
Germany 8,968 8,881 3,492
England 9,142 9,707 1,595
Other Europe 10,210 13,060 2,783
Other 2,274 1,318 1,203
-------- -------- --------
$152,485 $122,917 $ 78,701
======== ======== ========
Export revenues included in United States
revenues above (c):
Asia $ 19,102 $ 8,195 $ 5,446
Europe 13,300 13,003 6,437
Other 4,070 5,400 2,050
-------- -------- --------
$ 36,472 $ 26,598 $ 13,933
======== ======== ========
(a)Transfers among geographical areas are accounted for at prices that
are representative of transactions with unaffiliated parties.
(b)Includes corporate general and administrative expenses.
(c)In general, export sales are denominated in U.S. dollars.
24PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Notes to Consolidated Financial Statements
12. Unaudited Quarterly Information
(In thousands except per share amounts)
1996 First Second(a) Third Fourth
-----------------------------------------------------------------------
Revenues $26,927 $31,281 $30,329 $34,662
Gross profit 12,788 15,080 15,092 17,339
Net income 1,436 1,562 1,690 1,929
Earnings per share .12 .13 .14 .16
1995 First Second(b) Third Fourth
-----------------------------------------------------------------------
Revenues $14,449 $22,193 $26,605 $28,467
Gross profit 7,308 10,772 13,005 14,245
Net income 912 1,033 1,217 1,432
Earnings per share .09 .10 .11 .12
(a) Includes the results of Kevex Instruments and Kevex X-Ray since their
acquisition by Thermo Instrument in March 1996.
(b) Reflects the acquisition of GIS in May 1995.
13. Subsequent Event
On March 12, 1997, the Company acquired Park Scientific Instruments
Corporation (PSI), a manufacturer of scanning probe microscopes used in
industry and academia to test and measure the topography and other
surface properties of materials, for $16,913,000 in cash, including the
repayment of $1,300,000 of bank debt. The purchase price is subject to a
post-closing adjustment based on the acquired net assets of PSI. In
addition, the Company assumed outstanding PSI stock options that are
exercisable into 183,940 shares of Company common stock at a weighted
average exercise price of $3.44 per share, with an aggregate value of
$2,080,000 as of the date of the merger agreement. In connection with the
acquisition of PSI, the Company borrowed $10,000,000 from Thermo Electron
pursuant to a promissory note due March 1999 and bearing interest at the
90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter.
25PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Report of Independent Public Accountants
To the Shareholders and Board of Directors of ThermoSpectra Corporation:
We have audited the accompanying consolidated balance sheet of
ThermoSpectra Corporation (a Delaware corporation and 72%-owned
subsidiary of Thermo Instrument Systems Inc.) and subsidiaries as of
December 28, 1996, and December 30, 1995, and the related consolidated
statements of income, shareholders' investment, and cash flows for each
of the three years in the period ended December 28, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated
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
ThermoSpectra Corporation and subsidiaries as of December 28, 1996, and
December 30, 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 28, 1996,
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 11, 1997 (except
with respect to certain
matters discussed in
Note 13, as to which the
date is March 12, 1997)
26PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks," "estimates," and similar expressions are
intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements,
including those detailed immediately after this Management's Discussion
and Analysis of Financial Condition and Results of Operations under the
caption "Forward-looking Statements."
Overview
The Company develops, manufactures, and markets precision imaging,
inspection, and measurement instruments based on high-speed data
acquisition and digital processing technologies. These instruments are
generally combined with proprietary operations and analysis software to
provide industrial and research customers with integrated systems that
address their specific needs. The Company's products include digital
signal measurement systems, consisting of digital oscillographic
recorders that continuously measure and monitor signals from various
sensors, digital storage oscilloscopes (DSOs) that are capable of taking
hundreds of millions of measurements per second of repetitive or
transient signals, and data acquisition systems that combine the
attributes of DSOs and digital oscillographic recorders; X-ray
microanalyzers used as accessories to electron microscopes to provide
elemental materials analysis as a supplement to the microscope's imaging
capabilities; nondestructive X-ray inspection systems for process
monitoring and quality control applications; X-ray fluorescence
instruments for bulk and selected area sample analysis; specialty X-ray
tubes for industrial and medical applications; confocal laser scanning
microscopes that use laser light to generate precise optical images
primarily for life-science applications; and, with the March 1997
acquisition of Park Scientific Instruments Corporation (PSI), scanning
probe microscopes that test and measure the topography and other surface
properties of materials down to the atomic level (Note 13).
The Company's growth strategy includes acquiring complementary
businesses, developing new applications for its technology to address
related market segments, and strengthening its presence in selected
geographic markets. Acquisitions the Company has made have generally been
businesses with strong technologies and a good reputation and presence in
the markets in which they compete, but often relatively poor
profitability because of high manufacturing and operating expenses. The
Company's goal is to reduce these expenses and thereby improve the
acquired companies' profitability. Businesses the Company may acquire in
the future may have these same financial characteristics. To realize an
attractive return on its investment in such future acquisitions, the
Company will need to successfully reduce those acquired companies'
expenses. Because the Company competes primarily on the basis of its
27PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview (continued)
technology, it will also need to continually improve the technology
underlying the products of any company it acquires.
The Company conducts all of its manufacturing operations in the
United States, except for the production of certain DSOs that are
manufactured in England. The Company sells its products on a worldwide
basis. The Company anticipates that a majority of its revenues will be
from sales to customers outside the United States. The Company's business
activities outside the United States are conducted through sales and
service subsidiaries and through third-party representatives and
distributors. The results of the Company's international operations are
subject to foreign currency fluctuations, and the exchange rate value of
the dollar may have a significant impact on both revenues and earnings.
The Company may use forward contracts to reduce its exposure to currency
fluctuations.
Results of Operations
1996 Compared With 1995
Revenues were $123.2 million in 1996, compared with $91.7 million in
1995, an increase of 34%. Revenues increased due to the inclusion of
$18.0 million of revenues from the acquisition of Kevex Instruments, a
manufacturer of X-ray microanalyzers and X-ray fluorescence instruments,
and Kevex X-Ray, a manufacturer of specialty X-ray sources (the Kevex
businesses); and $9.6 million of incremental revenues from the Company's
Gould Instrument Systems, Inc. (GIS) subsidiary, a manufacturer of
digital signal measurement systems, acquired in May 1995 (Note 2).
Revenues at GIS for the last six months of 1996 declined by approximately
14% from the comparable period in 1995, due to a decrease in demand for
GIS products. Revenues from the Company's other operations increased
approximately 9% in 1996, compared with 1995, due to the inclusion of
$2.3 million of revenues related to shipments of airbag inspection
systems and an overall higher demand for X-ray inspection systems at the
Company's Nicolet Imaging Systems (NIS) division, and increased demand
for products sold by the Company's NORAN Instruments Inc. (NORAN)
subsidiary, a manufacturer of X-Ray microanalyzers and confocal laser
scanning microscopes. Revenues were negatively affected by approximately
$1.6 million in 1996 due to the strengthening in the value of the U.S.
dollar relative to the Japanese yen and other foreign currencies in
countries where the Company operates.
The Company's gross profit margin was 49% in both 1996 and 1995.
Higher gross profit margins at Nicolet Instrument Technologies Inc.
(NIT), a manufacturer of digital signal measurement systems, and GIS due
to changes in product mix and manufacturing efficiencies were offset by a
lower gross profit margin at NIS due to higher material costs and the
inclusion of lower-margin revenues from airbag inspection systems, the
inclusion of revenues from the Kevex businesses which had a combined
gross profit margin of 42%, and the strengthening in the value of the
U.S. dollar.
28PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1996 Compared With 1995 (continued)
Selling, general, and administrative expenses as a percentage of
revenues decreased to 30% in 1996 from 31% in 1995 due to the inclusion
of lower selling expenses as a percentage of revenues at Kevex X-Ray.
Research and development expenses as a percentage of revenues were
unchanged at 10% in both 1996 and 1995.
Other nonrecurring expense, net, represents a $1.0 million
restructuring reserve recorded at GIS offset in part by $0.9 million, of
a $2.0 million settlement, for costs incurred by GIS in connection with
its Acqulab product line (Note 3).
Interest income increased to $0.9 million in 1996 from $0.8 million
in 1995, principally due to overall higher cash balances in 1996.
Interest expense, related party in 1996 represents interest expense
associated with a $7.3 million promissory note issued to Thermo
Instrument Systems Inc. (Thermo Instrument) in September 1994 and a $15.0
million promissory note issued to Thermo Electron Corporation (Thermo
Electron) in August 1996 (Note 7). Interest expense, related party in
1995 represents interest expense associated with the $7.3 million
promissory note issued to Thermo Instrument and a $15.0 million
promissory note issued to Thermo Electron in May 1995. The $15.0 million
promissory note issued in May 1995 was repaid in August 1995.
The effective tax rate decreased to 39% in 1996 from 42% in 1995.
These rates exceed the statutory federal income tax rate primarily due to
the impact of state and foreign income taxes and the nondeductible
amortization of cost in excess of net assets of acquired companies for
certain of the Company's acquisitions. The effective tax rate decreased
in 1996 principally as a result of a lower percentage of the Company's
income generated in countries with higher tax rates.
1995 Compared With 1994
Revenues were $91.7 million in 1995, compared with $42.1 million in
1994, an increase of 118%. Revenues increased $47.5 million due to the
inclusion of revenues from acquired companies from their respective dates
of acquisition (Note 2). Revenues increased by approximately $1.5 million
in 1995 due to the decline in the value of the U.S. dollar relative to
foreign currencies in countries where the Company operates, while
revenues from existing businesses remained relatively constant.
The gross profit margin increased to 49% in 1995 from 48% in 1994.
Higher gross profit margins at existing businesses resulting principally
from shifts in product mixes and reduced manufacturing costs were offset
in part by the inclusion of lower-margin revenues at GIS.
Selling, general, and administrative expenses as a percentage of
revenues increased to 31% in 1995 from 29% in 1994, primarily due to
increased marketing efforts at the Company's existing operations and
higher selling, general, and administrative expenses as a percentage of
revenues at GIS. Research and development expenses as a percentage of
revenues were unchanged at 10% in both 1995 and 1994.
Interest income of $0.8 million in 1995 primarily represents interest
earned on increased cash balances as a result of the Company's 1995 and
1994 private placements and 1995 initial public offering (Note 9), offset
in part by the cash expended to acquire GIS (Note 2). Interest income of
$0.2 million in 1994 represents interest earned on the net proceeds from
29PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1995 Compared With 1994 (continued)
the Company's 1994 private placements. Interest expense, related party of
$0.7 million in 1995 and $0.1 million in 1994 represents interest expense
associated with the promissory notes issued in 1994 to Thermo Instrument
and Thermo Electron as discussed in the results of operations for 1996
compared with 1995.
The effective tax rate decreased to 42% in 1995 from 44% in 1994.
These rates exceed the statutory federal income tax rate due primarily to
the impact of state income taxes, the nondeductible amortization of cost
in excess of net assets of acquired companies for certain of the
Company's acquisitions, and in 1994, the inability to provide a tax
benefit on losses incurred at certain foreign subsidiaries. The effective
tax rate decreased in 1995 principally as a result of lower nondeductible
expenses as a percentage of income before income taxes.
Liquidity and Capital Resources
Consolidated working capital was $44.7 million at December 28, 1996,
compared with $36.0 million at December 30, 1995, an increase of $8.7
million. Included in working capital are cash and cash equivalents of
$16.6 million at year-end 1996, compared with $20.3 million at year-end
1995. Net cash provided by operating activities was $5.4 million in 1996.
During 1996, the Company used cash of $3.4 million and $3.1 million to
fund increases in accounts receivable and inventories, respectively.
Pursuant to an agreement executed on August 5, 1996, the Company
acquired the Kevex businesses from Thermo Instrument (Note 2) for $21.5
million in cash, subject to a post-closing adjustment based on a
post-closing adjustment to be negotiated with Fisons by Thermo Instrument
in connection with the negotiations for the settlement of the final
purchase price for all of the businesses of Fisons acquired by Thermo
Instrument in March 1996. In connection with the acquisition of the Kevex
businesses from Thermo Instrument, the Company borrowed $15.0 million
from Thermo Electron pursuant to a promissory note due August 1998 and
bearing interest at the 90-day Commercial Paper Composite Rate plus 25
basis points, set at the beginning of each quarter.
During the third quarter of 1996, the Company received a $2.0 million
settlement in connection with the acquisition of GIS (Note 3). Of the
$2.0 million settlement received, $1.1 million was recorded as a
reduction in the purchase price of GIS and $0.9 million represented
reimbursement of post-acquisition expenses incurred by GIS in connection
with its Acqulab product line and was included in the accompanying
statement of income.
During 1996, the Company expended $2.8 million for the purchase of
property, plant, and equipment, including $1.3 million for the purchase
of a building that was previously leased by NIS. The Company plans to
expend approximately $2.7 million for the purchase of property, plant,
and equipment in 1997.
On March 12, 1997, the Company acquired PSI, a manufacturer of
scanning probe microscopes used in industry and academia to test and
measure the topography and other surface properties of materials, for
$16.9 million in cash, including the repayment of $1.3 million of bank
debt, subject to a post-closing adjustment. In addition, the Company
30PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources (continued)
assumed outstanding PSI stock options that are exercisable into 183,940
shares of Company common stock at a weighted average exercise price of
$3.44 per share, with an aggregate value of approximately $2.1 million as
of the date of the merger agreement. In connection with the acquisition
of PSI, the Company borrowed $10.0 million from Thermo Electron pursuant
to a promissory note due March 1999 and bearing interest at the 90-day
Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter.
Although the Company expects to generate positive cash flow from its
existing operations, the Company anticipates that it may require
significant amounts of cash to pursue the acquisition of complementary
businesses. The Company expects that it would seek to finance any such
acquisitions through a combination of internal funds, additional equity
financing or convertible debt financing from the capital markets and/or
short-term borrowings from Thermo Instrument or Thermo Electron, although
it has no agreement with these companies to ensure that funds will be
available on acceptable items or at all. The Company believes that its
existing resources and cash provided by operations are sufficient to meet
the capital requirements of its existing businesses for the foreseeable
future.
31PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Forward-looking Statements
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company wishes to caution
readers that the following important factors, among others, in some cases
have affected, and in the future could affect, the Company's actual
results and could cause its actual results in 1997 and beyond to differ
materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company.
Uncertainty of Growth. Certain of the markets in which the Company
competes have been flat or declining over the past several years. The
Company has identified a number of strategies it believes will allow it
to grow its business, including: acquiring complementary businesses,
developing new applications for its technologies, and strengthening its
presence in selected geographic markets. No assurance can be given that
the Company will be able to successfully implement these strategies, or
that these strategies will result in growth of the Company's business.
Potential Increased Competition. The Company predominantly sells its
products in the high-performance segment of the markets in which it
competes. The products in this segment are generally characterized by
superior engineering and performance and compete more on product
specifications than on price. The other segments of these markets are
dominated by companies with substantially greater financial resources
than those of the Company. If these larger companies enter the
high-performance segment of the market, no assurance can be given that
the Company will be able to successfully compete against them.
Need to Respond to Technological Change. Many of the Company's
products are primarily marketed based on their technologies. In order to
be successful, the Company believes that it will be important to
continually improve the technology underlying its products. No assurance
can be given that the Company will be able to do so or that a competitor
of the Company will not develop technology or products that will render
the Company's competing products noncompetitive or obsolete.
Risks Associated with Acquisition Strategy. The Company's strategy
includes the acquisition of underperforming businesses and technologies
that complement or augment the Company's existing product lines.
Promising acquisitions are difficult to identify and complete for a
number of reasons, including competition among prospective buyers and the
need for regulatory approvals, including antitrust approvals. There can
be no assurance that the Company will be able to integrate any acquired
businesses or make such businesses profitable.
Possible Adverse Impact of Significant International Operations. The
Company expects that international sales will continue to represent a
significant portion of its revenues. In fiscal 1996, international sales
accounted for over half of the Company's total revenues. These sales
carry a number of inherent risks, including risks associated with
currency exchange, tariffs and other potential trade barriers,
potentially reduced protection for intellectual property, the impact of
recessionary environments in economies outside the United States, and
generally longer receivable collection patterns.
Risks Associated with Protection, Defense, and Use of Intellectual
Property. The Company holds many patents relating to various aspects of
its products, and believes that proprietary technical know-how is
critical to many of its products. Proprietary rights relating to the
Company's products are protected from unauthorized use by third parties
32PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Forward-looking Statements
only to the extent that they are covered by valid and enforceable patents
or are maintained in confidence as trade secrets. There can be no
assurance that patents will issue from any pending or future patent
applications owned by or licensed to the Company or that the claims
allowed under any issued patents will be sufficiently broad to protect
the Company's technology and, in the absence of patent protection, the
Company may be vulnerable to competitors who attempt to copy the
Company's products or gain access to its trade secrets and know-how.
Proceedings initiated by the Company to protect its proprietary rights
could result in substantial costs to the Company. There can be no
assurance that competitors of the Company will not initiate litigation to
challenge the validity of the Company's patents, or that they will not
use their resources to design comparable products that do not infringe
the Company's patents. There may also be pending or issued patents held
by parties not affiliated with the Company that relate to the Company's
products or technologies. Each of the Company's PSI and NORAN
subsidiaries has received an allegation of patent infringement from a
competitor relating to its scanning probe microscopy technology and
confocal microscopy technology, respectively. The Company may need to
acquire licenses to, or contest the validity of, these or any other such
patents. There can be no assurance that any license required under any
such patent would be made available on acceptable terms or that the
Company would prevail in any such contest. In addition, if any such
competitor were successful in enforcing such patents, the Company could
be subject to damages and enjoined from manufacturing and selling any
related products. The Company could incur substantial costs in defending
itself in suits brought against it or in suits in which the Company may
assert its patent rights against others. If the outcome of any such
litigation is unfavorable to the Company, the Company's business and
results of operations could be materially adversely affected. In
addition, the Company relies on trade secrets and proprietary know-how
which it seeks to protect, in part, by confidentiality agreements with
its collaborators, employees, and consultants. There can be no assurance
that these agreements will not be breached, that the Company would have
adequate remedies for any breach or that the Company's trade secrets will
not otherwise become known or be independently developed by competitors.
Inability to Raise Future Capital; Possible Dilution. In order to
finance the acquisitions that are part of the Company's growth strategy,
it may be necessary for the Company to raise additional funds either
through public or private financings. Any equity or debt financing, if
available at all, may be on terms that are not favorable to the Company
and, in the case of an equity financing, could result in dilution to the
Company's stockholders.
33PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Selected Financial Information
The Company Predecessor
------------------------------------------------ -----------
Aug. 21, Dec. 29,
1992, 1991,
(In thousands through through
except per Jan. 2, Aug. 20,
share amounts) 1996 (a) 1995 (b) 1994 (c) 1993 1993 1992 (d)
------------------------------------------------------------------------------
Statement of
Income Data:
Revenues $123,199 $ 91,714 $ 42,142 $ 17,702 $ 8,710 $ 13,420
Net income (loss) 6,617 4,594 2,368 253 734 (932)
Earnings per share .53 .41 .25 .03 .08
Balance Sheet
Data:
Working capital $ 44,683 $ 35,961 $ 27,377 $ 6,037 $ 6,802 $ 8,339
Total assets 152,485 122,917 78,701 18,795 21,151 12,741
Long-term
obligations 22,300 7,300 7,300 - - -
Shareholders'
investment 89,621 82,525 53,313 14,494 15,630 9,834
(a) Includes the results of the Kevex businesses since their acquisition by
Thermo Instrument in March 1996.
(b) Reflects the May 1995 acquisition of GIS and the net proceeds of the
Company's initial public offering and private placement of common stock.
(c) Reflects the March 1994 acquisition by Thermo Instrument of NORAN, the
September 1994 acquisition by the Company of IRT, and the net proceeds of
the Company's private placements of common stock.
(d) Reflects the historical results of the oscilloscope and imaging systems
divisions as included in Nicolet's financial statements prior to its
acquisition by Thermo Instrument in August 1992.
34PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Common Stock Market Information
The following table shows the market range for the Company's common
stock based on reported sale prices on the American Stock Exchange
(symbol THS) since August 4, 1995, the date the Company's common stock
began trading on that exchange.
Fiscal 1996 Fiscal 1995
------------------- ------------------
Quarter High Low High Low
------------------------------------------------------------------------
First $18 7/8 $14 5/8 $ - $ -
Second 18 7/8 15 1/4 - -
Third 16 1/8 12 1/2 19 1/2 16
Fourth 15 7/8 11 3/8 17 5/8 14 3/4
As of January 24, 1997, the Company had 265 holders of record of its
common stock. This does not include holdings in street or nominee names.
The closing market price on the American Stock Exchange for the Company's
common stock on January 24, 1997, was $14 1/2 per share.
Shareholder Services
Shareholders of ThermoSpectra Corporation who desire information
about the Company are invited to contact John N. Hatsopoulos, Chief
Financial Officer, ThermoSpectra Corporation, 81 Wyman Street, P.O. Box
9046, Waltham, Massachusetts 02254-9046, (617) 622-1111. A mailing list
is maintained to enable shareholders whose stock is held in street name,
and other interested individuals, to receive quarterly reports, annual
reports, and press releases as quickly as possible. Beginning in 1997,
quarterly distribution will be limited to the second quarter report only.
All quarterly reports and press releases are available through the
Internet from Thermo Electron's home page on the World Wide Web
(http://www.thermo.com/subsid/ths.html).
Stock Transfer Agent
American Stock Transfer & Trust Company is the stock transfer agent
and maintains shareholder activity records. The agent will respond to
questions on issuance of stock certificates, change of ownership, lost
stock certificates, and change of address. For these and similar matters,
please direct inquiries to:
American Stock Transfer & Trust Company
Shareholder Services Department
40 Wall Street, 46th Floor
New York, New York 10005
(718) 921-8200
35PAGE
<PAGE>
ThermoSpectra Corporation 1996 Financial Statements
Dividend Policy
The Company has never paid cash dividends and does not expect to pay
cash dividends in the foreseeable future because its policy has been to
use earnings to finance expansion and growth. Payment of dividends will
rest within the discretion of the Board of Directors and will depend
upon, among other factors, the Company's earnings, capital requirements,
and financial condition.
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended
December 28, 1996, as filed with the Securities and Exchange Commission,
may be obtained at no charge by writing to John N. Hatsopoulos, Chief
Financial Officer, ThermoSpectra Corporation, 81 Wyman Street, P.O. Box
9046, Waltham, Massachusetts 02254-9046.
Annual Meeting
The annual meeting of shareholders will be held on Monday, June 2,
1997, at 10:00 a.m., at the Hyatt Regency Hotel, Hilton Head, South
Carolina.
36
Exhibit 21
THERMOSPECTRA CORPORATION
Subsidiaries of the Registrant
At March 14, 1997, the Registrant owned the following companies:
State or Registrant's
Jurisdiction % of
Name of Incorporation Ownership
-------------------------------- ---------------- ------------
Thermo Spectra B.V. The Netherlands 100
Nicolet Technologies B.V. The Netherlands 100
Bakker Electronics Limited United Kingdom 100
NORAN Instruments B.V. The Netherlands 100
Diametrix Detectors, Inc. Delaware 50
Gould Instrument Systems, Inc. Ohio 100
Thermo Spectra GmbH Germany 100
Gould Nicolet Messtechnik GmbH Germany 100
NORAN Instruments GmbH Germany 100
Thermo Spectra Limited United Kingdom 100
Nicolet Technologies Ltd. United Kingdom 100
Thermo Spectra S.A. France 100
Nicolet Technologies S.A.R.L. France 100
Kevex Instruments Inc. Delaware 100
Kevex X-Ray Inc. Delaware 100
Nicolet Instrument Technologies Inc. Wisconsin 100
NORAN Instruments Inc. Wisconsin 100
Park Scientific Instruments Corporation California 100
Exhibit 23
Consent of Independent Public Accountants
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation by reference of our reports dated February 11, 1997,
(except with respect to certain matters discussed in Note 13, as to which
the date is March 12, 1997) included in or incorporated by reference into
ThermoSpectra Corporation's Annual Report on Form 10-K for the year ended
December 28, 1996, into the Company's previously filed Registration
Statements as follows: Registration Statement No. 33-99110 on Form S-3
and Registration Statement No. 33-80759 on Form S-8.
Arthur Andersen LLP
Boston, Massachusetts
March 17, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THERMOSPECTRA CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 16,580
<SECURITIES> 0
<RECEIVABLES> 33,843
<ALLOWANCES> 1,516
<INVENTORY> 27,042
<CURRENT-ASSETS> 83,602
<PP&E> 27,379
<DEPRECIATION> 7,210
<TOTAL-ASSETS> 152,485
<CURRENT-LIABILITIES> 38,919
<BONDS> 0
0
0
<COMMON> 124
<OTHER-SE> 89,497
<TOTAL-LIABILITY-AND-EQUITY> 152,485
<SALES> 123,199
<TOTAL-REVENUES> 123,199
<CGS> 62,900
<TOTAL-COSTS> 62,900
<OTHER-EXPENSES> 13,081
<LOSS-PROVISION> 199
<INTEREST-EXPENSE> 773
<INCOME-PRETAX> 10,887
<INCOME-TAX> 4,270
<INCOME-CONTINUING> 6,617
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,617
<EPS-PRIMARY> .53
<EPS-DILUTED> 0
</TABLE>
