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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NO. 0-26646
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GENERAL SCANNING INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MASSACHUSETTS 04-2445884
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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500 ARSENAL STREET, WATERTOWN, MA 02172
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(617) 924-1010
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
TITLE OF EACH CLASS
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $266,500,999 based on the last reported sale
price of the Common Stock on the Nasdaq National Market on February 10, 1998.
The number of shares outstanding of the registrant's Common Stock as of
February 10, 1998 was 12,467,883 shares.
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DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held April 16, 1998 are incorporated by reference in Part
III of the Report. Other documents incorporated by reference are listed in the
Exhibit Index.
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GENERAL SCANNING INC.
1997 ANNUAL REPORT--FORM 10-K
TABLE OF CONTENTS
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PAGE
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PART I
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Item 1 Business....................................................... 1
Overview....................................................... 1
Business Strategy.............................................. 2
Products and Services.......................................... 2
Customers...................................................... 9
Sales, Marketing and Customer Support.......................... 9
Research and Development....................................... 9
Manufacturing.................................................. 10
Working Capital Requirements................................... 11
Backlog........................................................ 11
Competition.................................................... 11
Patents and Intellectual Property.............................. 12
Employees...................................................... 12
Item 2 Properties..................................................... 13
Item 3 Legal Proceedings.............................................. 13
Item 4 Submission of Matters to a Vote of Security Holders............ 14
Executive Officers............................................. 15
PART II
Market for Registrant's Common Stock and Related Stockholder
Item 5 Matters........................................................ 16
Item 6 Selected Financial Data........................................ 17
Management's Discussion and Analysis of Financial Condition and
Item 7 Results of Operations.......................................... 18
Item 8 Financial Statements and Supplementary Data.................... F-1
Changes in and Disagreements With Accountants on Accounting and
Item 9 Financial Disclosure........................................... F-21
PART III
Item 10 Directors and Executive Officers of the Registrant............. F-21
Item 11 Executive Compensation......................................... F-21
Item 12 Security Ownership of Certain Beneficial Owners and Management. F-21
Item 13 Certain Relationships and Related Transactions................. F-21
PART IV
Exhibits, Financial Statement Schedules and Reports on Form 8-
Item 14 K.............................................................. F-21
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PART I
ITEM 1. BUSINESS
OVERVIEW
General Scanning Inc. ("General Scanning" or the "Company") was incorporated
in Massachusetts in 1968. The Company develops and manufactures a broad line
of laser systems for a wide range of applications in the automotive,
electronics, semiconductor, medical and aircraft industries. In addition, the
Company produces a line of laser subsystems and components, which are used in
the Company's own systems as well as sold in the merchant market. The Company
also designs and manufactures a line of thermal printers for medical
instrument companies, and recently introduced a new foil imprinting technology
for use in photo labs and retail photo finishing outlets. In 1997, over 85% of
the Company's revenues were derived from the sale of laser systems and
components. General Scanning sells and supports its products worldwide. In
1997, 56% of its sales were in the United States, 27% in Asia and 17% in
Europe. See Note 12 to Financial Statements for a more detailed description of
the Company's geographic operations.
General Scanning manufactures laser systems for a variety of industrial
applications including: thin film resistor processing systems used in the
production of automotive sensors for airbags, anti-lock brakes, emissions
control and airflow measurement; thick film resistor processing systems used
in the manufacture of surface mount ("SMT") electronic components;
semiconductor package measurement systems for QFP (quad flat package), TSOPs
(thin small outline package) and BGAs (ball grid arrays); memory repair
processing systems used in the fabrication of high density computer memory
chips; inspection systems for solder paste and component placement on SMT
printed circuits; laser marking systems used for permanent identification of
products such as integrated circuit packages and automotive components;
component handling and sorting systems used in the integration of one or more
laser process or inspection systems; precision alignment systems used
primarily in the fabrication of aircraft composite structures; inspection and
metrology systems employing non-contact 3-D image processing used in the
manufacture of disk drives and other precise tolerance devices; micro-array
scanners for biological analysis; and laser systems and subsystems used in
film imaging. In addition, General Scanning manufactures laser subsystems and
components used by the Company and its customers in many applications
including materials processing, test and measurement, alignment, inspection,
graphics, vision systems, rapid prototyping and certain medical procedures
including dermatology and ophthalmology.
The Company's core technological expertise which is employed in each of
these applications is high speed micropositioning and precise power control of
lasers, as well as 2D and 3D image processing. Designing and manufacturing the
Company's products requires specialized skills in: electronics that can
operate reliably and accurately under a wide range of environmental
conditions; electromechanical devices that can sustain high torsional
acceleration; optics and lenses that operate with a variety of laser power and
wavelength; closed-loop electronic servo systems that precisely and quickly
measure and control relative positions of mechanical components; and software
that controls laser systems and interfaces with adjunct equipment. In
addition, General Scanning maintains control of the critical production
processes which the Company believes allows it to control costs, realize
higher quality production and bring new products to market more quickly. Two
of the Company's core development and manufacturing sites, located in
Wilmington, MA and Bedford, MA, are ISO 9001 certified operations.
General Scanning expands the scope and use of its core products by working
closely with leading customers to identify both value-added functionality and
new applications. The Company designs and manufactures systems and components
with the aim of providing its customers with low overall cost of ownership.
General Scanning's close relationship with its customers enables it to expand
the number of applications for its core technology and reduce the risk
inherent in new product development. The Company believes that the diversity
of applications for its products reduces the risk of dependence on the
economic conditions in any one industrial sector it serves.
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BUSINESS STRATEGY
The Company's strategy is to continue to apply its expertise in rapid and
high accuracy micropositioning and precise power control of laser beams and 2-
D and 3-D image processing to the development and manufacture of end-user and
OEM systems, subsystems and components for a broad range of market
applications. This strategy builds upon the Company's strengths in technology,
manufacturing and distribution.
The key elements of the Company's business strategy are as follows:
Leverage Core Technology. The Company is committed to developing new
products and enhancing existing products to address new applications and
evolving manufacturing requirements primarily by leveraging the Company's core
technologies for high accuracy micropositioning and precise power control of
lasers and in image processing.
Customer Driven Product Development. The Company seeks to partner and work
closely with leading manufacturing companies in selected but diverse areas.
This approach allows the Company to incorporate customer feedback during the
design process, which expedites product development, thereby saving
development time and expense. The Company believes that developing a product
to meet a need identified by a market leader and potential customer decreases
the risk typically associated with new product introductions.
Broad Applications in Diverse Markets. The Company currently offers products
serving broad applications in diverse markets, including laser systems for
semiconductor manufacturing, production of automotive sensors, manufacturing
of electronic components and circuits, precision alignment of manufactured
parts, permanent product marking, film imaging and biological analysis. The
Company makes subsystems and components for OEM manufacturers of equipment for
detection of in-process defects and contamination, performance of medical
diagnostic and corrective procedures, confocal microscopy, film imaging, rapid
prototyping, and medical patient vital sign recording. By addressing diverse
markets, the Company seeks to increase its product sales and reduce its
reliance on any single industry or customer. In addition, the Company's
marketing strategy is to continue to develop products based on its core
technical and manufacturing competencies for markets in which it believes it
can attain a leading position in market share.
Maintain Control of Critical Production Processes. The Company's
manufacturing strategy is to identify and perform internally those
manufacturing functions which enable the Company to maintain control over
critical portions of the production process and which add value to its
products. The Company believes it achieves a number of competitive advantages
from such integration, including the ability to achieve lower cost and higher
quality, to bring new products and product enhancements quickly and reliably
to market, and to produce sophisticated component parts not readily available
from other sources.
Focus on Customers' Overall Cost of Ownership. The Company designs and
manufactures systems, subsystems and components aimed at providing its
customers with low overall cost of ownership relative to competing solutions.
The Company's laser systems are intended to assist customers in achieving
higher yields, greater productivity, more efficient use of operator time and
more economical use of manufacturing space.
Address Worldwide Markets. The Company markets, sells and supports its
products worldwide. The Company believes the strength of its international
sales and customer support organization is important to its continued success.
To facilitate its worldwide marketing strategy, the Company has dedicated
sales and support organizations in Japan, Hong Kong, Korea, Taiwan, Singapore,
Malaysia, Germany, England, France and Italy, in addition to eight major
locations in the United States.
PRODUCTS AND SERVICES
Laser Systems and Components
Thin Film Laser Processing Systems--The Company's laser systems are used in
the production of thin film circuits to precisely tune the performance of
linear and mixed signal devices used in a variety of applications
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including automotive electronics, consumer products, personal computers,
communications products, appliances, and medical instruments. Tuning is
accomplished by adjusting various component parameters with selective laser
cuts, while the circuit is under test, thereby achieving the desired
electrical performance. For example, in automotive applications, these
precision sensor circuits are used to measure analog variables such as
acceleration, voltage, temperature and pressure, and convert them into
electronic signals suitable for computer processing and subsequent control of
vehicle performance and safety. Automotive applications include engine
control, airbag deployment, anti-lock brake control and active suspension
systems. The M310 laser system subjects the sensor to a calibrating pressure
and then the laser adjusts the sensor parameters to exacting specifications.
The Company's M310 systems combine material handling, test stimulus,
temperature control and laser trim subsystems into a single turnkey package
for tuning linear and mixed signal devices.
More recently, such linear mixed signal circuits are being adopted for smart
appliances (such as camcorders and mobile GPS devices), extended life
batteries, video games, medical instruments and HVAC systems. Such mixed
signal devices were one of the fastest growing segments in the electronic
components industry during 1997. The Company's thin film resistor processing
systems range in price from approximately $300,000 to $1,000,000.
Representative customers include Analog Devices, Robert Bosch, Denso, Fuji
Denki, Burr Brown, Maxim, Motorola and Texas Instruments.
Thick Film Laser Processing Systems--The Company's laser systems are used in
the production of thick film resistive components (known as chip resistors)
for surface mount ("SMT") electronic circuits. Chip resistors are
microelectronic components that replace larger axial lead resistors formerly
used in electronic circuits. Chip resistors are used in most consumer and
industrial electronic products including CD players, VCRs, TVs, camcorders and
cellular telephones. A camcorder, for example, may contain over five hundred
chip resistors. The increasing use of these devices is being driven by the
demand for enhanced functionality, reduced size, and lower cost of consumer
electronics. SMT components meet these needs by providing reduced package size
and production set-up time, and improved reliability and delivery times. The
Company's W724C laser system is an integral part of the process for
manufacturing chip resistors. By means of selected cuts, laser systems are
used to change the effective length and cross section of the electrical
conductor of each resistor element. The resistance is monitored, and the laser
action continues until the precise resistance value is obtained. The Company
believes that the size of resistors will continue to shrink and, as a result,
manufacturers will require more precise laser systems.
The Company's W670 laser systems are used for processing more general
purpose hybrid thick film electronic circuits. These circuits are designed to
withstand harsh environmental uses, such as automotive ignition controls, fuel
sensors and high voltage regulation.
The Company's thick film resistor processing systems range in price from
approximately $200,000 to $350,000. Representative customers include Kyocera,
Matsushita, Philips, Samsung and Vishay.
Semiconductor Measurement Systems--Semiconductor measurement products are
used by customers who manufacture electronic chips and chip packages. These
customers require fully automated, high throughput systems to inspect
electronics packages. Due to the semiconductor industry's drive toward
miniaturization, components and finished packages are becoming smaller and
more fragile. A single damaged lead, bent by a few thousandths of an inch, can
cause manufacturing defects and product failures. Accordingly, semiconductor
chip manufacturers are effectively required to inspect 100% of their chip
packages.
The Company's products perform inspection during fabrication of the chip (in
the "front end" of the manufacturing process) and perform inspection of final
assembled components (in the "back end"). The systems incorporate the
Company's patented three-dimensional scanning laser data acquisition
technology to provide fast, accurate measurement. The Model 890, released in
early 1997, performs front-end wafer, die and package substrate measurement
for the newly emerging high-density, matrix-based package interconnect market.
The Model 880, first introduced in 1995, performs measurement of finished
package leads or bumps without removal of the devices from their carrier
trays. All of the systems are configurable to support a variety of device and
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feature types. Current prices for the base systems range from $150,000 to
$275,000. Customers include Anam/Amkor, Intel, Micron, Samsung and Texas
Instruments.
Surface Mount Measurement Systems--The Company's surface mount measurement
products address another sector of the electronics industry, the manufacture
of printed circuit board assemblies. Customers for SMT measurement products
require systems which can be used for prototyping, near-process monitoring and
in-line process control. These systems can be installed near or in the circuit
board assembly line to address these needs. In the manufacture of surface-
mount electronics, solder, in paste form, is stenciled onto the circuit board
with a screen printer, and then components are placed in their respective
positions on the board by automated equipment. Critical variables in the
manufacturing process, which the Company's systems address, include the amount
of solder deposited on the board and the accurate placement of the electronic
components.
The Model 8100 system was introduced in 1995 and represents the third
generation of equipment design. The Model 8100 uses the Company's patented
three-dimensional scanning laser data acquisition technology, and can inspect
either solder paste depositions or component placement accuracy. The current
base price for the Model 8100 system is approximately $200,000 to $250,000.
The strongest market segments for SMT measurement products have been in the
computer, telecommunications and automotive industries as well as in contract
manufacturers which serve those and other industries. Customers include
Celestica, Chrysler, Hewlett-Packard, Intel, Marconi and Motorola.
Memory Repair Systems--Dynamic random access memory chips are critical
components in the active memory portion of computers and a broad range of
other digital electronic products. To obtain efficient yields in the
production process, each memory component is designed with redundant
circuitry. Using the Company's M325 laser system, a semiconductor manufacturer
can effectively disconnect defective or redundant circuits in a memory chip
with accurately positioned and power modulated laser pulses. This improves the
yield of usable components per treated wafer, effectively lowering the cost
per unit produced.
The demand for memory, measured in megabits, has in recent years been
growing at greater than 50% per year. Approximately half to three quarters of
memory components produced are used in personal computers, with additional
demand coming from networked systems (file servers), flat panel displays,
multimedia systems and consumer electronics. Memory demand by the computer
industry is driven by both memory intensive software (Windows 95(R), graphics,
etc.) and higher speed microprocessors. As the memory capacity increases, the
feature size and spacing between the elements of the microcircuits decrease.
The industry is presently changing from 16 megabit to 64 megabit memory in
response to the demand for additional memory, space limitations to accommodate
it and manufacturing economics. The Company offers products which are
currently being used for processing memory up to and including 64 megabits.
First-pass manufacturing yields are typically low at the start of production
of a new generation of higher capacity devices. First-pass yields have
decreased to, now, less than 20% with each successive generation of memory
chips as geometries shrink and manufacturing becomes more difficult. Laser
processing is used to raise production yields to acceptable economic levels,
frequently to greater than 95%.
Memory components are currently produced in batches on silicon wafers
typically measuring 6" or 8" in diameter. The industry is currently planning
for production using 12" (300 millimeter) diameter wafers. The Company
believes that its technology and systems architecture will allow it to develop
and introduce products to process the new 12" wafers. The Company's newly
introduced M325 memory processing systems range in price from approximately
$500,000 to $900,000. Representative customers include Cypress Semiconductor,
Dominion Semiconductor, IBM, Mitsubishi and Toshiba.
Permanent Marking Systems--The Company's moving spot laser marking systems
are used to apply permanent alphanumeric, graphic and bar-code identification
directly onto electronic components, industrial products and packaging
materials. Laser marking systems remove precise amounts of material from, or
modify the surface of, an object being marked by exact control of the laser
beam as it moves along a prescribed path.
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Such systems are gaining acceptance over a broad range of markets, replacing
older technologies such as inkjet, mechanical imprinting, chemical etching and
ink stamping. This change is being driven by the need for permanent marking
and for marking systems which can be interfaced with computers, and by
environmental acceptance. Industry has recently begun to require product
traceability for years after the date of manufacture. At present, inkjet and
ink stamping do not provide this permanence, while laser marking does. Also,
the laser marking process does not involve the use of environmentally
hazardous solvents.
As an example of this application, the Company's HM1500 laser system is used
to mark integrated circuit ("IC") packages. The plastic or ceramic package
surrounding an IC must be marked without penetration of its thin wall in order
to avoid damaging the expensive circuits it protects. This process requires a
high degree of precision. Laser marking for this application is gaining
widespread usage. The Company's laser systems are also used in other
applications including the marking of automotive parts, electrical components,
tools, medical implants, as well as in the decorative marking of consumer
items. During 1996, the Company replaced its current product offerings with
the 1000 Series products which offered significant advantages in terms of
higher power, larger marking fields, faster marking speeds and higher
precision. In 1997, the Company introduced a diode-pumped laser marker, with a
full 8,760 hour warranty on the laser, which requires no external cooling or
three-phase power. The FM3500-4 laser marking system, also introduced in mid
year, multiplexes a high power laser beam into four completely independent
marking heads that can be remotely located up to 100 feet away from the laser
by fiber optic cable. The Company's laser marking systems range in price from
approximately $50,000 to $225,000. Representative customers include Harris,
Hewlett-Packard, Motorola, SGS Thompson, Texas Instruments and Toshiba.
Components Handling Systems--The Company designs, manufactures and, then,
integrates electronic components handling systems for laser marking, lead
inspection, parts sorting and parts packaging. This capability was added in
late 1997 through the acquisition of Reel-Tech, Inc. Products include in-tray
laser marking, tube-to-tube laser marking, tape and reel systems, media
transfer systems and integrated multi-process systems. These systems can
handle a wide variety of component package configurations. This capability
enables General Scanning to more effectively serve its customers by meeting
the emerging trend to more closely integrate multiple processes and,
therefore, increase manufacturing productivity. The Company's component
handler systems sell in the price range of approximately $125,000 to $400,000.
Representative customers include Micron, Motorola and Samsung.
Precision Alignment Systems--The Company's precision alignment systems
interface with computer assisted design and manufacturing ("CAD/CAM") software
to assist in the precision alignment of parts during manufacturing assembly
processes. The principal use to date has been in the precision alignment of
composite materials for the aircraft industry. Composite materials are
important elements in the fabrication of critical structures for aircraft,
such as jet engine cowlings, cargo and nose wheel doors, and control surfaces
of the wings and vertical stabilizer, as well as for major components in jet
engines, helicopters, communication satellites and rockets. The Company's
systems project a precise image generated from existing CAD/CAM data to guide
the assembly operations personnel in the proper placement and order of layers
of composite materials. The Company's OLT4000 precision alignment systems
allow aircraft manufacturers to eliminate mechanical alignment templates,
minimize costs from engineering changes, and reduce operator learning time and
assembly labor requirements. The Company is exploring the applications of
these systems in other markets. The Company's precision alignment systems sell
in the range from approximately $50,000 to $250,000. Representative customers
include Bell Helicopter, Boeing, CFAN, Daimler-Benz Aerospace, Hughes Aircraft
and Northrop Grumman.
Metrology Systems--The Company's metrology products are automated, non-
contact dimensional coordinate measurement systems which provide major
electronics, telecommunications, and computer manufacturers with the ability
to perform micron accurate measurements of component parts and assemblies
produced throughout their manufacturing processes. These systems utilize
combinations of CCD video camera, image processing, and various laser sensor
technologies to acquire part measurement data. The metrology products are
primarily sold to manufacturers of disk drives, semiconductor packages,
printed circuit boards, and
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their associated micro-electronic components. During 1997, the Company
replaced one of its core product offerings with a new Voyager platform
featuring advances in illumination and autofocus technology, complemented by
easy-to-use graphical user interface to facilitate measurement and
programming. Current prices range from $55,000 to $150,000. Representative
customers include Applied Magnetics, Cummins Engine, IBM, Intel, K. R.
Precision and Seagate Technology.
Film Imaging Systems--The application of lasers for imaging directly onto
film has progressed steadily over the past decade to the point where it has
become the technology of choice in two major markets: medical diagnostics and
graphics. Both applications demand precise micropositioning for pixel
placement and adjustable contrast range. Medical diagnostics often involve
images of the human anatomy derived from computer assisted tomography ("CAT"),
magnetic resonance imaging ("MRI") or nuclear medicine systems. Such images
are usually presented on photographic film for viewing by a radiologist. The
Company's laser imaging subsystems are used to produce images of adjustable
gray-level contrast and high resolution for enhanced medical diagnostic
purposes. The Company's laser imaging equipment, using data sets from CAT, MRI
or nuclear medicine equipment, creates a film image by moving a laser beam
across the width of the film, and modulating it to produce the correct gray
scale level for each picture element, or pixel. When the width of the film has
been scanned, the next line is scanned in sequence. The process is continued
until the entire image is exposed.
In late 1997, General Scanning introduced a film duplicating system which
duplicates 8 x 10 and 14 x 17 films from existing X-ray, CAT and MRI
electronic films. Initially, the system will directly interface with wet and
dry laser imaging systems including Imation's DryView 8700 Laser Imaging
System. The Company intends to expand this digitizing equipment with future
applications in teleradiology and PACS (picture archiving and communication
systems).
The Company also sells a modified version of its film imaging subsystem to
write directly onto a film plate for graphic printing.
The Company's laser imaging systems and subsystems sell in the range from
approximately $1,500 to $20,000. Representative customers include A.B. Dick,
Agfa and Imation.
Large format systems--In 1997, the Company commenced development of an
innovative laser patterning system for use in the manufacture of flat panel
displays ("FPD"). The development, alpha and beta phases of this project are
funded by two multinational companies with an interest in the FPD industry.
FPDs are compact, lightweight, low power alternatives to the traditional
picture tube used in televisions and computer monitors. A typical FPD is
composed of a thin layer of liquid crystal sandwiched between two sheets of
glass, with a variety of layers of material patterned onto the glass surfaces.
The rapidly growing FPD market has been driven by the growth in "laptop"
portable computers and is projected to grow from $10.8 billion in 1995 to
$23.7 billion in 2002 (Stanford Resources). To reduce manufacturing costs per
FPD, the industry is moving to large (up to 800mm x 800mm) glass substrates,
capable of simultaneously fabricating six to nine FPDs per substrate, and to
new techniques for one or more of the manufacturing steps. The product under
development will exploit General Scanning's expertise in the precision
pointing, shaping and control of laser beams to precision patterns, this time
over a large field of view when compared to the Company's current
applications.
Biological scanners--The Company recently introduced a laser-based
fluorescence imaging system for use in the measurement of gene expression.
Identification and quantification of the expression level of different genes
under varying conditions provide researchers with a rough functional analysis
of genomic sequence information, which could lead to potential drug targets.
Similarly, gene expression analysis can be used for diagnostic purposes. Some
scientists believe that pharmacogenomics (the discipline of identifying genes
responsible for different reactions to drugs) could be the quickest route to
improving the therapeutic specificity of drugs. Several biotechnology
companies are active in the development of molecular array technology and
fluorescently labeled ligands. The ScanArray(TM) 3000 Biochip Analysis System
measures the fluorescent intensity at each DNA grid spot facilitating, at high
speed, the analysis of the expression level of a particular gene. The system
is offered for
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sale to end users in research and, on an OEM basis, for resale by those
companies active in biochemistry and microchip technology.
Components--The Company develops, produces and sells optical scanners and
scanner subsystems which include optics, software and control systems. These
are used by the Company and its customers in a variety of applications
including materials processing, test and measurement, alignment, inspection,
displays, graphics, vision, rapid prototyping, and medical applications
including dermatology and ophthalmology. The Company intends to continue to
work with its customers to develop new components and subsystems based upon
its optical scanning technology. The Company sells its scanners in a range
from approximately $100 to $4,000 and its subsystems in a range from
approximately $2,000 to $30,000. Representative customers include Eastman
Kodak, Lumonics, Nikon, Perceptron and Texas Instruments.
Thermal Printing Products
The Company develops, produces and sells a variety of thermal printers which
are designed for use with defibrillators, patient care monitors, cardiac
pacemaker programmers, and other medical applications. Thermal printers are
used to provide a permanent record of a patient's condition during critical
medical care.
The Company's thermal printers generate signal traces, grids and real time
annotation on heat sensitive paper. Paper widths ranging from 48 to 216
millimeters are moved at speeds that can be remotely selected in the range
from 1 millimeter per hour to 125 millimeters per second, and have a
resolution of 8 x 32 dots per millimeter. The text and graphics are generated
by selectively and instantaneously modulating the temperature of small
(approximately 0.105 x 0.175 millimeters) elements of a print head across the
width of the chart. The heated elements create dots on thermal sensitive
paper. By repeated action under the control of an on-board microprocessor, the
desired graphic output can be produced.
The Company works closely with its OEM customers to develop and produce
thermal printers which are incorporated into its customers' products. Typical
customized features of thermal printers offered by the Company include:
package and size dimensions dictated by the customer's end products; speed and
accuracy of chart transport; print resolution; number of fonts; and number of
data channels. Medical uses for the Company's thermal printers require high
reliability, since they are often used in emergency medical equipment which
must be rugged and lightweight. The Company believes that its ability to work
rapidly and efficiently with its customers provides an important benefit to
such customers. Approximately, 66,000 thermal printers were shipped during
1997. The Company's thermal printers sell in a range from approximately $200
to $3,000. Representative customers include Datascope, Marquette, Medtronic,
Physio-Control, Solectron, Spacelabs Medical and Zoll Medical.
In 1997, the Company introduced a new foil imprinting technology, initially
for use in photo labs and in retail photo finishing locations for
personalization of greeting cards. The new process can replace time-consuming
litho techniques, as well as film, metal dies, type and plates typically
required by current foil stamping processes. Qualex, Inc., a subsidiary of
Eastman Kodak, is the Company's initial customer for this new application.
This technology may be applied to other materials in graphics art.
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PRODUCT LIST
The following is an abbreviated list of General Scanning's products and their
typical market applications:
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PRODUCTS MARKET APPLICATIONS
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Laser Systems
M310ST............... Automotive sensor production
M310/W678............ Processing of thin film electronic circuits
W724C................ Manufacture of thick film resistive components
W670................. Processing of hybrid thick film electronic circuits
Lead/bump inspection of individual electronic
Model 830............ components
Model 880............ In-tray lead/bump inspection of electronic components
Model 890............ Wafer, die and bump inspection
Solder paste measurement, component placement
Model 8100........... inspection
M325................. Memory and PLD fabrication
HM1000 Series........ Integrated circuit marking
DM1100............... Permanent marking of manufactured parts
FM3500-4............. Marking across multiple production lines
Material handling and marking of large industrial
VersaStation......... parts
LM-4000.............. Integrated tube-to-tube marking
LM-6000.............. Integrated in-tray marking
LM-3000MT............ Dual probe tape and reel for fine pitch SMDs
OLT4000.............. Assembly of composite structures
Voyager 1000......... Benchtop metrology
Ultra 8.............. Automated, non-contact 3-D measurement
Production of film images for both medical and
TAE.................. graphics applications
LD2000 .............. Digitizer for film duplication, teleradiology, PACs
ScanArray ........... Fluorescent imaging for DNA analysis
Components
HPM/SPM/HPLK......... Laser processing of materials, including permanent
marking, cutting, drilling and rapid prototyping
VSH.................. Semiconductor inspection
Performance of medical procedures in ophthalmology
and dermatology Performance of biomedical measurement
and analysis
Optical Scanners..... Processing of materials
Test, measurement and alignment
Ophthalmology and dermatology applications
Confocal microscopes
Projection of images on film
Inspection
Thermal Printers
AR42................. Defibrillator vital sign recording
OMNI-100............. Patient critical care monitoring
OMNI-200............. Cardiac pacemaker programming
AR200FB.............. Stress testing; electroencephalograph
Slimline............. Foil imprinting at point-of-sale
Decorator 2000....... Foil imprinting at central labs
</TABLE>
8
<PAGE>
CUSTOMERS
The Company has over 1,000 customers. During 1997, no single customer
accounted for more than 5% of total sales. General Scanning's ten most
significant customers in terms of sales in 1997, listed alphabetically, were:
Analog Devices, Boeing, Denso, IBM, Imation, Intel, Maxim, Micron, Physio-
Control and Texas Instruments.
SALES, MARKETING AND CUSTOMER SUPPORT
The Company believes that its marketing, sales and customer support
organizations are important to its long-term growth and give the Company the
ability to respond rapidly to the needs of its customers. The Company has
marketing managers for each major product line who have worldwide
responsibility for determining product strategy based on knowledge of the
industry, customer requirements and product performance. These marketing
managers have direct contact with customers and support the field sales and
service personnel. The Company believes that its business may be subject to
seasonal fluctuations due to capital expenditure approval cycles of its
customers.
The Company sells and supports its products worldwide through its own direct
sales and customer service organization. This domestic and international sales
network is augmented by selected independent sales representatives for end-
user laser systems, due to the geographical dispersion of customers for such
products. Field offices have been located in close proximity to key customers
to help achieve short response time. In the United States, the Company
provides marketing support at its locations in Watertown, Wilmington,
Arlington and Bedford, Massachusetts, Indianapolis, Indiana, Simi Valley and
Santa Clara, California and in Ann Arbor, Michigan. In Europe, the Company
distributes its products through its direct sales offices located in Germany,
the United Kingdom, Italy and France. The Company distributes its products in
Japan through its offices in Tokyo and Osaka. Throughout the remainder of
Asia, the Company distributes through its offices in Hong Kong, Korea,
Singapore, Malaysia and Taiwan.
The Company provides customer support in the form of applications
engineering, repair services and spare parts inventory through its offices in
Massachusetts, Michigan, Indiana, California, France, Germany, Italy, the
United Kingdom, Hong Kong, Japan, Korea, Singapore, Malaysia and Taiwan.
Engineering and field support personnel provide telephone support or are
dispatched to customer locations. Additionally, the Company's offices
generally have certain models of the Company's laser systems which are used
for demonstration purposes and for applications engineering. From time to
time, at the request of a customer, the Company will install a laser system at
the customer's manufacturing site to establish manufacturing process and
demonstrate product performance as part of the selling process prior to
receipt of an order. The typical purchase of a laser system includes
installation, on-site customer support and applications engineering.
RESEARCH AND DEVELOPMENT
The Company devotes significant resources to development programs directed
at creating new products and product enhancements, as well as developing new
applications for existing products. All of the markets served by the Company
are characterized by rapid technological change and product innovation. The
Company believes that continued timely development of new products and product
enhancements to serve both existing and new markets is necessary to remain
competitive.
The Company maintains significant expertise in the following core
technologies:
Mechanics: design of mechanisms with high rigidity and low moving mass; use
of materials at high stress levels; techniques for precise assembly and
vibration isolation of bearings, lasers and lenses.
Optics: design of laser quality lenses with variable depth of field or large
numerical aperture; design of mirrors of high dynamic rigidity; selection of
wavelength-specific mirror and lens coatings; specification and adjustment of
lasers; and interaction of lasers with materials.
9
<PAGE>
Magnetics: design and use of rare-earth magnets; heat treatment of specialty
magnetic alloys; design and heat dissipation of compact electrical drive
coils.
Electronics: design of wide bandwidth power amplifiers and high signal-to-
noise ratio and low thermal drift signal detection circuits; design and
manufacture of analog servo controllers with low electromagnetic interference
(EMI) circuitry.
Software: development of high-speed computing algorithms for real-time
control of servo mechanisms; handling of data transmitted according to
customer-specific protocols; design of operator-friendly computer/systems
interfaces.
Systems Design: integration of mechanisms, optics, lasers, laser electro-
optics, power supplies, electronics, communications interfaces and software.
The Company's personnel work closely with customers, frequently at the
customers' facilities, to develop complete process solutions that often
involve new or extended application of the Company's existing products. This
close cooperation leads to new products being developed for a ready customer.
For the years ended December 31, 1997, 1996 and 1995, the Company's research
and development expenditures were approximately $22.3 million (excluding a
one-time expense relating to acquired in-process research and development
associated with the acquisition of Reel-Tech), $18.4 million and $17.1
million, respectively. These amounts were approximately 12%, 12% and 14% of
sales in the respective periods. As of December 31, 1997, the Company had 206
people engaged in research and product development activities. Because the
Company believes that the development of new products is vital to its
continued success, the Company expects significant expenditures to continue on
research and development activities.
Approximately one-half of sales during 1997 were from products introduced
during the current and previous two years.
MANUFACTURING
The Company's manufacturing strategy is to identify and perform internally
those manufacturing functions which enable the Company to maintain control
over critical portions of the production process and which add value to its
products. The Company believes it achieves a number of competitive advantages
from such integration, including the ability to achieve lower costs and higher
quality, the ability to bring new products and product enhancements quickly
and reliably to market, and the ability to produce sophisticated component
parts not available from other sources.
The Company's manufacturing is conducted at four facilities located near
Boston, Massachusetts and in Indianapolis, Indiana and Simi Valley,
California. Each of the Company's manufacturing facilities has co-located
manufacturing, manufacturing engineering, marketing and product design
personnel. The Company believes, based on its experience, that this
organizational proximity greatly accelerates development and entry into
production of new products and aids economical manufacturing. The Company's
thermal printers and many of its laser systems are manufactured under ISO 9001
certification.
The Company has fully integrated manufacturing operations in key strategic
elements, such as state-of-the-art metals and plastics fabrication, surface
mount (SMT) printed circuit board fabrication and testing, and extensive in-
process and final product testing capabilities. The Company believes it gains
competitive advantages in its capability to produce high quality, short-run
parts and assemblies in a just-in-time environment which reduces delivery
times to customers.
Certain of the components and materials included in the Company's laser
systems and optical products are currently obtained from single source
suppliers. The Company currently obtains a component for one of its laser
systems products from a single source. The Company currently maintains a six
month inventory of this component and plans to increase this over the next
year. The Company has explored the possibility of producing
10
<PAGE>
this component internally, and in the event of a disruption in the outside
supply of this component, the Company believes that it could commence
production internally within twelve months.
The Company is subject to a variety of governmental regulations related to
the discharge or disposal of toxic, volatile, or otherwise hazardous chemicals
used on the Company's premises. The Company believes that it is in material
compliance with these regulations and that it has obtained all necessary
environmental permits to conduct its business. Nevertheless, current or future
regulations could require the Company to purchase expensive equipment or to
incur other substantial expenses to comply with environmental regulations. Any
failure by the Company to control the use of, or adequately restrict the
discharge or disposal of, hazardous substances could subject the Company to
future liabilities, result in fines being imposed on the Company, or result in
the suspension of production or cessation of the Company's manufacturing
operations in one or more locations.
WORKING CAPITAL REQUIREMENTS
The Company manufactures and sells a variety of laser systems, subsystems
and components, as well as a line of thermal printers. The Company maintains
levels of inventory at various states of assembly in order to be responsive to
customers' requirements.
BACKLOG
The Company defines backlog as written purchase orders or other contractual
agreements for products for which the customer has requested delivery within
the next twelve months. Backlog was approximately $44 million on December 31,
1997 compared to $36 million on December 31, 1996.
COMPETITION
The markets for the Company's products are highly competitive. The Company
is subject to substantial competition from both established competitors and
potential new market entrants. Significant competitive factors include:
product functionality, performance, size, flexibility, cost, market presence,
customer satisfaction, customer support capabilities and breadth of product
line. The Company believes that it competes favorably on the basis of each of
these factors.
Competition in the development, manufacture and sale of laser systems is
concentrated in certain segments and fragmented in others. To the Company's
knowledge, the automotive sensor manufacturing market in which the Company's
thin film processing systems are used has no other competitors. The markets
for the thick film hybrid circuit processing systems in which the Company
competes have several other manufacturers. The Company is aware of three
competitors in vision systems for solder paste and component placement
inspection. In systems for electronic component lead inspection, the Company
competes primarily with Robotic Vision Systems. The Company competes primarily
with Electro Scientific Industries, which has the major market share, in laser
systems for memory fabrication. The Company is aware of laser marking systems
produced by many other manufacturers which compete with the Company's laser
marking equipment. There are several competitors in the field of component
handling systems. To the Company's knowledge, in the precision alignment
market for the aircraft industry, the Company has one competitor. There are
several competitors in the field of general purpose, non-contact metrology in
which the Company competes.
The Company knows of at least five other manufacturers of subsystems for the
film imaging systems and subsystems market.
In the optical scanner subsystem and components markets, the Company knows
of two other manufacturers. Additionally, there exist two alternate
technologies, rotating polygons and XY-moving tables, to the galvonometric
scanning technology used by the Company, which compete for certain segments of
the markets served by the Company's products.
11
<PAGE>
Thermal printing for the medical equipment market has fragmented
competition, mostly from vertically integrated equipment manufacturers.
The Company expects its competitors to continue to improve the design and
performance of their products. There can be no assurance that the Company's
competitors will not develop enhancements to, or future generations of,
competitive products that will offer superior price or performance features,
or that new processes or technologies will not emerge that render the
Company's products less competitive or obsolete. As a result of the
substantial investment required by a customer to integrate capital equipment
into a production line, or to integrate components and subsystems into a
product design, the Company believes that once a customer has selected certain
capital equipment, or certain components or subsystems from a particular
vendor, the customer generally relies upon that vendor to provide equipment
for the specific production line or product application and may seek to rely
upon that vendor to meet other capital equipment, or component or subsystem
requirements. Accordingly, the Company may be at a competitive disadvantage
with respect to a particular customer if that customer utilizes a competitor's
manufacturing equipment or components. Increased competitive pressure could
lead to lower prices for the Company's products, thereby adversely affecting
the Company's business and results of operations. There can be no assurance
that the Company will be able to compete successfully in the future.
PATENTS AND INTELLECTUAL PROPERTY
The Company believes that the success of its business depends more on the
technical competence and creativity of its employees than on patents,
trademarks and copyrights. Nevertheless, the Company has a policy of seeking
patents, when appropriate, on inventions concerning new products and
improvements as part of its ongoing research, development and manufacturing
activities.
Although the Company has been granted, has filed applications for and has
been licensed under a number of patents in the United States and foreign
countries, there can be no assurance as to the degree of protection offered by
these patents or as to the likelihood that patents will be issued for pending
applications.
Competitors in the United States and foreign countries, many of which have
substantially greater resources and have made substantial investments in
competing technologies, may have applied for or obtained, or may in the future
apply for and obtain, patents that will prevent, limit or interfere with the
Company's ability to make and sell some of its products. Although the Company
believes that its products do not infringe the patents or other proprietary
rights of third parties, there can be no assurance that other third parties
will not assert infringement claims against the Company or that such claims
will not be successful. (See Item 3, Legal Proceedings.)
The Company also relies upon trade secret protection for its confidential
and proprietary information. The Company routinely enters into confidentiality
agreements with its employees and consultants. There can be no assurance,
however, that these agreements will provide meaningful protection of the
Company's trade secrets, know-how or other proprietary information in the
event of any unauthorized use, misappropriation or disclosure of such trade
secrets, know-how or other proprietary information.
EMPLOYEES
As of December 31, 1997, the Company had 915 full-time employees worldwide,
including 396 in manufacturing, 226 in marketing, sales and field service, 206
in research and development, and 87 in general administration. Approximately
108 employees, mostly foreign nationals, reside and work outside of the
United States, primarily in marketing, sales and support. In addition, the
Company periodically engages contract employees principally in new product
development and manufacturing operations. None of the Company's employees is
represented by a labor union, and the Company has never experienced a work
stoppage or strike. The Company considers its employee relations to be good.
12
<PAGE>
ITEM 2. PROPERTIES
The Company's headquarters is located in Watertown, Massachusetts, which is
a suburb of Boston. The principal owned and leased properties of the Company
and its subsidiaries are listed in the table below.
<TABLE>
<CAPTION>
APPROXIMATE OWNED/
LOCATION PURPOSE SQUARE FEET LEASED
- -------- ------- ----------- ------
<S> <C> <C> <C>
Watertown, MA, USA...... Marketing, sales, manufacturing, engineering, offices; 84,000 owned
corporate headquarters
Wilmington, MA, USA..... Marketing, sales, manufacturing, engineering, offices 78,000 leased(1)
Arlington, MA, USA...... Marketing, sales, manufacturing, engineering, offices 32,000 leased(2)
Bedford, MA, USA........ Marketing, sales, manufacturing, engineering, offices 50,000 leased(3)
Simi Valley, CA, USA.... Marketing, sales, manufacturing, engineering, offices 41,000 owned
Simi Valley, CA, USA.... Manufacturing 21,000 leased(4)
Ann Arbor, MI, USA...... Marketing, sales, engineering, offices 15,000 leased(5)
Indianapolis, IN, USA... Marketing, sales, manufacturing, engineering, offices 12,000 leased(6)
</TABLE>
- --------
(1) Lease expires in 2007, with two 5-year renewal options.
(2) Lease expires in 2000, with one 2-year renewal option.
(3) Lease expires in 2003, with one 3-year renewal option.
(4) Lease expires in 1998, with one 3-year renewal option.
(5) Lease expires in 2001, with two 3-year renewal options.
(6) Lease expires in 2001, with one 5-year renewal option.
Additional sales and service offices are located in Japan, Germany, France,
Italy, the United Kingdom, Hong Kong, Korea, Taiwan, Singapore, Malaysia and
other locations in the United States. These additional marketing and sales
offices are in leased facilities occupying approximately 25,000 square feet in
the aggregate.
The Company believes that additional manufacturing facilities will be
required within the next two years and that suitable additional or substitute
space will be available as needed.
ITEM 3. LEGAL PROCEEDINGS
View Engineering v. Robotic Vision Systems, Inc. USDC Case No. 95-1882. On
or about March 24, 1995, View Engineering, Inc. ("View") filed a complaint
against Robotic Vision Systems, Inc. ("RVSI") seeking declaratory relief that
(i) U.S. Patent No. 4,328,147 (" '147") held by RVSI was invalid and (ii) View
had not infringed this patent. RVSI counterclaimed against View for alleged
trade libel and patent infringement on the "147 patent and on seven additional
patents, seeking a judgment that View had infringed upon one or more claims of
each of the eight patents. After View challenged the merits of RVSI's case,
RVSI dropped its infringement claims involving five of the eight patents and
did not pursue the claim of trade libel. In June, 1996, the Federal District
Court granted View a summary judgment on non-infringement with respect to the
three remaining patents and granted, in part, its motion for reimbursement of
attorneys' fees under Rule 11. The summary judgment and the Rule 11 sanctions
were appealed by RVSI. In July 1997, the summary judgment in favor of View was
upheld and affirmed by the United States Court of Appeals for the Federal
Circuit. The Rule 11 sanctions were remanded back to the District Court to
determine the amount of fees due to View.
Robotic Vision Systems, Inc. v. View Engineering, Inc. USDC Case No. 95-
7441. On or about October 31, 1995, RVSI filed a complaint for patent
infringement against View alleging infringement of U.S. Patent No. 5,463,227
and seeking damages allegedly caused by View's infringement. RVSI's requests
for a temporary restraining order and a preliminary injunction were denied. In
March 1996, View obtained a summary judgment
13
<PAGE>
on the first of RVSI's claims; and RVSI has dismissed the other claims. RVSI
appealed the summary judgment. In April 1997, the United States Court of
Appeals for the Federal Circuit returned the issue to the District Court for
further discovery. A trial date has been set for August 3, 1998.
Robotic Vision Systems, Inc. v. View Engineering Inc. USDC Case No. 96-
2288. On or about April 1, 1996, RVSI filed a complaint for patent
infringement against View alleging infringement of U.S. Patent No. 5,465,152.
During 1997, View was denied its motion for summary judgment for
noninfringement and for invalidity. A trial commenced in December 1997 and
concluded in January 1998. A briefing schedule has been set, and final
arguments are scheduled for March 30, 1998.
Robotic Vision Systems, Inc. v. General Scanning Inc. USDC Case No. 96-
3884. On or about August 5, 1996, RVSI filed an action claiming that the
Company improperly obtained proprietary information from RVSI for the purpose
of acquiring View and thwarting RVSI's attempts to acquire View. RVSI is
seeking compensatory and punitive damages in an unspecified amount. In
September 1997, the United States District Court for the Eastern District of
New York, pursuant to a motion for summary judgment filed by General Scanning,
dismissed four of RVSI's six claims. In January 1998, the District Court,
responding to a motion by RVSI, readmitted one of the claims originally
dismissed in the summary judgment. A trial is scheduled for May 4, 1998.
Electro Scientific Industries, Inc. v. General Scanning Inc. USDC Case No.
C-96-04628. On or about December 26, 1996, Electro Scientific Industries, Inc.
("Electro Scientific") filed a complaint for patent infringement against the
Company alleging infringement of U.S. Patent Nos. 5,265,114 and 5,473,624.
Electro Scientific is seeking temporary and permanent restraining orders,
compensatory and punitive damages in an unspecified amount, and attorneys'
fees, costs and disbursements. The Company has filed an answer and
counterclaim to this complaint. In November 1997, the Company filed a motion
for summary judgment on the grounds that the patents are invalid. A hearing is
scheduled for February 24, 1998.
General Scanning Inc. v. Voxel Pursuant to the dispute resolution provision
of a development agreement between Voxel and the Company, General Scanning is
seeking through binding arbitration recovery of monies for work performed as
well as lost profits on future production. Voxel counterclaimed seeking
recovery of lost profits. The arbitration hearing was concluded in January
1998. Following post trial submissions, a decision is expected in the spring
of 1998.
The Company believes that RVSI's, Electro Scientific's and Voxel's claims in
each of the above actions are without merit and the Company is vigorously
defending these precedings. However, if RVSI, Electro Scientific or Voxel
prevails on one or more of its claims, there could be a material adverse
effect on the Company's business, financial condition or operating results.
The Company is routinely involved in litigation incidental to its business,
although the Company is not aware of any other pending litigation which, if
adversely determined, could materially and adversely affect its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the last quarter of the year ended December 31, 1997.
14
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of the current
executive officers of the Company and the principal occupations held by each
person named for at least the past five years.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Charles D. Winston...... 56 President, Chief Executive Officer and Director
Victor H. Woolley....... 55 Vice President, Chief Financial Officer, Treasurer and Clerk
Gregory S. Baletsa...... 44 Vice President and General Manager of the
Recorder Products Division
Michael R. Kampfe....... 48 Vice President and General Manager of the
Optical Scanning Products Division
Victor Sabella.......... 53 Vice President and General Manager of the
Industrial Laser Products Division
Thomas R. Swain......... 52 Vice President and General Manager of the
View Engineering Division
Joseph A. Verderber..... 59 Vice President and General Manager of the
Laser Systems Division
</TABLE>
Charles D. Winston has served as President and Chief Executive Officer of
the Company since September 1988. He has served as a Director of the Company
since 1989. Prior to joining the Company, from 1986 to 1988, Mr. Winston
served as a management consultant. In 1986, Mr. Winston was an officer of
Savin Corporation. From 1981 to 1985, he served as a Senior Vice President of
Federal Express Corporation.
Victor H. Woolley has been Vice President and Chief Financial Officer of the
Company since August 1995. From 1986 to 1995, Mr. Woolley was Vice President
and Chief Financial Officer of Sepracor Inc., a public company involved in the
manufacture of systems, medical devices and consumables for the biotechnology
and pharmaceutical industries, as well as conducting research in drug
development.
Gregory S. Baletsa joined the Company in 1985. Since 1989, he has served as
Vice President and General Manager of the Company's Recorder Products
Division.
Michael R. Kampfe joined the Company in 1984. From 1990 through 1996, he
served as Vice President and General Manager of the Company's Laser Graphics
Division. In late 1996, the Laser Graphics Division was merged into the
Optical Scanning Products Division under Mr. Kampfe.
Victor Sabella served as Vice President and General Manager of the Company's
Optical Scanning Products Division from October 1992 through 1996. In late
1996, Mr. Sabella became General Manager of the newly-formed Industrial Laser
Products Division, a combination of the Laser Systems Division's laser marking
product line and a new initiative for this technology into expanded industrial
applications. Prior to joining the Company, from 1991 to 1992, Mr. Sabella
served as Senior Vice President of Crosscomm Corp., a communication inter-
networking firm. From 1986 to 1991, he served as the General Manager of the
Microelectronics Division at Analog Devices, Inc.
Thomas R. Swain joined the Company in August 1996 with the acquisition of
View. Prior to the acquisition, Mr. Swain was President and Chief Executive
Officer of View. Mr. Swain originally joined View in 1984 as the Vice
President of Finance and Chief Financial Officer and was promoted to President
in 1992.
Joseph A. Verderber has served as Vice President and General Manager of the
Company's Laser Systems Division since May 1991. Before joining the Company,
Mr. Verderber served as President of Barco Graphics, Inc. from 1990 to 1991.
From 1961 to 1990, Mr. Verderber served in a number of executive positions at
AM International, Inc., including Vice President and General Manager,
VariTyper.
15
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
General Scanning's common stock, $0.01 par value ("Common Stock"), has been
traded on the Nasdaq National Market under the symbol GSCN since September 22,
1995. Prior to September 22, 1995 the Company's Common Stock was not publicly
traded.
The following table sets forth, for the periods indicated, the high and low
prices per share of the Common Stock as reported by the Nasdaq National
Market.
<TABLE>
<CAPTION>
1995 1996 1997
--------------- --------------- -----------------
HIGH LOW HIGH LOW HIGH LOW
------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
First Quarter.............. $15 3/4 $ 8 7/8 $13 9/16 $ 8 5/8
Second Quarter............. $25 1/4 $12 3/4 $15 7/8 $ 6 7/8
Third Quarter.............. $13 3/4 $11 1/4 $18 1/4 $ 9 1/2 $35 3/4 $13 1/2
Fourth Quarter............. $13 $ 8 $13 3/8 $ 8 1/2 $34 7/8 $16 5/16
</TABLE>
HOLDERS
On February 10, 1998, the Company had approximately 260 stockholders of
record. Since many shares of Common Stock are registered in "nominee" or
"street" name, the Company estimates that the total number of beneficial
owners approximates 3,000.
DIVIDENDS
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to reinvest its earnings for use in the business and does
not expect to pay cash dividends in the foreseeable future.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales:
Laser systems and
components.............. $154,536 $131,867 $103,405 $77,488 $62,994
Thermal printers......... 26,994 24,666 22,915 20,624 18,821
-------- -------- -------- ------- -------
Total sales............ 181,530 156,533 126,320 98,112 81,815
-------- -------- -------- ------- -------
Gross profit:
Laser systems and
components.............. 74,686 60,829 47,861 37,760 29,785
Thermal printers......... 12,039 10,851 10,061 8,533 7,614
-------- -------- -------- ------- -------
Total gross profit..... 86,725 71,680 57,922 46,293 37,399
-------- -------- -------- ------- -------
Operating expenses:
Research and product
development............. 22,302 18,400 17,106 13,090 11,208
Selling, general and
administrative.......... 46,169 39,475 33,091 27,326 21,689
Acquired in-process
research and
development............. 10,600 -- -- -- --
-------- -------- -------- ------- -------
Total operating
expenses.............. 79,071 57,875 50,197 40,416 32,897
-------- -------- -------- ------- -------
Income from operations..... 7,654 13,805 7,725 5,877 4,502
Merger (expenses).......... -- (1,950) -- -- --
Interest income (expense),
net....................... 464 272 (682) (847) (896)
Foreign exchange
transaction gains
(losses).................. (507) (159) 331 636 (24)
-------- -------- -------- ------- -------
Income before income taxes. 7,611 11,968 7,374 5,666 3,582
Income taxes............... 2,502 5,367 2,803 1,868 1,291
-------- -------- -------- ------- -------
Net income................. $ 5,109 $ 6,601 $ 4,571 $ 3,798 $ 2,291
======== ======== ======== ======= =======
Basic income per common
share..................... $ 0.42 $ 0.56 $ 0.48 $ 0.52 $ 0.31
======== ======== ======== ======= =======
Diluted income per common
share..................... $ 0.40 $ 0.53 $ 0.44 $ 0.42 $ 0.26
======== ======== ======== ======= =======
Weighted average common
shares outstanding and
dilutive potential common
shares.................... 12,657 12,476 10,357 9,099 8,863
======== ======== ======== ======= =======
<CAPTION>
DECEMBER 31,
----------------------------------------------
1997 1996 1995 994 1993
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............ $ 62,663 $ 57,680 $ 52,396 $20,275 $19,725
Total assets............... 115,042 95,573 89,708 49,859 47,732
Long-term obligations...... 3,208 3,442 3,102 2,961 6,980
Stockholders' equity....... 78,229 68,289 59,754 27,111 23,216
</TABLE>
In August 1996 the Company acquired View Engineering, Inc. by issuing
1,437,060 shares of General Scanning Inc. common stock in exchange for all of
View's outstanding shares of capital stock, accrued preferred dividends and
the net value of warrants and options. The transaction was accounted for as a
pooling of interests for accounting purposes and, accordingly, the financial
statements for the years 1993, 1994 and 1995 were retroactively restated to
include the accounts of View.
On November 28, 1997 the Company acquired the assets of Reel-Tech, Inc. in a
transaction that was accounted for as a purchase. Accordingly, the operations
of Reel-Tech, Inc. have been included in the consolidated financial statements
from the date of acquisition. The purchase price of $14.4 million includes
$0.7 million of tangible net assets, $10.6 million of acquired in-process
research and development and $3.1 million of goodwill.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
General Scanning is a leading manufacturer of laser systems and components
and thermal printers. In 1997, 1996 and 1995, approximately 85%, 84%, and 82%,
respectively, of the Company's revenues were derived from sales of laser
systems and components and the balance was derived from sales of thermal
printers. Sales of laser systems and components in 1997 and in 1996 grew
approximately 17% and 28%, respectively, over sales for this segment in the
comparable prior periods. Thermal printers sales in 1997 and 1996 grew
approximately 9% and 8%, respectively, over the comparable prior periods.
In November 1997, the Company acquired Reel-Tech, Inc. ("Reel-Tech"), a
wholly-owned subsidiary of Data I/O Corporation. The transaction was
structured as a purchase of substantially all the assets and the business of
Reel-Tech and its subsidiary in Singapore and is being accounted for as a
purchase. The operations of Reel-Tech have been included in the consolidated
financial statements from the date of acquisition and are not material to
comparative prior periods. The purchase price of $14.4 million includes $0.7
million of tangible net assets, $10.6 million of acquired in-process research
and development which was recorded as a charge to operations on the date of
acquisition and $3.1 million of goodwill. Reel-Tech is an integrator of
electronics components handling systems for marking, inspection, sorting and
packaging.
In August 1996, the Company acquired View Engineering, Inc. by issuing
1,437,060 shares of General Scanning Common Stock. The transaction was
recorded as a pooling of interests for accounting purposes. Accordingly, the
consolidated financial statements include the accounts of View for all periods
presented. View employs laser image processing technology to serve
applications requiring precision inspection, measurement and process control
in several industries.
The Company sells its laser systems primarily to manufacturers of products
containing advanced electronic components and circuitry. In addition, the
Company produces a line of laser subsystems and components which are used in
the Company's own systems, as well as sold to other manufacturers of laser
systems. The Company's laser systems sales have been, and are expected to
continue to be, dependent upon its customers' capital expenditures which are
in turn affected by cycles in the markets served by those customers. The
Company's strategy is to expand applications for its products into different
and varied markets in order to limit its dependency on any one market; but it
may not always be successful in doing so. The Company also sells thermal
printers to manufacturers of medical equipment for patient care monitoring.
Product prices have remained relatively stable during the periods covered by
this discussion, and price fluctuations did not have a material effect on
reported gross profit. A significant portion of sales are made in foreign
currencies. Fluctuations in currency exchange rates, particularly in the
Japanese yen and European currencies as compared to the U.S. dollar, can
impact the Company's sales and expenses, which are reported in U.S. dollars.
In September 1995, General Scanning raised a net $27.7 million through its
initial public offering of 2,585,000 shares of Common Stock including over-
allotments.
The Company has begun to assess issues relating to changes in software and
hardware that may be required in the year 2000. Based on its review to date,
any costs relating to the year 2000 issue are expected to be immaterial.
18
<PAGE>
The following table sets forth, for the periods indicated, the percentage of
net sales represented by each item reflected in the Company's consolidated
statements of income:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Net sales:
Laser systems and components.......................... 85.1% 84.2% 81.9%
Thermal printers...................................... 14.9 15.8 18.1
----- ----- -----
Total sales......................................... 100.0 100.0 100.0
----- ----- -----
Cost of sales:
Laser systems and components.......................... 51.7 53.9 53.7
Thermal printers...................................... 55.4 56.0 56.1
----- ----- -----
Total cost of sales................................. 52.2 54.2 54.1
----- ----- -----
Gross profit:
Laser systems and components.......................... 48.3 46.1 46.3
Thermal printers...................................... 44.6 44.0 43.9
----- ----- -----
Total gross profit.................................. 47.8 45.8 45.9
----- ----- -----
Operating expenses:
Research and product development...................... 12.3 11.8 13.5
Selling, general and administrative................... 25.5 25.2 26.2
Acquired in-process research and development.......... 5.8 -- --
----- ----- -----
Total operating expenses............................ 43.6 37.0 39.7
----- ----- -----
Income from operations.................................. 4.2 8.8 6.1
Merger (expenses)....................................... -- (1.2) --
Interest income (expense), net.......................... 0.3 0.1 (0.5)
Foreign exchange transaction gains (losses)............. (0.3) (0.1) 0.2
----- ----- -----
Income before income taxes.............................. 4.2 7.6 5.8
Income taxes............................................ 1.4 3.4 2.2
----- ----- -----
Net income.............................................. 2.8% 4.2% 3.6%
===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
Sales. Total sales increased to $181.5 million in 1997 from $156.5 million
in 1996 and $126.3 million in 1995. Sales of laser systems and components
increased primarily due to increased unit volume of end-user systems,
primarily reflecting growth in demand for the Company's products used in
semiconductor production and electronics manufacturing. Secondarily, sales in
1997 increased due to funding by two multinational companies for development
of a laser patterning system for use in the manufacture of flat panel
displays. The increases in the sales of thermal printers were primarily due to
increased unit volume of thermal printers and to the introduction of a new
product in the fourth quarter of 1997. International sales, as a percentage of
total sales, were 44% in 1997, 41% in 1996 and 47% in 1995.
Gross Profit. Total gross profit was $86.7 million, or 47.8% of sales, in
1997, $71.7 million, or 45.8% of sales, in 1996 and $57.9 million, or 45.9% of
sales, in 1995. Laser systems and components gross profit as a percentage of
sales was 48.3%, 46.1% and 46.3% for the years 1997, 1996 and 1995,
respectively. The improvement in the laser systems and components gross profit
in 1997 was due to 1) improved absorption of labor and manufacturing overhead
over increased production volume, and 2) a reduction in material costs due to
changes in product mix and cost reductions. Thermal printers gross profit as a
percentage of sales was 44.6% in 1997, 44.0% in 1996 and 43.9% in 1995.
19
<PAGE>
Research and Product Development. Research and product development expenses
increased 21% to $22.3 million in 1997 (excluding a one-time expense relating
to acquired in-process research and development associated with the
acquisition of Reel-Tech) from $18.4 million in 1996 and $17.1 million in
1995. This increase in research and product development expenses was primarily
due to the addition of personnel and related costs to support the development
of new laser systems and components. Research and product development expenses
as a percentage of sales have ranged between approximately 12% to 13% over the
past three years. Because the Company believe that the development of new
products is vital to its continued success, the Company expects to maintain
similar levels of research and development expenses as a percentage of sales
over the long term.
Selling, General and Administrative. Selling, general and administrative
expenses were $46.2 million in 1997, $39.5 million in 1996 and $33.1 million
in 1995. These increases in selling, general and administrative expenses were
primarily due to the addition of sales and marketing personnel and related
costs and to additional sales commission expense incurred in supporting
increased sales. Additionally, in 1997 legal costs increased as a result of
defending various legal proceedings, as discussed in Item 3. to this Form 10-
K. Selling, general and administrative expenses as a percentage of sales have
ranged between approximately 25% to 26% over the past three years.
Acquired in-process research and development. Acquired in-process research
and development expense in 1997 of $10.6 million results from an independent
appraisal of Reel-Tech's intangible assets acquired.
Interest. Net interest income was $464 thousand in 1997 compared to $272
thousand in 1996 and net expense of $682 thousand in 1995. These changes
primarily reflect interest earned on cash raised in the Company's initial
public offering in September 1995 and the repayment of View's revolving credit
debt subsequent to View's acquisition by the Company in August 1996.
Foreign Exchange. Foreign exchange transactions resulted in a loss of $507
thousand in 1997 and $159 thousand in 1996 as compared to a gain of $331
thousand in 1995. The losses in 1997 and 1996 were due primarily to a
weakening of the Japanese yen and major European currencies compared to the
U.S. dollar at a time when the Company's net receivables denominated in these
currencies were not fully hedged.
Income Tax. The effective income tax rate for the Company was 33% in 1997,
45% in 1996 and 38% in 1995, compared to a United States Federal tax rate of
34%. The Company's effective tax rate for each year was benefited by research
and development credits and by deductions associated with the Company's
foreign sales corporation. The Company's effective rate for each year was
increased by higher tax rates in many of the countries where the Company
operates and by state income taxes. The high 1996 rate was the result of (1) a
portion of merger expenses not being tax deductible and (2) losses incurred at
View prior to the effective date of the merger that could not be used to
offset General Scanning's profit for tax purposes. The 1995 rate reflects
increased profits in the Company's foreign operations. The Company has
provided a valuation allowance against View's net operating loss carryforwards
and tax credits due to the uncertainty of their realizability as a result of
limitations on their utilization in accordance with certain tax laws and
regulations.
Net Income. Net income was $5.1 million in 1997, $6.6 million in 1996 and
$4.6 million in 1995. The decrease in net income in 1997 from 1996 was due to
the $10.6 million acquired in-process research and development expense
associated with the acquisition of Reel-Tech. The increase in net income in
1996 over 1995, despite one-time merger expenses and an increase in the
effective tax rate associated with the acquisition of View, was primarily due
to increased sales and a leveraging of operating expenses which grew at a
lower rate than did the increase in sales.
Summary. The Company has experienced, and may continue to experience,
fluctuations in operating results due to a variety of factors, including: the
rate of growth of the markets for its products; market acceptance of the
Company's products and those of its competitors; development and promotional
expenses relating to the introduction of new products or new versions of
existing products; changes in pricing policies by the Company
20
<PAGE>
and its competitors; the timing of the receipt of orders from major customers;
the timing of shipments; and economic conditions in markets served by the
Company. The Company's expense levels are based, in part, on its expectations
as to future sales and, as a result, operating results would be
disproportionately affected by a reduction in sales or a failure to meet the
Company's sales expectations. The Company believes that its business may be
subject to seasonal fluctuations due to capital expenditure approval cycles of
its customers.
The Company's worldwide sales expose the Company to risks relating to
economic conditions outside of the United States. The Company believes that
recent and ongoing economic turmoil in certain Asian markets may reduce the
Company's sales, although it is difficult to measure or predict the precise
effect of the Asian situation on the Company's results.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $8.4 million on December 31, 1997 compared
to $17.7 million on December 31, 1996. In the Fall of 1995, the Company raised
a net $27.7 million through its initial public offering of 2,585,000 shares of
Common Stock, inclusive of 335,000 shares exercised by the underwriters to
cover over-allotments.
A net $3.2 million was provided by operating activities during 1997. Net
income of $5.1 million was supplemented by non-cash charges totaling $0.5
million for depreciation, amortization and deferred compensation, net of
deferred income taxes and by $10.6 million for acquired in-process research
and development, which is included in cash flows used in investing activities.
In support of expanded business activity, accounts receivable and inventory
increased by $19.9 million offset by an increase in payables and accrued
expenses of $7.0 million.
Cash flows used in investing activities in 1997 include $12.4 million for
the acquisition of Reel-Tech, representing cash expended. An additional $2.0
million of consideration for Reel-Tech was represented by the issuance of
75,118 shares of the Company's Common Stock. Investing activities in 1997 also
includes capital expenditures of $5.3 million. These expenditures were
primarily for the purposes of adding manufacturing capacity, providing
equipment for operating efficiencies within the Company's existing facilities
and the acquisition and initial installation of a new company-wide information
system platform. The Company began to occupy newly leased 78,000 square feet
of additional manufacturing, research and office space in December 1997.
The Company's revolving credit agreement with its lending bank, as amended
in 1997, provides for a maximum $20 million revolving credit facility and $6
million in international credit lines. Borrowings under the $20 million
revolving credit facility bear interest at the London InterBank Offered Rate
(LIBOR) plus one and one-quarter percent or prime, determined at time of
borrowing. Borrowings under the international credit lines, of which $4.2
million was outstanding at December 31, 1997, accrue interest at a negotiated
rate approximating the prime rate in the applicable country. The agreement
requires compliance with certain financial ratios and expires December 31,
1999.
The Company believes that its existing cash, together with cash generated
from future operations and its existing bank line of credit, will be
sufficient to satisfy anticipated cash needs to fund working capital and
investments in manufacturing facilities and equipment for its existing
businesses over the next two years. The Company may, from time to time, as
market and business conditions warrant, invest in or acquire complementary
businesses, products or technologies. The Company may require additional
equity or debt financings to fund such activities, which could result in
additional dilution to the Company's shareholders.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GENERAL SCANNING INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Statements of Income for the years ended December 31, 1997,
1996 and 1995............................................................ F-3
Consolidated Balance Sheets as of December 31, 1997 and 1996.............. F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995......................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995...................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
Supplementary Financial Information (Quarterly Financial Information for
1997 and 1996, unaudited)................................................ F-20
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of General Scanning Inc.:
We have audited the accompanying consolidated balance sheets of General
Scanning Inc. (a Massachusetts corporation) and subsidiaries as of December
31, 1997 and 1996 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of General Scanning Inc. and
subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
February 2, 1998
F-2
<PAGE>
GENERAL SCANNING INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Net sales:
Laser systems and components.......... $ 154,536 $ 131,867 $ 103,405
Thermal printers...................... 26,994 24,666 22,915
----------- ----------- -----------
Total sales......................... 181,530 156,533 126,320
----------- ----------- -----------
Cost of sales:
Laser systems and components.......... 79,850 71,038 55,544
Thermal printers...................... 14,955 13,815 12,854
----------- ----------- -----------
Total cost of sales................. 94,805 84,853 68,398
----------- ----------- -----------
Gross profit:
Laser systems and components.......... 74,686 60,829 47,861
Thermal printers...................... 12,039 10,851 10,061
----------- ----------- -----------
Total gross profit.................. 86,725 71,680 57,922
----------- ----------- -----------
Operating expenses:
Research and product development...... 22,302 18,400 17,106
Selling, general and administrative... 46,169 39,475 33,091
Acquired in-process research and
development.......................... 10,600 -- --
----------- ----------- -----------
Total operating expenses............ 79,071 57,875 50,197
----------- ----------- -----------
Income from operations.................. 7,654 13,805 7,725
Merger (expenses)....................... -- (1,950) --
Interest income (expense), net.......... 464 272 (682)
Foreign exchange transaction gains
(losses)............................... (507) (159) 331
----------- ----------- -----------
Income before income taxes.............. 7,611 11,968 7,374
Income taxes............................ 2,502 5,367 2,803
----------- ----------- -----------
Net income.............................. $ 5,109 $ 6,601 $ 4,571
=========== =========== ===========
Basic income per common share........... $ 0.42 $ 0.56 $ 0.48
=========== =========== ===========
Diluted income per common share......... $ 0.40 $ 0.53 $ 0.44
=========== =========== ===========
Weighted average common shares
outstanding and dilutive potential
common shares.......................... 12,656,763 12,476,237 10,357,287
=========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
GENERAL SCANNING INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1997 1996
--------- ---------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents........................... $ 8,418 $ 17,655
Accounts receivable, less allowance of $1,203 in
1997 and $867 in 1996.............................. 44,425 32,213
Inventories......................................... 34,051 26,051
Deferred income taxes............................... 7,857 4,022
Other current assets................................ 1,517 1,581
--------- --------
Total current assets.............................. 96,268 81,522
--------- --------
Property, plant and equipment, net.................... 14,611 12,922
Other assets.......................................... 437 428
Intangible assets, net of amortization of $1,863 in
1997 and $1,753 in 1996.............................. 3,726 701
--------- --------
$ 115,042 $ 95,573
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable to banks and current portion of long-
term debt.......................................... $ 4,169 $ 3,030
Current portion of deferred compensation............ 582 --
Accounts payable.................................... 12,775 7,025
Accrued expenses.................................... 16,079 13,787
--------- --------
Total current liabilities......................... 33,605 23,842
--------- --------
Long-term debt due after one year..................... 1,530 1,549
Deferred compensation, less current portion........... 1,678 1,893
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock, $.01 par value; authorized
1,000,000 shares; issued and outstanding--none..... -- --
Common stock, $.01 par value; authorized 15,000,000
shares; issued 12,791,796 in 1997 and 12,245,655 in
1996............................................... 128 122
Additional paid-in capital.......................... 48,788 43,657
Retained earnings................................... 30,794 25,685
Cumulative translation adjustment................... (892) (587)
Treasury stock, at cost; 366,073 shares in 1997 and
365,995 shares in 1996............................. (589) (588)
--------- --------
Total stockholders' equity........................ 78,229 68,289
--------- --------
$ 115,042 $ 95,573
========= ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
GENERAL SCANNING INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------- ADDITIONAL CUMULATIVE TREASURY STOCK
$.01 PAR PAID-IN RETAINED TRANSLATION ----------------
SHARES VALUE CAPITAL EARNINGS ADJUSTMENT SHARES COST
------ -------- ---------- -------- ----------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994................... 9,228 $ 92 $13,286 $14,513 $(192) (366) $ (588)
Net income.............. -- -- -- 4,571 -- -- --
Issuance of common
stock.................. 2,585 26 27,714 -- -- -- --
Stock option and warrant
exercises, including
tax effects............ 155 1 587 -- -- -- --
Cumulative translation
adjustment............. -- -- -- -- (256) -- --
------ ---- ------- ------- ----- ------ -------
Balance, December 31,
1995................... 11,968 119 41,587 19,084 (448) (366) (588)
Net income.............. -- -- -- 6,601 -- -- --
Stock option and warrant
exercises, including
tax effects............ 278 3 2,070 -- -- -- --
Cumulative translation
adjustment............. -- -- -- -- (139) -- --
------ ---- ------- ------- ----- ------ -------
Balance, December 31,
1996................... 12,246 122 43,657 25,685 (587) (366) (588)
Net income.............. -- -- -- 5,109 -- -- --
Stock option and warrant
exercises, including
tax effects............ 471 5 3,132 -- -- -- --
Fractional shares from
View Engineering, Inc.
merger................. -- -- -- -- -- -- (1)
Shares issued in
acquiring
Reel-Tech, Inc......... 75 1 1,999 -- -- -- --
Cumulative translation
adjustment............. -- -- -- -- (305) -- --
------ ---- ------- ------- ----- ------ -------
Balance, December 31,
1997................... 12,792 $128 $48,788 $30,794 $(892) (366) $ (589)
====== ==== ======= ======= ===== ====== =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
GENERAL SCANNING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 5,109 $ 6,601 $ 4,571
Adjustments to reconcile net income to net cash
provided by
(used in) operating activities--
Acquired in-process research and development..... 10,600 -- --
Depreciation and amortization.................... 3,941 3,180 1,984
Deferred compensation............................ 367 347 319
Deferred income taxes............................ (3,837) (646) (460)
Changes in current assets and liabilities, net of
effects of
Reel-Tech, Inc. acquisition--
Accounts receivable.............................. (13,659) (9,444) (4,194)
Inventories...................................... (6,271) (1,119) (9,104)
Other current assets............................. (42) 2 (1,111)
Accounts payable and accrued expenses............ 6,977 (592) 4,520
-------- ------- -------
Net cash provided by (used in) operating
activities........................................ 3,185 (1,671) (3,475)
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Reel-Tech, Inc.(1)..................... (12,446) -- --
Additions to property, plant and equipment, net.... (5,335) (6,902) (2,596)
Decrease (increase) in other assets................ 20 15 (67)
-------- ------- -------
Net cash (used in) investing activities............ (17,761) (6,887) (2,663)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to banks and others.... 16,662 13,633 2,464
(Payments) on notes payable to banks and others.... (15,087) (15,567) --
Net (payments) on long-term debt................... (19) (7) (178)
Net proceeds from issuance of common stock......... -- -- 27,740
Stock option and warrant exercises, including tax
effects........................................... 3,136 2,073 588
-------- ------- -------
Net cash provided by financing activities.......... 4,692 132 30,614
-------- ------- -------
Effect of exchange rate changes on cash and cash
equivalents....................................... 647 386 (143)
Increase (decrease) in cash and cash equivalents... (9,237) (8,040) 24,333
Cash and cash equivalents, beginning of period..... 17,655 25,695 1,362
-------- ------- -------
Cash and cash equivalents, end of period........... $ 8,418 $17,655 $25,695
======== ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for--
Interest......................................... $ 478 $ 862 $ 1,064
======== ======= =======
Income taxes..................................... $ 4,485 $ 4,834 $ 2,540
======== ======= =======
(1) Acquisition of Reel-Tech, Inc.:
Net assets and in-process research and development
acquired.......................................... $(14,446) $ -- $ --
Issuance of common stock........................... 2,000 -- --
-------- ------- -------
Net cash used to acquire business.................. $(12,446) $ -- $ --
======== ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE>
GENERAL SCANNING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
General Scanning Inc. develops, manufactures and sells its products on a
worldwide basis through two industry segments: laser systems and components;
and thermal printers. The laser systems and components segment provides
products for a wide range of applications in the automotive, electronics,
semiconductor, medical and aircraft industries. The Company's core
technological expertise which is employed in each of these applications is
high speed micropositioning and precise power control of lasers, as well as 2D
and 3D image processing. The thermal printer segment provides a line of
thermal printers for the medical industry.
Basis of presentation
The consolidated financial statements include the accounts of General
Scanning Inc. and its wholly-owned subsidiaries (the "Company"). Significant
intercompany accounts and transactions have been eliminated in consolidation.
The Company's 50% joint venture in the United Kingdom, which had been
accounted for by the equity method, was fully acquired on December 31, 1995 in
a purchase transaction. The acquisition was not material to the Company's
operations.
On November 28, 1997, the Company acquired the assets of Reel-Tech, Inc. for
$14.4 million, which consisted of $12.4 million of cash and 75,118 shares of
General Scanning Inc. common stock. Reel-Tech is an integrator of electronics
components handling systems for marking, lead inspection, parts sorting and
parts packaging. The transaction was accounted for as a purchase for
accounting purposes and, accordingly, the operations of Reel-Tech have been
included in the consolidated financial statements from the date of
acquisition. Acquired in-process research and development of $10.6 million
charged against income in 1997 results from an independent appraisal of Reel-
Tech's intangible assets acquired. Goodwill arising from the transaction of
$3.1 million is being amortized on a straight-line basis over a 10 year
period. Results of operations would not have changed materially for 1997 or
1996 if Reel-Tech had been acquired on January 1, 1996.
F-7
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In August 1996, the Company acquired View Engineering, Inc. ("View") by
issuing 1,437,060 shares of General Scanning Inc. common stock (after giving
effect to certain adjustments at the closing) in exchange for all of View's
outstanding shares of capital stock, accrued preferred dividends and the net
value of warrants and options. View uses laser image processing technology to
serve applications requiring precision inspection, measurement and process
control. The transaction has been accounted for as a pooling of interests for
accounting purposes and, accordingly, the accompanying consolidated financial
statements have been retroactively restated to include the accounts of View
for all periods presented. Merger expenses include primarily brokers' fees and
legal and accounting costs. The following is a reconciliation of certain
restated amounts with amounts previously reported.
<TABLE>
<CAPTION>
1995
--------------
(IN THOUSANDS)
<S> <C>
Sales:
General Scanning Inc...................................... $101,819
View Engineering, Inc..................................... 24,501
--------
As restated............................................. $126,320
========
Net income:
General Scanning Inc...................................... $ 6,009
View Engineering, Inc..................................... (1,438)
--------
As restated............................................. $ 4,571
========
Diluted income per common share:
General Scanning Inc...................................... $ 0.67
View Engineering, Inc..................................... (0.23)
--------
As restated............................................. $ 0.44
========
</TABLE>
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 and
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.
Risks and uncertainties
The Company has experienced, and may continue to experience, fluctuations in
operating results due to a variety of factors, including: the rate of growth
of the markets for laser systems and components and thermal printers; market
acceptance of the Company's products and those of its competitors; development
and promotional expenses relating to the introductions of new products or new
versions of existing products; changes in pricing policies by the Company and
its competitors; the timing of the receipt of orders from major customers; the
timing of shipments and economic conditions in foreign markets.
Certain of the components and materials included in the Company's laser
systems and optical products are currently obtained from single source
suppliers. There can be no assurance that a disruption of this outside supply
would not create substantial manufacturing delays and additional cost to the
Company.
Cash and cash equivalents
Cash and cash equivalents include cash in banks and highly liquid
investments having original maturity dates not exceeding three months. The
investments are stated at cost, which approximates their fair value. The
Company does not believe it is exposed to any significant credit risk on its
cash and cash equivalents.
F-8
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Inventories
Inventories, which include materials and conversion costs, are stated at the
lower of cost (primarily first-in, first-out) or market. Inventories consist
of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Purchased parts............................................ $14,992 $12,572
Work-in-process............................................ 8,127 5,341
Finished goods............................................. 10,932 8,138
------- -------
Total inventory............................................ $34,051 $26,051
======= =======
</TABLE>
Depreciation and amortization
Depreciation and amortization are determined by the straight-line and
declining-balance methods over the estimated useful lives of the owned assets.
Estimated useful lives for buildings and improvements range from 5 to 31 years
and for machinery and equipment from 3 to 15 years. Leasehold improvements are
amortized over the lesser of their useful lives or the lease term, including
option periods expected to be utilized.
Foreign currency
Assets and liabilities of foreign operations are translated from foreign
currencies into U.S. dollars at the exchange rates in effect at the period-
end. Revenues and expenses are translated at the average exchange rate in
effect for the period. The resulting translation adjustments are recorded as a
component of stockholders' equity.
Foreign exchange forward contracts and local currency borrowings are used to
reduce the impact of certain foreign currency balance sheet fluctuations.
Gains and losses from the forward contracts that are not hedges of firm
commitments are accrued at each balance sheet date and included in the
Consolidated Statements of Income as foreign exchange transaction gains
(losses). At December 31, 1997, the Company had such contracts to exchange
foreign currencies (yen, French francs and Deutsche marks) for U.S. dollars
totaling $4,200,000 maturing through May 1998.
In certain circumstances, the Company enters into foreign exchange forward
contracts to reduce the impact of foreign currency fluctuations arising from
foreign currency denominated customer sales. Gains and losses on these
contracts are deferred until the contract matures. At December 31, 1997, 1996
and 1995 there were no such contracts.
To the extent the Company utilizes foreign exchange forward contracts, it
purchases them from major financial institutions for terms that have not
exceeded six months.
Income per share of common stock
In 1997, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, Earnings per Share, effective December 15, 1997. Amounts
reported herein for 1996 and 1995 as "Diluted income per common share" are the
same as those reported prior as "Net income per common and common equivalent
share outstanding." Basic income per common share was computed by dividing net
income by the weighted average number of common shares outstanding during the
year. For diluted income per common share, the denominator also includes
dilutive outstanding stock options and warrants determined using the treasury
stock method.
F-9
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Common and common share equivalent share disclosures are:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Weighted average common shares outstanding........... 12,065 11,774 9,608
Dilutive potential common shares..................... 592 702 749
------ ------ ------
Diluted common shares................................ 12,657 12,476 10,357
====== ====== ======
Options and warrants excluded from diluted income per
common share as their effect would be antidilutive.. 104 76 2
====== ====== ======
</TABLE>
Revenue recognition
The Company recognizes product revenues generally at the later of the time
of shipment or when substantially all terms and conditions of the sale have
been met. For certain long-term contracts, revenues and profits are recognized
using the percentage-of-completion method. The Company provides for estimated
warranty costs at the time of revenue recognition.
Research and product development expense
Expenditures for research and development of products and manufacturing
processes are expensed as incurred.
Interest
Interest income in 1997 and 1996 is net of $498,000 and $845,000 of interest
expense, respectively, and interest expense in 1995 is net of $373,000 of
interest income.
Impairment of long-lived assets
The Company periodically assesses the realizability of its long-lived assets
in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. Based on its review, the
Company does not believe that any material impairment of its long-lived assets
has occurred.
2. INTANGIBLE ASSETS
Purchase price in excess of the fair market value of assets acquired,
including in-process research and development, is recorded as intangible
assets. Such assets arising from the acquisition of the minority interest in
Teradyne Laser Systems, Inc. in 1991 are being amortized on a straight-line
basis over their estimated useful lives of from 3 to 15 years. Goodwill
arising in connection with the acquisition of the assets of Reel-Tech, Inc. in
1997 is being amortized on a straight-line basis over 10 years. Amortization
expense was $109,000 in 1997 and $84,000 in 1996 and 1995.
F-10
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Cost:
Land, buildings and improvements......................... $13,134 $10,936
Machinery and equipment.................................. 28,955 26,271
------- -------
Total cost............................................. 42,089 37,207
Accumulated depreciation................................. (27,478) (24,285)
------- -------
Net property, plant and equipment...................... $14,611 $12,922
======= =======
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued compensation and benefits......................... $ 8,448 $ 6,701
Income taxes.............................................. 3,404 3,893
Other..................................................... 4,227 3,193
------- -------
Total accrued expenses.................................. $16,079 $13,787
======= =======
</TABLE>
5. DEBT
Notes payable to banks and current portion of long-term debt
Notes payable to banks and current portion of long-term debt consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1997 1996
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Lines of credit............................................. $4,150 $3,013
Current portion of long-term debt........................... 19 17
------ ------
Total..................................................... $4,169 $3,030
====== ======
</TABLE>
The Company's revolving credit agreement with its lending bank was amended
on November 28, 1997. Under its amended terms, the agreement provides for
borrowings of up to $20,000,000 and will expire on December 31, 1999. Interest
on outstanding borrowings is charged at the London InterBank Offered Rate
(LIBOR) plus 1.25% or prime, determined at the time of borrowing. No such debt
was outstanding at December 31, 1997. A commitment fee of 3/8% per annum is
paid quarterly in arrears on the unused portion. Among other restrictions, the
agreement requires a minimum level of tangible net worth and compliance with
certain financial ratios.
Under the terms of the revolving credit agreement, the Company's foreign
operations may borrow up to a maximum of $6,000,000 under lines of credit.
Such debt outstanding at December 31, 1997 was denominated in yen with a
weighted average interest rate of 1.6%.
F-11
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-term debt
Long-term debt consists of a mortgage payable at 10 3/8% interest,
collateralized by certain land and building. Interest and principal are
payable at $14,906 per month until maturity in February 2000, at which time
the remaining principal of $1,507,516 will be payable. The portion of
principal payable within one year, which is included in current liabilities,
is $19,000.
Fair value of financial instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of the year-end fair value of significant financial
instruments, including debt. The Company believes, based upon current terms,
that the carrying value of its debt approximates its fair value.
6. DEFERRED COMPENSATION
Officers and certain employees may defer payment of their compensation until
termination of employment or later. Interest on the outstanding balance is
credited quarterly at the prime rate. The portion of deferred compensation
estimated to be due within one year is included in current liabilities.
7. STOCKHOLDERS' EQUITY
Recapitalization
In August 1995, the Company's stockholders voted to amend its Articles of
Organization to change the par value of the Company's common stock from $1.00
to $.01. Subsequently, the Board of Directors authorized a 5-for-1 stock
split, effected as a dividend, of the Company's common stock. All share and
per share amounts of common stock for all periods presented have been
retroactively adjusted to reflect the change in par value and the stock split.
Preferred stock
In August 1995, the stockholders approved an amendment to the Articles of
Organization which authorizes 1,000,000 shares of preferred stock, $.01 par
value. The preferred stock is divisible and issuable into one or more series.
The rights and preferences of the different series may be established by the
Board of Directors without further action by the stockholders. The Board of
Directors is authorized, with respect to each series, to fix and determine,
among other things, (i) the dividend rate, (ii) the liquidation preference,
(iii) whether such shares will be convertible into, or exchangeable for, any
other securities and (iv) whether such shares will have voting rights and, if
so, the conditions under which such shares will vote as a separate class.
Shareholder rights plan
On April 30, 1997, the Board of Directors adopted a Shareholders Rights Plan
( the "Plan") and declared a dividend distribution, payable on May 1, 1997, of
one preferred share purchase right under the Plan (each a "Right") for each
outstanding share of common stock of the Company. Under the Plan, each Right,
when exercisable, entitles the holder to purchase from the Company one ten-
thousandth of a share of the Company's Series A Junior Participating Preferred
Stock at a price of $70 per one ten-thousandth of a Preferred Share, subject
to adjustment and to certain exceptions. The value of the one ten-thousandth
interest in a share of Preferred Stock purchasable upon exercise of each Right
is intended to approximate the value of one share of common stock.
F-12
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The rights are not exercisable and cannot be transferred separately from the
common stock until the first to occur of (a) 10 business days after a public
announcement that a person or group of affiliated or associated persons
(excluding certain persons and groups) has acquired beneficial ownership of
20% or more of the outstanding common stock (the date of such an announcement,
a "Shares Acquisition Date"), or (b) 10 business days (subject to extension by
the Board) after the start or announcement of a tender or exchange offer, the
consummation of which would result in beneficial ownership by a person or
group of 20% or more of the outstanding common stock.
Prior to the earlier of (a) the tenth day after the Shares Acquisition Date,
or (b) the expiration of the Rights, the Company may under certain
circumstances redeem the Rights at a price of $0.001 per Right. In certain
cases a Right will entitle the holder to purchase common stock of the Company
or an acquiring company having a value of two times the exercise price of the
Right. Under certain conditions the Company may exchange the Rights for common
stock or preferred stock. The Rights expire on May 1, 2007 unless they are
redeemed by the Company.
So long as the Rights are not transferable separately from the common stock,
the Company will issue one Right with each new share of common stock issued.
The Rights could have certain anti-takeover effects, in that they would cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Board of Directors.
Stock options
The 1992 Stock Option Plan, as amended in August 1995, provides for the
issuance of nonqualified and incentive stock options to purchase up to
1,000,000 shares of the Company's common stock, of which 175,611 were
available for future grant at December 31, 1997. Under this plan, options are
granted at the fair value per share as determined by the Board of Directors at
the date of grant. Outstanding options vest over periods of three or four
years beginning on the date of grant and expire ten years from the date of
grant. The Company's 1981 Stock Option Plan has terminated; however, options
to purchase 197,160 shares of common stock were outstanding under the 1981
Plan at December 31, 1997.
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
which defines a fair value based method of accounting for an employee stock
option or similar equity instrument and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation costs
for those plans using the method of accounting prescribed by APB 25. Entities
electing to remain with the accounting in APB 25 must make pro forma
disclosures of net income and, if presented, earnings per share as if the fair
value based method of accounting defined in the Statement had been applied.
F-13
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has elected to account for its stock-based compensation plans
under APB 25, under which immaterial amounts of compensation have been
recognized. Had compensation cost for these plans been determined consistent
with SFAS No. 123, the Company's net income and earnings per share would have
been reduced to the pro forma amounts below. Because SFAS No. 123 method of
accounting has not been applied to options granted prior to January 1, 1995,
the resulting pro forma compensation costs may not be representative of that
to be expected in future years.
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net income (thousands):
As reported......................................... $5,109 $6,601 $4,571
Pro forma........................................... $4,410 $6,354 $4,483
Diluted income per share:
As reported......................................... $ 0.40 $ 0.53 $ 0.44
Pro forma........................................... $ 0.35 $ 0.51 $ 0.43
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 5.5% (6.3% in 1996 and 1995), expected
dividend yield of zero, expected lives of 4 years upon vesting and expected
volatility of 50%.
Stock option activity for the years ended December 31, 1995, 1996 and 1997
is presented below. The weighted average fair value of options granted was
$6.74 in 1997 and $4.47 in 1996.
<TABLE>
<CAPTION>
WTD. AVG.
OPTIONS EX. PRICE
--------- ---------
<S> <C> <C>
Outstanding at December 31, 1994...................... 1,120,660 $ 2.38
Granted............................................... 116,064 6.30
Exercised............................................. (155,000) 2.29
Canceled.............................................. (750) 2.36
--------- ------
Outstanding at December 31, 1995...................... 1,080,974 2.81
Granted............................................... 166,250 14.33
Exercised............................................. (212,810) 2.32
Canceled.............................................. (6,250) 7.65
--------- ------
Outstanding at December 31, 1996...................... 1,028,164 4.75
Granted............................................... 287,000 14.78
Exercised............................................. (449,523) 2.71
Canceled.............................................. (11,065) 10.97
--------- ------
Outstanding at December 31, 1997...................... 854,576 $ 9.10
========= ======
Exercisable at December 31, 1997...................... 462,335 $ 5.87
========= ======
</TABLE>
Additional information regarding the options outstanding at December 31,
1997 follows:
<TABLE>
<CAPTION>
RANGE OF NO. OF WTD. AVG. WTD. AVG. NUMBER WTD. AVG.
EXERCISE PRICES OPTIONS EXERCISE PRICE REMAINING LIFE EXERCISABLE EXERCISE PRICE
- --------------- ------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.75-$ 2.36........... 241,910 $ 2.29 2.8 years 227,660 $ 2.29
$ 2.50-$12.09........... 212,956 $ 5.70 7.0 years 131,515 $ 4.82
$13.38.................. 222,910 $13.38 9.4 years 41,390 $13.38
$15.00-$32.63........... 176,800 $17.10 9.0 years 61,770 $16.29
</TABLE>
F-14
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Warrants
The Company has issued warrants for the purchase of common stock to the
nonemployee members of the Board of Directors. Warrants issued through 1995
vested over periods of three or four years, beginning on the date of grant,
and expire ten years from the date of grant. In 1996, 65,000 of such warrants
were exercised at prices ranging from $1.75 to $2.50 per share and in 1997,
17,500 of such warrants were exercised at $1.75 per share. At December 31,
1997, 37,500 of such warrants, all of which are exercisable, remain
outstanding at exercise prices ranging from $2.36 to $2.50 per share.
During 1995, the stockholders adopted the 1995 Directors' Warrant Plan and
reserved 100,000 shares for future issuance of warrants to nonemployee
Directors under the Plan. The exercise price of such warrants is the fair
market value per share as determined by a committee of the Board of Directors
at the date of grant. The warrants are subject to vesting as determined by
such committee and expire ten years from the date of grant. In 1996, 8,000
such warrants were granted at an exercise price of $20.75 per share and in
1997 8,000 such warrants were granted at an exercise price of $13.00 per
share. In 1997, 4,000 warrants were exercised at prices ranging from $13.00 to
$20.75 per share. At December 31, 1997, 12,000 of such warrants, all of which
are exercisable, remain outstanding at exercise prices ranging from $13.00 to
$20.75 per share.
8. BENEFIT PLANS
Employee Stock Ownership Plan
Under the Employee Stock Ownership Plan (ESOP) established in 1989, Company
contributions were in the form of cash or common stock and were allocated to
eligible employees based on their relative compensation. The ESOP was
terminated effective December 31, 1995 and the plan assets have been
distributed to plan participants. Company contributions to the ESOP were
$367,000 in 1995.
Defined contribution plans
The Company has an employee savings defined contribution plan under the
provisions of Section 401(k) of the Internal Revenue Code under which
contributions may be made by its domestic employees. The Company matches the
contributions of participating employees on the basis of the percentages
specified in the plan. Company matching contributions to the plan were
$1,379,000, $1,080,000 and $488,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
9. INCOME TAXES
The Company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using the currently enacted tax rates.
The components of income before income taxes for the years ended December 31
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1997 1996 1995
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
United States........................................ $3,860 $10,348 $5,245
Foreign.............................................. 3,751 1,620 2,129
------ ------- ------
Total.............................................. $7,611 $11,968 $7,374
====== ======= ======
</TABLE>
F-15
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes for the years ended December 31 consists of
the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal and State.................................. $4,165 $5,209 $2,200
Foreign............................................ 2,174 804 1,292
------ ------ ------
Total current.................................... 6,339 6,013 3,492
Deferred........................................... (3,837) (646) (689)
------ ------ ------
Total............................................ $2,502 $5,367 $2,803
====== ====== ======
</TABLE>
The income tax provision for the years ended December 31 is different from
that which would be computed by applying the U.S. federal income tax rate to
income before taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
U.S. federal statutory tax rate............ 34.0 % 34.0 % 34.0 %
State income taxes, net.................... 6.0 % 3.9 % 3.9 %
Foreign sales corporation.................. (5.0)% (3.0)% (4.1)%
Research and development credits........... (10.5)% (3.3)% (6.6)%
Foreign tax rate differential.............. 12.5 % 2.1 % 1.0 %
View Engineering merger expenses not
deductible for tax purposes............... -- 4.0 % --
Change in valuation allowance for View pre-
acquisition losses........................ (6.0)% 6.8 %
Other, net................................. 1.9 % 0.3 % 9.8 %
-------- ------- -------
Effective tax rate....................... 32.9 % 44.8 % 38.0 %
======== ======= =======
</TABLE>
Significant components of deferred income tax assets as of December 31 are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred compensation.................................... $ 814 $ 700
Vacation and sick pay benefit............................ 576 496
Inventory valuation...................................... 1,577 2,020
Warranty costs........................................... 357 299
Depreciation............................................. (260) (298)
Operating loss and tax credit carryforwards.............. 2,248 2,673
Acquired in-process research and development............. 3,816 --
Accounts receivable valuation............................ 356 210
Other.................................................... 621 595
------- -------
Total deferred income tax assets....................... 10,105 6,695
Less valuation allowance................................. (2,248) (2,673)
------- -------
Net deferred income tax assets......................... $ 7,857 $ 4,022
======= =======
</TABLE>
F-16
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has provided a valuation allowance on the net operating loss
carryforwards and tax credits related to its wholly-owned subsidiary, View
Engineering, Inc., due to the uncertainty of their realizability as a result
of limitations on their utilization in accordance with certain tax laws and
regulations. The operating loss carryforwards expire from 2005 through 2011
and the tax credits expire in 1999 and 2000. Utilization of the operating loss
carryforwards and tax credits is limited to approximately $1.2 million per
year.
10. COMMITMENTS AND CONTINGENCIES
Operating leases
The Company leases certain equipment and facilities under operating lease
agreements that expire through 2007. The facility leases require the Company
to pay real estate taxes and other operating costs. For the years ended
December 31, 1997, 1996 and 1995, lease expense was approximately $1,948,000,
$1,787,000 and $1,500,000, respectively.
Minimum lease payments under operating leases expiring subsequent to
December 31, 1997 are:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998...................................... $2,219
1999...................................... 1,834
2000...................................... 1,432
2001...................................... 1,020
2002...................................... 847
Thereafter................................ 2,326
------
Total minimum lease payments............ $9,678
======
</TABLE>
Recourse receivables
In Japan, where it is customary to do so, the Company discounts certain
notes receivable at a bank with recourse. The Company's maximum exposure was
$1,858,000 at December 31, 1997. The fair value of the recourse receivables
was not determinable. The Company received cash proceeds relating to the
discounted receivables of $5,262,000, $4,144,000 and $7,188,000 during the
years ended December 31, 1997, 1996 and 1995, respectively.
Legal proceedings and disputes
In August 1996, Robotic Vision Systems, Inc. ("RVSI") commenced an action
against General Scanning in the United States District Court for the Eastern
District of New York. RVSI claimed that General Scanning improperly obtained
proprietary information from RVSI for the purpose of obtaining ownership of
View Engineering, Inc. and of thwarting RVSI's attempts to acquire View
Engineering. The plaintiff was seeking compensatory and punitive damages in an
unspecified amount. In September 1997 and January 1998, that same Court issued
a series of decisions on General Scanning's motion for summary judgment.
Claims were dismissed for: (1) breach of contract, (2) breach of the implied
covenant of good faith and fair dealing, and (3) violations under the
Massachusetts Unfair and Deceptive Business Practices Statute. Claims were not
dismissed for: (1) tortious interference with business relations, (2) fraud of
confidential business information, and (3) unfair competition in contravention
of New York common law. The claims not dismissed, which the Company believes
are without merit and is defending vigorously, are expected to result in a
jury trial during 1998.
Voxel, a prior customer of the Company, asserted in December 1996 that the
Company may not have met certain product specifications. The Company believes
its product has met the necessary specifications. Pursuant to the dispute
resolution section in the Development Agreement between Voxel and the Company,
the matter
F-17
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
has been submitted to binding arbitration. Net accounts receivable at December
31, 1997 and 1996 included approximately $1,012,000 and $931,000,
respectively, of billed and unbilled amounts due from Voxel. Management
believes its case is meritorious and that the amounts due from Voxel are
recoverable.
The Company has certain other contingent liabilities resulting from
litigation and claims incidental to its business, including three patent
infringement suits relating to products currently sold or expected to be sold
by the Company. Management believes that the probable resolution of such
contingencies will not have a materially adverse effect on the Company's
results of operations or financial position.
11. RELATED PARTY TRANSACTION
In 1992, the Company's Board of Directors authorized a loan to an officer in
the amount of $160,000 as a reimbursement for certain relocation expenses.
Under the agreement, as amended, the loan has been forgiven and charged as
compensation expense on a pro-rata basis over the five years ending December
31, 1997.
12. SEGMENT INFORMATION
Industry segment reporting
Information with respect to the Company's industry segments is set forth in
the table below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales to unaffiliated customers:
Laser systems and components............... $154,536 $131,867 $103,564
Thermal printers........................... 26,994 24,666 22,915
Intersegment elimination................... 0 0 (159)
-------- -------- --------
Total.................................... $181,530 $156,533 $126,320
======== ======== ========
Income from operations:
Laser systems and components(1)............ $ 6,075 $ 11,967 $ 6,330
Thermal printers........................... 5,034 4,321 3,845
Corporate expenses......................... (3,455) (2,483) (2,450)
-------- -------- --------
Total.................................... $ 7,654 $ 13,805 $ 7,725
======== ======== ========
Identifiable assets:
Laser systems and components............... $ 91,923 $ 64,836 $ 55,556
Thermal printers........................... 6,844 8,150 5,081
Corporate assets........................... 16,275 22,587 29,071
-------- -------- --------
Total.................................... $115,042 $ 95,573 $ 89,708
======== ======== ========
Capital expenditures:
Laser systems and components............... $ 5,244 $ 5,704 $ 2,155
Thermal printers........................... 91 1,198 441
-------- -------- --------
Total.................................... $ 5,335 $ 6,902 $ 2,596
======== ======== ========
Depreciation and amortization:
Laser systems and components............... $ 3,459 $ 2,773 $ 1,699
Thermal printers........................... 482 407 285
-------- -------- --------
Total.................................... $ 3,941 $ 3,180 $ 1,984
======== ======== ========
</TABLE>
- --------
(1) Includes $10,600 charge for acquired in-process research and development
in 1997.
F-18
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Geographic segment information
Information with respect to the Company's geographic operations is set forth
in the table below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales to unaffiliated customers:
North America, including export............ $118,985 $107,033 $ 84,621
Europe..................................... 23,554 21,300 12,461
Asia....................................... 38,991 28,200 29,238
-------- -------- --------
Total.................................... $181,530 $156,533 $126,320
======== ======== ========
Transfers to affiliates...................... $ 47,102 $ 31,800 $ 25,188
======== ======== ========
Export sales:
From North America......................... $ 17,300 $ 15,200 $ 17,245
======== ======== ========
Income from operations:
North America, including export(1)......... $ 7,299 $ 13,623 $ 7,884
Europe..................................... 2,081 898 456
Asia....................................... 1,729 1,767 1,835
Corporate.................................. (3,455) (2,483) (2,450)
-------- -------- --------
Total.................................... $ 7,654 $ 13,805 $ 7,725
======== ======== ========
Identifiable assets:
North America, including export............ $ 75,184 $ 57,803 $ 48,935
Europe..................................... 9,356 5,925 4,845
Asia....................................... 16,757 10,588 5,952
Corporate.................................. 13,745 21,257 29,976
-------- -------- --------
Total.................................... $115,042 $ 95,573 $ 89,708
======== ======== ========
</TABLE>
- --------
(1)Includes $10,600 charge for acquired in-process research and development in
1997.
F-19
<PAGE>
GENERAL SCANNING INC.
SUPPLEMENTARY FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
97Q4 97Q3 97Q2 97Q1 96Q4 96Q3 96Q2 96Q1
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Laser systems and
components........... $45,408 $40,515 $37,504 $31,109 $33,251 $32,744 $34,522 $31,350
Thermal printers...... 8,135 7,041 5,210 6,608 6,765 5,419 6,148 6,334
------- ------- ------- ------- ------- ------- ------- -------
Total sales.......... 53,543 47,556 42,714 37,717 40,016 38,163 40,670 37,684
======= ======= ======= ======= ======= ======= ======= =======
Gross profit:
Laser systems and
components........... 22,337 19,810 17,527 15,012 14,743 15,569 15,845 14,672
Thermal printers...... 3,656 3,031 2,291 3,061 3,152 2,336 2,657 2,706
------- ------- ------- ------- ------- ------- ------- -------
Total gross profit... 25,993 22,841 19,818 18,073 17,895 17,905 18,502 17,378
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and product
development.......... 6,246 6,126 4,978 4,952 4,410 4,853 4,534 4,603
Selling, general and
administrative....... 13,388 11,357 11,103 10,321 9,883 9,313 10,376 9,903
Acquired in-process
research and
development.......... 10,600 -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 30,234 17,483 16,081 15,273 14,293 14,166 14,910 14,506
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............. (4,241) 5,358 3,737 2,800 3,602 3,739 3,592 2,872
Merger (expenses)....... -- -- -- -- -- (1,950) -- --
Interest income
(expense), net......... 66 135 165 98 81 34 32 125
Foreign exchange
transaction gains
(losses)............... (181) (227) 11 (110) (28) (70) (42) (19)
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... (4,356) 5,266 3,913 2,788 3,655 1,753 3,582 2,978
Income taxes............ (1,528) 1,685 1,367 978 1,460 824 1,683 1,400
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $(2,828) $ 3,581 $ 2,546 $ 1,810 $ 2,195 $ 929 $ 1,899 $ 1,578
======= ======= ======= ======= ======= ======= ======= =======
Basic income (loss) per
common share........... $ (0.23) $ 0.30 $ 0.21 $ 0.15 $ 0.19 $ 0.08 $ 0.16 0.14
======= ======= ======= ======= ======= ======= ======= =======
Diluted income (loss)
per common share....... $ (0.23) $ 0.28 $ 0.20 $ 0.15 $ 0.18 $ 0.07 $ 0.15 $ 0.13
======= ======= ======= ======= ======= ======= ======= =======
Weighted average common
shares outstanding and
dilutive potential
common shares.......... 12,310 12,739 12,553 12,465 12,456 12,514 12,513 12,422
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
F-20
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The information with respect to directors is contained the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 16, 1998
(the "1998 Proxy Statement") under the caption "Election of Directors" and is
incorporated herein by reference.
EXECUTIVE OFFICERS
The information with respect to executive officers is set forth under the
caption "Executive Officers" in Part I of this report.
REPORTS OF BENEFICIAL OWNERSHIP
The information required by this item is contained in the 1998 Proxy
Statement under the caption "Stock Ownership of Principal Stockholders and
Management" and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is contained in the Company's 1998 Proxy Statement
under the captions "Director Compensation," "Compensation of Executive
Officers" and "Employment Agreements" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is contained in the Company's 1998 Proxy Statement
under the caption "Stock Ownership of Principal Stockholders and Management"
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is contained in the Company's 1998 Proxy Statement
under the caption "Certain Transactions" and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
LIST OF FINANCIAL STATEMENTS
See the index to consolidated financial statements and financial statement
schedules.
LIST OF FINANCIAL STATEMENT SCHEDULES
See Schedule II-Valuation and Qualifying Accounts.
F-21
<PAGE>
LIST OF EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K)
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger, dated as of June 7, 1996, among the
Registrant, GSI Acquisition Sub, Inc. and View Engineering, Inc.(2)
2.2 Asset Purchase Agreement dated as of November 28, 1997, among the
Registrant, Reel-Tech, Inc.and Data I/O Corporation(4)
3.1 Restated Articles of Organization of the Registrant, as amended(1)
3.2 Certificate of Vote of Directors Establishing a Class of Stock
3.3 By-Laws of the Registrant, as amended(1)
4.1 Specimen Certificate of Common Stock(1)
4.2 Rights Agreement dated May 1, 1997 between the Registrant and American
Stock Transfer & Trust Company, as Rights Agent(3)
10.1 1981 Stock Option Plan of the Registrant(1)
10.2 1992 Stock Option Plan of the Registrant(1)
10.3 1995 Directors' Warrant Plan(1)
10.4 Lease dated August 10, 1989, as amended to date, between the
Registrant and Arlington Center Garage and Service Corp.(1)
10.5 Lease dated February 24, 1989, as amended to date, between Ames Realty
Trust Associates and Teradyne Laser Systems Inc. and the
Registrant(1)
10.6 Lease dated July 31, 1996, as amended to date, between View
Engineering, Inc. and Donald J. Devine as Trustee under the Donald J.
Devine Trust Agreement(5)
10.7 Lease dated March 24, 1995, as amended to date, between View
Engineering, Inc. and Marjorie Lynn Landon(5)
10.8 Amended and Restated Revolving Credit Agreement between the Registrant
and The First National Bank of Boston dated as of December 28,
1995(6)
10.9 Amendment to Amended and Restated Revolving Credit Agreement dated
July 25, 1997
10.10 Second Amendment to Amended and Restated Revolving Credit Agreement
dated November 28, 1997
10.11 Lease dated July 15, 1997, as amended to date, between the Registrant
and The Wilmington Realty Trust
10.12 Split Dollar Compensation Agreement dated September 13, 1997 between
the Registrant and Charles D. Winston
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP, independent public accountants
27.1 Financial Data Schedule
</TABLE>
- --------
(1) Incorporated by reference to the Company's registration statement on Form
S-1, filed August 11, 1995 (33-95718).
(2) Incorporated by reference to the Company's Current Report on Form 8-K,
filed September 6, 1996 (Accession Number 0000927016-96-001043)
(3) Incorporated by reference to the Company's Current Report on Form 8-K,
filed May 23, 1997 (Accession Number 0000927016-97-001541)
F-22
<PAGE>
(4) Incorporated by reference to the Company's Current Report on Form 8-K,
filed December 8, 1997 (Accession Number 0000927016-97-003306)
(5) Incorporated by reference to the Company's Current Report on Form 10-K,
filed March 11, 1997 (Accession Number 0000927016-97-000756)
(6) Incorporated by reference to the Company's Current Report on Form 10-Q,
filed August 9, 1996 (Accession Number 0000927016-96-000759)
REPORTS ON FORM 8-K
On December 8, 1997 the Company filed a Current Report on Form 8-K relating
to its acquisition of
Reel-Tech, Inc.
F-23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange
Act of 1934, the Registrant, General Scanning Inc., has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GENERAL SCANNING INC.
(Registrant)
By: /s/ Charles D. Winston
---------------------------------
Charles D. Winston
President and Chief Executive
Officer
(Principal Executive Officer)
Date: February 27, 1998
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 in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Pierre J. Brosens Chairman of the Board February 27,
- ------------------------------------ 1998
Pierre J. Brosens
/s/ Charles D. Winston President, Chief Executive February 27,
- ------------------------------------ Officer and Director 1998
Charles D. Winston (Principal Executive
Officer)
/s/ Victor H. Woolley Vice President-Finance and February 27,
- ------------------------------------ Chief Financial Officer 1998
Victor H. Woolley (Principal Financial and
Accounting Officer)
/s/ Richard B. Black Director February 27,
- ------------------------------------ 1998
Richard B. Black
/s/ Paul F. Ferrari Director February 27,
- ------------------------------------ 1998
Paul F. Ferrari
/s/ Woodie C. Flowers Director February 27,
- ------------------------------------ 1998
Woodie C. Flowers
/s/ James R. Turner Director February 27,
- ------------------------------------ 1998
James R. Turner
/s/ Dorothy S. Zinberg Director February 27,
- ------------------------------------ 1998
Dorothy S. Zinberg
</TABLE>
F-24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of General Scanning Inc. and
subsidiaries included in this Form 10-K and have issued our report thereon
dated February 2, 1998. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. Schedule II 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 financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states, in all material respects, the financial
data required to be set forth therein in relation to the basic financial
statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
February 2, 1998
F-25
<PAGE>
GENERAL SCANNING INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
----------- ---------- ---------- -------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1995:
Allowance for doubtful
accounts................ $511 $281 -- -- $ 792
Year ended December 31,
1996:
Allowance for doubtful
accounts................ 792 79 -- 4 867
Year ended December 31,
1997:
Allowance for doubtful
accounts................ 867 340 -- 4 1,203
</TABLE>
F-26
<PAGE>
GENERAL SCANNING INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
3.2 Certificate of Vote of Directors Establishing a Class of Stock
10.9 Amendment to Amended and Restated Revolving Credit Agreement
dated July 25, 1997
10.10 Second Amendment to Amended and Restated Revolving Credit
Agreement dated November 28, 1997
10.11 Lease dated July 15, 1997, as amended to date, between the
Registrant and The Wilmington Realty Trust
10.12 Split Dollar Compensation Agreement dated September 13, 1997
between the Registrant and Charles D. Winston
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP, independent public accountants
27.1 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 3.2
2A
GENERAL SCANNING INC.
CONTINUATION PAGES
TO
CERTIFICATE OF VOTE OF DIRECTORS
ESTABLISHING A SERIES OF A CLASS OF STOCK
VOTED: That, pursuant to the authority granted to and vested in the Board
of Directors of the Corporation in accordance with the provisions of Article IV
B of the Corporation's Restated Articles of Organization, the Board hereby
creates a series of Preferred Stock, par value $.01 per share (the "Preferred
---------
Stock"), of the Corporation and hereby states the designation and number of
- -----
shares, and fixes the preferences, voting powers, qualifications and special or
relative rights or privileges thereof, as follows:
Section 1. Designation and Amount. The shares of such series shall be
----------------------
designated as "Series A Junior Participating Preferred Stock" (the "Series A
--------
Preferred Stock") and the number of shares constituting the Series A Preferred
- ---------------
Stock shall be 3,000. Such number of shares may be increased or decreased by
vote of the Board of Directors; provided, that no decrease shall reduce the
--------
number of shares of Series A Preferred Stock to a number less than the number of
shares then outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, rights or warrants or upon the conversion of
any outstanding securities issued by the Corporation.
Section 2. Dividends and Distributions.
---------------------------
(A) Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the Series
A Preferred Stock with respect to dividends, the holders of shares of Series A
Preferred Stock, in preference to the holders of Common Stock, no par value per
share (the "Common Stock"), of the Corporation, and of any other junior stock,
------------
shall be entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends payable in
cash on the first day of March, June, September and December in each year (each
such date being referred to herein as a "Quarterly Dividend Payment Date"),
--------- -------- ------- ----
commencing on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Series A Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b)
subject to the provision for adjustment hereinafter
<PAGE>
2B
set forth, 10,000 times the aggregate per share amount of all cash dividends,
and dividends, and 10,000 times the aggregate per share amount (payable in kind)
of all non-cash dividends or other distributions, other than a dividend payable
in shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Preferred Stock. In the event the Corporation
shall at any time (i) declare a dividend on the Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding shares of Common Stock, (iii)
combine the outstanding shares of Common Stock into a smaller number of shares
or (iv) issue any of its shares of capital stock in a reclassification of the
outstanding shares of Common Stock (including any such reclassification in
connection with a consolidation or merger in which the Corporation is the
continuing or surviving entity), then in each such case the amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the
Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid
<PAGE>
2C
dividends shall not bear interest. Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a share-
--- ----
by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than 60 days
prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred Stock
------ ------
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to 10,000
votes on all matters submitted to a vote of the stockholders of the Corporation.
In the event the Corporation shall at any time (i) declare a dividend on the
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
shares of Common Stock, (iii) combine the outstanding shares of Common Stock
into a smaller number of shares or (iv) issue any of its shares of capital stock
in a reclassification of the outstanding shares of Common Stock (including any
such reclassification in connection with a consolidation or merger in which the
Corporation is the continuing or surviving entity), then in each such case the
number of votes per share to which holders of shares of Series A Preferred Stock
were entitled immediately prior to such event shall be adjusted by multiplying
such number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) Except as otherwise provided herein, in any other Certificate of Vote
of Directors establishing a series of Preferred Stock or any similar stock, or
by law, the holders of shares of Series A Preferred Stock and the holders of
shares of Common Stock and any other capital stock of the Corporation having
general voting rights shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(C) Except as set forth herein or as otherwise provided by law, holders
of Series A Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
<PAGE>
2D
Section 4. Certain Restrictions.
--------------------
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration any shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the Corporation ranking
junior either as to dividends or upon dissolution, liquidation or winding up) to
the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock, or any shares of stock ranking on a parity
with the Series A Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of Directors) to
all holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
<PAGE>
2E
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
-----------------
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Corporation's Restated Articles of Organization or in any other Certificate of
Vote of Directors establishing a series of Preferred Stock or any similar stock
or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
--------------------------------------
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received $10,000 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment;
provided that the holders of shares of Series A Preferred Stock shall be
- -------- ----
entitled to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 10,000 times the aggregate amount to
be distributed per share to holders of shares of Common Stock, or (2) to the
holders of shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up. In the
event the Corporation shall at any time (i) declare a dividend on the Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding shares
of Common Stock, (iii) combine the outstanding shares of Common Stock into a
smaller number of shares or (iv) issue any of its shares of capital stock in a
reclassification of the outstanding shares of Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Corporation is the continuing or surviving entity), then in each such case the
aggregate amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under the proviso in clause (1) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
<PAGE>
2F
Section 7. Consolidation, Merger, etc. In case the Corporation shall enter
--------------------------
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 10,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time (i) declare a dividend on the
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
shares of Common Stock, (iii) combine the outstanding shares of Common Stock
into a smaller number of shares or (iv) issue any of its shares of capital stock
in a reclassification of the outstanding shares of Common Stock (including any
such reclassification in connection with a consolidation or merger in which the
Corporation is the continuing or surviving entity), then in each such case the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall not
-------------
be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank, with respect to
----
the payment of dividends and the distribution of assets, junior to all other
series of the Corporation's preferred stock, unless the terms of any such series
shall provide otherwise.
Section 10. Amendment. The Restated Articles of Organization, as amended,
---------
of the Corporation shall not be amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A
Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of at least two-thirds of the outstanding shares of Series A
Preferred Stock, voting together as a single class; it being understood that
nothing in this Section 10 shall be deemed to restrict the Corporation from
designating additional shares of Series A Preferred Stock if the Board of
Directors determines that it is necessary to do so in order to achieve the
purposes of the Rights Agreement, dated May 1, 1997 between the Corporation and
American Stock Transfer & Trust Company.
<PAGE>
2G
Section 11. Fractional Shares. Series A Preferred Stock may be issued in
-----------------
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
<PAGE>
EXHIBIT 10.9
BankBoston, N.A.
100 Federal Street
Boston, Massachusetts 02106
[LOGO]
BANKBOSTON
AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
WHEREAS, General Scanning Inc. (the "Company") has entered into a certain
Amended and Restated Revolving Credit Agreement dated as of December 28, 1995
(as amended, the "Agreement") with The First National Bank of Boston (now known
as BankBoston, N.A.)(the "Bank");
WHEREAS, the Company has requested, and the Bank has agreed pursuant to the
terms hereof, to make certain amendments and modifications to the Agreement.
Capitalized terms used herein and not otherwise defined shall have the meanings
set forth in the Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, the Company and the Bank hereby agree as follows:
I. AMENDMENT TO AGREEMENT.
Section 6.2(ix) of the Agreement is hereby amended and restated in its
entirety as follows:
"(ix) indebtedness under lines of credit of Subsidiaries of the
Company in an aggregate amount not to exceed $6,000,000 at any time;".
II. MISCELLANEOUS.
1. Other than as amended hereby, all terms and provisions of the Agreement
and related documents are ratified and affirmed as of the date hereof.
2. The Company represents and warrants to the Bank that, after giving
affect to this Amendment, no Event of Default exists under the Agreement or
related documents, and no condition exists which would constitute an Event
of Default but for the requirement that notice be given or time elapse, or
both.
<PAGE>
[LOGO]
Upon receipt of a fully executed copy of this Amendment by the Bank, this
Amendment shall be deemed to be an instrument executed under seal to be governed
by the laws of The Commonwealth of Massachusetts effective as of the date
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their
duly authorized officers as of July 25, 1997.
BANKBOSTON, N.A.
(formerly known as "THE FIRST NATIONAL BANK OF BOSTON")
By: /s/ Daniel D. Head Jr.
-----------------------------
Its: Vice President
-----------------------------
GENERAL SCANNING INC.
By: /s/ Victor H. Woolley
-----------------------------
Its: Vice President Finance
-----------------------------
-2-
<PAGE>
EXHIBIT 10.10
SECOND AMENDMENT
TO
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
This Second Amendment (this "Amendment") dated as of November 28, 1997 to
---------
the Amended and Restated Revolving Credit Agreement dated as of December 28,
1995, as amended by Amendment Agreement dated as of July 25, 1997 (as so
amended, the "Credit Agreement"), is by and between GENERAL SCANNING INC. (the
----------------
"Company") and BANKBOSTON, N.A. (formerly known as The First National Bank of
-------
Boston) (the "Bank"). Capitalized terms used herein but not otherwise defined
----
shall have the meanings assigned to them in the Credit Agreement.
WHEREAS, the Company has entered into the Credit Agreement with the Bank
providing for a $10,000,000 revolving credit facility, on the terms and
conditions set forth in the Credit Agreement; and
WHEREAS, the Company has requested, and the Bank has agreed pursuant to the
terms hereof, to make certain amendments and modifications to the Credit
Agreement on the terms and conditions set forth herein;
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the Company and the Bank hereby agree as follows:
I. AMENDMENTS TO AGREEMENT.
(a) The definition of "Commitment Amount" set forth in Section 1.1 of the
Credit Agreement is hereby amended and restated in its entirety as follows:
"Commitment Amount. "Twenty Million Dollars ($20,000,000.00) in the
-----------------
aggregate, or such lesser amount resulting from a reduction thereof in
accordance with Section 2.8 of this Agreement."
(b) The definition of "Termination Date" set forth in Section 1.1 of the
Credit Agreement is hereby amended and restated in its entirety as follows:
"Termination Date. December 31, 1999, or such earlier date on which
----------------
the Bank's Commitment to make Loans is terminated or the Commitment Amount
is reduced to zero in accordance with the terms hereof."
(c) Section 2.4(a) of the Credit Agreement is hereby amended by deleting
the percentage "one and one half percent (1.5%)" contained therein and
substituting therefor the percentage "one and one quarter percent (1.25%)".
(d) Exhibit 1.1(a) to the Credit Agreement is hereby amended and restated
-------------
in its entirety in the form attached hereto as Exhibit 1.1(a).
-------------
<PAGE>
II. REPRESENTATIONS AND WARRANTIES. To induce the Bank to enter into this
Amendment, the Company represents and warrants that:
(a) Loan Documents Authorized. The execution and delivery of this
-------------------------
Amendment and the performance of the Loan Documents as amended hereby have been
duly authorized and do not require the consent, approval or authorization of or
filing or registration with any governmental body or regulatory authority; and
this Amendment and the Loan Documents as amended hereby are legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms.
(b) No Conflict. The execution and delivery of this Amendment and the
-----------
performance of the Loan Documents as amended hereby will not constitute a
material breach or default under any agreement, indenture, undertaking, or other
instrument to which the Company is a party or by which it or any of its property
may be bound or affected and will not contravene or conflict in any material way
with any law, regulation applicable to the Company or any writ, judgment, decree
or order of any court or governmental body or regulatory agency applicable to
the Company or any term or provision of its articles of incorporation or bylaws;
and, other than in favor of the Bank, such execution, delivery, and performance
will not result in the creation or imposition of (or the obligation to create or
impose) any lien, charge, or encumbrance on, or security interest in, any of its
property pursuant to the provisions of any of the foregoing.
III. CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment is
subject to the conditions precedent that:
(a) the Bank and the Company shall each have received, in form and
substance satisfactory to it, an executed copy of this Amendment;
(b) the Bank shall have received, in form and substance satisfactory
to it, a Note in the form of Exhibit 1.1(a) hereto;
-------------
(c) the Bank shall have received a certificate of the Secretary or
other like officer of the Company containing copies of the Resolutions of
the Board of Directors and/or stockholders of the Company, as appropriate,
authorizing the execution and delivery of this Amendment and performance of
the Loan Documents as amended hereby, and the transactions contemplated
herein and therein, and identifying the officers of the Company authorized
to execute and deliver such documents on behalf of the Company and to make
requests for Loans under the Loan Documents, which certificate shall be
dated and delivered on the date of this Amendment substantially in the form
of Exhibit 3.1(ii) to the Credit Agreement (with such changes as may be
appropriate to reflect the transactions contemplated herein);
(d) the representations and warranties contained in Section 6 of the
Credit Agreement shall be true and correct as of the date hereof as though
made on and as of the date hereof, except that the references to the
financial statements contained
<PAGE>
in Section 4.6 shall be deemed to refer to the most recent financial
statements delivered pursuant to Section 5.8(i) and (ii); and
(e) No Event of Default or event or condition that would, with the
lapse of time or the giving of notice, would become such an Event of
Default, shall have occurred and is continuing.
IV. MISCELLANEOUS.
(a) Other than as amended hereby, all terms and provisions of the Credit
Agreement and related documents are ratified and affirmed as of the date hereof.
(b) Upon receipt of a fully executed copy of this Amendment by the Bank,
this Amendment shall be deemed to be an instrument executed under seal to be
governed by the laws of The Commonwealth of Massachusetts effective as of the
date hereof.
(c) On and after the date hereof, each reference in the Line of Credit
Agreement to "this Agreement" or words of like import shall mean and be deemed
to be a reference to the Agreement as amended hereby.
(d) This Amendment may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment by
their duly authorized officers as of November 28, 1997.
BANKBOSTON, NA.
(formerly known as
THE FIRST NATIONAL BANK OF BOSTON)
By: /s/ David M. Crane
---------------------------
Name: David M. Crane
Its: Director
---------------------
GENERAL SCANNING INC.
By: /s/ Victor H. Woolley
---------------------------
Name: Victor H. Woolley
Its: Vice President
---------------------
<PAGE>
EXHIBIT 10.11
INDENTURE OF LEASE
------------------
(Dated - July 15, 1997)
Premises
--------
(60 Fordham Road, Wilmington, Massachusetts)
(Executed in Four (4) Counterparts; with Signatures on page 53;
and pages initialed, as set forth in Section 8.26)
(Table of Contents)
- --------------------------------------------------------------------------------
A. PARTIES:-
--------
1. LESSOR: - THE WILMINGTON REALTY TRUST
2. LESSEE: - GENERAL SCANNING, INC.
B. PREMISES:
--------
1. The LEASED PREMISES, including land, building, parking area, rights
of access, etc., are shown on two (2) Plans (FOR LAND IN WILMINGTON,
MA. PREPARED FOR WILMINGTON REALTY TRUST) attached to, and
incorporated in, the INDENTURE OF LEASE; both Plans prepared by
Martinage Engineering Associates, Inc.; --both dated September 18,
1997, as follows
a. EXHIBIT A - entitled "EXHIBIT A - TO ACCOMPANY LEASE AGREEMENT"
b. EXHIBIT B - entitled "EXHIBIT B - FUTURE LAYOUT PLAN"
c. EXHIBIT C - Agreement dated May 19, 1997
2. Area of the LEASED PREMISES:
a. Land (as shown on said EXHIBIT A) - 11.6355 acres - more or less;
b. Building
(a) Address - 60 Fordham Road, Wilmington, Mass. 01887 (Building
No.2)
(b) Square footage of Building (agreed) - 78,180 square feet
C. TERM: - Ten (10) years, with two (2) successive five (5) year options.
----
D. COMMENCEMENT DATE: December 1, 1997
-----------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLES and SECTIONS
of
INDENTURE OF LEASE
(Dated - July 15, 1997)
(IN FIVE SHEETS-PAGES I THROUGH V)
<TABLE>
<CAPTION>
ARTICLE and SECTION PAR
- ------- -------
<S> <C>
ARTICLE I -- SALIENT COVENANTS and REFERENCE DATA 1
------------------------------------
1.11 AGREEMENT TO IMPROVE AND LEASE PREMISES 1
1.2 THE PARTIES 2
1.2.1 LESSOR 2
1.2.2 LESSEE 2
1.3 COMMENCEMENT DATE 3
1.4 ORIGINAL TERM 3
1.5 THE LEASED PREMISES 3
1.6 ANNUAL FIXED RENT 5
1.6.1 FORMULA 5
1.6.2 ANNUAL AND MONTHLY RENT 5
1.7 REAL ESTATE TAXES; MAINTENANCE, OPERATING EXPENSES 6
1.7.1 MAINTENANCE 6
1.7.2 TAXES 7
1.7.3 INSURANCE AND INDEMNIFICATION 7
1.8 LESSEE'S UTILITIES 9
1.9 POSSIBLE EXPANSION 9
1.10 OPTION TO EXTEND LEASE 11
1.11 SUBLEASING (Subject to the provisions of Section 5.6 through Section 5.6.6) 12
1.12 ENVIRONMENTAL - 21E, ETC. (G.E. - Lockheed) 12
1.13 EASEMENTS AND RIGHTS OF ACCESS (to Lessor, to Lockheed, to Ametek) 14
1.14 WASTE WATER TREATMENT PLANT 14
1.15 PERMITTED USES 16
1.16 INITIAL MINIMAL LIMITS OF LESSEE'S GENERAL LIABILITY INSURANCE 16
1.17 RECOGNIZED BROKERS 16
1.18 EXHIBITS 16
EXHIBIT A - Plan to Accompany Lease Agreement;
EXHIBIT B - Future Layout Plan
EXHIBIT C - Agreement dated May 19, 1997
ARTICLE II- THE BUILDINGS, PREMISES, TERM AND RENT 16
--------------------------------------
2.1 The Premises 16
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
2.2 Right to Use Common Facilities 17
2.2.1 Lessee's Parking 18
2.3 Landlord's Reservations (repairs, etc.) 18
2.4 Habendum 19
2.5 Monthly Fixed Rent Payments 19
2.6 Lessee Responsible For Maintenance, Etc. 20
2.7 Real Estate Taxes; Payment: 20
2.7.1 Tax Abatement - Procedure 21
2.8 Lessee's Electricity and Utilities. 22
ARTICLE III-CONDITION OF PREMISES 22
---------------------
3.1 Delivery of Premises 22
3.2 alterations and additions 22
3.3 General Provisions Applicable to Construction 23
ARTICLE IV-COVENANTS OF THE LESSOR 23
-----------------------
4.1 LANDLORD'S COVENANTS 23
4.1.1 Delivery of Premises 23
4.1.2 quiet enjoyment 23
4.1.3 Structural Elements of the Exterior 24
ARTICLE V-COVENANTS OF THE LESSEE 24
-----------------------
5.1 Payments 24
5.2 Maintenance of the Premises Leased Hereunder;
Yielding of Premises; Waste and Destruction 24
5.3 Use and Occupancy of Leased Premises 25
(A) Prohibitions and Restrictions 25
(B) ENVIRONMENTAL CONTROL LAWS - Lessee shall comply with 25
(C) Light Manufacturing and Research and Development 26
5.4 Obstructions; Items Visible from Exterior; Rules and Regulations 27
5.5 Safety Appliances; Licenses; Security Systems 27
5.6 Assignment; Sublease (section 5.6 through section 5.6.6) 27
5.6.1 Subsidiaries; Affiliated entities; Merger 27
5.6.2 Written Notice of Assignment under section 5.6.1 28
5.6.3 No Assignment, Sublease or Subletting 28
Without Prior Written Consent of Lessor 28
5.6.4 Notice of Proposed Assignment, Subletting or Subleasing. 29
5.6.5 Consent to Assignment Conditional upon
Guarantee of the lessee (Payment of Rent, etc.) 29
5.6.6 Responsibility in the Event of Assignment or Subleasing 30
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
5.7 Indemnification; - Insurance 31
(A) Indemnification 31
(B) INSURANCE 31
5.8 Furnishings, etc. of Lessee at Lessee's Risk 32
5.9 Right of Entry 32
5.10 Floor Load; Prevention of Vibration and Noise 33
5.11 Personal Property Taxes 33
5.12 Compliance with Laws 33
5.13 Payment of Litigation Expenses 34
ARTICLE VI-CASUALTY AND TAKING 28
-------------------
6.1 Fire and Casualty - Termination of Restoration: Rent Adjustment 34
(A) Restoration - Termination 34
(B) Damage during Last Year 34
(C) Rent Adjustment in the Event of Temporary Displacement 35
(D) Insurance Proceeds; Restoration 35
6.2 Loss Caused by Uninsured Risk 36
6.3 Condemnation - Taking by Right of Eminent Domain 36
6.4 Awards Resulting from eminent domain Takings (Reserved) 37
ARTICLE VII-DEFAULT 38
-------
7.1 DEFAULT BY LESSEE 38
(A) "Events of Default" 38
(B) In the Event of Occurrence of any said "Events of Default"
by the Lessee 39
(C) Entry by Lessor upon Such Termination 39
(D) Responsibility of Lessee: Rent
(E) Liquidated Damages 40
(F) Rights of Lessor upon Entry after an "Event of Default" 40
(G) Remedies are Cumulative and not Exclusive upon Default 41
7.2 Default by the Lessor of its Obligations under this Lease 41
ARTICLE III-MISCELLANEOUS PROVISIONS 41
------------------------
8.1 Extra Hazardous Use 42
8.2 Waiver 42
8.3 Cumulative Remedies 42
8.4 Quiet Enjoyment 42
8.5 Notice to Mortgagee and Ground Landlord 43
8.6 Assignment of Rents 43
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
8.7 Surrender 44
8.8 Brokerage 44
8.9 Invalidity of Particular Provisions 44
8.10 Provisions Binding, Etc. 45
8.11 Recording 45
8.12 Notices 45
8.13 When Lease Becomes Binding 46
8.14 Section Headings 46
8.15 Rights of Mortgagee 46
8.16 Status Report 47
8.17 Self-Help 47
8.18 Holding Over 48
8.19 Non-Subrogation 48
8.20 Extension Option
(A) Conditions 48
(B) First Five (5) Year Extended Term 49
(C) Second Five (5) Year Extended Term 49
(D) Option Granted to Extend for Two Five (5) year Terms Only 50
8.21 Lessee Shall Look Only to the Interest of the Lessor in the Premises
herein Leased 51
8.21 The Trustees of Lessor and Beneficiaries Not Personally Liable 51
8.22 Late Payment 51
8.23 Governing Law 52
8.24 Indentures 53 pages (Eight Articles - Three Exhibits) 52
8.25 This Lease Conditional upon Release of Premises by AMETEK 52
8.26 Counsel 52
8.27 Dispute Resolution 52
Signatures 53
Exhibits Attached
EXHIBIT A - Plan dated September 18, 1997 (Accompanying Lease)
EXHIBIT B - Plan dated September 18, 1997 (Future Layout Plan)
EXHIBIT C - Agreement dated May 19.1997 (14 pages)
</TABLE>
(Last of FIVE (5) PAGES OF TABLE OF CONTENTS TO INDENTURE OF LEASE DATED JULY
15, 1997)
(LESSOR: THE WILMINGTON REALTY TRUST; LESSEE: GENERAL SCANNING, INC.)
------ ------
(PREMISES: - 60 FORDHAM ROAD, WILMINGTON, MASSACHUSETTS 01887)
--------
v
<PAGE>
INDENTURE OF LEASE
in respect to
PREMISES in WILMINGTON, MASSACHUSETTS
THIS INSTRUMENT, dated as of the 15th day of July, 1997, constitutes and
comprises an INDENTURE OF LEASE by and between THE WILMINGTON REALTY TRUST
(hereinafter generally referred to a the LESSOR) and GENERAL SCANNING, INC.
(hereinafter generally referred to as the LESSEE) - said parties hereinafter
more particularly defined and identified. This Indenture of Lease relates to
certain premises comprising a building with land, and parking areas (hereinafter
defined and shown on plans hereto annexed), and being a portion of the complex
located at, and numbered as, 50 Fordham Road, Wilmington, Massachusetts This
Indenture comprises ARTICLE I through ARTICLE VIII along with Exhibits attached
thereto
IN CONSIDERATION OF THE MUTUAL COVENANTS HEREIN SET FORTH, AND FOR VALUABLE
CONSIDERATION, THE PARTIES TO THIS INDENTURE OF LEASE DO HEREBY AND HEREWITH
PROMISE, COVENANT AND AGREE WITH EACH OTHER, AS FOLLOWS:
ARTICLE I
------- -
SALIENT COVENANTS AND REFERENCE DATA
------- --------- --------- ----
The matters covered under ARTICLE I of this Indenture of Lease are, in some
instances, covered more extensively and in more detail in the remaining
ARTICLES. All portions of the lease shall be valid.
1.1. AGREEMENT dated May 19, 1997
This indenture of Lease is entered into pursuant to an instrument dated May
19, 1997 by and between the parties entitled "AGREEMENT to IMPROVE AND
1
<PAGE>
LEASE PREMISES" (EXHIBIT C); which Agreement is incorporated herein as an
expression of the intent of the parties. However, in the event of any
discrepancy between the provisions of this Indenture of Lease and said
Agreement, the provisions of this Indenture shall prevail with respect to
said discrepancy.
1.2 THE PARTIES:
1.2.1. LESSOR: The record owner and the lessor or of the premises herein leased
is
THE WILMINGTON REALTY TRUST; which Trust was established under a
Declaration of Trust dated September 7, 1973; and which declaration is
registered in the Middlesex South Registry District of the Land Court as
Document No.15729, there noted on Certificate of Title No 142138; and
registered, further, in the Middlesex North District of the Land Court as
Document NO.63541, there noted on Certificate of Title 19837.
The present Trustees of and under said Declaration of Trust are,
respectively,
ROSEMARIE STANIEICH, CLAUDIA J. CIPULLO and JOSEPH O. BRANZETTI, JR.,
(which Trustee's have executed this Indenture for and on behalf of the
said Lessor.)
LESSOR'S ORIGINAL ADDRESS: -THE WILMINGTON REALTY TRUST
c/o Frank N. Dardeno, Jr. 424 Broadway
Somerville, Massachusetts 02145
(Present telephone No. (617) 666-2600
LESSOR'S CONSTRUCTION REPRESENTATIVE: - FRANK M. BOMBA,
20 Lawndale Road
in Stoneham, Massachusetts 02180
(telephone no. (617) 438 3508)
1.2.2 LESSEE:
GENERAL SCANNING INC., a corporation duly organized and existing under
the laws of the Commonwealth of Massachusetts.
LESSEE'S ORIGINAL ADDRESS: 500 Arsenal Street Watertown,
Massachusetts 02172
2
<PAGE>
LESSEE'S CONSTRUCTION REPRESENTATIVE: GEORGE HRONO,
with a business address at 500 Arsenal
Street, Watertown, Massachusetts 02172 and
with a present telephone number (617) 924-
1010, Extension 204
The Lessor and the Lessee do both covenant and agree that this Indenture
of Lease shall be binding upon each of them and upon the successors and
assigns of each of them
1.3. COMMENCEMENT DATE: December 1, 1997
1.4. ORIGINAL TERM: The term of ten (10) years commencing on the Commencement
Date (to wit: - December 1, 1997) and expiring on November 30, 2007
unless extended or sooner terminated as hereinafter provided in this
Indenture of Lease).
1.5. THE LEASED PREMISES:
(A) The premises that are leased to the LESSEE under this Indenture are
alternatively referred to, or identified as, the "Premises" or the "Site"
or "the premises leased hereunder" or "the premises leased herein" or
"the leased premises" or similar descriptive phraseology, as the context
shall permit.
The said premises leased hereunder comprise a portion of the land and
buildings formerly occupied by GENERAL ELECTRIC COMPANY ("G.E.") under a
lease dated November 13, 1969, as amended, and its successor, AMETEK
AEROSPACE PRODUCTS, INC. ("AMETEK") Said Land and buildings, in their
totality, are referred to herein as the "Complex" or as the "Facilities".
The leased premises (the site) are a portion of those facilities situated
in Wilmington and North Reading, Middlesex County, Massachusetts; located
at, and numbered as, 50 Fordham Road, in Wilmington, Massachusetts
Said site or leased premises comprise that one story building known as
Building No.2 with parking area and all land pertaining thereto. Said
Building No.2, parking area and land are located north of Building No.1
and lA leased to AMETEK (said "AMETEK" building located in the southerly
portion of the Complex).
(B) The said leased premises or site are shown upon the plan entitled and
attached hereto and incorporated herewith as Exhibit A
The parties agree that the said leased premises (or site) are those shown
upon said plan, as leased to "GENERAL SCANNING"
3
<PAGE>
(C) The parties have independently verified the floor space comprising said
buildings, and the parties stipulate that the size of the floor space of
said building is, and shall be, for the purposes of this lease, 78,180
square feet.
Said leased premises include the lot upon which said building was
constructed and a portion of the parking area contiguous to the rear (or
west) thereof; along with some open areas of land that may be appurtenant
thereto.
As aforesaid, the said leased premises area are shown upon a plan which
shall be incorporated within, and be a part of; this Indenture of Lease
to define and delineate the leased premises; said plan attached hereto
as Exhibit A.
(D) The title to the land upon which the Premises and the Facilities are
located are registered in the Land Court of the Commonwealth of
Massachusetts.
The LESSOR reserves the right to lease the said premises and the land
appurtenant thereto to the Lessee without formal approval of the plan
delineating the said premises as a Subdivision.
As set forth in the agreement of the parties in the above referred to
AGREEMENT to IMPROVE and LEASE PREMISES, dated May 19, 1997, the Lessor
reserves the right to transfer the title to the leased premises to a new
Trust to establish a separate identity for the said leased premises.
Further, the Lessor has, and shall have, the right to present, at any
time, a plan delineating the leased premises as a Subdivision (under the
Subdivision Control Law); including the designation of the premises as a
condominium with participatory rights to the Waste Water Treatment
Facility that services said premises.
The LESSEE agrees that it shall execute promptly all documents and assent
to all actions and do all things requested by the LESSOR of the LESSEE in
order that the LESSOR may institute and complete any such transfer or
subdivision or designation of and dedication to, such condominium
ownership. The LESSEE shall assent thereto whether or not said transfer,
or said subdivision, or said designation shall include the whole of the
said Complex or Facilities or a portion thereof; and whether said action
shall or shall not include the premises leased hereunder to the LESSEE.
(E) The premises hereunder leased to the LESSEE, and, particularly, the said
building herein referred to as Building No.2, are expected to be
designated under a new and separate post office address. Said premises
and said building may, thereafter, be referred to or designated by or as
said new and separate post office address. (The said address is 60
Fordharn Road, said Wilmington.)
4
<PAGE>
1.6. ANNUAL FIXED RENT:
1.6.1 FORMULA
In accordance with the "AGREEMENT to IMPROVE and LEASE PREMISES",
aforesaid, dated May 19, 1997, and executed by the parties, the base
annual rent during the initial ten (10) year term (commencing December 1,
1997),- shall be calculated or determined on the basis of the square feet
of floor space of said Building No.2; to wit.
a. Years one through three - at $5.00 per square foot (TRIPLE NET)
b. Years four through seven - at $5.40 per square foot (triple net)
c. Years eight through ten - at $5.80 per square foot (triple net)
Said formula shall apply to the premises initially herein leased to the
LESSEE and, particularly, Building No.2 in its present floor size.
The parties stipulate, as aforesaid. that the square footage of said
building, as presently built, comprises, 78,180 square feet.
1.6.2 ANNUAL and MONTHLY RENT:
1. During the period commencing December 1, 1997 and ending November 30,
2000, the Lessee shall pay to the Lessor a base annual rent at the
rate of three hundred ninety thousand, nine hundred and no/100
($390,900.00) dollars; said annual rent due and payable, in advance,
in equal monthly payments of thirty two thousand, five hundred
seventy-five and no/100 ($32,575.00) dollars
2. During the period commencing December 1, 2000 and ending November 30,
2004, the Lessee shall pay to the Lessor a base annual rent at the
rate of four hundred twenty-two thousand, one hundred seventy-two and
no/100 ($422,172.00) dollars; said annual rent due and payable, in
advance, in equal monthly installments of thirty-five thousand, one
hundred eighty-one and no/100 ($35,181.00) dollars.
3. During the period commencing December 1,2004 and ending November 30,
2007, the Lessee shall pay to the Lessor a base annual rent at the
rate of four hundred fifty-three thousand, four hundred forty-four and
no/100 ($453,444.00) dollars; said annual rent due and payable, in
advance, in equal monthly installments of thirty-seven thousand, seven
hundred eighty-seven and no/100 ($37,787.00) dollars.
5
<PAGE>
All monthly installments of rent shall be due and payable on the
first day of each month.
As hereinafter provided, the base rent shall be increased to an
amount to be agreed upon between the parties in the event there
shall be constructed an addition to said Building No.2 and expansion
of the floor space.
4. The above shall apply to the premises herein initially leased to the
LESSEE with said Building No.2 in its present floor size. Therefore,
the foregoing is subject to the provisions of Section 1.9 in the
event of expansion as therein set forth.
5. Reference is herein made, also, to the provisions of Section 2.5 of
this Indenture.
1.7. REAL ESTATE TAXES; MAINTENANCE; OPERATING EXPENSES:
Lessee shall pay all operating costs as and when due, including, without
limitation,- all real estate and other taxes assessed against or with
respect to the leased premises; any and all utilities; all insurance
coverage (said insurance covering all risks, all liability against any
loss occurring on or near said premises or as a result of any of the
activities of the Lessee, any and all damages or loss caused by fire,
storm or other insurable risks); ground care; snow removal; maintenance
and service agreements for HVAC and for any other equipment or building
elements; and all repairs and interior maintenance of the building and
its appurtenances, as set forth in Section 1.7.1.
Reference is herein made to the provisions set forth in Section 5.7 of
this Indenture. As stipulated in said Section 5.7 (A) (a) (ii), the
LESSEE shall, and does, indemnify and hold harmless the LESSOR against
all losses and damages unless said losses or damages shall be caused by,
or due to the fault of, the Lessor or tenants of the Lessor (other than
the Lessee herein).
Reference is here made to Section H. (RESPONSIBILITIES) of the Agreement
of May 19, 1997.
1.7.1 Maintenance
a. Upon completion of all the renovations and improvements, the said
building and its appurtenances will be in prime condition with new
insulated roof; with structural replacements where needed, new
mechanical elements, renovated and remodeled interior, new double
pane glass throughout, paved parking area, etc.
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b. All warrantees and guarantees issued by installers, contractors and
suppliers shall be made available to the Lessee and shall be
transferred to, or for the benefit of the Lessee..
c. The Lessee shall be responsible for all maintenance of the interior of
the building, paved areas, mechanical appurtenances, all roofing
elements, HVAC units, and all other aspects of the building and its
facilities.
d. The lease shall be a triple net lease.
e. Not in limitation of the foregoing (and unless revised by prior
written stipulation or agreement of the parties), the Lessee shall be
responsible for all interior elements of the building, including its
mechanical components, all wiring (electrical or otherwise), all
plumbing , all surfaces, flooring and any and all other appurtenances.
Lessor shall, also, be responsible for maintenance of all windows, of
the roof and its elements, cosmetic appearance and maintenance of the
exterior, maintenance of all parking areas and the paved surface of
said parking areas, all landscaping, and components of the building.
As set forth above, Lessor shall turn over and assign to Lessee all
warranties and guarantees from all suppliers, contractors, and workmen
with respect to any improvements to the building and premises paid for
by the Lessor.
Lessor shall be responsible for the structural elements of the
exterior of the building; as well as for apparatus, piping or wiring
delivering utilities from the public way to the edge of the building
f. Reference is herein made to Section 2.6 and Section 3.1 and Section
3.2 and Section 3.3 and Section 5.2 and Section 5.10 of this
Indenture.
1.7.2. Taxes
LESSEE shall be responsible for all real estate and other taxes assessed
by any government authority against the real estate (including building,
land and improvements) leased herein to the Lessee.
Reference is herein made to the provisions of Section 2.7 of this
Indenture.
1.7.3. Insurance and Indemnification
a. Lessee, at its sole cost, will maintain, with sufficient limits of
coverage, fire and casualty loss insurance, insurance against
liability for losses, damages or injury of any kind to anyone upon
the premises (or as a result of any activities of the Lessee), and
coverage against all other insurable risks; except for those
injuries, losses and damages caused by the fault,
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omission, negligence or willful act of the LESSOR or other tenants of
the LESSOR (i.e. other than the LESSEE herein), as stipulated in
Section 5.7 (A).
Lessee shall name the Lessor as an additional insured upon all said
policies issued by recognized companies licensed to do business in
Massachusetts; and Lessee shall forward to the Lessor, as each
contract or policy of insurance shall be issued or renewed, a
certificate of the said insurance coverage with the Lessor named as a
payee or insured party in the event of loss or damage.
b. Lessee shall indemnify and hold harmless the Lessor against any loss,
claims or damages resulting from any of the activities of the LESSEE;
and shall promptly defend against claims resulting therefrom. LESSEE
shall, and does, indemnify and hold harmless the LESSOR from any said
losses or damages except for those injuries, losses or damages caused
by the fault, omission, negligence or willful act of the LESSOR or of
the tenants of the LESSOR (other than the LESSEE herein); and as
stipulated in Section 5.7 (A) hereof.
Lessee shall insure the Lessor from loss of rental income resulting
from fire or other casualty, as set forth under Section 5.7. (B).
c. Lessee shall comply will all relevant laws and legal requirements and
environmental regulations in the conduct of its operations. Lessee
shall not expose Lessor to damages, loss or expense as a result of any
activities of the Lessee - including, but not limited to, use of the
premises, any of its operations, or any discharges.
d. Reference is herein made to the provisions of Section 5.7 of this
Indenture.
e. With respect to the renovations and construction stipulated in the
"AGREEMENT to IMPROVE and LEASE PREMISES" dated May 19, 1977 (and
referred to in Section 1.1. hereof);
(i) In the event that the contractor or any subcontractor engaged by
the LESSEE shall default in its obligations or responsibilities,
and if the insurance coverage furnished by said contractor or
subcontractor shall not be adequate to cover the losses and
damages sustained by LESSOR as a result of said default, then,
in such event, the LESSEE does, and shall, indemnify and hold
harmless the LESSOR from damages, losses or expenses caused by
the failure of said contractor or subcontractor with respect to
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the work, labor or materials required by said contractor or
subcontractor.
(ii) In the event that any employee or any of the personnel of said
contractor of subcontractor shall be damaged or injured while in
the course, or arising out, of the employment of said employee
or personnel, the LESSEE shall, and does, indemnify and hold
harmless the LESSOR from any claim, suit or demand made by said
employee or personnel alleging any failure, negligence, omission
or action of the LESSEE and of the LESSOR, or both of them, as
causing or contributing to said injury of damage.
The LESSEE shall maintain insurance, in responsible companies,
covering any such claim, suit or demand brought against either
the LESSEE or the LESSOR, or both of them, for recovery from
either the LESSEE or the LESSOR (or both) as third parties on
account of said injury of damage resulting from said industrial
accident.
1.8. LESSEE'S Utilities:
Lessee shall be solely and exclusively responsible for any and all
utilities furnished or provided to the leases premises. Without limitation,
said utilities shall include electricity, water, heating fuel, and any
other service provided to the leased premises. Lessee shall be solely
responsible for the maintenance and repair of all equipment, lines or
apparatus employed to provide and distribute said utilities and service
within the leased premises. (Excluded from the provisions aforesaid is the
Waste Water Treatment Facility which Facility shall be governed by the
provisions of Section 1.14 hereof).
The obligations of the LESSEE to pay for any and all utilities furnished or
provided to the premises leased hereunder shall begin as of the date the
renovations and construction referred to in the Agreement of May 19, 1997
(Section 1.1) shall have been commenced. The LESSEE shall, therefore, be
responsible, and shall pay for, all said utilities (including, but not
limited to, electricity) furnished to the premises leased hereunder from
the date of commencement of the renovations and construction referred to in
said Agreement dated May I 9, 1997 until and through the termination date
(including termination dates of extended terms) of this Indenture of Lease.
Reference is herein made to the provisions of Section 2.8 of this
Indenture.
1..9. POSSIBLE EXPANSION:
Reference is here made to the Agreement of May 19, 1997, Section I
("POSSIBLE EXPANSION")
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Provided that said expansion shall be feasible, when requested by the
Lessee, the Lessor will construct an expansion or extension (of not more
than 40,000 square feet of floor space) to the east of the building if
required by the Lessee; subject, however, to the following conditions: -
1. The Lessor shall be able to secure financing for said expansion from a
conventional banking institution at then current rate of interest;
2. The expansion shall be permitted under all applicable laws and
regulations-including zoning and building requirements;
3. All required permits shall be issued -- including approvals from
environmental regulatory agencies, state, federal (if necessary) and
municipal authorities, and any other governmental body that may have
oversight responsibilities.
4. The Lessor and the Lessee shall agree upon the rent, terms and
conditions of the Lease affecting the present premises herein leased
and, also, said possible expansion.
5. The cost of moving pipes, tubes, wires, valves and any and all devices
that now service the Waste Water Service Facility, the Fire Protection
Station and any other support systems for the buildings upon the site
shall be an expense attributable to the construction costs of the said
expansion; and shall be factored into the agreed upon rent.
The obligation to construct said expansion is upon the condition that
said devices can be moved; that the relevant easements and rights of
way or access may be relocated along a new path; and that the
easements and rights of way or access to service same shall be
established and confirmed in their new path or location with the
written consent of all parties that may have an interest therein.
Said relevant easements and rights of way or access shall include, but
shall not be limited to, the easements and rights of way and access to
be granted by the Lessor to LOCKHEED MARTIN CORPORATION ("LOCKHEED")
in order to facilitate the remediation activities to which LOCKHEED is
committed, and as set forth in Section 1.12 and in Section 1.13.
6. It is anticipated that within the area upon which said expansion may
be requested LOCKHEED shall be engaged in remediation of shallow
groundwater contamination associated with underground storage tank
maintained by CONVERSE, INC. LOCKHEED is expected to agree, if the
Lessor seeks to develop said area, to modify and move its groundwater
remediation equipment, at its expense, so long as said modification
and movement is
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(i) essential to said development;
(ii) is consistent with LOCKHEED'S remediation obligations;
(iii) does not pose an unreasonable risk to human health or to the
environment;
(iv) does not unreasonable prolong remediation activities.
6. The Lessee shall have the right to secure or provide the financing for
said expansion if the Lessor shall be unable to secure same. In the
event that the said expansion shall be financed by the Lessee, the base
rent established for said expansion shall be adjusted to reflect any
cost incurred by the Lessee with respect to said financing and shall be
appropriately adjusted to said circumstances.
(Said possible extension is outlined on EXHIBIT B hereto attached.)
1.10. OPTION TO EXTEND LEASE: (subject and pursuant to the provisions of
Section 8.20)
Subject to the conditions set forth in Section 8.20 (A), and provided
that the Lessee shall not then in default of any of the terms of this
lease (and provided, further that the Lessee shall give written notice of
its decision to extend the lease), the Lessee has, and shall have, two
(2) successive options to extend the lease each for a term of five (5)
years upon the same terms and conditions of the original ten (10) year;
term in accordance with the provisions set forth in section 8.20 of this
Indenture of Lease. However, the rent for each of the said two (2)
extended five (5) year terms shall be established, as hereinafter
stipulated and as stipulated in Section 8.20 of this Indenture.
The partied do herewith stipulate and agree:
A. With respect to the rent during the two (2) extended five (5) year
terms: -
1. During the first of said two five (5) year option terms,
(commencing December 1, 2007 and ending November 30,2012) the
base rent during said five (5) years shall be established at the
rate of ninety five (95%) percentum of the then market rent for
said leased premises. (See Section 8.20 (B).)
2. During the second of said two (2) year option terms, (commencing
December 1, 2012 and ending November 30, 2017) the base rent
during said second five (5) year term shall be the then market
rent. (See Section 8.20 (C).)
B. Notice
It is agreed that the extension of the lease for said two (2)
extended terms is, and shall be, upon the condition that the Lessee
shall deliver to the Lessor written notice of its intention and
decision to extend the term of this lease no later than one (1) year
prior to the termination
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date of the then term of the lease, as stipulated in Section 8.20
(B) and Section 8.20 (C) hereof.
Accordingly, with respect to the first extended term of five (5)
years, the Lessee shall give written notice to the Lessor of its
decision to extend the lease for said five (5) year term no later
than November 30, 2006. With respect to the second extended term of
five (5) years, the Lessee shall give written notice to the Lessor
of its decision to extend the lease for said second five year term
no later than November 30, 2011. (See section 8.20)
1.11 SUBLEASING (subject to the provisions of Section 5.6 through Section
5.6.6)
The Lessee shall not assign or sublease or sublet the premises or any
portion thereof unless, in each instance, the Lessor shall have given its
approval in writing to said sublease or subletting: which approval shall
not be unreasonably withheld, and as provided in Section 5.6 of this
Indenture of Lease.
In the event that the rent for said portion subleased or sublet shall
exceed the rent paid to the Landlord, the increment shall be retained by
the LESSEE.
The provisions of this Indenture of Lease, set forth in Section 5.6
through Section 5.6.6. shall govern and determine assignment, subleasing
or subletting of this lease. No such assignment, subleasing or subletting
shall be permitted unless same shall comply with the said provisions
(Section 5.6 through Section 5.6.6.)
1.12 ENVIRONMENTAL - 21E, etc.
Reference is made to Section L ("ENVIRONMENTAL - 21E -Etc.") of the
Agreement of May 19, 1997
1. The parties are aware that the site upon which the facilities are
located has been under review by the Department of Environmental
Protection ("DEP"); and that the former occupant, GENERAL ELECTRIC
COMPANY ("G.E."), was named the Responsible Party in a Notice of
Responsibility dated June 11, 1986. Subsequently, the Lessor received
a Notice of Responsibility ("N.O.R.") from DEP dated April 16, 1991
occasioned by bankruptcy proceeding instituted by the parent company
of Converse, Inc. (Sublessee with respect to G.E. of Building No.2.)
2. The contamination of the site resulted from releases of gasoline, oil
and other substances by G.E. and its sub-lessee, Converse, Inc.
3. G.E. accepted and assumed the responsibility to conduct remediation
activities in
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accordance with plans submitted to, and approved by, D. E. P.
(including matters referred to in the N. O. R. mailed to the Lessor
dated, as stated, April 16, 1991 and occasioned by the bankruptcy
proceedings aforesaid). This responsibility has been expressly
acknowledged and assumed by the successors to G.E., i.e., MARTIN
MARIETTA CORPORATION and its successor, LOCKHEED MARTIN CORPORATION
("LOCKHEED").
LOCKHEED is committed to (and is engaged in) the necessary remediation
process as approved by, and under the oversight of, D. E. P.
4. Lessor will seek reports of the engineers engaged by LOCKHEED. These,
as well as progress reports relating to the remediation activities as
received by the Lessor, shall be submitted by the Lessor to the
Lessee.
5. LESSOR shall indemnify the Lessee from any claims made by third
parties unrelated and not in privity to Lessee arising out of any
contamination of the site that has occurred prior to the occupancy of
the leased premises by the Lessee. The Lessor and the Lessee shall
consult and co-operate with each other in the event that any such
claims shall arise.
6. The parties acknowledge that the Lessor is currently engaged in
negotiations with LOCKHEED with respect to the continuing
responsibility of LOCKHEED (subject to the oversight of the D. E. P.)
and to confirm and define liability, indemnification and the nature of
related documentation and agreements that may be agreed upon. Lessee
agrees to cooperate with respect thereto if requested in order that
remediation activities shall continue and be facilitated to further
the best interests of the parties.
7. In connection with the response and remediation activities upon the
Facilities to which LOCKHEED is committed, the Lessor reserves the
right to agree to permanent Activity and Use Limitations ("AUL"), as
shall be specified and agreed upon, with respect to certain specific
areas within the said Facilities or Complex. Said AUL shall be
consistent with the Massachusetts Contingency Plan, 30 C.M.R. Section
40,00, et seq ("MCP") and approved by the DEP. The Lessee
acknowledges herewith that the Lessor has reserved, and does reserve,
the right to agree to said AUL in connection with the continuing
responsibility of LOCKHEED and the remediation response and activities
in which LOCKHEED is, and shall be, engaged.
8. The Lessee shall comply strictly with all relevant Environmental
Control Laws.
In particular, and without limitation, the Lessee shall comply with,
and shall be subject to,
a. the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (CERCLA"), as amended by the Superfund
Amendment and Reauthorization Act of 1986, 42 U.S.C. Section 9601
et seq.; and
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b. the Massachusetts Oil and Hazardous Materials Release Prevention
and Response Act, as amended, Massachusetts General Laws,
Annotated, Chapter 21 E.
In connection with the foregoing, the Lessee shall comply with the
provisions set forth in Section 5.3.
1.13 EASEMENTS AND RIGHTS OF ACCESS
A. Lessor shall retain existing easements and rights of way over the
facilities and the premises (and shall reserve additional easements and
rights of access) in furtherance of its management obligations and
oversight - including right to pass and re-pass over and to be and to
remain upon the premises to perform work upon, and to service, water and
fire protection facilities and lines, Waste Water Treatment Facility, and
for any other purpose required by the Lessor. Easements and rights of
access have been granted for this purpose to AMETEK, as successor to G.
E. Further, Lessor retains, and shall have, the right to grant easements
in connection with said management and oversight (including easements to
LOCKHEED MARTIN CORPORATION in order to facilitate its remediation of the
site as required by D. E. P. - See 1.12 above).
Said easements and rights of access shall not unreasonably interfere with
the business activities of the Lessee.
B. To facilitate the remediation activities to which LOCKHEED is committed
(and in which it is now engaged), as indicated in Section 1.12, the
Lessor intends to grant, and shall grant, right of access over and upon
the Facilities or Complex of which the premises leased hereunder are a
part. The easement to be granted to LOCKHEED shall include the right to
pass and repass, the right to remove soil and the right to engage in soil
vapor extraction activities as well as creek sediment remediation.
The Lessee does herewith agree and consent to the grant of said easement,
right of access and right to pass and repass to LOCKHEED to facilitate
said remediation; and the Lessee shall not interfere with, or impede, the
grant of said easement or the remediation conducted in connection
therewith.
C. The LESSEE shall permit the other LESSEE in the Complex (that is, AMETEK)
to pass and repass over the premises leased to GENERAL SCANNING, INC. to
enable AMETEK to have access to the Waste Water Treatment Facility and to
the other northerly portions of the Complex that are leased to AMETEK, as
shown on EXHIBIT A; provided that this right of access granted to AMETEK
shall not be used in such manner as to unreasonable interfere with the
business activities of the LESSEE (i.e. GENERAL SCANNING, INC.).
1.14. WASTE WATER TREATMENT FACILITY
Reference is made to Section N ("WASTE WATER TREATMENT FACILITY") of the
Agreement, dated May 19, 1997.
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1. Said Building No.2 is serviced by a new and "state of the art" Waste
Water Service Facility (placed on line within the last year) and
located northeast of said Building No.2 (The expected life of said
facility - - about thirty years-).
2. Lessor shall assume cost of providing service of said facility to
Lessee, including costs of its operation and ordinary maintenance.
Said costs shall be shared with the other tenant of the Facilities,
AMETEK AEROSPACE PRODUCTS, INC. ("AMETEK"); provided only, however,
that in the event a replacement of the said facility (beyond
maintenance and operation) the tenants using same shall be responsible
for said replacement and shall contribute thereto upon the agreed upon
the formula established to determine use and allocation of costs of
operation (to be based upon degree of usage and employee population of
the Tenants).
During the first ten (10) years of the term of the lease, however,
Lessee shall have no responsibility with respect to replacement of the
facility.
3. In the event that there shall be any damage, dysfunction or loss to
the said Waster Water Treatment Facility caused by any use, activities
or misuse by the Lessee or any of its personnel, representatives or
employees, the Lessee shall indemnify the Lessor with respect to said
damage, dysfunction or loss; and shall make the necessary payments to
rectify said damage, dysfunction or loss
4. Lessee will pay that share of the real estate or other taxes assessed
against said Waste Water Treatment Facility (in the event that any
shall be assessed or levied in respect thereto) equivalent to the
percentage of operational and management costs thereof attributable to
the Lessee.
5. The LESSEE shall be designated, and shall be included, as a permitted
user of said Waste Water Treatment Facility. In connection therewith,
the LESSEE shall execute and deliver any and all documents, including,
but not limited to, applications, permit or license agreements, and
shall do all things that shall be required, in order that the LESSEE
shall be properly designated as a permitted user of said Facility.
The LESSEE shall assume, and shall comply with, all obligations
imposed upon the LESSEE under applicable Law as a permitee or
permitted user of said Waste Water Treatment Facility.
6. The LESSEE shall keep and maintain in full standing business
interruptions insurance that shall cover or reinstate the Lessee from
any damages or losses resulting from interruptions of its business
activities.
In the event that any interruption of the business activities of the
LESSEE shall result from, or be attributable to, any failure or
disruption of, or damage to, said Waste Water Treatment Facility, the
LESSEE shall make no claim against the LESSOR and shall not look to
the LESSOR for recovery of any damages or loss resulting therefrom.
The LESSEE agrees that it shall look for recovery for said damages or
loss to its insurance covering losses from business
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interruption (including interruptions caused by said disruption or
failure of said Waste Water Treatment Facility).
The LESSEE agrees that it shall not seek indemnification against said
losses or damages from the LESSOR.
1.15 PERMITTED USES:
The Lessee use the leased premises for the following permitted uses:
a. General office purposes and,
b. Subject to the provisions of Section 5.3(B) hereof; light
manufacturing and research and development purposes.
The use and occupation of the said leased premises by the LESSEE shall be
subject to, and in accordance with, the provisions of Section 5.3 (A) (B)
and (C).
The Lessee shall maintain and keep the premises leased hereunder in good
repair and condition; and the Lessee shall not commit or suffer any waste,
or destruction, or loss to said premises, as stipulated in Section 5.2.
The Lessee, further, shall NOT permit or suffer any activity that may
produce hazardous materials and shall not suffer, cause or permit any
releases or discharges of any hazardous materials or hazardous substances
upon the Premises, or upon the Facilities as stipulated in Section 5.3.
1.16. INITIAL MINIMUM LIMITS OF LESSEE'S GENERAL LIABILITY INSURANCE: -
Twelve Million ($12,000,000.00) Dollars under a general corporate general
liability policy.
1.17. RECOGNIZED BROKERS
Hunneman Commercial Company Meredith & Grew, Incorporated
70-80 Lincoln Street 70-80 Lincoln Street
Boston, Massachusetts 02111; and Boston, Massachusetts 02110-1701
1.18 EXHIBITS. There are incorporated as part of this Lease:
EXHIBIT A - Plan Delineating the Premises Leased Hereunder
EXHIBIT B - Plan Indicating Possible Addition to Building No.2.
EXHIBIT C - Agreement dated May 19, 1997 (Section 1.1)
ARTICLE II
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BUILDING, PREMISES, TERM AND RENT
--------- --------- ---- --- ----
2.1 The Premises
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The Lessor hereby demises and leases to the Lessee, and the Lessee hereby
leases, rents and accepts from the Lessor, the Premises (i.e. the site).
Said premises are more particularly described under ARTICLE I hereof; and
are shown on the plan entitled hereto annexed and incorporated as EXHIBIT
A. Said leased premises include the one story brick building known as
Building No.2, along with the parking area and all land appurtenant
thereto, as shown on said plan.
Reference is herein made to Section 1.5 of this Indenture of Lease.
2.2 Right To Use Common Facilities
The Lessee shall have, as appurtenant to the premises herein leased, the
non-exclusive right to use in common with others, subject to reasonable
rules of general applicability to tenants of the Facilities from time to
time made by the Lessor (of which the Lessee is given notice) the
following:-
(a) any common area, common means of egress and access, common loading
platform, if any, of the Facilities and Complex;
(b) the pipes, ducts, conduits, wires and appurtenant meters and equipment
serving the Premises that relate to or serve the Facilities and
Complex or that are used in common with others; and
(c) common walkways and driveways necessary for access to, and egress
from, the premises leased hereunder - including, without limitation,
access roadway from Concord Street (North Reading), access to and
egress from the leased premises over parking area to the west of the
buildings forming Facilities or Complex, and other areas of land
access to and over which shall be necessary or appropriate for the
occupancy of the leased premises by the Lessee; and PROVIDED, however,
that the Lessor shall have reserved said rights or access or egress,
easements, or rights of way; and, PROVIDED, that the Lessor shall
have, otherwise, the ability and legal right to grant same to the
Lessee; and
The Lessee agrees to co-operate with AMETEK AEROSPACE PRODUCTS, INC.
and with the Lessor to establish restrictions, conditions and terms of
use, right to pass and repass, and control over the access roadway
from Concord Street (North Reading) into the Facilities or Complex to
promote the security, convenience and the best interests of all
parties.
(d) Access to, connection with and right to services of the Waste Water
Treatment Facility referred to in Section 1.14 of this Indenture;
PROVIDED, however, that the LESSEE shall be a permitted user thereof
and shall be designated and established as such permitted user.
In connection therewith, the LESSEE shall execute all documents,
including applications and licenses, in order to establish itself as a
permittee or permitted user of said Waste Water Treatment Facility. As
such lawful or permitted user or permittee, the LESSEE
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shall comply with all relevant obligations and duties in respect
thereto imposed by any applicable law or ruling.
(See, also, Section 1.1 3C for right to pass and repass reserved for
AMETEK.)
(c) Provided that the Town of Wilmington shall grant right of access and
right to install and construct a driveway or passageway from Fordham
Road, Wilmington on to the premises leased hereunder, the Lessee shall
have the right to use and pass and repass over said driveway or
passageway; provided that the Lessee shall maintain said driveway or
passageway and keep it in good repair.
2.2.1 Lessee's Parking
In addition, the Lessee shall have the right to use the Parking Areas arid
-----
Parking Spaces shown on the plan annexed hereto as EXHIBIT A. With respect
to any parking facilities or spaces pertaining to the entire Facilities or
Complex, said areas or spaces shall not be used or occupied by the Lessee
or any of its personnel or representatives without the specific prior
approval, in writing, of the Lessor and of the other Lessees of the Lessor
in said Facilities or Complex.
The Lessee covenants and agrees that It and all persons claiming by;
through and under it, shall at all times abide by all reasonable rules and
regulations promulgated by Landlord with respect to the use of the parking
areas on the Site. The parking privileges granted herein are non-
transferable.
Further, the Lessor shall have no responsibility whatsoever for loss or
damage due to fire, theft or otherwise to any automobile(s) parked on the
Site or to any personal property therein, however caused, and the Lessee
covenants and agrees, upon request from Lessor from time to time, to notify
its officers, employees, agents and invitees of such limitation of
liability.
The Lessee shall be solely and exclusively responsible for security and for
the safety of any and all motor vehicles and the contents thereof that
SHALL use any of the parking spaces within the leased premises or that may
be used by the Lessee in other parking areas or the Facilities or Complex
with approval by the Lessor and other Lessees in said Facilities or
Complex.
2.3 Lessor's Reservations (Repairs, etc.)
The Lessor reserves the right from time to time, without unreasonable
interference with Lessee's use and without causing a continuous, prolonged
and material interruption with Lessee's use:
(a) to install, use, MAINTAIN, repair, replace and relocate for service to
either or both the Premises and other parts of the Facilities, pipes,
duets, conduits, wires and appurtenant fixtures wherever located in
the Premises (the "Site") or the Facilities Of the Complex; and
(b) to alter or relocate any other facilities used in common with other.
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2.4 Habendum
The Lessee shall have and hold the premises leased hereunder for a period
of ten (10) years commencing on the Commencement Date, and continuing for
the said ten (10) year term unless sooner terminated as provided in Article
VI or Article VII or unless extended as provided in Article I (Section 1.10
and ARTICLE VII (Section 8.20)).
2.5 Monthly Fixed Rent Payments
The Lessee agrees to pay, and shall pay, to the Lessor, in the amounts set
forth under Section 1.6 and Section 1.6.1. and Section 1.6.2. of this
Indenture, or as directed by Lessor, at Lessor's Original Address specified
in Section 1.1 hereof, or at such other place as Lessor shall, from time to
time, designate by notice to the Lessee:
(1) on the Commencement Date (defined in Section 1.1 hereof) and
thereafter monthly, in advance, on the first day of each and every
calendar month during the Original Term, a sum equal to one twelfth
(1/12th) of the Annual Fixed Rent (sometimes hereinafter referred to
as "fixed rent") in the amounts established under ARTICLE I, of this
Indenture of Lease.
(2) on the first day of each and every calendar month during the extension
option period (if exercised), a sum equal to one twelfth (1/12th) of
the annual fixed rent as determined in Section 1.10 and in Section
8.20 for the each of the two five (5) year extension option periods.
Until notice of some other designation is given, fixed rent and all other
charges for which provision is herein made shall be paid by remittance
payable to, or for the order of;
THE WILMINGTON REALTY TRUST
C/O MRS. LUCY PHYLLIS BOMBA
20 LAWNDALE ROAD
STONEHAM, MASSACHUSETTS 02180
Annual Fixed Rent for any partial month shall be paid by Lessee to Lessor
at such rate on a pro rata basis, and, if the Commencement Date is a day
other than the first day of a calendar month, the first payment which the
Lessee shall make to Lessor shall be a payment equal to a proportionate
part of such monthly Annual Fixed Rent for the partial month from the
Commencement Date to the first day of the succeeding calendar month.
Other charges, if any, payable by Lessee on a monthly basis, as hereinafter
provided, likewise shall be prorated, and the first payment on account
thereof shall be determined in similar fashion but shall commence on the
Commencement Date; and other provisions of this Lease calling for monthly
payments shall be read as incorporating this undertaking by Lessee.
The Annual Fixed Rent and all other charges for which provision is herein
made shall be paid by
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The Annual Fixed Rent and all other charges for which provision is herein
made shall be paid by Lessee to Lessor, without offset, deduction or
abatement except as otherwise specifically set forth in this Lease.
2.6 Lessee Responsible For Maintenance, etc.
The Lessee is, and shall be, solely and exclusively responsible, and shall
promptly pay, all charges and expenses necessary or incurred for the
cleaning and maintaining of any and all of the leased premises, including
the interior and exterior of the building, parking areas, and other
appurtenances. The Lessee, at its sole and exclusive cost, shall promptly
remove snow and ice from the said premises, and shall maintain and keep in
first class condition all landscaping, the exterior of the building,
including all glass, all parking areas, roadways and access roads and
driveways. In furtherance of the covenants set forth under ARTICLE
1(1.7.1.), the Lessee shall be responsible for the maintenance and upkeep
of the leased premises as therein stipulated.
2.7 Real Estate Taxes; Payment:
During the initial ten (10 year term of the lease and during any all
extended terms thereof; the Lessee shall pay all and any real estate taxes
and any other taxes (if any there be) that shall be assessed or charges by
any governmental agency or authority in respect to, or against, all or any
portion of, premises hereunder leased to the Lessee.
Said taxes shall be paid by the Lessee directly to the municipality or
other taxing authority that shall make or levy said charge. The said
payments shall be made promptly and as due; and if the tax charge shall be
made in installments, said installments shall be paid promptly and as due.
Any interest or penalty occasioned by late or delinquent payment shall be
paid by the Lessee.
Lessee shall promptly forward to the Lessor evidence of payment of each tax
bill or levy by delivering to the Lessor a copy of the receipted tax bill
or tax levy.
The parties shall request of the taxing authorities that the entire
premises leased to the Lessee (as shown on said plan) be established as a
separate parcel (or separate parcels) for tax purposes; and that the entire
premises herein leased to the Lessee be taxed as a separate and distinct
entity (or as separate and distinct entities). In the event that any
portion of premises leased to the Lessee hereunder shall not be separately
assessed, or in the event that any portion of said leased premises shall
not be assessed as part of the premised hereunder leased to the Lessee,
then, in such event, the tax attributable to said portion leased to the
Lessee shall be established and the tax attributable to said portion shall
be paid by the Lessee.
Terms used herein are defined as follows:
(a) "Tax Year" means the twelve-month period beginning July 1 each
year during the Term or if the appropriate governmental tax
fiscal period shall begin on any date other than July 1, such
other date.
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(b) "Real estate taxes" means all taxes and special assessments of
every kind and nature assessed by any governmental authority on
the Premises which the Lessor shall become obligated to pay
because of or in connection with the ownership, leasing and
operation of the Premises and reasonable expenses of any
proceedings for abatement of taxes. The amount of special taxes
or special assessments to be included shall be limited to the
amount of the installment (plus any interest, other than penalty
interest, payable thereon) of such special tax or special
assessment required to be paid during the year in respect of
which such taxes are being determined. There shall be excluded
from such taxes all income, estate, succession, inheritance and
transfer taxes.
2.7.1 Tax Abatement - Procedure
The Lessee shall pay, as aforesaid, all real estate or other taxes upon
the premises leased hereunder.
In the event that the Lessee shall be aggrieved by any tax levied or
assessed against or upon the premises leased hereunder (or any portion
thereof), and if the Lessee shall seek to protest said tax or said
assessment or shall seek to abate or secure relief from said tax or
assessment, the Lessee shall follow the procedure described herein, to
wit:
1. The Lessee shall promptly notify in writing the Lessor of its desire
or intention to protest said tax or assessment and to abate or seek
relief with respect thereto; setting forth in said notice the
specific taxes, assessment or valuation protested and the basis or
reasons for said protest.
2. The Lessee may, thereafter in its name only, appeal any action or
----------------
inaction of said taxing authority upon its said application for
abatement to the Appellate Tax Board and by appeal or Petition to
the Court of competent jurisdiction for a review of said tax, or
said assessment, or said action or inaction by said taxing
authority; and for relief therefrom.
3. The Lessee shall, notwithstanding, continue to pay all taxes when
and as due, as hereinbefore stipulated; and shall continue to make
payment of all taxes as levied or assessed by the taxing authority.
4. All costs or expenses incurred in the process of instituting any
said tax abatement proceedings or appeals or any action taken to
protest or review taxes, or valuations or assessments made with
respect to the premises leased hereunder shall be borne solely and
exclusively by the Lessee. The Lessee shall pay all expenses
resulting from said action or proceedings, including, but not
limited to, counsel fees, engineers' fees, appraisers' fees and any
other costs incidental to such litigation and proceedings.
5. All recovery and all proceeds resulting from any proceedings brought
or instituted for abatement of said taxes shall belong, and shall be
paid, to the Lessee.
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2.8 Lessee's Electricity and Utilities
The Lessee covenants and agrees to take all steps required by the
appropriate utility company to provide for the direct billing to the Lessee
of the electricity serving the premises leased to the Lessee. The Lessee
covenants and agrees to pay, punctually as and when due, all charges for
electricity and other utilities furnished to the leased premises. The
Lessee covenants and agrees to defend, save harmless and indemnify the
Lessor against all liability, cost and damage arising out of or in any way
connected to the payment, non-payment or late payment of any and all
charges and rates for any and all said utilities.
The LESSEE shall be responsible, and shall pay, for all utilities supplied
or furnished to the premises leased hereunder to the Lessee commencing
with, and as of; the commencement of renovations and construction (as set
forth in the Agreement dated May 1, 1997, referred to in Section 1.1).
ARTICLE III
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CONDITION OF PREMISES
---------------------
3.1 Delivery of Premises
The Lessor shall deliver the premises leased hereunder to the Lessee in
prime condition, as stipulated in the Agreement dated May 19, 1997 (Section
F and Section H); and the Lessee shall have no responsibility, thereafter,
to perform any additions, alterations or improvements in the Premises or
for the repair or maintenance of said premises, as stipulated in said
Agreement (except as stated herein under ARTICLE I - Section 1.9. with
respect to possible expansion).
3.2 Alterations and Additions
This Section 3.2 shall apply to the preparation of the premises for use by
the Lessee as stipulated in the Agreement dated May 19, 1997 and for the
Term of the lease (including initial and extended terms), except for minor
repairs and ordinary maintenance and upkeep.
The Lessee shall not make alterations and additions to leased premises
except in accordance with plans and specifications therefor first approved
by Landlord, which approval shall not be unreasonably withheld.
The Lessee, before commencement of work, shall secure all licenses and
permits necessary therefor; deliver to the Lessor a statement of the names
of all its contractors and subcontractors and the estimated cost of all
labor and material to be furnished by them and security satisfactory to the
Lessor protecting the Lessor against liens arising out of the furnishing of
such labor and material. The Lessee shall require and cause each contractor
to carry workmen's compensation
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Lessee shall carry and maintain commercial general liability insurance,
or comprehensive general liability insurance with a broad form
comprehensive liability endorsement with such limits as the Lessor may
reasonably require, but in no event less than $1,000,000.00 combined
single limit per occurrence on a per location basis (all such insurance
to be written in companies approved by the Lessor and naming and
insuring Lessor as an additional insured and insuring the Lessee as well
as the contractors). The Lessee shall deliver to the Lessor certificates
of all such insurance.
The Lessee agrees to pay promptly when due the entire cost of any work
done on the Premises by Lessee, its agents, employees, or independent
contractors, and not to cause or permit any liens for labor or materials
performed or furnished in connection therewith to attach to the Premises
or the building or the Site or the Facilities and immediately to
discharge any such liens which may so attach.
The LESSEE shall pay, as additional rent, 100% of any real estate taxes
resulting from said alterations or additions.
3.3 General Provisions Applicable to Construction
All construction work required or permitted by this Lease (or by the
Agreement between the parties dated May 19, 1997) shall be completed in
a good and workmanlike manner and in compliance with all Legal
Requirements and Insurance Requirements now or hereafter in force. Each
party may inspect the work of the other at reasonable times and shall
promptly give notice of observed defects. Each party authorizes the
other to rely in connection with design and construction upon approval
and other actions on the party's behalf by any Construction
Representative of the party named in Article I or any person hereafter
designated in substitution or addition by notice to the party relying.
The Lessee shall carry and maintain contracts or policies of insurance
naming both the Lessee and the Lessor as insureds, and covering both the
Lessee and the Lessor in the event of any claim for injury or damages
brought by any employee or personnel (as stipulated in Section 1.7.3).
ARTICLE IV
----------
COVENANTS OF THE LESSOR
-----------------------
4.1 LESSOR COVENANTS:
4.1.1. Delivery of Premises
The Lessor shall provide and deliver the premises leased hereunder to
the Lessee for the term herein specified under the covenants herein set
forth - including rights of way, easements and rights of access and
egress but only to the extent to which the Lessor may legally confer
said rights of way, easements and rights of access and egress upon the
Lessee.
4.1.2. Quiet Enjoyment
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The Lessor shall not interfere with, or impede, the quiet enjoyment of
the leased premises by the Lessee pursuant the provisions of this
Indenture of Lease. (Reference is made to the provisions of Section 8.4
of this Indenture)
4.1.3 Structural Elements of the Exterior
The Lessor shall be responsible for the structural elements of the
exterior of the building leased hereunder; as well as for apparatus,
piping or wiring delivering utilities from the public way to the edge of
the building,
Lessee, however, shall be responsible for all said apparatus, piping or
wiring within any portion of the building.
------
The foregoing is subject to the provisions of Section 2.3 of this
Indenture.
ARTICLE V
---------
COVENANTS OF THE LESSEE
-----------------------
THE LESSEE COVENANTS AND AGREES that during the term and such further
time as Tenant occupies any part of the Premises, the Lessee shall comply with,
shall be obligated to perform, and shall be bound by, each of the
responsibilities herein after set forth under this ARTICLE V. (Section 5.1
through Section 5.13). The Lessee specifically promises, covenants and agrees:
5.1 Payments
The Lessees shall pay, as and when due, all fixed rent and additional
rent and all charges for utility services rendered to the Premises in
accordance with the terms of this Indenture of Lease.
5.2 Maintenance of the Premises Leased Hereunder; Yielding of Premises; Waste
and Destruction
The Lessee shall keep the Premises in good order, repair and condition,
reasonable wear and tear only excepted, and all glass in windows, both
exterior and interior, and doors of the Premises whole and in good
condition with glass of the same type and quality as that injured or
broken, damage by fire or taking under the power of eminent domain only
excepted. At the expiration or termination of this Lease, the Lessee
shall peaceably yield up the Premises all construction, work,
improvements, and all alterations and additions thereto in good order,
repair and condition, reasonable wear and tear only excepted, first
removing all goods and effects of the Lessee, and to the extent specified
by the Lessor by notice to the Lessee given at least ten (10) days before
such expiration or termination, the wiring for the Lessee's computer,
telephone and other communication systems and equipment and all
alterations and additions made by Lessee and all partitions, and
repairing any damage caused by such removal. The LESSEE shall, upon
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termination of the lease term, restore the Premises and leave them broom
clean.
The Lessee shall not permit or commit any waste, destruction, loss or
damage to the premises leased hereunder.
The Lessee shall be responsible for the cost of repairs which may be made
necessary by reason of damage to common areas in the Facilities caused by
the Lessee, its contractors, employees, personnel or invitees.
5.3 Use and Occupation of Leased Premises
(A) PROHIBITIONS AND RESTRICTIONS
Continuously and from the commencement of the initial Term and during
the two (2) extended terms hereof; the Lessee shall use and occupy the
premises leased hereunder in accordance with the Permitted Uses
(Section 1.15); subject to Section 5.3(B) below.
The lessee shall not:-
(1) injure or deface the Premises, or any other part of the Facilities or
Complex of which said premises are a part;
(2) permit in the Premises or on the Site any auction sale, or
inflammable fluids or chemicals, or nuisance, or the emission from
the Premises of any objectionable noise or odor;
(3) use or devote the Premises or any part thereof for any purpose other
than the Permitted Uses;
(4) use or devote the leased premises for any use which shall be
inconsistent with the maintenance of the Building (and the leased
premises) as an office/research and development building (including
light manufacturing) of the first class in the quality of its
maintenance, use and occupancy;
(5) use or devote any portion of then leased premises for any use or
purpose which is improper, offensive, contrary to any law or
ordinance;
(6) use or devote the leased premises for any purpose or activity that
may or shall be liable to invalidate or increase the premiums for any
insurance on the Premises or their contents or liable to render
necessary any alteration or addition to the Premises.
(B) ENVIRONMENTAL CONTROL LAWS- the Lessee shall not be in violation of, and
shall comply with, all laws and rules concerning any and all hazardous
substances and environmental regulations (including, without limitation,
CERCLA and M.G.L. Chapter 21E, as set forth in Section 1.12 (8), and,
as follows:-
The Lessee shall not engage in (and the Lessee shall not permit, allow or
suffer, its employees, personnel, representatives, invitees or
contractors to engage in) any activity that may produce hazardous
material, waste or substance, or keep or maintain any substance which is
now, or may hereafter be classified, a hazardous material, waste or
substance under federal, state or
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local laws, rules and regulations, including, without limitation, 42 U.S.C.
Section 6901 et seq, 42 U.S.C. Section 9601 et seq, 49 U.S.C. Section 1802
et seq and, also, Massachusetts General Laws, Chapter 21E, (including tile
rules and regulations promulgated under any of the foregoing Federal, state
and local laws), as such laws, rules and regulations may be amended from
time to time (and relating to "Hazardous Substances", as defined in 42
U.S.C. Section 9601 et seq and to "Hazardous Materials", as defined in
Massachusetts General Laws, Chapter 21 E). The Lessee shall comply with the
foregoing; and shall cause its employees, personnel, representatives,
invitees, agents and contractors to comply with each of said laws, rules
and regulations.
Under no circumstances, shall the Lessee cause, suffer, permit or allow any
discharges or releases upon any portion of the premise leased hereunder of
any such hazardous materials or hazardous substances. Under no
circumstances shall the Lessee cause, suffer permit or allow any releases
or discharges upon any portion of the premises leased hereunder that are
now, or may in the future be, proscribed or prohibited under any federal,
state, county or municipal law or regulation.
Without limitation, the LESSEE shall not cause, suffer or permit any
releases or discharges of any substances, or cause, suffer or permit any
actions, that may pollute or cause damage of any kind to the Premises, to
the Site, or to the Complex or Facilities. The Lessee shall permit or
suffer no discharges or releases upon the Premises or upon the Facilities
of any substance prohibited by any applicable law; and shall not engage in,
or permit or suffer any accumulations, maintenance, releases or discharges
upon the said Premises or upon said Facilities in violation of any
applicable law or regulation, federal, stale or local.
(C) Light manufacturing and research and development uses:
With respect to light manufacturing and research and development portions
of the Permitted Uses, the Lessor agrees that Lessee may use the Premises
for such purposes provided that, upon the condition, and only so long as:
(1) such uses are permitted under applicable laws, by-laws, rules and
regulations from time to time in effect including, but not limited to,
the Zoning By-Law of the Town of Wilmington, Massachusetts from time
to time in effect and the requirements of the Americans with
Disabilities Act and the regulations thereunder all as may, from time
to time, be in effect (collectively "Governmental Requirements);
(2) Lessee shall comply with all Governmental Requirements;
(3) such uses shall not create, cause or produce undue noise or odor, any
nuisance and shall not interfere with the uses and quiet enjoyment of
other portions of the Facilities or Complex; and
(4) such use shall not impose any cost, material risk or liability upon
the Lessor (including not increasing the cost of Lessor's insurance
and not resulting in a cancellation of any of Lessor's insurance). The
Lessee herewith agrees to be responsible for, and to pay, any and all
such increased costs; - which costs shall be paid promptly by the
Lessee.
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5.4 Obstructions; Items Visible From Exterior; Rules and Regulations
The Lessee shall not obstruct in any manner any portion of the Facilities
or Complex not hereby leased or any portion thereof or of the buildings or
of the Site used by Lessee in common with others. The Lessee shall not,
without prior consent of Lessor, permit the painting or placing of any
signs, curtains, blinds, shades, awnings, aerials or flagpoles, or the
like, visible from outside the Premises. The Lessee shall comply with all
reasonable Rules and Regulations now or hereafter made by Lessor, of which
the Lessee has been given notice, for the care and use of the Facilities
and their appurtenances and approaches. The Lessor agrees that its consent
shall not be unreasonably withheld or delayed.
5.5 Safety appliances; Licenses; Security Systems;
The Lessee shall keep the Premises equipped with all safety appliances
(including a new fire alarm system to be provided by Lessor) that may be
required by any public authority because of any use made by Lessee other
than normal office/research and development use. In connection therewith,
the Lessee shall and procure all licenses and permits so required because
of such use. Further, the Lessee shall do any work required because of
such use. It is understood and agreed however, that the foregoing
provisions shall not be construed to broaden in any way the Lessee's
Permitted Uses.
The Lessee shall install, and shall keep and maintain, security systems
of high quality to provide security to any and all parts of the premises
leased hereunder to the Lessee. Said systems shall be installed and
maintained at the sole and exclusive cost to the Lessee.
5.6 Assignment; Sublease (Section 5.C through Section 5.6.6.)
Except as otherwise expressly provided herein, the Lessee covenants and
agrees that it shall not assign, mortgage, pledge, hypothecate or
otherwise transfer this Lease and/or Tenant's interest in this Lease or
sublet (which terms, without limitation, shall include granting of
concessions, licenses or the like) the whole or any part of the premises
leased hereunder. Any assignment, mortgage, pledge, hypothecation,
transfer or subletting not expressly permitted under, or consented to, by
the Lessee pursuant to Sections 5.6.1 to 5.6.6 hereunder, shall be void,
ab initio; shall be of no force and effect; and they shall confer no
rights to, or in favor of, third parties. In addition, the Lessor shall
be entitled to seek specific performance, or other equitable relief; with
respect to the provisions hereof.
5.6.1 Subsidiaries; Affiliated Entities; Merger:
Notwithstanding the foregoing provisions of Section 5.6 above (but
subject to the provisions of Sections 5.6.4. and 5.6.5 and 5.6.6
hereafter), the Lessee shall have the right to assign this Lease or to
sublet the whole or part of the premises leased hereunder, but only and
exclusively to:
(1) a parent or subsidiary corporation of the Lessee;
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(2) an affiliated entity in common control with Lessee; or
(3) a corporation into which Lessee may be converted or with which it may
merge.
5.6.2 Written Notice of Assignment under Section 5.6.1
Notwithstanding the provisions of Section 5.6 above, in the event the
Lessee desires to assign this Lease or to sublet the whole (but not part)
of the Premises (no partial subletting being permitted other than as
provided in Section 5.6.1), the Lessee shall deliver to the Lessor
written notice of its intention to assign or sublet the whole or part of
the premises leased hereunder, pursuant to the provisions of Section
5.6.1 above, no less than 90 days prior to the execution date of the
instrument establishing said assignment or subletting. Said written
notice shall, with particularity, set forth the name, address and
specific business activities of the proposed sublessee or assignee; and
said written notice shall disclose in detail the relationship between the
Lessee and the proposed sublessee or assignee as well as set forth, with
specificity, any proposed merger or affiliation with the designated
sublessee or assignee or subtenant..
5.6.3 No Assignment, Sublease or Subletting Without Prior Written Consent of
Lessor
Notwithstanding the provisions of Section 5.6 above, but subject to the
---
provisions of this Section 5.6.3 and the provisions of Sections 5.6.4,
5.6.5 and 5.6.6 below, the Lessee shall have the right to assign this
Lease or sublet or sublease the whole (but not part) of the Premises in
accordance with written notice from the Lessee delivered to the Lessor,
as stipulated under Section 5.6.4 below; provided that, in each instance,
the Lessee shall obtain the express prior written consent of the Lessor,
which consent shall not be unreasonably withheld or delayed. The Lessor
shall not be deemed to be unreasonably withholding its consent to such a
proposed assignment or subleasing if any of the following conditions
shall then prevail, to wit:
(a) the proposed assignee or sublessee or subtenant is not of a
character consistent with the operation of a first class office
building; or
(b) the proposed assignee or sublessee or subtenant is not of good
character and reputation; or
(c) the proposed assignee or sublessee or subtenant does not possess
adequate financial capability to perform the obligations of the
Lessee as and when due or required; or
(d) the assignee or sublessee or subtenant proposes to use the
Premises (or part thereof) for a purpose other than the purposes
for which the premises may be used as stated in Section 1.15; or
(e) the character of the business to be conducted or the proposed use
of the Premises by the proposed assignee or sublessee or
subtenant
(i) be likely to increase Operating Expenses for the Property
beyond that which the LESSOR now incurs for use by the
Lessee;
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(ii) be likely to increase the burden on Building systems or
equipment over the burden prior to such proposed
subletting or assignment; or subleasing or
(iii) violate or be likely to violate any provisions or
restrictions contained herein relating to the use or
occupancy of the premises leased hereunder, (including,
but not limited to, the provisions of Section 5.3 hereof);
or
(f) there shall be existing an "Event of Default" (defined in Section
7.1).
5.6.4 Notice of Proposed Assignment, Subletting or Subleasing
The Lessee shall deliver to the Lessor written notice of any proposed
assignment or sublease or subletting; and said notice shall specify the
provisions of the proposed assignment or subletting, including, the
following:-
(a) the name and address of the proposed assignee or sublessee or
subtenant;
(b) in the case of a proposed assignment or subletting pursuant to
Section 5.6.3, such information as to the proposed net worth and
financial capability and standing of the proposed assignee or
sublessee or subtenant as may reasonably be required for the Lessor
to make the determination referred to in Section 5.6.3 above
(provided, however, that Lessor shall hold such information
confidential; - the Lessor, however, having, and hereby being
granted, and retaining, the right to release said information to
its officers, accountants, attorneys and mortgage lenders on a
confidential basis);
(c) all of the terms and provisions upon which the proposed assignment
or subleasing or subletting is proposed to be made;
(d) in the case of a proposed assignment or subleasing or subletting
pursuant to Section 5.6.3, all other information necessary to make
the determination referred to in said Section 5.6.3 above; and
(e) in the case of a proposed assignment or subleasing or subletting
pursuant to Section 5.6.1 above, such information as may be
reasonably required by Lessor to determine that such proposed
assignment or subleasing or subletting complies with the
requirements of said Section 5.6.1 (said information including, but
not limited to, the matters set forth in said Section 5.6.1.).
No partial subletting shall be permitted except as provided in Section
5.6.1.
If the Lessor shall consent to the proposed assignment or subleasing or
subletting, as the case may be, then, in such event, the Lessee may
thereafter assign sublease or sublet (the whole, but not part, of the
Premises) pursuant to the notice from the Lessee, given as required
hereunder; provided, however, that if such assignment or sublease shall not
be executed and delivered to the Lessee within ninety (90) days after the
date of the consent by the Lessor, the said consent shall be deemed null
and void; and the provisions of Sections 5.6.2 and 5.6.3 shall then again
be applicable and shall thereafter be followed as to the proposed
assignment or subleasing or subletting.
5.6.5 Consent to Assignment Conditional Upon Guarantee of the Lessee (Payment
of Rent, etc.):
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In addition, in the case of any assignment or subleasing or subletting by
the Lessee, including, but not limited to, any assignment or subleasing
or subletting as to which Landlord may consent, such assignment,
subleasing or subletting (and the consent of the Lessor if given thereto)
shall be upon the express and further condition, covenant and agreement
(and the Lessee hereby covenants and agrees) that the Lessee shall
continue to be liable and be responsible for, the Annual Fixed Rent,
additional rent and other charges to be paid pursuant to this Indenture
of Lease and shall continue to be liable and responsible for the
covenants and obligations of the Lessee under this Indenture of Lease.
Therefore it is agreed, under Section 5.6.6(A) and (B) and (C), as
follows:
5.6.6. Responsibility in the Event of Assignment or Subleasing
(A) It is, and shall be, a condition of the validity of any assignment or
subleasing or subletting, under Section 5.6.1 above, or consented to
under Section 5.6.3 above, that the assignee or sublessee or
subtenant shall agree directly with the Lessor, in form reasonably
satisfactory to the Lessor, to be bound by all the obligations of
this Indenture of Lease; including, without limitation, the
------------------
obligation to pay the rent and other amounts provided for under this
Lease and including, without limitation, the provisions under ARTICLE
V, including, specifically, Section 5.3 and Section 5.6 through 5.6.6
thereof. In any event, such assignment or subleasing or subletting
(whether or not consented to by the Lessor and whether under the
provisions of Section 5.6.1 or otherwise) shall not relieve the
Lessee named herein of any of the obligations of the Lessee under
this Indenture of Lease. Therefore, the Lessee shall remain fully and
primarily liable for all payments, as and when due, required under
this Indenture of Lease as well as for the performance of all
obligations of the Lessee hereunder.
The liability of the Lessee and of such assignee (or sublessee or
subtenant, as the case may be) shall be, and shall remain, joint and
several.
Further, and notwithstanding the foregoing, the provisions hereof
shall not constitute a recognition (by way of substitution) of the
assignment or of the assignee or sublessee or subtenant thereunder.
At the option of the Lessor, upon the termination of the Lease
established by this Indenture, any said assignment or sublease or
subletting shall be terminated.
(B) As additional rent, the Lessee shall promptly reimburse the Lessor
for reasonable out of pocket, legal and other expenses incurred by
Landlord in connection with any request by the Lessee for consent to
any proposed assignment or sublease or subletting.
(C) Any consent by the Lessor to an assignment or subleasing or
subletting under any of the provisions of Sections 5.6.1 or 5.6.3
shall not be consent to any other or future assignment or subleasing
or subletting; - and shall not in any way be construed to relieve the
Lessee from the obligation of obtaining the express consent in
writing of the Lessor to any further assignment or subletting.
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5.7 Indemnification: - Insurance
(A) Indemnification:
The LESSEE covenants and agrees to defend with counsel first approved
by LESSOR (which approval shall not be unreasonably withheld or
delayed) and to save harmless, and indemnify the LESSOR from any
liability for injury, loss, accident or damage to any person or
property and from any claims, actions, proceedings and expenses and
costs in connection therewith (including without limitation reasonable
counsel fees) - - which injury, loss, accident, damage claims actions,
proceedings and expenses and costs:-
(a) shall arise from, or are claimed to have arisen, from
(i) the omission, fault, willful act, negligence or other
misconduct of the Lessee or of the Lessee's
contractors, licensees, invitees, agents, independent
contractors or employees; or
(ii) any use made or thing done or occurring on the premises
leased hereunder after the date that possession of the
said premises is first delivered to Lessee and until
the end of the Lease Term or extensions thereof; and
thereafter, so long as the Lessee shall be in occupancy
of any part of the Premises; provided, however, that
said use, activity or occurrence shall not be due to
the omission, fault, willful act, negligence or other
misconduct of the Lessor or its contractors, agents or
employees; or
(b) shall result from the failure of the Lessee to perform and
discharge any of its covenants and obligations under this Lease.
(c) In the event that any said occurrence shall in part be due to, or
in part caused by, the fault or negligence of LESSOR, the
liability of, and indemnification by, the LESSEE hereunder shall
be delimited only to the extent of the relative degree or
----
proportion of fault of the LESSOR in causing or contributing to
said occurrence. In the event that said occurrence shall, in
part, be due to the fault or negligence of the Lessor, the Lessee
shall be liable to the Lessor and shall indemnify the Lessor to
the degree or extent of the fault or negligence of the Lessee.
(B) INSURANCE
The Lessee, further, covenants and agrees to maintain, with
responsible companies qualified to do business, and in good standing,
in Massachusetts, commercial general liability insurance or
comprehensive general liability insurance with a broad form
comprehensive liability endorsement covering the premises leased
hereunder insuring the LESSOR (as an additional insured) as well as
the Lessee with limits which shall, at the commencement of the Term,
be at least equal to those stated in Section 1.1; and from time to
time during the
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Term, shall be for such higher limits, if any, as are customarily carried
in Greater Boston with respect to similar properties or which may
reasonably be required by the LESSOR. Further, the Lessee shall maintain
workmen's compensation insurance with statutory limits covering all of the
employees of the LESSEE working in the premises leased hereunder.
The Lessee shall deposit with Lessor on or before the Commencement Date
and concurrent with all renewals thereof, certificates for such insurance
designating the Lessor as insured, as above provided, and bearing the
endorsement that the policies will not be canceled until after thirty (30)
days' written notice to Lessor.
In addition to the commercial general liability insurance (designating the
Lessor as an additional insured), as above stipulated, the Lessee shall
maintain and carry, at its expense, an insurance policy or contract
insuring or indemnifying the Lessor (or the mortgagees of the Lessor, as
their interests may appear) against loss of rental income (as established
under this Lease) that may result or be caused by fire or other casualty
to the premises to the premises leased hereunder. Said insurance shall
insure or indemnify the Lessor (or its mortgagees) for a period of no less
than twelve (12) months from and after the date of such fire, loss, damage
or other casualty.
5.8 Furnishings, etc. of the Lessee at Lessee's Risk
It is herewith agreed that all of the furnishings, fixtures, equipment,
effects and property of every kind, nature and description of the Lessee
and of all persons claiming by, through or under the Lessee which, during
the continuance of this Lease or any occupancy of the Premises by the
Lessee or anyone claiming under the Lessee, may be on the Premises or
elsewhere in the Facilities or Complex, shall be at the sole risk and
hazard of the Lessee; - and if the whole or any part thereof shall be
destroyed or damaged by fire, water or otherwise, or by the leakage or
bursting of water pipes, steam pipes, or other pipes, by theft or from any
other cause, no part of said loss or damage is to be charged to or be
borne by the Lessor; - except that LESSOR shall not be indemnified or held
harmless or exonerated from any liability to the Lessee or to any other
person, for any injury, loss, damage or liability that shall have been
caused by the negligence or fault of the Lessor.
5.9 Right of Entry
The Lessee agrees to permit Landlord and its agents to examine the
premises leased hereunder at reasonable times and to require that the
Lessee make any repairs or replacements for the proper maintenance and
upkeep of the building and of the premises leased hereunder. Further, the
Lessor may remove at the expense of the Lessee, any alterations,
additions, signs, curtains, blinds, shades, awnings, aerials, flagpoles,
or the like not consented to in writing.
The Lessor may enter the premises, at reasonable times, to show the
building and the premises to prospective tenants during the twelve (12)
months preceding expiration of the initial Term or expiration of any
extended term. Further, the Lessor may enter into and upon any part of the
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premises leased hereunder, at all reasonable times, for the purpose of
showing same to prospective purchasers and mortgagees. (All persons must
sign the log book upon entering the premises and note the time upon
exiting the same.)
5.10 Floor Load: Prevention of Vibration and Noise
The Lessee agrees not to place a load upon the Premises exceeding an
average rate of 200 pounds of live load per square foot of floor area
(partitions shall be considered as part of the live load); and not to move
any safe, vault or other heavy equipment in, about or out of the Premises
except in such manner and at such time as the Lessor shall, in each,
instance authorize.
Notwithstanding the foregoing, the LESSEE shall not place any load upon
---
the said Premises which will damage same, or which may cause damage
thereto, even though said load shall be less than 200 pounds of live load
----
per square foot of floor space. LESSEE agrees, therefore, that it shall
not place any load upon or in said premises which will or may damage same.
The weight limitation above set forth (200) pounds of live load per square
foot) shall be adjusted downword in the event that the engineers the
Lessor shall determine that said limitation of weight is excessive and
requires adjustment downwards under the circumstances of the building. The
Lessee agrees to assent to said reduction of weight limitation by said
engineers as they shall determine.
The Lessee agrees that business machines and mechanical equipment which
cause vibration or noise that may be transmitted to the structure of the
building leased hereunder shall be installed, maintained and used by the
Lessee in such manner as to eliminate such vibration or noise.
5.11 Personal Property Taxes
The Lessee agrees to pay promptly when due all taxes which may be imposed
upon personal property upon the premises herein leased (including, without
limitation, fixtures and equipment) to whomever assessed.
5.12 Compliance with Laws
a. The Lessee agrees to comply, and shall comply with, all applicable
Legal Requirements now or hereafter in force which shall impose a duty
on the Lessee or the Lessee relating to, or as a result of, the use or
occupancy of the premises leased hereunder; - provided that Lessee
shall not be required to make any alterations or additions to the
structure, roof, exterior and load bearing walls, foundation,
structural floor slabs and other structural elements of the Buildings
unless the same are required by such Legal Requirements as a result of
or in connection with use or occupancy by the Lessee of the premises
leased hereunder. The Lessee shall promptly pay all fines, penalties
and damages that may arise out of or be imposed because of its failure
to comply with the provisions of this Section 5.12.
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b. Not in limitation of the foregoing, the LESSEE shall conduct and carry
on its activities within the Premises in accordance with all and any
permits or licenses (wherever any said permit or license shall be
required) properly applied for and issued by any and all governmental
authority having jurisdiction or responsibility over same.
c. The LESSEE shall, at its sole expense, obtain and renew any and all
permits or licenses necessary for the LESSEE to be or become a
permitted user or permittee of the Waste Water Treatment Facility
referred to in Section 1.14 and in Section 2.2.
5.13 Payment of Litigation Expenses
The Lessee agrees to pay, as additional rent, all reasonable costs,
counsel and other fees incurred by the Lessor in connection with the
successful enforcement by the Lessor of any obligations of the Lessee
under this Indenture of Lease.
ARTICLE VI
----------
CASUALTY AND TAKING
-------------------
6.1 Fire and Casualty - Termination of Restoration; Rent Adjustment
(A) Restoration - Termination
If, during the initial or extended Term or Terms of the lease, the
building leased hereunder (including the Site that affects the said
leased premises) are damaged by fire or other casualty, and in the
event that such fire or casualty damage cannot, in the ordinary
course, reasonably be expected to be repaired within one hundred
eighty (180) days from the time that repair work would commence,
Lessor may, at its election, terminate this Lease by notice given to
Lessee within sixty 60) days after the date of such fire or other
casualty, specifying the effective date of termination. The effective
date of termination specified by the Lessor shall not be less than
thirty (30) days nor more than forty-five (45) days after the date of
notice of such termination.
If the LESSOR does not elect to terminate the Lease (in the event of
---
the foregoing), the LESSOR will proceed with due diligence to restore
the premises to their condition prior to the fire or casualty.
(B) Damage during Last Year
If the said building and premises shall be damaged by fire or other
casualty during the last year of the initial term or during the last
year of each of the extended terms of the lease, and such fire or
casualty damage cannot, in the ordinary course, reasonably be expected
to be repaired within one hundred eighty (180) days from the time that
said work would commence (and/or, as to special work or work which
requires long lead time, then if such work cannot reasonably be
expected to be repaired within such additional time as is
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reasonable under the circumstances given the nature of the work),
then, in such event, the Lessee may, at its election, terminate this
Lease by notice given to Landlord within sixty (60) days after the
date of such fire or other casualty, specifying the effective date of
termination. The effective date of termination specified by Tenant
shall be not less than thirty (30) days nor more than forty-five (45)
days after the date of notice of such termination.
Unless terminated pursuant to the foregoing provisions, this Lease shall
remain in full force and effect following any such damage; subject,
however, to the following provisions.
(C) Rent Adjustment in the Event of Temporary Displacement
Notwithstanding the provisions of this Section 6.1, if the building
leased hereunder shall be damaged by fire or casualty to such an
extent that Lessee cannot operate in any reasonable portion thereof
and, therefore, must temporarily shut down its usual operations in the
building leased hereunder (for the reason that it is not reasonably
tenantable for ninety (90) days or more), then Tenant shall have the
right to seek other facilities until the said building shall be
restored in accordance with the requirements of this Section 6.1. In
the event that the provisions of the this Paragraph shall become
applicable, the Annual Fixed Rent and additional rent shall abate from
the date of the fire or other casualty giving rise to the
applicability of this Paragraph until the Premises are so restored.
Upon such restoration, Lessee shall return to the Premises and,
commencing with the date the premises are so restored, the LESSEE
shall resume paying Annual Fixed Rent and additional rent
(D) Insurance Proceeds: Restoration
In the event that the said building or the Premises or the Facilities
(or Complex), or any part thereof; are damaged by fire or other
casualty and, if this Lease is not terminated (pursuant to the
provisions of the foregoing); or in the event that the Lessor or the
Lessee shall have no right to terminate this Lease; --- provided that
the holder of any mortgage (which includes the building leased
hereunder to the Lessee as a part of the mortgaged premises) shall
allow the net insurance proceeds to be applied to the restoration of
the damaged building or the damaged Premises or Facilities, then, in
such event, and promptly after such damage and after the determination
of the net amount of insurance proceeds available, the Lessor shall
use due diligence to restore the building or the Premises or the
damaged Facilities, in the event of damage thereto, into proper
condition for use and occupation.
In such event, a fair and equitable part of the Annual Fixed Rent,
proportionate and according to the nature and extent of the damage to
the building shall be abated until the said building shall have been
restored substantially to said proper condition for use and occupation
by the Lessor; except for punch list items and long lead items.
No portion of said insurance proceeds shall be applied to any damage
or loss to any
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furniture, fixtures, apparatus or equipment belonging to, or installed
by, or paid by, the Lessee.
Said restoration by the Lessor (by means of the proceeds of insurance
permitted to be so used by the holder of any mortgage upon the said
Premises, as aforesaid), shall be completed within one (1) year from
the date of the casualty or loss; provided, however, that said one (1)
year period shall be extended in the event that any delay in
completion of the restoration shall be due to causes beyond the
reasonable control of the Lessor. In no event, however, shall the said
extension be beyond eighteen (18) months beyond the date of the
casualty or loss.
In the event that said restoration shall not be substantially
completed within said period or periods of time, the Lessee shall have
the right to terminate this lease at any time after the expiration of
such one (1) year period (or eighteen (18) months, as extended) until
the restoration shall be substantially completed.
Such termination shall take effect as of the thirtieth (30th) day
after the date of receipt by Lessor of notice from the Lessee, with
the same force and effect as if such date were the date originally
established as the expiration date of this lease; provided, however,
that if, within thirty (30) days after receipt by the Lessor of notice
of said of termination from the Lessee, said restoration shall have
substantially completed, then (in the event of such restoration), the
notice of termination from the Lessee shall be of no force and effect;
and this Lease and the Lease Term shall continue in full force and
effect.
6.2 Loss Caused by Uninsured Risk
Notwithstanding anything to the contrary contained in this Lease, if the
building or Premises or the Facilities shall be substantially damaged by
fire or casualty as the result of a risk not covered by the forms of
---
casualty insurance at the time maintained by Lessor or by the LESSEE (with
the LESSOR named as an insured or a loss payee), and such fire or casualty
damage cannot, in the ordinary course, reasonably be expected to be
repaired within ninety (90) days from the time that repair work would
commence, the Lessor may, at its election, terminate the Term of this
Lease by notice to the Lessee given within thirty (30) days after such
loss. If the Lessor shall give such notice, then this Lease shall
terminate as of the date of such notice with the same force and effect as
if such date were the date originally established as the expiration date
hereof.
6.3 Condemnation - Taking by Right of Eminent Domain
In the event that there shall occur a taking by condemnation or by right
of eminent domain, resulting in the taking of the entirety of the building
leased hereunder, or if there shall occur a taking of such portion of the
premises leased hereunder as to render the balance unsuitable for the
purposes of the Lessee (even after reconstruction to the maximum extent
practicable in the then circumstances), then, in such event, both the
Lessor and the Lessee shall have the right to terminate this Lease by
written notice to the other of its desire to do so; - provided that such
notice shall be delivered not later than thirty (30) days after the Lessee
shall have been deprived
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of possession. If either party shall give such written notice, then this
Lease shall terminate as of the date of such notice with the same force
and effect as if such date were the date originally established as the
expiration date hereof.
Further, if so much of the building leased hereunder shall be taken under
said condemnation proceedings, as to render continued operation of the
said buildings uneconomic (as a result of the said taking), both the
Lessor and the Lessee shall have the right to terminate this Lease by
giving notice to the other party of the desire of the party giving said
notice to so terminate the lease, no later than thirty (30) days after
LESSEE has been deprived of possession of the said Premises (or such
portion thereof as may be taken). If either party shall give such notice,
then this Lease shall terminate as of the date of such notice with the
same force and effect as if such date were the date originally established
as the expiration date hereof.
In the event that
(i) any part of the premises leased hereunder be so taken or
condemned during the initial Lease Term or any extension
thereof, and
(ii) should, in such event, this Lease not be terminated in
---
accordance with the foregoing provisions, and
(iii) upon such occurrence, if provided that the holder of any
mortgage (that includes the premises leased hereunder as part of
the mortgaged premises) allows the net condemnation proceeds to
be applied to the restoration of the Premises so taken or
condemned,
then, and in such event:-
The Lessor agrees that, after the determination of the net
amount of condemnation proceeds available to the Lessor, the
Lessor shall use due diligence to put what may remain of the
Premises into proper condition for use and occupation as nearly
like the condition of the Premises prior to such taking as shall
be practicable (excluding, however, any furniture, fixtures or
---------
equipment of Tenant, or any other items installed or paid for by
the Lessee).
If the Premises shall be affected by any exercise of the power
of eminent domain, then the Annual Fixed Rent and Lessee's share
of real estate taxes shall be justly and equitably abated and
reduced according to the nature and extent of the loss of use
thereof suffered by Lessee.
6.4 Awards resulting from eminent domain takings
The Lessor shall have, and hereby reserves, to itself any and all rights
to receive awards made for damages to the premises leased hereunder, or to
the Complex or to the Facilities (or any portion thereof) and, or with
respect to the leasehold hereby created, which awards may result or accrue
by reason of exercise of right of eminent domain, by condemnation
proceedings pursuant thereto, or by reason of anything lawfully done in
pursuance of public, governmental or other
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authority. The Lessee hereby grants, releases and assigns to the Lessor
all rights of the Lessee to such awards. The Lessee covenants and agrees
to execute and deliver such further instruments of assignments, with
respect to said awards, and other assurances thereof as the Lessee may
from, time to time request; - and if the Lessee shall fail to execute and
deliver the same within fifteen (15) days after notice from the Lessor,
the Lessee hereby covenants and agrees that the Lessor is, and shall be,
irrevocably designated and appointed as its attorney-in-fact to execute
and deliver in Lessee's name and behalf all such further instruments of
assignments and other assurances thereof that shall conform with the
provisions hereof.
Nothing contained herein shall be construed to prevent the Lessee from
prosecuting in any condemnation proceeding a claim for the value of any
personal property or usual trade fixtures in the building or upon the
Premises leased hereunder that belong to, or were installed by, the
Lessee, or at the expense of the Lessee; or claims arising from the cost
of relocation and moving; - provided, however, that such action, and any
resulting award shall not affect or diminish the amount of compensation
otherwise recoverable by Landlord from the taking authority.
ARTICLE VII
-----------
DEFAULT
-------
7.1 Default by the Lessee of its obligations under this lease: "EVENTS OF
DEFAULT" by Lessee: Remedies accruing to Lessor (Section 7.1)
(A) The following occurrences or actions by the Lessee (listed hereinafter
under Section 7.1(A) (I) through (iv) are, and shall constitute,
"Events of Default", to wit: -
(i) The Lessee shall fail to pay the fixed RENT, additional rent or
other charges for which provision is made herein on or before
the date on which the same become due and payable, and the same
continues for ten (10) days after notice from Landlord thereof,
or
(ii) The Lessee shall neglect or fail to perform or observe any
other covenant herein contained required to be performed or
observed by the Lessee, and the Lessee shall fail to remedy the
same within thirty (30) days after notice to the Lessee
specifying such neglect or failure; or, if such failure be of
such a nature that the Lessee cannot reasonably remedy the same
within sixty (60) days, the Lessee shall fail to commence
promptly to remedy the same and to prosecute such remedy to
completion with diligence and continuity; or
(iii) The leasehold interest of the Lessee in the Premises shall be
taken on execution or by other process of law directed against
the Lessee; or
(iv) The Lessee: -
(a) Shall make an assignment for the benefit of creditors, or
shall file a voluntary
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petition in bankruptcy; or
(b) Shall be adjudicated bankrupt or insolvent; or
(c) Shall file any petition or answer seeking any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief for itself
under any present or future Federal, State or other
statute, law or regulation for the relief of debtors; or
(d) Shall seek or consent to or acquiesce in the appointment
of any trustee, receiver or liquidator of the Lessee or of
all or any substantial part of its properties; or
(e) Shall admit in writing its inability to pay its debts
generally as they become due; or
(f) A petition shall be filed against the Lessee in bankruptcy
or under any other law seeking any reorganization,
arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any present or future
Federal, State or other statute, law or regulation and
said petition shall remain undismissed for an aggregate of
sixty (60) days (whether or not consecutive), or
(g) A debtor in possession, or a trustee, or a receiver, or a
liquidator of the Lessee of all or any substantial part of
its properties or of the premises leased hereunder, shall
be appointed with or without the consent or acquiescence
of the Lessee and such appointment shall remain unvacated
or unstayed for an aggregate of sixty (60) days (whether
or not consecutive).
(B) In the Event of the Occurrence of any said "Events of Default" by the
Lessee
In the event that any of the said "Events of Default" shall occur, or
if the Lessee shall commit any of the activity that shall constitute
any of said "Events of Default", then, and in any of said cases
(notwithstanding any license of a former breach of covenant or waiver
of the benefit hereof or consent in a former instance), the Lessor
lawfully may, immediately or at any time thereafter, and without
demand or further notice, terminate this Lease by notice to the
Lessee, specifying a date not less than ten (10) days after the giving
of such notice on which this Lease shall terminate. This Lease shall,
then, come to an end on the date specified therein as fully and
completely as if such date were the date herein originally fixed for
the expiration of the Lease Term (Lessee hereby waiving any rights of
redemption); and the Lessee will then quit and surrender the Premises
to the Lessor, but Lessee shall remain liable as hereinafter provided.
(C) Entry by Lessor upon Such Termination
If this Lease shall have been terminated as provided in this Article,
then the Lessor may, without notice, re-enter the Premises, either by
force, summary proceedings, ejectment or otherwise, and remove and
dispossess the Lessee and all other persons and any and all property
from the same, as if this Lease had not been made, and the Lessee
hereby waives the service of notice of intention to re-enter or to
institute legal proceedings to that end.
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(D) Responsibility of Lessee: Rent
In the event that this Lease shall be terminated under any of the
provisions contained in the Article VII (particularly, Section 7.1),
or shall be otherwise terminated as a result of the breach by the
Lessee of any of its obligations under this lease, the Lessee
covenants and agrees that, in such case, the Lessee shall forthwith
pay on the days originally fixed herein for the payment thereof,
amounts equal to the several installments of rent and other charges
reserved as they would, under the terms of this Lease, become due if
this Lease had not been terminated or if the Lessee had not entered or
re-entered, as aforesaid. The Lessee, in such case, shall pay, and
shall be liable for, all said amounts whether the Premises be relet or
remain vacant, in whole or in part, or for a period less than the
remainder of the Term, or for the whole thereof. However, if the
Premises shall be relet by the Lessor, the Lessee shall be entitled to
a credit in the net amount of rent and other charges received by the
Lessor as a result of said reletting, after deduction of all expenses
incurred in reletting the Premises (including, without limitation,
remodeling costs, brokerage fees and the like), and in collecting the
rent in connection therewith, in the following manner:
Amounts received by the Lessor, after reletting shall first be applied
against such expenses incurred by the Lessor, until the all said
expenses shall have been recovered; and until such recovery, the
Lessee shall pay, as of each day when a payment would fall due under
this Lease, the amount which the Lessee is obligated to pay under the
terms of this Lease. When, and if, such expenses shall have been
completely recovered, the amounts received from reletting by Lessor
that shall not have been previously applied to recovery of said
expenses, shall be credited against the obligations of the Lessee as
of each day when a payment would fall due under this Lease. After said
credit, the net amount of the said payments (in fulfillment of the
obligations of the Lessee) shall be payable by the Lessee.
(E) Liquidated Damages
At any time after such termination, and whether or not Landlord shall
have collected any damages pursuant to the foregoing, and at the
election of the Lessor, the Lessee shall pay to the Lessor, as
liquidated final damages and in lieu of all other damages beyond the
date of notice from the Lessor to the Lessee, such sum that shall
represent the amount of the excess, if any, of the total rent and
other benefits, including payment of taxes, (which would have accrued
to the Lessor under this Lease - from the date of giving of such
notice through the expiration date of the then unexpired Lease Term -
or extension thereof) -- over and above -- the then cash rental value
(in advance) of the Premises for the balance of the said Lease term
(or extension thereof)
(F) Rights of Lessor upon Entry after an "EVENT OF DEFAULT"
In case of any Event of Default, re-entry, dispossession by summary
----- -- -------
proceedings or otherwise, the Lessee may
(1) re-let the Premises or any part or parts thereof; either in the
name of the Lessor, or
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otherwise, for a term or for terms which may, at the option of the
Lessor, be equal to, or less than, or exceed, the period which would
otherwise have constituted the balance of the Term of this Lease; and
may, further, grant concessions or free rent to the extent that Lessor
considers advisable or necessary to re-let the same; and
(2) may make such alterations, repairs and decorations in the
Premises as Landlord in its sole judgment considers advisable or
necessary for the purpose of reletting the Premises. The making of
such alterations, repairs and decorations shall not operate or be
construed to release the Lessee from liability hereunder, as
aforesaid. The Lessor shall in no event be liable in any way
whatsoever for failure to re-let the Premises, or, in the event that
the Premises are re-let, for failure to collect the rent under re-
letting. The Lessee hereby expressly waives any and all rights of
redemption granted by or under any present or future laws in the event
the Lessee shall be evicted or dispossessed, or in the event that the
Lessor shall obtain possession of the Premises in consequence of the
violation by the Lessee of any of the covenants and conditions of this
Lease whether said violation shall constitute an "Event of Default" or
otherwise.
(G) Remedies are Cumulative and not Exclusive upon Default
The specified remedies to which the Lessor may resort hereunder are
not intended to be exclusive of any remedies or means of redress to
which the Lessor may, at any time, be entitled lawfully. The Lessor
may invoke any remedy (including the remedy of specific performance)
allowed at law or in equity as though specific remedies were not
herein provided for. Further, nothing contained in this Lease shall
limit or prejudice the right of the Lessor to file or enter a claim
for its damages resulting from said termination of this lease, and
obtain, in proceedings for bankruptcy or insolvency brought by or on
behalf of the Lessee, an amount equal to the maximum allowed by any
statute or rule of law in effect at the time when, and governing the
proceedings in which, the damages are to be proved; whether or not the
amount be greater, equal to, or less than the amount of the loss or
damages referred to above.
7.2 Default by the Lessor of its Obligations under this Lease
The Lessor shall in no event be in default in the performance of any of
the obligations of the Lessor hereunder unless and until Lessor shall have
failed to perform such obligations within thirty (30) days after notice
from the Lessee to the Lessor properly specifying wherein Lessor has
failed to perform any such obligation. In the event, however, that the
default by the Lessor is of such nature as to require additional time
(beyond said thirty (30) days), the time in which the Lessor shall be
required to correct said default, shall be extended for a reasonable and
commensurate time.
ARTICLE VIII
------------
MISCELLANEOUS PROVISIONS
------------------------
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8.1 Extra Hazardous Use
The Lessee covenants and agrees that the Lessee will not do, or permit
anything to be done, in or upon the Premises, or bring in anything or keep
anything therein, which shall increase the rate of any insurance that the
Lessor shall maintain in respect to the Premises or the Facilities or the
Complex above the standard rate applicable to the said premises for
occupancy and use for the purposes (and use) to which the Lessee has agreed
to devote and occupy the Premises. Further, the Lessee agrees that, in the
event that the Lessee shall cause an increase to the Lessor in the rate of
said insurance, the Lessee will promptly pay to the Lessor, within thirty
(30) days after demand, any such increase resulting therefrom; which shall
be due and payable as additional rent. The Lessor shall give notice to the
Lessee of any such increase promptly after the Lessor shall receive
knowledge of the same; provided that the Lessee shall be responsible for
any such increases applicable to both the period prior to and after any
such notice.
8.2 Waiver
Failure on the part of the Lessor or the Lessee to complain of any action
or non-action on the part of the other, no matter how long the same may
continue, shall never be a waiver by the Lessor or by the Lessee,
respectively, of any of their respective rights hereunder. Further, no
waiver at any time of any of the provisions hereof by the Lessor or by the
Lessee shall be construed as a waiver of any of the other provisions
hereof; and a waiver at any time of any of the provisions hereof shall not
be construed as a waiver at any subsequent time of the same provisions. The
consent or approval of the Lessor or of the Lessee to or of any action by
the other requiring such consent or approval shall not be construed to
waive or render unnecessary the consent (or approval to) of the Lessor or
of the Lessee to or of subsequent similar act by the other.
No payment by the Lessee, or acceptance by the Lessor, of a lesser amount
than shall be due from the Lessee to the Lessor shall be treated otherwise
than as a payment on account. The acceptance by Lessor of a check for a
lesser amount with an endorsement or statement thereon, or upon any letter
accompanying such check, that such lesser amount is payment in full, shall
be given no effect, and the Lessor may accept such check without prejudice
to any other rights or remedies which the Lessor may have against the
Lessee.
8.3 Cumulative Remedies
The specific remedies to which the Lessor may resort under the terms of
this Lease are cumulative and are not intended to be exclusive of any other
remedies or means of redress to which such party may be lawfully entitled
in case of any breach or threatened breach by the Lessee of any provisions
of this Lease. In addition to the other remedies provided in this Lease,
the Lessor shall be entitled to the restraint by injunction of the
violation or attempted or threatened violation of any of the covenants,
conditions or provisions of this Lease or to a decree compelling specific
performance of any such covenants, conditions or provisions.
8.4 Quiet Enjoyment
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If the Lessee shall perform all of the obligations of the Lessee under this
Lease (including, but not limited to, payment of the rent and observing,
keeping and performing all of the terms and provisions of this Lease to be
observed, kept and performed by the Lessee), then, in such event, the
Lessee shall lawfully, peaceably and quietly have, hold, occupy and enjoy
the Premises during the initial Term (and any extension thereof), without
hindrance or ejection by any persons lawfully claiming under the Lessor to
have title to the Premises superior to the Lease, subject, however, to the
terms of this Lease. The foregoing covenant of quiet enjoyment is in lieu
of any other covenant, express or implied. It is understood and agreed that
this covenant and any and all other covenants of the Lessor contained in
this Lease shall be binding upon the Lessor and its successors only with
respect to breaches that shall occur during the respective ownership of the
interest of the Lessor by the Lessor or by the successors to or of the
Lessor, as the case may be.
8.5 Notice to Mortgagee and Ground Lessor
After receiving notice from any person, firm or other entity that it holds
a mortgage which includes the Premises as part of the mortgaged premises,
or that it is the ground Landlord under a lease with the Lessor, as ground
Lessee or ground Tenant, which includes the Premises as a part of the
demised premises, no notice from the Lessee to the Lessor shall be
effective unless and until a copy of the same is given to such holder of a
mortgage or ground Landlord; and the curing of any of defaults committed by
the Lessor hereunder by such mortgage holder or ground Landlord within a
reasonable time thereafter (including a reasonable time to obtain
possession of the premises if the mortgagee or ground Landlord elects to do
so) shall be treated as performance by Lessor hereunder. For the purposes
of this Section 8.5 or Section 8.15, the term "mortgage" shall include a
mortgage on a leasehold interest of the Lessor (but not one on leasehold
interest of the Lessee).
8.6 Assignment of Rents
With reference to any assignment by the Lessor of the interest of the
Lessor in this Lease, or the rents payable hereunder, conditional in nature
or otherwise, which assignment is made to the holder of a mortgage or
ground lease on property which includes the Premises, the Lessee agrees, as
follows: -
(A) That the execution of said assignment by the Lessor, and the
acceptance thereof by the holder of such mortgage or the ground
Landlord, shall never be treated as an assumption by such holder
or ground Landlord of any of the obligations of Lessor hereunder,
unless such holder, or ground Landlord, shall, by notice sent to
the Lessee, specifically otherwise elect; and
(B) That, except as aforesaid, such mortgage holder or ground
Landlord shall be treated as having assumed the obligations of
the Lessor hereunder only upon foreclosure of such holder's
mortgage and the taking of possession of the Premises, or, in the
case of a ground Landlord, the assumption of the position of
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the Lessor by such ground Landlord.
(C) The Lessor reserves, and shall have, the unrestricted right and
power to grant mortgages with the premises herein leased as
security under said mortgage. Further, the Lessor shall have the
unrestricted right and power to make any assignment of the rents
or benefits (in whole or in part) to any lender or third party
accruing to the Lessor under this lease, with or without a
mortgage conveyance.
8.7 Surrender
No act or thing done by the Lessor during the Lease Term (or extension
thereof) shall be deemed an acceptance of a surrender of the Premises, and
no agreement to accept such surrender shall be valid, unless in writing
signed by the Lessor. No employee of the Lessor or any agents of the Lessor
shall have any power to accept the keys of the Premises prior to the
termination of this Lease. The delivery of keys to any employee of the
Lessor or to agents of the Lessor shall not operate as a termination of the
Lease or a surrender of the Premises.
8.8 Brokerage
(A) The Lessee warrants and represents that the Lessee has not dealt with
any broker in connection with the consummation of this Lease other than
----------
the Recognized Brokers designated in Section 1.7 hereof. In the event
-------------------------------------------------------
any claim is made against the Lessor relative to dealings by the Lessee
with brokers other than the Recognized Brokers designated in Section
1.7 hereof, the Lessee shall defend the claim against the Lessor with
counsel selected by the Lessee that shall, however, first be approved
by the Lessor (which approval will not be unreasonably withheld); and
the Lessee shall save harmless and shall indemnify Lessor on account of
loss, cost or damage which may arise by reason of such claim.
(B) The Lessor warrants and represents that the Lessor has not dealt with
any broker in connection with the consummation of this Lease other than
----------
the Recognized Brokers designated in Section 1.7 hereof; and in the
-------------------------------------------------------
event any claim is made against the Lessee relative to dealings by the
Lessor with brokers other than the Recognized Brokers designated in
Section 1.7 hereof, the Lessor shall defend the claim against the
Lessee with counsel of selected by the Lessor; - and the Lessor shall
save harmless and indemnify the Lessee on account of loss, cost or
damage which may arise by reason of such claim.
(C) The Lessor shall be solely responsible for the payment of brokerage
-------------------------------------------------------------------
commissions to the Recognized Brokers designated in Section 1.1 hereof.
----------------------------------------------------------------------
8.9 Invalidity of Particular Provisions
If any term or provision of this Lease, or the application thereof to any
person or circumstance shall, to any extent, be invalid or unenforceable,
the remainder of this Lease, or the application of
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such term or provision to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby,
and each term and provision of this Lease shall be valid and be enforced to
the fullest extent permitted by law.
8.10 Provisions Binding, Etc.
The obligations of this Lease shall run with the land, and except as herein
otherwise provided, the terms hereof shall be binding upon and shall inure
to the benefit of the successors and assigns, respectively, of the Lessor
and of the Lessee (and, if Lessee shall be an individual, upon and to his
heirs, executors, administrators, successors and assigns). Each term and
each provision of this Lease to be performed by the Lessee shall be
construed to be both a covenant and a condition. The reference contained to
successors and assigns of the Lessee is not intended to constitute, and
shall not constitute, a consent to subleasing or subletting or assignment
by the Lessee.
8.11 Recording
This Indenture of Lease shall not be recorded.
The Lessee agrees not to record the within Lease; but each party hereto
---
agrees, on the request of the other, to execute a so-called Notice of Lease
in form recordable and complying with applicable law and reasonably
satisfactory to the attorneys of the Lessor and of the Lessee. In no event
shall such document set forth rent or other charges payable by Lessee under
this Lease; and any such document shall expressly state that it is
executed pursuant to the provisions contained in this Lease, and is not
intended to vary the terms and conditions of this Lease.
8.12 Notices
Whenever, by the terms of this Lease, notice shall or may be given or
delivered either to the Lessor or to the Lessee, such notice shall be in
writing and shall be sent by registered or certified mail, postage prepaid,
as follows:-
If intended for the Lessor, it shall be addressed to the Lessor at the
address set forth under Section 1.2.1 of this Indenture of Lease (or to
such other address or addresses as may from time to time hereafter be
designated by the Lessor) with a copy to the Lessor, Care of and
Attention to its General Counsel, Frank N. Dardeno, Esquire, 424
Broadway, Somerville, Massachusetts 02145).
If intended for the Lessee, addressed to the Lessee, at 500 Arsenal
Street, Watertown, Massachusetts 02172, Attention: George Hrono, Senior
Vice President (or to such other address or addresses as may from time
to time hereafter be designated by the Lessee by like notice), with a
copy thereof to the then General Counsel of the Lessee (as designated
by the Lessee) and, if the Lessor shall so elect, to the General
Manager or Officer in Charge of the Lessee at the premises leased
hereunder to the Lessee.
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Except as otherwise provided herein, all such notices shall be effective
when received; provided that
(i) if receipt is refused, notice shall be effective upon the first
occasion that such receipt is refused or
(ii) if the notice is unable to be delivered due to a change of address
of which no notice was given, then, in such event, notice shall be
effective upon the date such delivery was attempted.
8.13 When Lease Becomes Binding
Employees or agents of the Lessor have no authority to make or agree to
make a lease or any other agreement or undertaking in connection herewith.
The submission of this document for examination and negotiation does not
constitute an offer to lease, or a reservation of, or option for, the
Premises. This document shall become effective and binding only upon the
execution and delivery hereof by both the Lessor and the Lessee. All
negotiations, considerations, representations and understandings between
the Lessor and the Lessee are incorporated herein and may be modified or
altered only by written agreement between the Lessor and the Lessee. No act
or omission of any employee or agent of the Lessor or of the Lessee shall
alter, change or modify any of the provisions hereof unless said act or
omission shall, in each instance, be specifically authorized, in writing,
by the Lessor or the Lessee (as the case may be).
8.14 Section Headings
The headings of the Sections as well as the titles of the Articles
throughout this Lease are for convenience and reference only, and the words
contained therein shall in no way be held to explain, modify, amplify or
aid in the interpretation, construction or meaning of the provisions of
this Lease.
8.15 Rights of Mortgagee
This Lease shall be subject and subordinate to any mortgage now or
hereafter on the Premises (the premises leased hereunder) or the Facilities
or the Complex, and to each advance made, or hereafter to be made, under
any mortgage, and to all renewals, modifications, consolidations,
replacements and extensions thereof and all substitutions therefor;
provided that the holder of such mortgage agrees to recognize the rights of
---------------------------------------------------------------------------
the Lessee under this Lease (including the right to use and occupy the
---------------------------
Premises) upon the payment of rent and other charges payable by the Lessee
under this Lease and the performance by the Lessee of the obligations of
the Lessee hereunder.
In confirmation of such subordination and recognition, the Lessee shall
execute and deliver promptly such instruments of subordination and
recognition as such mortgagee may reasonably request.
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In the event that any mortgagee or its respective successor in title
shall succeed to the interest of the Lessor, then, this Lease shall
nevertheless continue in full force and effect and the Lessee shall attorn
------
(and does hereby agree to attorn) to such mortgagee or successor; and to
------
recognize such mortgagee or successor as its landlord.
With respect to any mortgage (which includes the Premises) that has been
executed and recorded prior to the date of this Lease, if the holder of
-----
said mortgage shall so elect, this Lease and the rights of Lessee
hereunder, shall be superior in right to the rights of such holder, with
--------
the same force and effect as if this Lease had been executed, delivered and
recorded, or a statutory Notice thereof recorded, prior to the execution,
delivery and recording of any such mortgage. The election of any such
holder shall become effective upon either notice from such holder to the
Lessee (which notice shall be given in the same fashion as notices from the
Lessor to the Lessee are to be given hereunder) or by the recording in the
appropriate registry or recorder's office of an instrument in which such
holder subordinates its rights under such mortgage to this Lease.
If in connection with obtaining financing for the Premises (the premises
leased hereunder) or the Complex or Facilities, a bank, insurance company,
pension trust or other institutional lender shall request reasonable
modifications in this Lease as a condition to such financing, the Lessee
will not unreasonably withhold, delay or condition its consent thereto;
provided that such modifications do not increase the monetary obligations
of the Lessee hereunder or materially adversely affect the leasehold
interest hereby created.
8.16 Status Report
Recognizing that both parties may find it necessary to establish to third
parties (such as accountants, banks, mortgagees or the like), the then
current status of performance hereunder, either party, on the request of
the other made from time to time, will promptly furnish to the Lessor, or
the holder of any mortgage encumbering the Premises or the Complex or the
Facilities, or to the Lessee, as the case may be, a statement of the status
of any matter pertaining to this Lease, including, without limitation,
acknowledgments that (or the extent to which) each party is in compliance
with its obligations under the terms of this Lease. Any such statement
delivered by the Lessee pursuant to this Section 8.16 may be relied upon by
any prospective purchaser or mortgagee of the Premises or the Complex or
the Facilities or any prospective assignee of any mortgagee of the
Premises.
8.17 Self-Help
If the Lessee shall, at any time, default in the performance of any
obligation under this Lease, the Lessor shall have the right, but shall not
be obligated, to enter upon the Premises and to perform such obligation
notwithstanding the fact that no specific provision for such substituted
performance by the Lessor is made in this Lease with respect to such
default. In performing such obligation, the Lessor may make any payment of
money or perform any other act.
All sums so paid by the Lessor (together with interest at the rate of two
-- ---
and one-half percentage
------------
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points over the then prevailing prime rate in Boston as set by Bank Boston,
------------------
successor to The First National Bank of Boston) and all costs and expenses
----------------------------------------------
in connection with the performance of any such act by the Lessor, shall be
deemed to be additional rent under this Lease and shall be payable to
Landlord immediately on demand.
The Lessor may exercise the foregoing rights without waiving any other of
its rights and without releasing the Lessee from any of its obligations
under this Lease.
8.18 Holding Over
Any holding over by the Lessee after the expiration of the term of this
Lease shall be treated as a tenancy at sufferance at double the rents and
other charges herein (prorated on a daily basis) and shall otherwise be on
the terms and conditions set forth in this Lease, as far as applicable;
provided, however, that neither the foregoing nor any other term or
provision of this Lease shall be deemed to permit the Lessee to retain
possession of the Premises or hold over in the Premises after the
expiration or earlier termination of the Lease Term.
8.19 Non-Subrogation
Any insurance carried by either party with respect to the Premises or
property therein or occurrences thereon shall, if it can be so written
without additional premium or with an additional premium which the other
party agrees to pay, include a clause or endorsement denying to the insurer
rights of subrogation against the other party to the extent rights have
been waived by the insured prior to occurrence of injury or loss. Each
party, notwithstanding any provisions of this Lease to the contrary, hereby
waives any rights of recovery against the other for injury or loss due to
hazards covered by such insurance to the extent of the indemnification
received thereunder.
8.20 Extension Option
(A) Conditions
Provided that at the time of exercise of the option to extend and at the
commencement date of the extension option period -
(i) there exists no Event of Default (defined in Section 7.1); and
--
(ii) this Lease shall then be in full force and effect; and
(iii) the Lessee has neither assigned this Lease nor sublet the Premises;
Then, if said three (3) conditions shall prevail, the Lessee shall have
the right to extend the Term hereof upon all the same terms, conditions,
covenants and agreements herein contained (except for the Annual Fixed
Rent which shall be adjusted during the option period as herein below set
forth) for two (2) periods of five (5) years as hereinafter set forth.
The option period is sometimes herein referred to as the "Extended Term".
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(B) First Five (5) Year Extended Term
If the Lessee desires to exercise the option to extend the Term for the
first five (5) year extended term (commencing December 1, 2007 and ending
November 30, 2012), then the Lessee shall deliver notice to the Lessor of
the request of the Lessee for quotation by the Lessor of Ninety Five (95%)
per centum of the annual fair market rent for the Premises as of the
commencement date of the first extension period. Such quotation shall be
based on the use of the Premises as comparable office space in the Boston
North Suburban Market (hereinafter called the "Annual Market Rent").
Within thirty (30) days after receipt by the Lessor of said notice from
the Lessee requesting such a quotation, the Lessor shall notify the Lessee
of the quotation of the Lessor of Ninety Five (95%) per centum of the
Annual Market Rent. Said Ninety Five (95%) per centum of the Annual Market
Rent, however, shall, in no event, be less than the Annual Fixed Rent for
the last year of the Original or Initial Term. The Lessee shall deliver
said notice to the Lessor of its request for quotation by the Lessor of
Ninety-five (95%) per centum of the annual fair market rent not earlier
than fifteen (15) months nor later than Twelve months prior to the
expiration term of this lease.
In order to exercise its rights hereunder, the Lessee, (and within fifteen
(15) days after receipt by the Lessee of the quotation from the Lessor of
Ninety Five (95%) per centum of the Annual Market Rent) shall give written
notice to the Lessor that it exercises its option to extend the Term of
this Lease; in which case the Term of this Lease shall be extended for an
additional term of five (5) years upon all of the same terms, conditions,
covenants and agreements contained in this Lease except that the Annual
Fixed Rent shall be equal to Ninety Five (95%) per centum of the Annual
Market Rent as quoted by Lessor; provided, however (and as aforesaid), in
no event shall the Annual Fixed Rent payable during the Extended Term be
less than the Annual Fixed Rent for the last year of the Original Term.
Upon the giving of such notice, this Lease and the Lease Term hereof shall
be extended, for the first five (5) year Extended Term, without the
necessity for the execution of any additional documents, except the Lessor
and Lessee agree to enter into an instrument in writing setting forth the
Annual Fixed Rent for the Extended Term but the failure to so enter into
such a written instrument shall not negate the exercise of the applicable
option to extend. Upon the giving of such notice of extension as aforesaid
all references herein to the Lease Term or the term of this Lease shall be
construed as referring to the Lease Term, as so extended, unless the
context clearly otherwise requires.
(C) Second Five (5) Year Extended Term
If the Lessee desires to exercise the option to extend the term of the
Lease for a second five (5) year Term (commencing December 1, 2012 and
ending November 30, 2017), the Lessee shall deliver written notice to the
Lessor of its desire and intention to extend the term of the lease for
said additional five (5) year term not earlier than fifteen (15) months
------------------------------------
nor later than twelve months prior to the expiration of the first five (5)
----------------------------------
year extended term. The same terms and conditions of this Indenture of
Lease in force and effect during the initial ten (10) year term; and
during the first five (5) year extended term of the lease shall apply and
shall be in force and effect during the said second extended five (5) year
term of this lease; except, however, that the
------
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Annual Fixed Rent during the said second five (5) year term (commencing on
December 1, 2012) shall be the then market rent, to wit, the "Annual Fixed
Market Rent"), as hereinafter set forth.
If the Lessee desires to exercise the option to extend this lease for the
said second five (5) year term (commencing December 1, 2012 and ending
November 30, 2017), then the Lessee shall give notice to the Lessor, as
aforesaid, not earlier than fifteen (15) months nor later than twelve (12)
----------------------------------------------------------
months prior to the expiration of the first five (5) year extension of
------------
this Lease, of the request of the Lessee for quotation by the Lessor of
the annual fair market rent for the Premises as of the commencement date
of the second five (5) year extension period. Such quotation shall be
based on the use of the Premises as comparable office space in the Boston
North Suburban Market (hereinafter called the "Annual Market Rent").
Within thirty (30) days after receipt by the Lessor of said notice from
the Lessee requesting such a quotation, the Lessor shall notify the Lessee
of the quotation of the Lessor of the Annual Market Rent. Said Annual
Market Rent, however, shall, in no event, be less than the greater of the
----
Annual Fixed Rent for the last year of the Original or Initial Term or the
last prior of the first five (5) year extended term of this lease.
In order to exercise its rights hereunder, the Lessee, (and within fifteen
(15) days after receipt by the Lessee of the quotation from the Lessor of
the Annual Market Rent) shall give written notice to the Lessor that it
exercises its option to extend the Term of this Lease; in which case the
Term of this Lease shall be extended for an additional term of five (5)
years upon all of the same terms, conditions, covenants and agreements
contained in this Lease except that the Annual Fixed Rent shall be equal
to Annual Market Rent as quoted by Lessee; provided, however (and as
aforesaid), in no event shall the Annual Fixed Rent payable during the
Extended Term be less than the greater of the Annual Fixed Rent for the
last year of the Original or Initial Term or the last year of the first
five (5) year extended term of this lease. Upon the giving of such notice,
this Lease and the Lease Term hereof shall be extended, for the second
five (5) year Extended Term, without the necessity for the execution of
any additional documents, except that Landlord and Tenant agree to enter
into an instrument in writing setting forth the Annual Fixed Rent for the
said second five (5) year Extended Term; but the failure to so enter into
such a written instrument shall not negate the exercise of the applicable
option to extend. Upon the giving of such notice of extension as aforesaid
all references herein to the Lease Term or the term of this Lease shall be
construed as referring to the Lease Term, as so extended, unless the
context clearly otherwise requires.
Notwithstanding anything herein contained to the contrary, in no event
shall the Lease Term hereof be extended after the expiration of the said
second five (5) year Extended Term (to wit:- in no event shall this lease
be extended beyond November 30, 2017).
(D) Option Granted to Extend for Two Five (5) year Terms Only
The Lessee is herewith granted the option to extend this lease for two
five (5) year Extended Terms; said options to the lease for said two
Extended Terms to be exercised in accordance
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with the provisions herein above stated; and upon the terms, rent and
provisions therein stipulated. The LESSEE is granted no further or other
options to extend this Lease by the foregoing terms and provisions
8.21 Lessee Shall Look Only to the Interest of the Lessor to the Premises
herein Leased.
The Lessee specifically agrees to look solely to then equity interest of
the Lessor in the specific premises herein leased to the Lessee for
recovery of any judgment from Landlord. It is specifically agreed upon
that neither the Lessor (original or successor), nor any beneficiary of
any Trust which shall hold the interest of the Lessor, and no Trustee of
any said Trust shall ever be personally liable for any such judgment, or
for the payment of any monetary obligation to the Lessee. The provision
contained in the foregoing sentence is not intended to, and shall not,
limit any right that the Lessee might otherwise have to obtain
injunctive relief against the Lessor or the successors in interest to
the Lessor; provided, however, that said action (or any action that may
--------
be brought by the Lessee) shall not involve, entail, or result in, the
personal liability of the Lessor (original or successor), or of any
successor Trustee to the persons named herein as the Lessor, or of any
beneficiary of any Trust of which any person holding the interest of the
Lessor is Trustee; and provided that said action shall not require the
Lessor, its successors in title, or its trustees, or beneficiaries of
said Trust to respond in monetary damages from the assets of the Lessor
other than the equity interest of the Lessor, aforesaid, in the specific
-----
premises herein leased to the Lessee (the Premises). In no event shall
Lessor ever be liable to Lessee for any indirect or consequential
damages suffered or claims by the Lessee from whatever cause.
8.21.1 The Trustees of Lessor and Beneficiaries Not Personally Liable.
In the event the LESSEE shall recover any judgment against the LESSOR,
said judgment may, and shall, be satisfied only and exclusively from the
premises specifically leased to the LESSEE hereunder.. Neither the
Trustees of the Trust holding the interest of the LESSOR nor the
beneficiaries of said Trust (or any of them) shall be liable for, or
shall have any personal liability or responsibility in respect to said
judgment. The LESSEE agrees that it shall look only to the interest of
the LESSOR in said premises leased hereunder; shall not seek to recover
said judgment against the Trustees or the Beneficiaries in their
individual capacities; and shall not look to any interest of the Lessor
in any assets held or owned by the Lessor other than the premises herein
specifically leased to the Lessee.
8.22 Late Payment
If the Lessor shall not have received any payment or installment of rent
on or before the date (the "Due Date") on which the same first becomes
payable under this Lease, the amount of such payment or installment
shall bear interest ten (10) days after the Due Date through and
--------
including the date such payment or installment shall be received by
Landlord, at a rate equal to the lesser of
------
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(I) the rate announced by Bank Boston, successor to The First National
Bank of Boston, from time to time as its prime or base rate (or if
such rate is no longer available, a comparable rate reasonably
selected by the Lessor), plus two percent (2%), or
(ii) the maximum applicable legal rate, if any.
Such interest shall be deemed additional rent and shall be paid by the
Lessee to the Lessor upon demand.
8.23 Governing Law
This Lease shall be governed exclusively by the provisions hereof and by
the law of the Commonwealth of Massachusetts, as the same may from time
to time exist.
8.24 This Indenture of Lease comprises a total of 53 pages consisting of eight
(8) ARTICLES (I through VIII); along with the following Exhibits:
EXHIBIT A: showing the premises lease hereunder.
EXHIBIT B: showing layout of future extension.
EXHIBIT C: Agreement dated May 19, 1997.
8.25 This Lease Conditional Upon Release of Premises by AMETEK
As indicated in the Agreement between the parties, dated May 19, 1997
(referred to in Section 1.1), the premises herein leased are part of the
Facilities leased to AMETEK AEROSPACE PRODUCTS, INC. ("AMETEK"),
successor to GENERAL ELECTRIC COMPANY, under an Indenture of Lease dated
November 13, 1968. This Indenture of Lease with GENERAL SCANNING, INC.
is, therefore, upon the express condition that said AMETEK shall have
released to the Lessor from its Lease the premises herein described and
intended to be leased to the Lessee (See Section 1.5). (The foregoing
Section 8.25 is now moot.)
8.26 Counsel
Each party has had its own and independent counsel prepare, review and
revise this Indenture of Lease prior to its execution and delivery; and
each party has relied on its own independent counsel in respect to this
Lease. (Said counsel, Frederick C. Morse and Frank N. Dardeno, Sr., have
initialed each page of each of the four counterparts of this Lease.)
8.27 Dispute Resolution
The parties shall seek to resolve any disputes that may arise with
respect to this Indenture of Lease in good faith negotiations. If,
despite the best efforts of the parties, said dispute shall not be
resolved, the parties shall not resort to litigation in the Courts unless
------
and until resolution of said dispute shall have been sought by means of
-----
submission of said dispute to third party and
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disinterested arbitration proceedings.
This Indenture of Lease is EXECUTED as a sealed instrument in two or more
counterparts, each of which shall be deemed to be an original, as of this 15th
day of July, 1997.
THE LESSOR:- THE WILMINGTON REALTY TRUST
Witnesses: /s/ Rosemarie Stanieich
----------------------------------------
Rosemarie Stanieich, Trustee
[SIGNATURE ILLEGIBLE]
- ---------------------
/s/ Claudia J. Cipullo
----------------------------------------
Claudia J. Cipullo, Trustee
[SIGNATURE ILLEGIBLE]
- ---------------------
/s/ Joseph O. Branzetti, Jr
----------------------------------------
Joseph O. Branzetti, Jr. Trustee
THE LESSEE:- GENERAL SCANNING, INC.
Witnesses: By /s/ Charles D. Winston
----------------------------------------
Charles D. Winston, President
[SIGNATURE ILLEGIBLE]
- ---------------------
By /s/ Victor Wooley
----------------------------------------
Victor Wooley, Treasurer
[SIGNATURE ILLEGIBLE]
- ---------------------
53
<PAGE>
EXHIBITS
TO
INDENTURE OF LEASE
PREMISES: 60 FORDHAM ROAD, WILMINGTON, MASSACHUSETTS
LESSOR: THE WILMINGTON REALTY TRUST
LESSEE: GENERAL SCANNING, INC.
DATE OF LEASE: JULY 15, 1997
EXHIBIT A - PLAN TO ACCOMPANY LEASE AGREEMENT (DATED SEPT 18, 1997)
EXHIBIT B - FUTURE LAYOUT PLAN (DATED SEPT 18, 1997)
EXHIBIT C - AGREEMENT DATED MAY 19, 1997(14 PAGES)
<PAGE>
AGREEMENT
to
IMPROVE AND LEASE PREMISES
This AGREEMENT (in fourteen pages - sections A through Q) is entered into as of
this nineteenth day of May, 1997 by and between: -
THE WILMINGTON REALTY TRUST (hereinafter referred to as the LESSOR; and
GENERAL SCANNING, INC. (hereinafter referred to as the LESSEE)
The parties, more particularly defined under Section B hereof ("PARTIES") agree
to enter into a triple net lease with respect to the premises hereinafter
described and upon the terms herein outlined. This agreement, however, is
subject to approval by the parties of the terms, covenants and provisions to be
incorporated in an Indenture of Lease; but said terms, covenants and provisions
shall be consistent with, and shall reflect, the stipulations hereinafter set
forth.
Said premises are, at present, leased to AMETEK AEROSPACE PRODUCTS, Inc.
("AMETEK") as successor to GENERAL ELECTRIC COMPANY (see Infra). The Premises
must, therefor, be surrendered by AMETEK. This agreement, accordingly, is
subject to, and conditional upon the release of said premises from said existing
lease.
The execution and delivery of this agreement shall constitute authorization from
each of the parties to initiate the activities required of them under the
provisions hereof.
A. BACKGROUND AND RECITATIONS
1. LOCATION:
The premises subject to this proposal (hereinafter, the "THE PREMISES")
are part of the facilities located on Fordham Road, in Wilmington and
North Reading, Middlesex County, Massachusetts
The premises to be leased hereunder comprise Building No.2 (north of
Buildings 1 and 1A) with land pertaining thereto as well as parking area
to rear (abutting east side of building).
2. TITLE:
The titles to the said land are registered by decree duly entered in the
Land Court of the Commonwealth of Massachusetts.
The titles are shown on Certificates registered in the Middlesex South
District of the Land Court in Cambridge (as to land in North Reading) and
in the Middlesex North District of the Land Court (as to land in
Wilmington).
EXHIBIT C
TO
INDENTURE OF LEASE
(60 FORDHAM ROAD, WILMINGTON, MASS.)
1
<PAGE>
The premises are located in Wilmington. A small portion of the parking
area to the rear the building may be located in North Reading
3. OWNERSHIP
a. Original Owner, Developer and Lessor of the premises:
BARBO REALTY TRUST
b. Present Owner:
THE WILMINGTON REALTY TRUST - established under a Declaration of Trust
dated September 7, 1973 registered in the Middlesex South Registry
District as Document No.15729 and there noted on Certificate of Title
No.142138; and registered, further, in Middlesex North Registry
District as Document No.63541 and there noted on Certificate of Title
No.19837.
c. Transfer of titles to THE WILMINGTON REALTY TRUST
Title to all of the land (and facilities) was transferred by BARBO
REALTY TRUST to THE WILMINGTON REALTY TRUST by deeds dated September 10,
1973
Both BARBO REALTY TRUST and THE WILMINGTON REALTY TRUST have the same
families as beneficiaries.
4 TENANTS
a. Upon completion of their construction, the facilities were leased, in
November, 1969, to GENERAL ELECTRIC COMPANY.
b. Thereafter (in or about 1974), GENERAL ELECTRIC COMPANY, subleased
Building No.2 (the premises) to CONVERSE, Inc.
c. In June, 1984, the Lessor sold to GENERAL ELECTRIC COMPANY (pursuant
to the terms of its lease) twelve acres of the site subject to
reservation of rights of way and access, with the grant to G.E. of
easements and rights of access to service pipes, wires, valves and
other devices appurtenant to the Waste Water Treatment Facility and
the Fire Protection Station, along with other relevant restrictions.
The title thereto (subject to said rights and easements), was then
transferred to CONVERSE, INC. by GENERAL ELECTRIC COMPANY.
d. CONVERSE then constructed its present building upon a portion of said
land located in North Reading (at Fordham Road) south of Building 1
and Building 1A.
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As indicated, the Lessor retained, and still retains, rights of way
and access to the site; including right of way and use of access
roadway from Concord Street.
e. Since August, 1989, AMETEK AEROSPACE PRODUCTS, INC. has occupied the
facilities.
5. RIGHT TO TRANSFER TO NEW TRUST:
The Lessor reserves the right to transfer the title to the premises to a
new Trust (with same beneficiaries as THE WILMINGTON REALTY TRUST) to
establish a separate identity for the premises proposed to be leased to
the Lessee.
Lessee shall consent to said conveyance of title and the leasehold
interests and rights thereunder of the Lessee shall be confirmed.
B. PARTIES:
LESSOR: THE WILMINGTON REALTY TRUST, c/o Frank N. Dardeno, 424
Broadway, Somerville, Massachusetts 02145 (see Section A, 3,
b above)
LESSEE: GENERAL SCANNING, INC., a Corporation existing under the
laws of the Commonwealth of Massachusetts, with its principal
offices located at 500 Arsenal Street, in Watertown,
Massachusetts 02172.
C. PREMISES The one story brick and concrete building known as Building no.2 of
the facilities located at, and numbered as, 50 Fordham Road, in
Wilmington, Massachusetts. Said building comprises about 78,000
square feet of floor space (to be verified)
Said premises will include the lot upon which said building was
constructed and the parking area contiguous to the rear (or west)
thereof; along with any open areas of land that may be appurtenant
thereto in conformity with applicable zoning regulations
The total of said land area (including the building site) shall be
shown upon a plan of land prepared by the engineers of the Lessor;
which plan shall be incorporated within the Indenture of Lease to
define and delineate the leased premises.
The Lessor reserves the right to lease the premises and the land
appurtenant thereto to the Lessee without formal approval of the
plan delineating the said premises as a Subdivision; provided that
the lease of the premises shall be effective and valid.
3
<PAGE>
However, the Lessor may, at any time, present for approval a plan
delineating the premises as a Subdivision (under the Subdivision
Control Law); including designation of the premises as a
condominium with participatory rights to the Waste Water Treatment
Facility that services said premises.
D. TERM: Ten (10) years - commencing December 1, 1997
E. RENT
1. BASE RENT:
During said term, the base annual rent (due and payable in equal
monthly installments) - calculated or determined on the basis of the
square feet of floor space. - shall be, as follows:-
a. Years one through three - at $5.00 per square foot (triple net);
b. Years four through seven - at $5.40 per square foot (triple net);
c. Years eight through ten - at $5.80 per square foot (triple net).
2. ADDITIONAL RENT:
Lessee shall, further, pay all operating costs as and when due -
including, without limitation, real estate and other taxes assessed,
utilities, ground care, snow removal, maintenance, service or
maintenance agreements (for HVAC or any other equipment or building
elements), etc.
3. REIMBURSEMENT TO LESSOR OF ADVANCE:
As hereinafter stated, the Lessor will make a one time payment to the
Lessee, not to exceed $800,000.00, toward the renovations and
improvement to be completed and to be paid for by the Lessee. The
principal of said payment, along with all financing costs (including
interest and carrying charges) incurred by Lessor to secure said
funds, shall be reimbursed to the Lessor by the Lessee in monthly
payments as additional rent. Said one time payment is upon the
condition that the Lessor shall be granted a loan in said amount and
for said purpose from a conventional banking institution and upon the
terms hereinafter set forth under Paragraph G 2 b hereof.
F. RENOVATIONS and IMPROVEMENTS:
1. Responsibility for said Renovations and Improvements
a. Those to be completed at cost to LESSOR
(1). Demolition of existing interior; and removal of connector/walk
between
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Building 2 and Building lA (occupied by AMETEK).
(2). Installation of new roof and roof insulation with replacement of
decking and appurtenant structural elements wherever required..
Said new roof insulation shall comply with building code
requirements relative thereto.
(3). Installation of new double pane glass throughout and new double
pane glass in atrium or vestibule area; and repair of flooring
in "computer" area.
(4). New HVAC units.
(5). New fire alarm system
(6) If the vinyl-asbestos in a small area of the building shall
require removal, same shall be at Lessor's expense.
(7) Resurfacing of Parking Areas; delineation of parking spaces.
(8) The entrance to Building No.2 shall be "up-graded". The Lessor
and the Lessee shall each pay one half of the cost thereof. Both
of the parties shall approve the plans and total cost of the
said improvement.
B. THOSE TO BE COMPLETED AT COST TO LESSEE
All other renovations and improvements whether fixtures to the
building or preparation of interior for needs of the Lessee.
2. COORDINATION OF RENOVATIONS AND IMPROVEMENTS ACTIVITIES
a. Parties shall coordinate their activities in completing the
renovations and improvements. Said renovations and remodeling shall
require the prior approval of the Lessor.
b. Parties, through their engineers and representatives, will consult
upon the various phases of the work to the end that the respective
needs of the parties shall be satisfied and conflicts minimized.
c. Not in limitation of above, Lessee shall be consulted with
installation of HVAC units.
More specifically, the Lessee shall have the right to design the HVAC
system in order that same shall be in accordance with its
requirements. However, the Lessee shall submit is plans,
specifications and design for the HAVOC system to the LESSOR for its
prior approval; which approval shall not be unreasonably withheld or
delayed.
d. Lessee shall furnish Lessor, for its prior approval, plans and
architectural drawings for said renovations and remodeling; and,
further, a copy of the contract entered into for same along with the
bids.
(e) Any sums due from the Lessor to the General Contractor engaged by the
Lessee (Hoffman/Callahan) for work or improvements for which the
Lessor is responsible
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<PAGE>
(as set forth above in Section F,1,a) shall be paid by the Lessor
to the Lessee within thirty (30) days after presentation of the
invoice by said Contractor for said work or improvements.
(f) Lessee shall pay, in a timely manner, its contractors, workmen
and providers for all work and for all improvements for which the
Lessee is responsible; and shall not permit any lien for said
work or improvements to be placed against the premises either by
workmen, suppliers, contractors or other providers.
G. PAYMENT AND FINANCING OF RENOVATIONS AND IMPROVEMENTS
1. RESPONSIBILITY WITH RESPECT TO RENOVATIONS AND IMPROVEMENTS:
a. Lessor will pay for those completed at its expense (set forth in
Section F,1,a above);
b. Lessee shall be responsible, and pay for, all other construction
and improvements.
2 FINANCING
a. Lessee shall be solely responsible for the payment of all
Renovations and Improvements (other than those listed above to be
paid for by Lessor as set forth in Section F, 1, a); and Lessee
shall pay for same directly.
b. Upon the commencement date of the Lease, the LESSOR shall make a
one time payment to the Lessee toward said Renovations and
Improvements in the maximum sum of $800,000.00; but only upon the
following conditions:-
(1) Said Renovations and Improvements shall benefit or improve
the building and its appurtenances and shall not be of a
special nature in furtherance of the business activities of
the Lessee.
(2) The Lessor shall approve the renovations and improvements for
which it shall make payment to the Lessee; which approval by
the Lessor shall not be unreasonably withheld or delayed.
(3) This reimbursement is effectuated to the Lessee in its need
to maintain a strong cash position and to accommodate the
Lessee. (The Lessee represents that the Renovations and
Improvements to be completed by the Lessee shall entail an
expenditure of about $1,700,000.00 and, in addition,
expenditures for fixtures and equipment).
(4) The Lessor shall apply for a loan to finance said payment to
the Lessee (not to exceed $800,000.00) from a conventional
banking institution at current rates of interest in order to
enable the Lessor to make said one time payment; and the
obligation to make said payment to Lessee is subject to, and
upon the express prior condition, that said loan from said
banking institution shall be granted to the Lessor.
(a) Said loan shall be amortized for a term not exceeding ten
(10) years;
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<PAGE>
(b) The Lessee shall reimburse the Lessor for the entire cost
of said borrowing- including the principal of the loan,
interest thereon, finance and carrying charges, and all
and any other disbursements and expenses incurred by the
Lessee to effectuate said loan.
Transactional costs (including bank counsel fees and
origination fees) and any and all expenses incurred in
order to effectuate said loan or associated with said
borrowing shall be paid by the Lessee to the Lessor as
incurred.
All other payments necessitated by said loan shall be
reimbursed to the Lessor by the Lessee in the form of
increased monthly rent (added to the base rent and other
rent payments) to over the entire principal and interest
and all carrying charges.
(5) To facilitate said borrowing by Lessor to make said payment
to Lessee, the Lessee shall provide to the lender its
guaranty for the payment of said loan if necessary.
(6) Lessee shall make a good faith effort to secure a commitment
for said loan setting forth the terms thereof.
(7) The obligation on the part of the Lessor to make said one
time payment to the Lessee (and to secure the loan therefor)
is upon the express condition that said payment to the Lessee
(and the repayment thereof) shall not result in any adverse
income tax consequence to the Lessor. In particular, the
parties agree that said payment (and the loan to effectuate
same) is upon the condition that the Lessor shall not thereby
incur any income or other federal or state taxes as result
thereof
H. RESPONSIBILITIES
1. MAINTENANCE
a. Upon completion of all the renovations and improvements, the said
building and its appurtenances will be in prime condition with
new insulated roof, structural replacements where needed, new
mechanical elements, renovated and remodeled interior, new double
pane glass throughout, paved parking area, etc.
b. All warrantees and guarantees issued by installers, contractors
and suppliers shall be made available to, and benefit the Lessee.
c. The lessee shall be responsible for all maintenance of the
interior of the building, paved areas, mechanical appurtenances,
all roofing elements, HVAC units, and
7
<PAGE>
all other aspects of the building and its facilities.
d. The lease to be entered into shall be a triple net lease
e. Not in limitation of the foregoing (and unless revised by prior
written stipulation or agreement of the parties), the Lessee
shall be responsible for all interior elements of the building,
including its mechanical components, all wiring (electrical or
otherwise), all plumbing, all surfaces, flooring and any and all
other appurtenances. Lessor shall, also, be responsible for
maintenance of all windows, of the roof and its elements,
cosmetic appearance and maintenance of the exterior, maintenance
of all parking areas and the paved surface of said parking areas,
all landscaping, and components of the building (as set forth
above in Section H, 1, c.) Lessor shall turn over and assign to
Lessee all warranties and guarantees from all suppliers,
contractors, and workmen with respect to any improvements to the
building and premises paid for by the Lessor.
Lessor shall be responsible for the structural elements of the
exterior of the building; as well as for apparatus, piping or
wiring delivering utilities from the public way to the edge of
the building
2. TAXES
Lessee shall be responsible for all real estate and other taxes
assessed by any government authority against the real estate
(including building, land and improvements) leased to the Lessee
3. INSURANCE AND INDEMNIFICATION
a. Lessee, at its sole cost, will maintain fire and casualty loss
insurance, insurance against liability for losses, damages or
injury of any kind to anyone upon the premises, and coverage
against all other insurable risks; and Lessee shall name the
Lessor as an additional insured upon all said policies issued by
recognized companies licensed to do business in Massachusetts.
b. Lessee shall indemnify and hold harmless the Lessor against any
loss, claims or damages resulting from any of its activities; and
shall promptly defend against claims resulting therefrom.
c. Lessee shall comply will all relevant laws and legal requirements
and environmental regulations in the conduct of its operations.
Lessee shall not expose Lessor to damages, loss or expense as a
result of any activities of the Lessee - including, but not
limited to, use of the premises, operations, discharges.
8
<PAGE>
I. POSSIBLE EXPANSION
Provided that said expansion shall be feasible, when requested, the Lessor
will construct an expansion or extension (of not more than 40,000 square
feet of floor space) to the east of the building if required by the Lessor
(see K, 1, d below); subject, however, /to the following conditions:-
1. The Lessee shall be able to secure financing for said expansion from a
conventional banking institution at then current rate of interest;
2. The expansion shall be permitted under all applicable laws and
regulations - including zoning and building requirements
3. All required permits shall be issued -- including approvals from
environmental regulatory agencies, state, federal (if necessary) and
municipal authorities, and any other governmental body that may have
oversight responsibilities.
4. The Lessor and the Lessee shall agree upon the rent, terms and
conditions of the Lease affecting the present premises an said possible
expansion.
5. The cost of moving pipes, tubes, wires, valves and any and all devices
that now service the Waste Water Service Facility, the Fire Protection
Station and any other support system for the buildings upon the site
shall be an expense attributable to the construction costs of the said
expansion; and shall be factored into the agreed upon rent.
The obligation to construct said expansion is upon the condition that
said devices can be moved; that the relevant easements and rights of
way or access may be relocated along a new path; and that the easements
and rights of way or access to service same shall be established and
confirmed in their new path or location with the written consent of
all parties that may have an interest therein.
6. The Lessee shall have the right to secure to provide the financing for
said expansion if the Lessor shall be unable to secure same. In the
event that the said expansion shall be financed by the Lessee, the base
rent established for said expansion shall be adjusted to reflect any
cost incurred by the Lessee with respect to said financing and shall be
appropriately adjusted to said circumstances.
Lessor shall secure from its engineers an opinion as to the feasibility of
the expansion, as set forth under Section O, 4)
J. OPTION TO EXTEND LEASE
Lessee shall have two successive options to extend the lease each for a
term of five (5) years upon the same terms and conditions of the original
ten (10) year term except that the base rent (see Section E. 1 above)
shall be established, as follows:
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<PAGE>
It is agreed that
a. With respect to the first of said two five (5) year option terms,
the base rent shall be established during said five (5) years at
the rate of ninety five (95%) percentum of the then market rent;
b. With respect the second of the said two (2) five year option
terms, the base rent during said second five (5) year term shall
be the then market rent.
K. SUBLEASING
Lessee shall not sublease or sublet the premises or any portion thereof
unless, in each in each instance, the Lessor shall have given its
approval in writing to said sublease or subletting; which approval the
Lessor shall not unreasonably withhold or unreasonably delay. In the
event that the rent for said portion subleased or sublet shall exceed
the rent paid to the Lessor, the increment shall be retained by the
Lessee.
L. ENVIRONMENTAL - 21E -Etc.
1. The parties are aware that the site upon which the facilities are
located has been under review by the Department of Environmental
Protection ("DEP"); and that the former occupant, GENERAL ELECTRIC
COMPANY ("G.E."), was named the responsible party in a Notice of
Responsibility dated June 11, 1986. Subsequently, the Lessor received a
Notice of Responsibility ("N.O.R.") from DEP dated April 16, 1991
occasioned by bankruptcy proceeding instituted by the parent company of
Converse, Inc. (Sublessee of G.E. of Building No.2.)
2. The contamination of the site resulted from releases of gasoline, oil
and other substances by G.E. and its sub-lessee, Converse, Inc.
3. G.E. accepted and assumed the responsibility to conduct remediation
activities in accordance with plans submitted to, and approved by, D.
E. P. (including matters referred to in the N.O.R mailed to the Lessor
dated, as stated, April 16, 1991 and occasioned by the bankruptcy
proceedings aforesaid).This responsibility has been expressly
acknowledged and assumed by the successors to G.E., i.e., MARTIN
MARIETTA CORPORATION and its successor, LOCKHEED MARTIN CORPORATION
("LOCKHEED").
LOCKHEED is committed to (and is engaged in) the necessary remediation
process as approved by, and under the oversight of, D. E. P.
4. Lessor will seek reports of the engineers engaged by LOCKHEED. These,
as well as
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<PAGE>
progress reports relating to the remediation activities as received by
the Lessor, shall be submitted by the Lessor to the Lessee.
5. LESSOR shall indemnify the Lessee from any claims arising out of any
contamination of the site that has occurred prior to the occupancy of
the leased premises by the Lessee; with the understanding that in the
event any such claims shall arise, the Lessor shall make claim in
respect thereto against the responsible party or parties (see above).
Accordingly, in the event that any such claim shall arise, the Lessor
with the cooperation of the Lessee, shall require intervention of, and
indemnification from, the responsible party or parties, as above set
forth, against any damages resulting from said claims. The Lessor and
the Lessee shall consult and to co-operate with each other in the event
that any such claims shall arise.
6. The parties acknowledge that the Lessor is currently engaged in
negotiations with LOCKHEED with respect to the continuing
responsibility of LOCKHEED (subject to the oversight of the D. E. P.)
and to confirm and define liability, indemnification and the nature of
related documentation and agreements that may be agreed upon. Lessee
agrees to cooperate with respect thereto if requested in order that
remediation activities shall continue and be facilitated to further the
best interests of the parties.
M. EASEMENTS AND RIGHTS OF ACCESS
Lessor shall retain existing easements and rights of way over the
facilities and the premises (and to reserve additional easements and rights
of access) in furtherance of its management obligations and oversight -
including right to pass and re-pass and be and remain upon the premises to
perform work upon, and to service, water and fire protection facilities and
lines, Waste Water Treatment Facility, and for any other purpose required
by the Lessor. Easements and rights of access have been granted for this
purpose to AMETEK, as successor to G. E. Further, Lessor retains, and shall
have, the right to grant easements in connection with said management and
oversight (including easements to LOCKHEED MARTIN CORPORATION in order to
facilitate its remediation of the site as required by D. E. P. - See
Section L hereof).
Said easements and rights of access shall not unreasonably interfere with
the business activities of the Lessee.
N. WASTE WATER TREATMENT FACILITY
1. Said Building No.2 is serviced by a new and "state of the art" waste
water service facility (placed on line within the last year) located
northeast thereof. (Expected life of said facility - - about thirty
years -)
2. Lessor shall assume cost of providing service of said facility to Lessee,
including costs
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of its operation and ordinary maintenance. Said costs shall be shared
with the other tenant of the facilities, AMETEK AEROSPACE PRODUCTS, INC.
(AMETEK); provided only, however, that in the event a replacement of the
said facility (beyond maintenance and operation) the tenants using same
shall be responsible for said replacement and shall contribute thereto
upon the agreed upon formula.
During the first ten (10) years of the term of the lease, however, Lessee
shall have no responsibility with respect to replacement of the facility.
3. In the event that there shall be any damage, dysfunction or loss to the
said Waster Water Treatment facility caused by any use, activities or
misuse by the Lessee or any of its personnel, representatives or
employees, the Lessee shall indemnify the Lessor with respect to said
damage, dysfunction or loss and shall make the necessary payments to
rectify said damage, dysfunction or loss
4. Lessee will pay that share of the real estate or other taxes assessed
against said Waste Water Treatment Facility (in the event that any shall
be assessed or levied in respect thereto) equivalent to the percentage of
operational and management costs thereof attributable to the Lessee.
O. PLANS, EXHIBITS, ETC.
1. Lessor shall furnish to Lessee
(a) Plan designating the premises (see above C, "PREMISES")
(b) Plan showing parking places;
(c) Status of application for approval of driveway into the premises
from Fordham Road along the northerly bound of the premises.
(d) Lessor will request its engineers to indicate a preliminary
outline on the subdivision or other plan the location of the
expansion to Building No.2 referred to in Section H above
("POSSIBLE EXPANSION") and seek preliminary opinion as to its
feasibility.
2. LESSEE SHALL
"Work out" with Ametek parking arrangement in the area along the south
side (entrance of) the building.
In the event that there may be common charges for any services to the
premises, cost thereof will be shared on a percentage of use basis.
3. AS TO WATER TOWER TO REAR OF BUILDING:
(a) This facility services Building 1 and Building 1A occupied by Ametek
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(b) Its maintenance is the responsibility of Ametek (who shall paint
the water tower).
(c) Lessor will request of its engineers and surveyors that said tower
be left in the area of land that is occupied by Ametek in the
formulation of the subdivision.
(f) If, however, the tower shall remain upon any part of the premises
leased to the lessee, all taxes assessed against said facility shall
be paid by Ametek; and its operation and maintenance shall remain the
responsibility of Ametek. In such event, Lessor shall retain right of
access for benefit of Ametek
P. BROKERAGE: - shall be the responsibility of the Lessor
Q. MISCELLANEOUS
MATTERS OF CONCERN TO AMETEK (TO BE ADDRESSED):
1 Fire sprinklers - Ametek wishes connections to both P.1.V.'s be
severed; with new feed line from street. (To avoid activating
sprinklers, merely closing valves is not sufficient.)
2 Ametek requires that the fire tank suppression system remain part of
its sprinkler system. Requires natural gas feed from Building No.2.
3 All shared electrical feeds to be segregated and metered separately.
(Current underground feed to Building No.2 must be removed from main
switch gear.)
4.. Glass tunnel - connector. (AMETEK would like to discuss this)
5. Delineation of property lines (AMETEK would like to discuss this)
6 Parking:
(a) Shared parking between buildings;
(b) Parking spaces pertaining to AMETEK and to Scanning should be
differentiated with different colored lines.
(c) Parking lot lighting is already separated and segregated.
7. AMETEK has closed the entrance from Concord Street to afford extra
protection to parked vehicles. It will be kept open if General Scanning
so requires.
8. AMETEK has a federal EPA permit to discharge non-contact cooling water
through outsell. If General Scanning wishes to utilize this outsell for
similar purposes, AMETEK must be informed so that request for a new
permit may be filed.
9. Snow removal and Landscaping
13
<PAGE>
AMETEK wishes to discuss arrangement for the service with General
Scanning
10. AMETEK will provide around-the-clock security for its facilities.
General Scanning must provide security for its own facilities.
11. Insurance.
General Scanning will provide insurance for its facilities. (See H, 3
above)
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as
of this nineteenth day of May, 1997.
THE WILMINGTON REALTY TRUST (Lessor)
/s/ Rosemarie Stanieich
---------------------------------------
Rosemarie Stanieich. Trustee
/s/ Claudia J. Cipullo
---------------------------------------
Claudia J. Cipullo, Trustee
/s/ Joseph O. Branzetti Jr.
---------------------------------------
Joseph O. Branzetti Jr., Trustee
(Approved as to form:
/s/ Frank N. Dardeno, Sr.
-------------------------------------------------------------
Frank N. Dardeno, Sr., Of counsel to Lessor)
GENERAL SCANNING, INC. (Lessee)
By /s/ Charles D. Winston 6/3/97
----------------------------------------------------------
Charles D. Winston, President and Chief Executive Officer
By /s/ George Hrono 5/30/97
----------------------------------------------------------
George Hrono, Senior Vice President
(Approved as to form:
/s/ Frederick C. Morse
-------------------------------------------------------------
Frederick C. Morse, General Counsel to Lessee)
14
<PAGE>
EXHIBIT 10.12
EXECUTION COPY
SPLIT DOLLAR COMPENSATION AGREEMENT
THIS SPLIT DOLLAR COMPENSATION AGREEMENT, dated as of September 13, 1997
(this "Agreement") by and between General Scanning Inc., a corporation with a
---------
principal place of business at 500 Arsenal Street, Watertown, Massachusetts
02172 (the "Employer"), and Charles D. Winston, an individual residing at 10
--------
Cart Path Road, Weston, Massachusetts 02193 (the "Employee"),
--------
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Employee has been engaged to perform services for the benefit
of the Employer in an executive capacity, and the Employer desires to retain the
Employee in its employ;
WHEREAS, the Employer desires to purchase insurance to cover the loss that
the Employer would suffer upon the death of the Employee and to assist the
Employee with his personal life insurance program; and
WHEREAS, the Employer has determined that this assistance can best be
provided under a "split dollar" arrangement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained and other valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. PURCHASE OF LIFE INSURANCE POLICY.
(a) The Employer has applied for and is the owner of the life insurance
contract issued by Valley Forge Life Insurance Company (the "Insurer") as Policy
-------
No. VMNG000081 in the specified amount of $1,250,000 (the "Policy"). The
------
Employee will, as reasonably requested by the Employer from time to time, assist
in the Employer's application for the Policy and any renewals thereof.
(b) The Employer may add to the Policy one or more of such other riders
or supplemental agreements which may be available from the Insurer. Any
additional premium attributable to any such rider or supplemental agreement
shall be payable as the parties hereto may mutually agree.
<PAGE>
-2-
2. RIGHTS IN THE POLICY.
(a) Except as provided otherwise herein, the Employer shall possess all
incidents of ownership with respect to the Policy and may exercise all rights,
options, and privileges of ownership in the Policy.
(b) Concurrently with the execution of this Agreement the Employer and the
Employee shall execute and deliver to the Insurer an Assignment of the Policy in
substantially the form of Exhibit A to this Agreement. The Employee shall
---------
indemnify the Employer for any tax liability of the Employee in respect of any
assignment of the Policy hereunder, including any interest or penalties assessed
in connection therewith.
(c) The Employer will not take any action in dealing with the Insurer that
would impair any right or interest of the Employee in the Policy. The Employee
will not take any action in dealing with the Insurer that would impair any right
or interest of the Employer in the Policy.
(d) The Employer and the Employee shall promptly execute and forward to
the Insurer beneficiary designations, forms, and other documents as may be
required by the Insurer to facilitate the exercise of any rights of the Employer
and the Employee under the Policy, provided, however, that neither the Employer
nor the Employee shall be required to execute any documents or take any other
action that would impair its own interests in the Policy.
3. PAYMENT OF PREMIUMS.
(a) The Employer shall pay to the Insurer, when and as due, the aggregate
annual premium on the Policy with respect to all periods during which the
Employee is employed by the Employer, provided that the Employee will, when and
as requested by the Employer, reimburse the Employer for a share of each such
annual premium equal to the economic benefit of the term insurance provided by
the division of the death benefit as provided in Section 5. The economic benefit
that would be taxable to the Employee will be computed in accordance with the
principles set forth in the Internal Revenue Service Revenue Rulings 64-328,
1964-2, C.B. 11 and 66-110, 1966-1, C.B. 12, as modified or superseded from time
to time.
(b) Any portion of the annual premium on the Policy that is reimbursed by
the Employee may, at the election of the Employee, be
<PAGE>
-3-
deducted from the cash compensation otherwise payable by him to the Employer.
4. LOANS AND OTHER WITHDRAWALS.
(a) The Employer assigns to the Employee the right to obtain policy loans
or other withdrawals from the Policy to the extent, and only to the extent, of
the value of the Policy in excess of the aggregate premium payments made by the
Employer under the Policy and not reimbursed by the Employee as provided in
Section 3(a). The interest due on such loans or withdrawals shall be a debt of
the Employee to the Insurer.
(b) The Employer reserves the right at any time to obtain policy loans or
other withdrawals from the Policy to the extent, and only to the extent, of the
aggregate premium payments made by the Employer under the Policy and not
reimbursed by the Employee as provided in Section 3(a). The interest due on such
loans or withdrawals shall be a debt of the Employer to the Insurer.
(c) Each of the Employer and the Employee may assign its interest in the
Policy as collateral for any loans or withdrawals that it is permitted to make
under this Section 4.
5. DEATH BENEFIT.
(a) The Policy's death benefit shall be divided as follows: (i) one half
of the total death benefit shall be paid to the beneficiary designated by the
Employee in the manner and in the amounts provided in the beneficiary
designation provision of the Policy, and (ii) one half of the total death
benefit shall be paid to the Employer. The Employee shall have the sole and
exclusive right to designate and change the beneficiary for his share of the
Policy death benefit.
(b) Promptly after the Employer receives notice of the death of the
Employee, the Employer shall take such actions as may be necessary to cause the
Insurer to pay the Policy's death benefits to the parties entitled thereto under
Section 5(a).
(c) The beneficiary designation provisions of the Policy shall conform to
the provisions hereof and, in the event of any inconsistency, the provisions of
this Agreement shall control as between the parties hereto.
<PAGE>
-4-
(d) The death benefit payable to the Employer shall be reduced by any
amounts deductible from the Policy death benefit in respect of any outstanding
loans or withdrawals by the Employer. The death benefit payable to the
beneficiary of the Employee shall be reduced by any amounts deductible from the
Policy death benefit in respect of any outstanding loans or withdrawals by the
Employee. In the event any outstanding loans or withdrawals by the Employee
reduce the death benefit to the Employer, the estate of the Employee shall
reimburse the Employer for the amount of any such reduction.
(e) Each of the Employer and the Employee shall have the sole and
exclusive right to exercise any optional mode of settlement permitted by the
Policy with respect to its respective share of the Policy death benefit.
6. SURRENDER AND DISPOSITION OF THE POLICY.
(a) The Employer may surrender, cancel, or otherwise dispose of the Policy
in accordance with the terms thereof and with notice to the Employee.
(b) Upon any surrender, cancellation, or other disposition of the Policy,
(i) the Employer shall be entitled to receive proceeds thereof in an amount
equal to the aggregate premium payments made by the Employer under the Policy
and not reimbursed by the Employee as provided in Section 3(a) net of any
outstanding loans or withdrawals by the Employer, and (ii) the Employee shall be
entitled to receive any remaining proceeds of such surrender, cancellation, or
other disposition of the Policy.
7. TERMINATION OF AGREEMENT.
(a) This Agreement shall terminate upon the first to occur of the
following events: (i) performance of the terms of this Agreement following death
of the Employee; (ii) termination of the Employee's employment with the Employer
for reasons other than death of the Employee; (iii) mutual agreement by the
Employer and the Employee to terminate this Agreement; and (iv) surrender,
cancellation, sale, or disposition of the Policy in accordance with Section 6.
(b) In the event this Agreement terminates pursuant to Section 7(a)(ii) or
7(a)(iii), the Employer shall certify as required by the Insurer the extent of
the Employer's interest in the Policy (which shall be an amount equal to the
aggregate premium payments made by the Employer under the Policy and not
reimbursed by the Employee as provided in Section 3(a)
<PAGE>
-5-
net of any outstanding loans or withdrawals by the Employer). Upon receipt of a
payment from the Insurer equal to the Employer's interest in the Policy, (i) the
Employee shall have all remaining right, title, and interest in the Policy, and
(ii) the Employee shall assume all obligations of the Employer under the Policy.
(c) Any payments to the Employer under Section 7(b) shall be made from the
total cash values of the Policy. Both the Employer and the Employee shall
execute the documents necessary to facilitate such use of the total cash values,
regardless of any rights they may have therein.
8. AMENDMENT AND ASSIGNMENT.
This Agreement may be amended or modified only by a written instrument duly
executed by both the Employer and the Employee. Either party may assign its
rights and obligations under this Agreement, provided, however, that any
assignment will be subject to the terms of the Policy.
9. POSSESSION OF POLICY.
The Employer will keep possession of the Policy, provided that upon the
Employer's receipt of the payment provided for in Section 7(b), the Employer
shall deliver the policy to the Employee. The party in possession of the policy
shall from time to time upon request make the Policy available for inspection
and copying by the other party.
10. ESTABLISHMENT OF PLAN.
(a) The split dollar arrangement contemplated herein (the "Plan") is
----
intended to qualify as an exempt welfare plan under regulations promulgated
under Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). For purposes of ERISA, the Employer shall be the "named
-----
fiduciary" and the "Plan administrator", and this Agreement is hereby designated
as the written Plan instrument. The funding policy under this Plan is to pay
all premiums to the Insurer when due. The Employee, or any beneficiary or
beneficiaries of his, may file a request for benefits with the Plan
administrator. If a claim request is wholly or partially denied, the Plan
administrator shall furnish to the claimant with a notice of its decision within
sixty (60) days in writing, and in a manner to be understood the by claimant,
which notice shall contain the following information:
(i) the specific reason or reasons for denial;
<PAGE>
-6-
(ii) specific reference to pertinent Plan provisions upon which the
denial is based;
(iii) a description of any additional material or information necessary
for the claimant to perfect the claim and an explanation as to why
such material or information is necessary; and
(iv) an explanation of the Plan's claim-review procedure describing the
steps to be taken by a claimant who wishes to submit his claim for
his review.
(b) A claimant or his authorized representative may, with respect to any
denied claim request a review upon written application filed within thirty (30)
days after receipt by the claimant of written notice of the denial of his claim;
review pertinent documents; and submit issues and comments in writing.
(c) Any request or submission shall be in writing and shall be directed
to the Plan administrator. The Plan administrator shall have the sole
responsibility for the review of any denied claim and shall take all appropriate
steps in light of its findings. The Plan administrator shall render a decision
upon review of a denied claim within thirty (30) days after receipt of a request
for review. If special circumstances warrant additional time, the decision shall
be rendered as soon as possible, but not later than ninety (90) days after
receipt of request for review. Written notice of any such extension shall be in
writing and shall include specific reasons for the decision written in a manner
to be understood by claimant, as well as the specific references of the
pertinent provisions of the Plan on which the decision is based. If the decision
on review is not furnished to the claimant within the time limits described
above, the claim shall be deemed denied on review.
(d) The Employer shall have the right to review the Plan annually and to
make such changes to the Plan as it deems necessary and appropriate subject to
the limitations of Section 2(b).
11. TAX INDEMNITY.
In the event the Employer is required under the Internal Revenue Code of
1986, as amended, or any state income tax laws, to withhold any amounts for
taxes of the Employee relating to this Agreement, the
<PAGE>
-7-
Employee shall indemnify the Employer for any such taxes and any interest or
penalties assessed in connection therewith.
12. NOTICES.
All notices, instructions, or other communications hereunder to either
party shall be in writing and shall be deemed to have been given when (a)
delivered by hand; or (b) received by the addressee, if sent by certified mail
(postage prepaid and return receipt requested) or by a courier service, at or to
the address of such party as set forth below or at such other address as such
party may have designated by written notice to the other party hereto.
To the Employer:
General Scanning Inc.
Attn: Victor Woolley
500 Arsenal Street
Watertown, MA 02172
To the Employee:
Charles D. Winston
10 Cart Path Road
Weston, MA 02193
13. AGREEMENT BINDING UPON PARTIES.
This Agreement shall be binding upon, and inure to the benefit of, the
parties hereto and their respective legal representatives, successors, assigns,
executors and administrators, as the case may be.
14. GOVERNING LAW.
Except as may be pre-empted by ERISA, this Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Massachusetts.
15. ENTIRE AGREEMENT.
This Agreement sets forth the entire agreement of the parties hereto with
respect to the subject matter hereof and supersedes any prior negotiations,
understandings, or arrangements.
<PAGE>
-8-
16. SEVERABILITY.
If any term of this Agreement shall be held to be invalid, illegal, or
unenforceable, the validity of all other terms hereof shall be in no way
affected thereby, and this Agreement shall be construed and be enforceable as if
such invalid, illegal, or unenforceable term had not been included herein.
17. HEADINGS.
The section headings have been inserted for convenience of reference only
and do not define or limit the provisions hereof.
18. COUNTERPARTS.
This Agreement may be executed in several counterparts, each of which when
executed and delivered is an original, but all of which together shall
constitute one instrument. In making proof of this Agreement, it shall not be
necessary to produce or account for more than one such counterpart.
IN WITNESS WHEREOF the parties hereto, by their duly authorized
representatives, have executed this Agreement as of the day and year first
written above.
GENERAL SCANNING INC.
By: /s/ Victor H. Woolley
------------------------------------
Victor H. Woolley,
Vice President
/s/ Charles D. Winston
----------------------------------------
Charles D. Winston
<PAGE>
EXHIBIT A
ASSIGNMENT OF SPLIT DOLLAR POLICY
THIS ASSIGNMENT OF SPLIT DOLLAR POLICY, dated as of September 13, 1997
(this "Assignment") from General Scanning Inc. a Massachusetts corporation with
----------
a principal place of business at 500 Arsenal Street, Watertown, Massachusetts
02172 (the "Employer"), to Charles D. Winston, an individual residing at 10
--------
Cart Path Road, Weston, Massachusetts 02193 (the "Employee");
--------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Employer is the owner of the life insurance contract issued by
Valley Forge Life Insurance Company (the "Insurer") as Policy No. VMNG000081 in
-------
the specified amount of $1,250,000 (the "Policy");
------
WHEREAS, the Employer purchased the policy to cover the loss that the
Employer would suffer upon the death of the Employee and to assist the Employee
with his personal life insurance program; and
WHEREAS, the Policy is subject to the Split Dollar Compensation Agreement
of even date herewith (the "Agreement") between the Employer and the Employee;
---------
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties hereto do hereby agree as follows:
1. The Employer hereby assigns, transfers, and sets over to the Employee
the following specified rights in the Policy:
(a) the right to obtain policy loans and other withdrawals from the
Policy as provided in Section 4(a) of the Agreement;
(b) the sole and exclusive right to designate and change the
beneficiary for a portion of the Policy death benefit as provided in
Section 5(a)(i) of the Agreement;
(c) the right to a share of the proceeds of any surrender,
cancellation, or disposition of the Policy as provided in Section 6(b)(ii)
of the Agreement; and
(d) the rights in the Policy specified in Section 7(b) of the
Agreement following termination of the Agreement as provided in
<PAGE>
-2-
Sections 7(a)(ii) and 7(a)(iii) thereof and payment to the Employer of its
interest in the Policy as provided in Section 7(b) of the Agreement.
2. Except for the rights in the Policy assigned to the Employee as
provided in Section 1 of this Assignment, the Employer shall possess all
incidents of ownership with respect to the Policy and may exercise all rights,
options, and privileges of ownership in the Policy. Without limiting the
generality of the foregoing, the Employer shall have:
(a) the right to obtain policy loans and other withdrawals from the
Policy as provided in Section 4(b) of the Agreement;
(b) the right to a portion of the Policy death benefit as provided in
Section 5(a)(ii) of the Agreement;
(c) the right to surrender, cancel, or otherwise dispose of the
Policy in accordance with the terms thereof and to receive a share of the
proceeds of any surrender, cancellation, or disposition of the Policy as
provided in Section 6(b)(i) of the Agreement; and
(d) the rights to receive a payment equal to the Employer's interest
in the Policy following termination of the Agreement as provided in
Sections 7(a)(ii) and 7(a)(iii) thereof.
3. As provided in Section 7(b) of the Agreement, upon receipt of a
payment equal to the Employer's interest in the Policy following termination of
the Agreement as provided in Sections 7(a)(ii) and 7(a)(iii) thereof, (i) the
Employee shall have all right, title, and interest in the Policy, and (ii) the
Employee shall assume all obligations of the Employer under the Policy.
4. Each of the Employer and the Employee (or his designated beneficiary)
shall have the sole and exclusive right to exercise any optional mode of
settlement permitted by the Policy with respect to its or his respective share
of the Policy death benefit.
5. The Insurer:
(a) shall have no duty or obligation to inquire into or investigate
the reason or validity of any request by the Employer or the Employee to
exercise any rights hereunder;
<PAGE>
-3-
(b) may treat any request by the Employer or the Employee to exercise
any rights hereunder as an affirmation that the request conforms to this
Assignment and the Agreement and that the Insurer is authorized to act upon
such request; and
(c) shall be fully protected in recognizing a request of the Employer
to exercise any right of ownership, including without limitation the right
to surrender the Policy, whether or not the Employee has notice of such
request.
6. Upon request the Employer shall forward the Policy to the Insurer for
endorsement of any designation or change of the Policy beneficiary or any
election of an optional plan for payment of the proceeds. The Employer shall
forward the Policy for these purposes without unreasonable delay.
7. The exercise of any right given hereby to the Employee, or retained by
the Employer, shall be solely at the option of each party respectively, and
shall not require notice or consent of one party to the other.
8. The Insurer is not a party to the Agreement.
IN WITNESS WHEREOF, the undersigned have duly executed this Assignment as
of the date first set forth above.
GENERAL SCANNING INC.
By: /s/ Victor H. Woolley
------------------------------------
Victor H. Woolley
Vice President
/s/ Charles D. Winston
----------------------------------------
Charles D. Winston
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
General Scanning GmbH
Jurisdiction of Incorporation: Germany
General Scanning Asia Pacific Limited
Jurisdiction of Incorporation: Hong Kong
General Scanning Japan K.K.
Jurisdiction of Incorporation: Japan
GSI Export Corporation
Jurisdiction of Incorporation: U.S. Virgin Islands
General Scanning France SARL
Jurisdiction of Incorporation: France
General Scanning Limited
Jurisdiction of Incorporation: United Kingdom
General Scanning Securities Corporation
Jurisdiction of Incorporation: Massachusetts, United States
View Engineering, Inc.
Jurisdiction of Incorporation: California, United States
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports dated February 2, 1998 included in this Form 10-K, into the
Company's previously filed Registration Statement File No. 33-99788 and
Registration File No. 33-43489.
Arthur Andersen LLP
Boston, Massachusetts
February 27, 1998
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,418
<SECURITIES> 0
<RECEIVABLES> 45,628
<ALLOWANCES> 1,203
<INVENTORY> 34,051
<CURRENT-ASSETS> 96,268
<PP&E> 42,089
<DEPRECIATION> 27,478
<TOTAL-ASSETS> 115,042
<CURRENT-LIABILITIES> 33,605
<BONDS> 0
0
0
<COMMON> 128
<OTHER-SE> 78,101
<TOTAL-LIABILITY-AND-EQUITY> 115,042
<SALES> 181,530
<TOTAL-REVENUES> 181,530
<CGS> 94,805
<TOTAL-COSTS> 94,805
<OTHER-EXPENSES> 79,071
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (464)
<INCOME-PRETAX> 7,611
<INCOME-TAX> 2,502
<INCOME-CONTINUING> 5,109
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<NET-INCOME> 5,109
<EPS-PRIMARY> .42
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