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10-K405
ZYGO CORP filed this Form 10-K405 on 09/30/1996
Entire Document
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                                       1

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-K405

         ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
                       EXCHANGE ACT OF 1934 (FEE REQUIRED)

For the fiscal year ended June 30, 1996
Commission file number 0-12944

                                Zygo Corporation
- - --------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

Delaware                                               06-0864500
- - --------------------------------------------------------------------------------
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)                              

Laurel Brook Road, Middlefield, Connecticut                 06455
- - --------------------------------------------------------------------------------
(Address of principal executive offices)                  (Zip Code)

Registrant's telephone number, including area code                (860) 347-8506
                                                                  --------------
Securities registered pursuant to Section 12(b) of the Act:             None
                                                                  --------------
Securities registered pursuant to Section 12(g) of the Act:

                               Title of each class
                               -------------------
                          Common Stock, $.10 Par Value
                          ----------------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                 YES |X| NO |_|

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K405 or any amendment to
this Form 10-K405. |X|

State the aggregate market value of the voting stock held by nonaffiliates of
the registrant.* The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.

           Aggregate market value at August 30, 1996, was $118,813,408

* Solely for purposes of this calculation affiliates of the registrant have been
deemed to include only Canon, Inc., Wesleyan University, the directors and
executive officers of the registrant, and members of their immediate families
living in their homes.

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.

      4,913,145 Shares of Common Stock, $.10 Par Value, at August 30, 1996

The following documents are incorporated by reference in this Form 10-K405.

                                                        Part of the
                     Document                           Form 10-K405
                     --------                           ------------
     1996 Annual Report - (Specified Portions)         Parts I and II 
     Proxy Statement to be used in connection 
     with the Registrant's 1996 Annual Meeting 
     of Stockholders (Specified Portions)              Part III



 
 <PAGE>
                                       2



 
                                      PART I


 
 Item 1.  Business

                                   THE COMPANY

     Zygo Corporation designs, develops, manufactures and markets high
performance noncontact electro-optical measuring instruments, systems and
accessories, and optical components to precise tolerances both for sale and for
use as key elements in its own products. Utilizing proprietary laser and optical
technology combined with advanced software and electronics, Zygo's precision
noncontact measuring instruments and systems enable manufacturers in a variety
of industries, including data storage, semiconductor, and precision optics, to
increase operating efficiencies and production yields by identifying and
collecting quantitative data on product defects, both during and after the
manufacturing process. Zygo's optical components are used in many applications,
including laser fusion research, semiconductor manufacturing equipment, and
aerospace optical systems, as well as being an integral part of precision
optical instruments.

     Predominantly all of Zygo's instruments and systems employ either a laser
or white light source to make noncontact measurements. Through a process called
interferometry, a pattern of bright and dark lines (called fringes) results from
an optical path difference between a reference and a measurement beam. Zygo's
products then analyze these patterns through a series of steps and generate
quantitative three-dimensional surface profiles, which are used to determine
conformity to dimensional specification and, increasingly, to analyze and
enhance manufacturing processes. Interferometric measurement instruments and
systems are used by a variety of industries, including by the data storage
industry to inspect and analyze the surface of computer hard disks and
read/write heads, and by the semiconductor industry for high precision distance
measurement and motion control.

                                   BACKGROUND

     Historically, measurement and inspection instrumentation has consisted of
contact profiling devices and visual qualitative inspection systems. Advancing
technologies have required manufacturers in a variety of industries to produce
smaller products with more precise tolerances and decreased design geometries,
not capable of adequately being measured by the devices and systems then being
utilized. For example, contact profilers and visual qualitative inspection
systems are inadequate for quantitative analysis of critical dimensions such as
air bearing surface geometry and pole-tip recession necessary in high volume
production of read/write heads.

     The demands on these manufacturers to produce more powerful and smaller
products with more precise tolerances have fueled demand for precision
noncontact measuring instruments. In fact, high performance, noncontact
metrology is an enabling technology for the semiconductor, data storage, and
other vital high technology industries. The trend towards miniaturization and
tighter tolerances creates new challenges for manufacturers as they are forced
to handle, measure, and test ever smaller components. As piece part dimensions
and tolerances become smaller, "nano technology scale" precision is
necessitated. Disk drive manufacturers, for example, continue to increase drive
capacity while reducing the size of drives. For this to happen, the recording
head must fly closer to the disk and the head itself must be made smaller and to
greater precision.

     In addition, until recently, noncontact measuring instruments have been
limited almost exclusively to use by quality control laboratories for off-line
inspection on a test basis only. The historical cyclical nature of the
semiconductor industry, the data storage industry, and other capital goods
sector industries, together with increased competitive forces in these
industries, have forced these industries to no longer depend solely on sales
growth to fuel financial performance improvement, but rather to focus greater
attention on the need to reduce production defects and significantly increase
production yields. These pressures on manufacturers to improve productivity and
quality have required integration of process control technologies directly into
the manufacturing process, allowing manufacturers to test a greater percentage
of their components while in production. 



 
 <PAGE>
                                       3


Instrumentation is increasingly being sought to more accurately measure the
conformity of parts to their specifications and detect defects directly on the
manufacturing line, and to address other specific needs of the manufacturers to
improve production yields. As the data storage industry, semiconductor industry,
and other high technology industries are forced to install more sophisticated
and difficult to manage and control production and assembly processes, a greater
degree of on-line, high precision, surface metrology and defect detection
systems is required.

                                THE ZYGO SOLUTION

     Zygo introduced its first interferometer in 1972. All of Zygo's instruments
and systems utilize interferometry to accomplish precise measurement of a
variety of surface geometries or to control motion and minute movements during
the manufacturing process. In interferometry, a pattern of bright and dark lines
(fringes) results from an optical path difference between a reference and a
measurement beam. Incoming light is split inside an interferometer, one beam
going to an internal reference surface and the other to a sample. After
reflection, the beams recombine inside the interferometer, undergo constructive
and destructive interference, and produce the light and dark fringe pattern. The
number, shape, and position of the lines in the fringe patterns can be analyzed
to provide quantitative surface structure analysis. Zygo's interferometric
instruments and systems utilize highly sophisticated subsystems, including:
precision optical components such as beamsplitters, reference optics, and
transmission optics; stable and long-life laser or other light sources; piece
part positioning stages; high-powered workstations or PCs for processing and
analyzing fringe pattern data; and a variety of peripheral components such as
monitors and printers.

     Interferometry has certain inherent benefits over other forms of surface
and distance measurement as it provides noncontact, quantitative, full field of
view, ultra-high resolution surface analysis in three dimensions, which results
in higher analysis throughput and lower cost of ownership for the user.
Additionally, interferometric metrology is often an enabling technology as
dimensions and tolerances of many parts in high technology applications have
dimensions below 250 nanometers.

     Zygo's instruments and systems provide critical productivity enhancement
capability to the data storage, semiconductor, and other high technology
markets. Zygo has worked closely with leaders of the data storage,
semiconductor, and other capital goods sector industries to help these
manufacturers meet the ever-increasing production demands of their industries.
Utilizing proprietary laser and optical technology combined with advanced
software and electronics, Zygo's precision noncontact measuring instruments and
systems enable manufacturers in a variety of industries to increase operating
efficiencies and product yields by identifying and collecting quantitative data
on product defects, both during and after the manufacturing process.

     A wide range of operational features and data analysis capabilities are
available on Zygo's measurement instruments. Instrumentation has been designed
with maximum flexibility to satisfy a customer's existing needs and to be
adaptable to satisfy expansion and growth. Certain measuring devices can be used
in either the horizontal or vertical configuration, and on the production line
or in the development lab.

     To meet the rapidly changing and increasing requirements of manufacturers,
Zygo's business is transforming from that of an off-line quality control and
quality assurance test and measurement instrument supplier to an on-line
production improvement and yield management system provider. For example, Zygo's
Automated Air Bearing Surface Analysis System measures the air bearing surface
geometry of read/write heads in-line as the heads are being manufactured. The
system performs quantitative measurements on seven critical read/write head
parameters with a throughput of up to 20,000 heads per day and provides
real-time critical data to the manufacturing process control center to make
on-line production process changes, thereby reducing the number of defective
heads manufactured. Zygo recognized another opportunity for yield improvement in
the data storage industry in flying height testing. Early in calendar 1995, Zygo
formed a division in Simi Valley, California, to develop products for that
industry with its first undertaking being focused on the flying height tester.
Together with Zygo's engineers in Middlefield, Connecticut, the team developed a
production flying height tester and introduced the product in September 1995;
shipments of the Pegasus 2000 flying height tester commenced in May 1996. The
Pegasus 2000 addresses one of the 


 
 <PAGE>
                                       4


data storage industry's most critical requirements, the ability to measure
flying height at near contact. Another example of Zygo's instruments and systems
which allows its customers to enhance productivity and improve production yield
is the ZMI-1000, used by semiconductor manufacturers within their
photolithography systems to precisely control the movement of the systems' x/y
stage to a precision of one nanometer. As product geometries and tolerances
reduce and yield improvement becomes increasingly important, new opportunities
are continuously being explored.

                                  ZYGO STRATEGY

     Zygo's objective is to expand its position as a leading worldwide supplier
of high performance, noncontact electro-optical measuring, production control,
and yield management improvement instruments, systems and accessories that
improve the performance, quality, reliability, yield and cost of automated
manufacturing processes, and of optical components to precise tolerances. Zygo
dedicates substantial resources to research and product development to enable it
to compete effectively in its market areas.

     Key elements of Zygo's strategy include:

     Maintain Enhanced Leadership Through Innovative Technical Solutions. By
     integrating its proprietary electro-optical technologies, proprietary
     applications software and unique system integration capabilities, Zygo
     provides leading edge automated optical inspection solutions in the
     shortest possible time. Zygo's core technologies of optical interferometry,
     optical metrology, system engineering integration, application software,
     and precision optical component fabrication and coating are directly
     applied to meet the higher measurement precision, accuracy, resolution,
     data acquisition and data analysis requirements in the most demanding
     manufacturing processes of its customers. Throughout its history, Zygo has
     met its customers' requirements through innovation and invention with 63
     United States patents and 9 foreign patents, and has 13 United States
     patent applications and 3 foreign patent applications pending.

     Focus on New Market Segments. Zygo's products have applications for a wide
     variety of industries. In the development of these products, Zygo focuses
     on market segments which it believes have growth potential and in which
     Zygo can reasonably expect to become a leading manufacturer. Zygo seeks to
     adapt the noncontact inspection and process control technology it develops
     for one application to other markets.

     Broaden Customer Relationships. Zygo focuses on establishing the strongest
     relationship with major industry leaders in its served markets. This is
     accomplished by working closely with its customers and identifying
     increasing numbers of applications for automated optical inspection and
     yield improvement systems. Zygo also focuses on fully integrating its
     offerings into its customers' manufacturing processes through automated
     parts handling, enhanced product metrology and defect analysis, and by more
     complete integration into the customers' workcells by fully integrated
     process information networking, all geared to improve production. Zygo
     intends, by forming closer customer alliances, to better understand the
     evolving needs of its customers and, through the application of innovative
     technology, to provide high performance, high quality, cost effective
     solutions to the production improvement requirements in the shortest
     possible cycle time. Through this solution-sales cycle, which further
     promotes a closer and longer term partnership relationship between Zygo and
     its customers, Zygo intends to attain a preferred position with major
     industry leaders.

     Supply Quality Solutions Rapidly. Zygo seeks to deliver high quality and
     high reliability system solutions in a minimal cycle time. To this end,
     Zygo has installed an enterprise-wide total quality process where
     employee-led teams work to continuously improve the effectiveness and
     efficiency of its processes while searching out and removing areas of poor
     quality and waste. Zygo's operations strategy focuses on internally
     providing those 


 
 <PAGE>
                                       5


     manufacturing services that add unique value in a rapidly changing customer
     needs environment.

     Provide Uninterrupted Worldwide Service and Support. To support leading
     customers' continuous manufacturing processes, Zygo ensures optimal
     operation and reliable performance of its production control equipment
     through its worldwide customer support service group. Through a worldwide
     network of service representatives, Zygo provides 24-hour on-demand
     maintenance services. Its service engineers have a unique skill set,
     including optical and electrical component repair, software, application
     and system integration diagnostic and problem solution capabilities.

     Broaden Product Offerings and Markets Through Internal Developments and
     Acquisitions. Zygo intends to broaden its product offerings by continuing
     to internally develop additional products and by aggressively pursuing the
     acquisition of companies where synergies can be identified. In 1995, Zygo
     formed a start-up operation in Simi Valley, California, as a way to broaden
     its product offering and participation in the data storage industry. Zygo
     has determined that these start-up operations can be an effective
     alternative to an acquisition when the technology resident in Zygo is
     complementary to the market knowledge and expertise resident in the
     individuals hired to manage the start-up. Zygo also maintains an active
     program of investigating and negotiating potential synergistic acquisitions
     which extend Zygo's product lines or markets. Zygo believes that its
     acquisition strategy is an important element of its total business
     strategy. In 1995, Zygo completed the acquisition of a small manufacturer
     of high precision laser tubes, which allowed Zygo to bring in-house a
     technology that is critical to the performance of its motion control
     products. Subsequent to the close of its fiscal 1996, Zygo completed the
     acquisition of Technical Instrument Company, a manufacturer of confocal
     microscopy systems and modules, and the acquisition of NexStar Automation,
     Inc., a manufacturer of automation and parts handling equipment. (See
     "-Technical Instrument Company Acquisition" and "-NexStar Automation, Inc.
     Acquisition" later in this Form 10-K405.)

                                    PRODUCTS

     Zygo manufactures high performance, noncontract electro-optical measuring
instruments, systems and accessories, and optical components to precise
tolerances both for sale and for use as key elements in its own products. Zygo
operates in a single business segment, electro-optics, and offers products which
fall into two general categories: (1) instruments, systems and accessories, and
(2) precision optical components.

Instruments, Systems and Accessories

     Zygo's product strategy is to develop its instruments and systems utilizing
modular designs where entire product families share several, if not all, of the
same components, modules and software. Since 1992, Zygo has redesigned all of
its instruments and continues to upgrade its software and enhance its products
by adding features such as automated stages and parts handling to many of its
instruments and systems.

     All of Zygo's instrument products utilize powerful processors that
facilitate high speed data acquisition and data analysis. Zygo's interferometric
surface analysis microscopes and large aperture surface measurement
interferometers utilize Zygo's proprietary MetroPro(R) software, which has a
graphical user interface that makes the product very user friendly. The
MetroPro(R) software, combined with super high-resolution graphics and pull-down
menus, provides the user with engineering solutions without off-line processing.
The software allows the user to record, print, and store measurement data
locally as well as to distribute the data through networks for process
management and further analysis. Zygo's proprietary software provides Zygo with
comparative 


 
 <PAGE>
                                       6


advantage because of its high speed, powerful analysis capability based on
proprietary algorithms, easily configurable screens, powerful image analysis
modules, and adaptability to new applications.

                  Interferometric Surface Analysis Microscopes

 
 <TABLE>
<CAPTION>

Product         Price Range             Measurement                      Application
- - -----------------------------------------------------------------------------------------------
<S>               <C>        <C>                               <C>
Maxim*GP         $ 50K      Roughness; Depths; Coplanarity;   Product and Process Development;

NewView 100         to       Micro-shape; Lengths; Widths;     On-Line Process Control/Product

AAB System        $150K                Area; Volumes              Inspection; QC inspection
- - -----------------------------------------------------------------------------------------------
</TABLE>
 
 

     The surface characteristics of many products in industries such as
semiconductor, data storage, fiber optics, and medical implants, and with
increased applications in the paper, printing plates, coatings, and
pharmaceuticals industries, controls the performance of the product. As a
result, surface structure analysis is fundamental to many facets of research and
industry. The Zygo Maxim*GP, the fully automated AAB System, and NewView 100
microscopes combine advanced techniques of interferometry, microscopy, and
precision translation stages, to enable high precision surface analysis. Unlike
visual microscopes, Zygo's instruments provide measurement information as
quantitative three-dimensional images, two- and three-dimensional surface maps
with colors and shades representing relative heights of surface features, and
numeric results. The Maxim*GP is based on phase shifting interferometry to
provide very precise, fast measurements of specular ("Mirror-like") or near
specular surfaces. The NewView 100 uses scanning white light interferometry to
measure nonspecular surfaces.

               Large Aperture Surface Measurement Interferometers


 
 <TABLE>
<CAPTION>

Product         Price Range             Measurement                      Application
- - -----------------------------------------------------------------------------------------------
<S>               <C>      <C>                                 <C>
GPI LC            $ 15K       Flatness; Sphericity;            Product and Process Development;

GPI ST              to     Radius of Curvature; Optical        Off-Line Process Control;
                            System Quality; Transparent       
GPI XP            $250K       Material Homogeneity             QC Inspection

                                        
- - -----------------------------------------------------------------------------------------------
</TABLE>
 
 

     Zygo's interferometers for large surface measurement, the Growth Potential
Interferometer ("GPI") family of upgradable instruments, basically consist of
enlarged versions of the three-dimensional microscope, designed to perform
surface profile analysis on larger surface areas. Each member of the GPI
interferometer family is designed to address a specific level of measurement
needs. While all GPI models have essentially the same purpose - noncontact
measurement of flat or spherical surfaces and transmitted wavefront measurement
of optics - they differ widely in operational features and data analysis
capabilities. The GPI family of products is used extensively in the optics
industry to measure glass or plastic optical components like flats, lenses and
prisms, and more recently in a growing number of other situations to measure
precision components such as hard disks, bearing and sealing surfaces, polished
ceramics, and contact lens molds.

                              Flying Height Tester


Product         Price Range       Measurement              Application
- - --------------------------------------------------------------------------------
Pegasus 2000      $200K      Read/Write Head Gimbal    Product Development;

                    to       Assembly Flying Height    Off-Line Process Control;

                  $250K                                QC Inspection
- - --------------------------------------------------------------------------------



 
 <PAGE>
                                       7


     In September 1995, Zygo introduced the Pegasus 2000, a flying height
tester. The flying height tester measures the height at which a read/write head
flies over the surface of a magnetic disk within the disk drive. The industry
demands for increased storage capacity are compelling manufacturers to reduce
the flying height, as increased amounts of data can be stored on magnetic heads
the closer they fly to the disk. The Pegasus 2000 offers several unique
capabilities to the data storage industry. As flying heights are reduced,
manufacturers require measurement instruments which can measure at near-contact.
Zygo's flying height tester actually increases in accuracy the closer the
read/write head flies over the surface of the disk. Additionally, due to
significant increases in disk storage requirements, manufacturers require
easy-to-use, high throughput testers. The Pegasus 2000 has been designed as a
production oriented tester. For example, the system is capable of having a head
loaded while a second head is being tested. Also, the tester automatically
calibrates the sensor requirements of each head rather than requiring operator
inputs. Zygo commenced shipments of its Pegasus 2000 in May 1996.

            Precision Distance and Angle Measurement Interferometers


 
 <TABLE>
<CAPTION>

Product     Price Range         Measurement                   Application
- - --------------------------------------------------------------------------------------
<S>           <C>        <C>                          <C>
ZMI-1000      $ 15K      Distance; Angle; Velocity;   Semiconductor and Flat Panel

                to            Time/Position              Display Manufacturing;

              $100K                                   Product and Process Development;
                                                          Precision Machine Tools
- - --------------------------------------------------------------------------------------
</TABLE>
 
 

     Fast, precise control of machine motion is the primary challenge in many
production processes. Industries as diverse as semiconductor and flat panel
display production and optical component manufacturing require systems to
measure the position of a tool relative to a part under fabrication. Zygo's
ZMI-1000 Laser Interferometer system provides the measurements that control the
position of some of the world's most sophisticated machinery. Through the use of
a directed laser beam reflecting from the moving portion of the machine, the
ZMI-1000 can tell the machine's computer control systems about movements as
small as 1.24 nanometers (billionths of a meter). This level of accuracy can be
compared to the finest geometries of semiconductors, which are approximately 350
nanometers. Its design also accommodates fast motions and maintains its
precision at speeds in excess of a meter per second. Applications for these
interferometers include accurately measuring and controlling, while they are in
motion, the x, y, and theta stages in photolithography equipment that is used in
making semiconductors and flat-panel video displays. Although Zygo sells this
instrumentation to a large number of customers, the majority of these
interferometers are sold on an OEM basis to Canon. Zygo is Canon's sole-source
provider of motion control devices for use in Canon's photolithography systems.
These systems perform a critical function in the process of manufacturing
semiconductors.

                          Precision Optical Components

        Component(s)                                      Application
- - --------------------------------------------------------------------------------
        Flats; Spheres;                              Laser and White Light Based

     Waveplates; Mirrors;                               Optical Instruments;

Precision Mechanical Components;                         High Power Lasers;

      Aerospace Windows;                                 Photolithography;

    Photolithographic Stages                            Military; Research
- - --------------------------------------------------------------------------------

     Zygo believes it is a world leader in the design and manufacture of highly
accurate "cosmetically excellent" surfaces and angles on plano components
ranging in size from small prisms to large mirrors, scanners, aerospace windows
and laser amplifier disks. Zygo's precision machining 


 
 <PAGE>
                                       8


capability is used to make complex glass and ceramic parts such as stage mirrors
and other lightweight structures. Operations at Zygo's state-of-the-art optical
components manufacturing facility include machining, shaping, generating,
grinding, polishing, and edging. Zygo utilizes technology that it has developed
and incorporated into rotary polishing machines designed and built by Zygo.
Zygo's thin film coating capability includes metallic and high-efficiency
dielectric coatings for transmissive or reflective applications, in the
ultraviolet, visible, and infrared regions of the spectrum. Zygo also applies
polarization, beamsplitter, and anti-reflection coatings.

     To ensure quality control of its products, Zygo maintains complete control
over every facet of manufacturing, from grinding and polishing to mating and
assembly. At each stage of production, opticians test and verify the components
using sophisticated interferometric measuring instruments designed and
manufactured by Zygo. Zygo believes that this vertical integration gives Zygo a
distinct competitive advantage over most of its competitors in the production of
its precision optical components.

Percentage of Consolidated Sales

     The following table shows the past three years of relative contributions of
instruments and accessories and precision optical components to consolidated
sales.

        Year ended June 30,             1996          1995          1994
        ----------------------------------------------------------------
        Instruments and Accessories      87%           84%           78%
        Precision Optical Components     13            16            22
        ----------------------------------------------------------------

             Total                      100%          100%          100%
        ================================================================

Competition

     Although Zygo believes that its products are unique, competitors offer
technologies, instrumentation, and systems that are capable of performing
certain of the functions performed by Zygo's products. Zygo faces competition
from a number of companies in all its markets, some of which have greater
manufacturing and marketing capabilities, and greater financial, technological,
and personnel resources. In addition, Zygo may compete with the internal
development efforts of its current and prospective customers. Zygo believes that
its instrumentation and products offer several advantages over competitive
products in terms of accuracy, speed, flexibility, cost, and ease of use.
Although Zygo has attempted to protect the proprietary nature of such products,
it is possible that any of Zygo's products could be duplicated by other
companies in the same general market. In addition, there can be no assurances
that Zygo would be able to compete with similar products produced by a
competitor.

              PRINCIPAL CUSTOMERS AND OPERATIONS BY GEOGRAPHIC AREA

     The growing need for dimensional control to the subnanometer level has
created a growing need for Zygo's instruments and systems among both OEMs and
end users. Traditionally, Zygo's largest market has been high precision optical
components and systems. As the market demands for greater tolerance control in
the manufacturing process has increased, particularly in the data storage and
semiconductor markets, Zygo has been able to meet these demands with
on-the-production-line process and quality control instruments and systems as
well as with its off-line quality control instruments. As a result, the data
storage and semiconductor industries are now Zygo's largest markets.

     Historically, a relatively limited number of customers have accounted for a
substantial portion of Zygo's revenues. In fiscal years 1996, 1995, and 1994,
sales to Zygo's top two customers accounted for approximately 53.8%, 46.8%, and
41.2%, respectively, of Zygo's net sales. During these fiscal years, sales to
Canon, Zygo's largest customer, accounted for approximately 36.9%,


 
 <PAGE>
                                       9


29.6%, and 32.1 %, respectively, of Zygo's net sales. Canon, one of the original
investors in Zygo, is a valuable strategic partner of Zygo and the relationship
is important to both companies for many reasons. Sales to Canon include products
that Canon uses in its manufacturing facilities, such as Zygo's large aperture
surface measurement interferometers, which are used to quantitatively analyze
the surface of optics Canon produces for its photolithographic steppers, and
Zygo's motion measurement components and systems which are incorporated into
Canon's steppers for controlling the x/y stage in that product. Zygo is Canon's
sole source for motion control systems. Sales to Canon also include optical
components and instruments, systems and accessories sold by Canon as Zygo's sole
distributor in Japan. In fiscal 1996 and 1995, Seagate, a leading manufacturer
of computer disk drives and related hardware and software, accounted for an
additional approximately 16.8% and 17.2%, respectively, of Zygo's net sales;
sales to Seagate were insignificant in fiscal 1994. No other customer accounted
for greater than approximately 10% of Zygo's net sales in fiscal 1996, 1995, or
1994.

     The following is a representative list of end users of Zygo's products:


 
 <TABLE>
<CAPTION>
                                                                 Industrial Surfaces &
Semiconductor         Data Storage         Optics                   Machine Control
- - -------------         ------------         ------                   ---------------
<S>                 <C>                  <C>                     <C>
Canon               Akashic              Bausch & Lomb           Anorad
DuPont              Applied Magnetics    Canon                   Cummins Engine
ESI                 Hitachi              Corning                 Dover Instruments
ETEC                Komag                Hughes                  General Motors
IBM                 Maxtor               Laboratory for          Gerber Scientific
KLA                 Quantum               Laser Energetics       Martin Marietta
Motorola            Read-Rite            Lawrence Livermore      National Institute of
NEC                 SAE Magnetics         National Laboratories   Standards & Technology
SVG                 Seagate              Melles Griot            Rank Taylor Hobson
Sematech            Sony                 Nikon                   Saint-Gobain/Norton
Tencor              TDK                  OCLI                    Sikorsky Aircraft
Texas Instruments   Toshiba              Perkin Elmer            Stanadyne
Toshiba                                  Schott Glass            3-M
Ultratech Stepper                        Vistakon                TRW
                                         Zeiss
</TABLE>
 
 

     Zygo sells its products worldwide through a combination of direct sales
staff and independent distributors and sales representatives. Zygo maintains a
direct sales staff of three persons at its headquarters in Middlefield,
Connecticut, one person in Atlanta, Georgia, one person in Fort Collins,
Colorado, one person in Mesa, Arizona, and one person in Santa Clara,
California, for domestic sales. International sales are made through more than
10 representatives and distributors, covering sales and service in 20 countries
including Japan, Singapore, Malaysia, South Korea, Taiwan, Philippines, United
Kingdom, Germany, Italy, and France.

     The following table sets forth the percentage of Zygo's total sales
(including sales delivered through distributors) by location during the past
three years:

                                                   Year Ended June 30,
                                            ------------------------------
                                            1996          1995        1994
                                            ----          ----        ----
        United States                       49.9%         53.5%       54.3%
        Japan                               36.9          29.9        31.4
        Pacific Rim                          8.2          10.2         8.8
        Other (primarily Europe)             5.0           6.4         5.5



 
 <PAGE>
                                       10


     Substantially all of Zygo's export sales are negotiated, invoiced, and paid
in United States dollars. International sales and foreign operations are subject
to certain inherent risks.

     The selling process for Zygo's products frequently involves participation
by sales, marketing, applications specialists, and engineering personnel. Zygo's
marketing activities also include participation in international standards
organizations, trade shows, publication of articles in trade journals,
participation in industry forums, and distribution of sales literature. In
addition, Zygo's strategic relationships with customers serve as highly visible
references.

     Zygo believes that its strong commitment to service is essential, based on
the growing complexity of the equipment used in the manufacturing process by
Zygo's customers. At June 30, 1996, Zygo's customer support and service staff
consisted of 14 persons. In addition, Zygo's distributors and sales
representatives offer a worldwide network for customer support, providing
24-hour on-demand maintenance services. The service engineers are skilled in
optical and electrical component repair, software, application and system
integration, diagnostic and problem solving capabilities. Zygo also offers
training programs and maintenance contracts for its customers.

                                     BACKLOG

     The Company's backlog at June 30, 1996 and 1995, was approximately $19.1
million and $12.9 million, respectively. The significant increase from the prior
year end resulted primarily from stronger demand for all of the Company's
electro-optical instruments and accessories. The backlog of the Company's
electro-optical instruments and accessories at June 30, 1996, increased
$5,321,000 (58%) from that at June 30, 1995. The backlog of the Company's
precision custom optical components increased by $833,000 (22%) from the year
earlier as a result of improved demand for precision optical components.
Substantially all of the backlog as of June 30, 1996, is expected to be shipped
in fiscal year 1997. Historically, cancellation or reduction of orders has not
had a significant impact on the Company's results of operations.

                         RESEARCH AND DEVELOPMENT COSTS

     Information regarding the Company's research and development costs is set
forth in the Consolidated Statements of Earnings on page 14 of the Company's
1996 Annual Report, which statements are herein incorporated by reference. Zygo
operates in an industry that is subject to rapid technological change and
engineering innovation. Zygo distinguishes its instrument products on the basis
of its unique electro-optical sensor technology, its software capability, and
its skill in systems integration. Because Zygo believes that its ability to
compete effectively with its instruments and systems in its markets depends in
part on maintaining its expertise in applying new technologies and developing
new products, Zygo dedicates substantial resources to research and development.
At June 30, 1996, Zygo employed 42 individuals within its R&D operations,
including 16 individuals with advanced degrees of which six individuals have
earned doctoral degrees. During the second half of fiscal 1995, Zygo formed an
R&D facility in Simi Valley, California, for the purpose of developing test and
measurement instruments for the disk drive industry. The first such product
development effort at the new facility focused on flying height testing and, in
conjunction with Zygo's engineers in the Middlefield, Connecticut, facility,
produced Zygo's Pegasus 2000 flying height tester. See "-Products." In addition,
as an integral part of Zygo's product development strategy, Zygo has formed
technical relationships with several customers. Zygo's strategy is to form close
technical working relationships with the leading suppliers in its markets and
thereby develop products and systems which have the greatest relevancy to the
marketplace in general. In connection with its R&D operations, Zygo also
maintains a close working relationship with various research groups and academic
institutions in the United States as well as abroad.

     Zygo believes that continued enhancement, development, and
commercialization of new and existing products and systems is essential to
maintaining and improving its leadership position. Zygo intends to direct its
research and development activities in several different areas. For example,
Zygo continues to seek to develop products that have greater measurement range
and precision to address new markets. Additionally, Zygo intends to continue to
add products that are automated in-process 


 
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                                       11


instruments and systems. There can be no assurance that these efforts or any
other product development efforts of Zygo will be successful in producing
products that respond to technological changes or new products introduced by
others.

                         PATENTS, LICENSES, TRADEMARKS,
                           AND PROPRIETARY INFORMATION

     Zygo relies on a combination of patent, copyright, trademark, and trade
secret laws and license agreements to establish and protect its proprietary
rights in its products. Zygo believes, however, that its success depends to a
greater extent upon innovation, technological expertise, and distribution
strength. Zygo requires each of its employees to enter into standard agreements
pursuant to which the employee agrees to keep confidential all proprietary
information of Zygo and to assign to Zygo all rights in any proprietary
information or technology made or contributed by the employee during his or her
employment or made thereafter as a result of any inventions conceived or work
done during such employment. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use Zygo's products or technology
without authorization or to develop similar technology independently. In
addition, effective patent, copyright and trade secret protection may be
unavailable or limited in certain foreign countries.

     Zygo has been awarded 63 United States patents and 9 foreign patents since
the Company was founded, and has 13 United States patent applications and 3
foreign patent applications pending. Zygo, the Zygo logo, and Maximo3D are
registered, and the Company also holds several nonregistered trademarks
including Maxim*GP, NewView 100, Growth Potential Interferometer, GPI, ZMI-1000,
Pegasus 2000, and AAB System.

               MANUFACTURING, RAW MATERIALS, AND SOURCES OF SUPPLY

     Zygo's principal manufacturing activities are conducted at its facility in
Middlefield, Connecticut. Zygo maintains a state-of-the-art optical components
manufacturing facility, specializing in the fabrication, polishing and coating
of plano (flat) optics for sales to third parties, as well as the manufacturing
of a wide variety of optics that are used in Zygo's instrument products. Zygo's
manufacturing activities for its instrument products consist primarily of
assembling and testing components and subassemblies some of which are supplied
from within Zygo and others are supplied by third party vendors and then
integrated into Zygo's finished products. Many of the components and
subassemblies are standard products, although certain items are made to Company
specifications. Zygo also maintains Computer Numerical Control (CNC) metal
fabrication equipment for in-house production of strategic metal formed
components.

     Certain components and subassemblies incorporated into Zygo's systems are
obtained from a single source or a limited group of suppliers. Management
routinely monitors single or limited source supply parts, and Zygo endeavors to
ensure that adequate inventory is available to maintain manufacturing schedules
should the supply of any part be interrupted. Although Zygo seeks to reduce its
dependence on sole and limited source suppliers, it has not qualified a second
source for these products and the partial or complete loss of certain of these
sources could have an adverse effect on Zygo's results of operations and damage
customer relationships. To date, the Company has not experienced a significant
production delay from a parts shortage or loss of a single-source component.

     Zygo also maintains a state-of-the-art fully integrated management
information system which includes all business modules (capacity planning,
materials requirements planning, order entry, financials, etc.) necessary to
manage Zygo's growing operations.

                                    EMPLOYEES

     At fiscal year end, Zygo employed 245 men and women, including 140 in
manufacturing, 42 in research and development, 22 in sales and marketing, and 14
in customer service. To date, Zygo has been successful in attracting and
retaining qualified technical personnel, although there can be no assurance that
this success will continue. None of Zygo's employees are covered by collective


 
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                                       12


bargaining agreements or are members of a union. Zygo has never experienced a
work stoppage and believes that its relations with its employees are excellent.

                                SUBSEQUENT EVENTS

     Subsequent to the close of its fiscal 1996, Zygo completed the acquisition
of Technical Instrument Company, a manufacturer of confocal microscopy systems
and modules, and the acquisition of NexStar Automation, Inc., a manufacturer of
automation and parts handling equipment. A brief description of these businesses
follows:

Technical Instrument Company Acquisition

     Effective as of August 8, 1996, Zygo completed its acquisition of the
Proprietary Products Division of Technical Instrument Company ("TIC"). Prior to
the acquisition, TIC was engaged in two businesses: the proprietary products
division which designs, develops, manufactures, markets, and sells microscopy
systems and subsystems, or modules, and a distribution division which acts as a
sales representative for other firms' products. The distribution division was
spun off into a new company, Technical Instruments - San Francisco, prior to the
completion of the acquisition of the TIC stock by Zygo. An effective purchase
price of approximately $14.7 million was paid, of which approximately $11.7
million was paid in cash and the balance was paid by the issuance of
unregistered shares of Zygo Common Stock.

     TIC, located in Sunnyvale, California, designs, develops, manufactures,
markets, and sells microscopy systems and subsystems, or modules to a variety of
industries, including manufacturers of photomasks used in semiconductor and flat
panel display manufacturing, manufacturers of components for the data storage
industry, biomedical research and other high technology manufacturing and
research applications. The majority of TIC's microscope systems and subsystems
employ white light confocal scanning optical microscopy ("CSOM") technology.
Over the past several years, TIC has added other imaging systems to its product
offering, including laser scanning confocal and atomic force microscopy. Today
TIC specializes in integrating imaging modes, viewing accessories, and
measurement tools within its microscopy systems and subsystems for customers in
a wide variety of high technology fields.

     CSOM is a key base technology employed in TIC's products. The majority of
TIC's microscope systems and subsystems employ white light CSOM technology. In a
microscope utilizing white light CSOM imaging, a high-intensity white light
illuminates a section of a spinning disk containing pinholes arranged in
multiple spiral patterns. Acting as point illumination sources, the pinholes
direct light to points on the sample. The reflected light from the sample
returns through the same section of the disk. Only light from points on the
sample near the focal plane will pass through the pinholes for imaging. The
advantage of the white light CSOM technology over other forms of imaging systems
offering sub-micron definition include: high resolution in real time with no
delay for image processing, transverse resolution, and extremely shallow
depth-of-field provide precise imaging of sub-half micron structures and lower
cost of ownership. CSOM imaging is used for both inspection and metrology
measurement in TIC's systems. A laser confocal system employs a laser light
source which causes a sample to fluoresce with the resulting light of a shorter
wavelength which retraces its path to a pinhole. The fluorescent light is split
into two spectral ranges. After an x/y scan the two channels are digitized and
stored in the computer as separate images that can be displayed individually or
overlaid to create a single color image. This results in high resolution and the
ability to display many layers of translucent samples as a live overlay of
bright, perfectly registered optical sections. Atomic force microscopy measures
the atomic and molecular forces between a sample and an ultra-fine silicon tip
mounted on a spring-loaded cantilever. A laser light is focused on the
cantilever and measured by a position sensitive detector which converts
cantilever deflection into an electrical signal. By keeping the deflection of
the cantilever constant, a sensor scans the sample and measures its compensative
movement. With no electrical conductivity requirement, virtually any sample can
be examined in life size with superior image at fine resolution.



 
 <PAGE>
                                       13


     TIC's product strategy has been to develop microscope systems and modules
which leverage the CSOM technology and thereby offer the customer a lower cost
higher capability solution. TIC's products fall into two broad categories:
confocal microscope systems for photomask and wafer metrology and inspection,
and confocal modules sold to OEMs for incorporation into their microscopy
systems.

     TIC's AMS and KMS microscope systems represent the majority of its sales.
The KMS group of products are fully automated high-throughput confocal
microscopy systems which provide measurement in three axes and real-time
observation in color. Nondestructive confocal white light imaging permits
measurements which are impossible with other types of critical dimension
measurement instrumentation such as scanning electron microscopes. Positioning,
measurement, and data collection are easily custom-configured and interface to
most networks. the KMS products utilize powerful software which is menu and
script-file driven to allow for ease in program generation. The AMS product is a
manual version of the KMS which is typically used in development centers for low
volume metrology and inspection requirements. The majority of these products is
sold to manufacturers to optically transfer these images onto semiconductor
wafers. As the demands for finer line width geometry's increases, mask
manufacturers must utilize sophisticated metrology and inspection tools as a way
to improve their manufacturing yields. TIC has focused significant effort on
this market and currently has units installed at all of the market leaders
including: Intel, Photronics, IBM, DuPont PhotoMasks, Inc., Motorola, Fujitsu,
Lucent Technologies (AT&T), ETEC, Hewlett Packard, and Hyundai. TIC believes it
has a dominant position in the mask metrology market where its primary
competition is from the higher cost products manufactured by SiScan and Leica.
TIC's systems are also finding growing acceptance in the metrology measurement
and inspection of thin film read/write heads which are integral components in
disk drives. TIC has delivered systems to several customers in this market
including Read Rite, Applied Magnetics, and Quantum. The AMS and KMS systems
sell for between $260,000 and $500,000 per system depending on the degree of
custom software and accessories provided.

     TIC's module products include the K-2 Industrial module, the NCM module and
the PCM module. The K-2 module provides confocal scanning capability to nearly
any modern upright white-light microscope. The product is fitted to the
microscope as a replacement for the vertical illuminator and attaches to the
microscope stand. The K-2 module provides two confocal modes and one brightfield
imaging mode. TIC also offers an optional confocal software package with the K-2
module which makes it possible to precisely layer several two-dimensional
confocal images to create an extremely accurate three-dimensional image. The K-2
module sells to OEMs for between $10,000 and $30,000 per module. The NCM module
is a confocal module, similar to the K-2 module, which is incorporated into the
Nikon IC-200C microscope. The PCM module was recently developed for an OEM
application in the biomedical field. The module utilizes TIC's laser scanning
confocal technology where fluorescence is used to analyze the subject. This
module, which sells for approximately $30,000, is incorporated into an OEM
product which is used in research work for analyzing cell structures and DNA.
TIC's principal OEM accounts include Nikon, Leica, Reichert, and Nidek.

     TIC sells its products worldwide through a combination of direct sales,
sales agents, and independent distributors. TIC maintains a direct sales and
marketing staff of six persons in Sunnyvale, California. System sales, in the
United States, are handled by a combination of direct sales personnel and
independent sales representatives. OEM sales in the United States are handled by
the direct sales personnel. Sales in Japan, the Pacific Rim, and Europe are
handled through a number of independent agents or distributors. Approximately
40% of TIC's sales are from outside the United States with approximately 60% of
export sales being to Japan and 15% being to the Pacific Rim. TIC supports its
installed base of equipment by maintaining highly trained applications support
and service support personnel. At June 30, 1996 TIC employed seven such persons.
TIC also offers detailed training in the operation and maintenance of its
systems both at its Sunnyvale headquarters and at customer locations.

     TIC operates in an industry that is subject to rapid technological change.
In addition to maintaining a staff of six highly competent research and
development engineers, TIC maintains relationships with the university community
and private individuals who are experts in the field of 


 
 <PAGE>
                                       14


microscopy to ensure the latest technological enhancements are being integrated
into its systems and subsystems. Also, by maintaining a strategy of focusing on
the requirements of industry leaders within the markets they serve, TIC is
better able to maintain its leading edge technology, both in terms of the
scientific refinements and in terms of the practical customer application
requirements. TIC holds one patent in its own name. This patent covers the
scanning application of scanning confocal microscopy. TIC also licenses the
technology of white light confocal microscopy from Stanford University. This
patent was co-developed by Stanford University and an individual who is
currently the lead scientist at TIC.

     As of June 30, 1996, TIC employed a total of 56 personnel, including 32 in
manufacturing, six in R&D, six in sales and marketing, and seven in customer
support. None of TIC's employees are covered by a collective bargaining
agreement or are members of any union. TIC has never experienced a work stoppage
and believes its relations with its employees are excellent.

     TIC maintains its headquarters in a leased 20,000-square-foot building
located in a high technology area in Sunnyvale, California.

NexStar Automation, Inc. Acquisition

     Effective as of September 12, 1996, Zygo completed its acquisition of
NexStar Automation, Inc. ("NexStar") which was effected through the distribution
of 250,000 shares of Zygo common stock for all of the outstanding shares of
NexStar. NexStar designs, develops, manufactures, and markets comprehensive
automated system solutions to enable manufacturers in a variety of industries,
including the data storage, semiconductor, and medical disposables industries,
to enhance operational efficiencies and product yields. NexStar's high speed
production solutions reduce downtimes, especially in manufacturing processes
adaptable to the manufacture of multiple products differing in size, features,
and functionality. For example, medical tubing is used in a variety of
applications, each requiring separate features, sizes, and functionality.
NexStar has developed a Medical Tube Coiling system, designed for the automated
production of medical tubing for use in these various applications.

     NexStar's automated solutions integrate its own proprietary mechanical
components and applications software with nonproprietary mechanical, software,
and robotics subsystems produced by third parties. NexStar's automated solutions
also enhance production control to ensure consistent high quality. NexStar's
sophisticated automation products and equipment are utilized in many
applications, including media manufacturing, disk drive assembly, semiconductor
manufacturing, and packaging and assembly applications in medical disposables
production.

     In the data storage market, NexStar's focus has been the development of
automated solutions used in cleanrooms for media handling, disk drive, and disk
cartridge assembly. It has created proprietary components including robotic
arms, parts handling, conveyor systems, and disk stack assemblies. Similar
solutions have been developed for the semiconductor market. In the medical
disposables market, NexStar has manufactured proprietary automated products to
assemble disposables, subassemblies, and medical tube coiling devices with
flexible designs that permit the handling in a sterile environment of various
sizes of corrugated or smooth bore tubing and small diameter catheters and
wires.

     The overall growth in high technology fields such as the data storage and
semiconductor industries, combined with the need of manufacturers in those
industries to produce products that are both smaller and more powerful and have
more precise tolerances, has fueled capital expenditures for on-line automation
equipment such as NexStar manufactures.

     NexStar manufacturers advanced automation systems to load and unload
process equipment, enhance the operation of quality inspection equipment, convey
component parts throughout the factory, and assemble complex products. It is
usual for such systems to be built to stringent environmental requirements such
as cleanroom standards, aseptic medical standards, and for resistance to
corrosive conditions. NexStar products and services fall into four general
categories: (1) process equipment automation, (2) quality inspection
enhancement, (3) material transport, and (4) custom system integration.

     Process equipment automation. NexStar develops systems to automate the
movement of material into and out of process equipment where the automation
system is composed of 


 
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                                       15


nonproprietary commercially available components and software, and proprietary
NexStar manufactured components and applications software. Products are grouped
in families which share many of the same components and custom produced modules.
Product development in this category begins with an initial system designed to
address a specific customer's requirements, is proven through field experience,
is standardized, and is offered to prospective customers with similar needs.

     All of NexStar's products utilize powerful processors that control the
different operations of the automation system, or workcell, and provide the
customer with manufacturing information on the production process. Workcell
controls include error correcting and recovery routines to maximize productive
time. The system controller, or computer, is designed to transfer workcell
manufacturing level information to the factory's central manufacturing
information and control system. All NexStar products are provided with high
quality, graphical user interfaces that provide operation, maintenance, support
engineering, and management interaction with the system. Workcells are intended
for use on a continuous basis, twenty-four hours per day, three hundred
sixty-five days per year. The time required for preventative maintenance and
error recovery is approximately 1.5% of the operating time.

     Quality inspection enhancement. In two of NexStar's market areas, the data
storage and semiconductor industries, automation of quality inspection systems
has typically lagged behind the automation of process equipment. NexStar has
invested in the design of compact automation solutions for a variety of commonly
used inspection systems, and several of NexStar's largest customers are now
beginning to automate in the quality inspection field. Examples of quality units
likely to be automated in the coming years are inspection and measurement
systems for media surface thickness, flatness, and parameters.

     NexStar believes that as a result of its work it has developed special
expertise in this area of automation, and that its ability to connect customers'
inspection systems to their manufacturing information control systems through
the automation interface, permits NexStar's customers to react more rapidly to
manufacturing problems. This improves both yields and production up-time, and
gives increased performance control over manufacturing operations.

     Material handling. Automation operates more effectively when the movement
of component parts and assembled product is controlled. NexStar offers a variety
of robotics automation systems which integrate internally developed proprietary
hardware and applications software with commercially available conveying
equipment built to customer specifications. In addition, NexStar has designed
and manufactured a conveying system that facilitates the use of different media
size transportation containers, or cassettes, while maintaining the accurate,
predictable positioning of the container and parts at the automated workcell.

     NexStar has also designed a cleanroom grade Automated Storage and Retrieval
System (ASRS), using a fabrication concept believed to be unique in the
industry. The ASRS system and conveyors work with customer product tracing
systems, such as bar code identification, to provide parts storage of in-process
product during critical steps in manufacturing, and movement control of each
product lot. Positive tracking of the product throughout the manufacturing cycle
enables NexStar's customers to eliminate inventory aging problems, reduce
work-in-process inventories, and increase responsiveness to customer needs.

     For the data storage industry, NexStar has designed and produced disk drive
and cartridge assembly systems to assemble various disk drive components. These
systems are typically designed to process a disk hub assembly (DHA) at a rate of
one every seven seconds. NexStar uses its internally developed proprietary end
effector, parts handling and transfer and disk stack systems in these assembly
systems.

     For the medical disposables market, NexStar has developed two technologies
for use in product assembly applications. The Medical Tube Coiler is believed to
be the industry's first automated tube coiling system to operate in-line with
extrusion. The flexible design allows the handling of any size corrugated or
smooth bore tubing, small diameter catheters and wires. The Nebulizer Assembly
System is a cost effective, integrated solution for the automated assembly of a
three-piece nebulizer device. Its rugged, high speed design utilizes optimum
systems integration technologies for easy change over with multiple products.

     Custom Systems. NexStar undertakes projects to design and construct custom
systems to customer performance or process requirements. Before doing so,
NexStar conducts marketing and 


 
 <PAGE>
                                       16


engineering research to determine the future sales potential of the custom
system being converted to a standard product and the usefulness of the
engineering experience to be derived from the project.

     Historically, a limited number of customers has accounted for a substantial
portion of NexStar's revenues. In fiscal 1995, sales to NexStar's top two
customers, Iomega Corporation and Akashic Memories Corporation, accounted for
approximately 27.4% and 50.1%, respectively, of net sales. Continued high levels
of business and sales to these customers are expected to continue through fiscal
1997.

     Customers for NexStar's products in the data storage industry include
Iomega Corporation, Akashic Memories Corporation, Syquest Technology
Corporation, Seagate Technology, Inc., StorMedia Inc., Toshiba America Inc., and
Western Digital Corporation. Semiconductor customer include MEMC Electronics
Inc. In the medical disposables field, customers include Whale Scientific Inc.,
Marquest Medical Products Inc., and Sherwood Medical Corporation.

     The selling process for NexStar's automation products and services
frequently involves participation by sales, marketing, and applications
engineering personnel. NexStar's marketing activities include participation in
trade shows and industry forums, publication of articles in trade journals and
distribution of sales literature. In addition, NexStar's strategic relationships
with its customers create highly visible references.

     NexStar has a strong commitment to service, driven by the growing
complexity of the manufacturing equipment utilized by its customers. NexStar's
customer support staff currently consists of two people. In addition, NexStar
will relocate service people to areas with a significant installed base thereby
improving maintenance response. The service engineers are skilled in electrical
and mechanical component repair, applications software, and system integration,
and have diagnostic and problem solving capabilities. NexStar offers training
programs and maintenance contracts to its customers.

     Because the industries in which NexStar operates are subject to rapid
technological change and engineering innovation, its ability to produce
technologically advanced, high quality factory automation systems is highly
dependent on its maintaining substantial engineering resources. At June 30,
1996, NexStar employed 19 individuals within its engineering organization,
including four with advanced degrees. In addition, there are 20 full-time
contract positions primarily dedicated to engineering and manufacturing.
Substantially all of the research and development is done on a
project-by-project basis, using a team approach. NexStar's strategy is to form
close technical working relationships with the leading suppliers of components
in its markets and thereby develop solutions tailored to customer requirements
and having the greatest potential for standardization and market relevancy.

     NexStar's principal manufacturing activities are carried on from Longmont,
Colorado, where it occupies a leased facility equipped with state-of-the-art
computer controlled metal fabrication equipment. NexStar assembles control
panels and electrical/pneumatic subsystems, and fabricates selected mechanical
components and subassemblies in-house. Some metal parts and subassemblies are
supplied internally while others are obtained from third-party vendors and
integrated into finished products. While the facilities are currently adequate
to meet NexStar's needs, it is expected that additional space will be required.
Whenever possible, more than one supplier is used for specific major components
and subassemblies. Limited source supplied parts are continuously monitored.

     As of June 30, 1996, NexStar employed 56 people, including 11 in
manufacturing and customer service, 19 in engineering, 2 in sales, 4 in
administration, and 20 full-time contract positions primarily dedicated to
engineering and manufacturing. Although to date NexStar has been successful in
attracting and retaining qualified personnel, there can be no assurance that
this will continue. None of NexStar's employees are covered by collective
bargaining agreements or are union members. NexStar has never experienced a work
stoppage and believes that it has excellent relations with its employees.

     Although NexStar has designed and manufactured automated solutions uniquely
adapted to market requirements, there are competitors offering product solutions
that perform similar functions. NexStar is subject to competition from two
distinct sources: (i) direct competition from independent companies; and (ii)
indirect competition from current and prospective clients with in-house
operations attempting to develop effective automation solutions.



 
 <PAGE>
                                       17


     Competing companies are either well-established entities with broad product
lines or small, limited resource companies with highly focused product lines.
The well-established entities in the data storage and semiconductor markets
include Automated Tooling Systems Inc., PRI Automation, Wright Industries Inc.,
Phase Metrics, and Vanguard Automation. In the medical disposables market,
NexStar's competition includes Kuntz Automation, Sortimat, Design Technology
Corporation, and CEI Automation. Competitors in the medical disposables market
are geographically dispersed, indicating more regional competition.

     The remainder of this 10-K405 does not include any information concerning
TIC or NexStar.


 
 I
 
 tem 2.  Properties

     The Company's principal manufacturing and administrative facility is
located on Laurel Brook Road in Middlefield, Connecticut. The facility consists
of one 100,000-square-foot building on approximately 13 acres. The Company also
owns 30 acres of undeveloped land adjacent to its principal facility.
Additionally, on January 4, 1996, the Company purchased approximately 22 acres
of land adjacent to the Company's facility in Middlefield, Connecticut, which
will facilitate expansion of the Company's buildings and/or parking facilities
in the future.


 
 Item 3.  Legal Proceedings

     On June 29, 1988, Zygo filed suit in the U.S. District Court in Arizona
against WYKO Corporation for patent infringement based on the belief that the
WYKO 6000 interferometer infringed certain patents owned by Zygo. On March 1,
1993, the United States District Court (District of Arizona) rendered a
Memorandum Opinion and Findings of Fact and Conclusions of Law in the matter of
the patent suit. The conclusions of the court were that Zygo's patent is valid,
the WYKO Model 6000 interferometer infringes the Zygo patent, that WYKO
Corporation is liable to Zygo for any damages suffered as a result of WYKO's
infringement of Zygo's patents by making, selling, and using the WYKO Model 6000
interferometer, and that the amount of the monetary judgment and other relief
shall be determined following a trial on the issue of damages. The damage phase
of the trial was held from November 29, 1993 through December 6, 1993. The Court
rendered its judgment on June 2, 1994, awarding Zygo approximately $2.7 million
plus recovery of certain costs to be awarded by the Court which were incurred by
Zygo in connection with the conduct of the trial and entered a permanent
injunction prohibiting further sales of the WYKO Model 6000 interferometers
found to infringe. An appeal of the District Court's decision was filed by WYKO
on August 9, 1994 with the Court of Appeals for the Federal Circuit located in
Washington, D.C. The oral argument of the appeal was heard by the Court of
Appeals on March 9, 1995. On April 1, 1996, the Court of Appeals rendered an
Opinion Announcing Judgment of the Court. The appellate court affirmed-in-part
and reversed-in-part the District Court's earlier findings and remanded the case
to the District Court for a redetermination of the damage award. In its Opinion,
the appellate court reversed the District Court's opinion that certain WYKO
units infringed the Zygo patent on the basis of the doctrine of equivalents,
upheld the validity of Zygo's patent, and affirmed the District Court's opinion
that the original WYKO model 6000 infringed Zygo's patent. Zygo has not recorded
any gain from the District Court's earlier ruling and will not until a final
determination of the award is made.


 
 Item 4.  Submission of Matters to a Vote of Security Holders

     None



 
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                                       18


                      EXECUTIVE OFFICERS OF THE REGISTRANT

Gary K. Willis - age 51
President and Chief Executive Officer of the Company since August 1993; from
    February 1992 until August 1993, President and Chief Operating Officer; from
    October 1990 until January 1992, Independent Consultant
Served as executive officer of the Company since February 1992

William H. Bacon - age 47
Vice President, Director of Corporate Quality of the Company since January 1996;
    from November 1993 until January 1996, Director of Total Quality of the
    Company; from June 1987 until November 1993, Manager of Instrument
    Manufacturing Engineering of the Company
Served as executive officer of the Company since January 1996

Mark J. Bonney - age 42
Vice President, Finance and Administration and Chief Financial Officer of the
    Company since March 1993 and Treasurer of the Company since November 1993;
    from October 1990 until February 1993, Vice President European Operations 
    and Managing Director,  Dynapert Limited, a Black & Decker Company
Served as executive officer of the Company since March 1993

Robert A. Smythe - age 45
Vice President, Director of Sales and Marketing of the Company since January
    1996; from June 1993 until January 1996, Director of Sales and Marketing of
    the Company; from April 1992 until June 1993, served as Manager, Industry
    Marketing of the Company, and from July 1988 to April 1992, Director of
    Engineering and Co-Product Line Manager for the Microscope and Large
    Aperture System product lines of the Company
Served as executive officer of the Company since January 1996

Carl A. Zanoni - age 55
Vice President, Research, Development and Engineering of the Company since April
    1992; from February 1989 until March 1992, Vice President, Research and 
    Development, and Chief Scientist of the Company
Served as executive officer of the Company since its inception in 1970

     Of the above executive officers, Mr. Willis and Mr. Zanoni are directors of
the Company. Under the By-laws, executive officers serve for a term of one year
and until their successors are chosen and qualified unless earlier removed.



 
 <PAGE>
                                       19



 
                                      PART II


 
 Item 5. Market for the Registrant's Common Equity and Related Stockholder 
        Matters

     Information required by this item is included on page 24 and in note 1 on
page 17 and note 6 on page 19 in the Notes to Consolidated Financial Statements
included in, the Company's 1996 Annual Report and is herein incorporated by
reference. The Company's common shares are traded over-the-counter and are
quoted on the NASDAQ/National Market. The number of stockholders of record at
June 30, 1996, was 474.


 
 Item 6. Selected Financial Data

     Information required by this item is included on page 9 (Five-Year Summary)
of the Company's 1996 Annual Report and is herein incorporated by reference.


 
 Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

     Information required by this item is included on pages 10 through 12
(Management's Discussion and Analysis of Results of Operations and Financial
Condition) of the Company's 1996 Annual Report and is herein incorporated by
reference.


 
 Item 8. Financial Statements and Supplementary Data

     Information required by this item is included on pages 13 through 23
(Consolidated Balance Sheets; Consolidated Statements of Earnings; Consolidated
Statements of Stockholders' Equity; Consolidated Statements of Cash Flows; Notes
to Consolidated Financial Statements; Report of Management; Report of
Independent Auditors; and Selected Consolidated Quarterly Financial Data) of the
Company's 1996 Annual Report and is herein incorporated by reference.

     The consolidated financial schedules of Zygo Corporation and Consolidated
Subsidiary are filed as part of Item 14 of this Annual Report on Form 10-K405.


 
 Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

        None.


 
                                     PART III


 
 Item 10. Directors and Executive Officers of the Registrant

     Except for the information concerning executive officers which is set forth
in Part I of this report, information required by this item is included under
the captions "Election of Board of Directors" and "Other Agreements and Other
Matters" in the Proxy Statement to be filed pursuant to Regulation 14A for use
in connection with the Registrant's 1996 Annual Meeting of Stockholders ("the
Proxy Statement") and is herein incorporated by reference.


 
 Item 11. Executive Compensation

     Information required by this item is included in the Proxy Statement under
the caption "Executive Compensation" and is herein incorporated by reference.



 
 <PAGE>
                                       20



 
 Item 12. Security Ownership of Certain Beneficial Owners and Management

     Information required by this item is included in the Proxy Statement under
the captions "Election of Board of Directors" and "Principal Stockholders" and
is herein incorporated by reference.


 
 Item 13. Certain Relationships and Related Transactions

     Information required by this item is included in the Proxy Statement under
the caption "Certain Relationships and Related Transactions" and is herein
incorporated by reference.


 
                                      PART IV


 
 Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)  The following documents are filed as part of this report:

     1. and 2. Financial Statements and Financial Statement Schedules:

               An index to the financial statements and financial statement
               schedules filed is located on page F-1.

     3.        EXHIBITS

     3.(i)     Restated Certificate of Incorporation of the Company and
               amendments thereto (Exhibit 3.(i) to the Company's Annual Report
               on Form 10-K for its year ended June 30, 1993)*

     3.(ii)    Certificate of Amendment of Certificate of Incorporation, filed
               June 3, 1996

     3.(iii)   By-laws of the Company (Exhibit (3)(b) to Registration No.
               2-87253 on Form S-1 hereinafter "Registration No. 2-87253")*

     4.1       Shareholders Agreement dated October 17, 1983, between Canon
               Inc., Wesleyan University, Paul F. Forman, Carl A. Zanoni, and
               Sol F. Laufer (Exhibit (4)(a) to Registration 2-87253)*

     10.1      Confidentiality and Non-Competition Agreement dated October 25,
               1983, between the Company and Carl A. Zanoni (Exhibit (10)(b) to
               Registration No. 2-87253)*

     10.2      Agreement dated May 27, 1975, between the Company and Canon
               U.S.A., Inc., regarding information sharing and marketing
               (Exhibit (10)(x) to Registration No. 2-87253)*

     10.3      Agreement dated November 20, 1980, between the Company and Canon
               Inc. regarding exchange of information (Exhibit (10)(y) to
               Registration No. 2-87253)*

     10.4      Zygo Corporation Profit Sharing Plan, as amended effective June
               30, 1985 (Exhibit 10.35 to the Company's Annual Report on Form
               10-K for its year ended June 30, 1985)*

* Incorporated herein by reference.



 
 <PAGE>
                                       21


     10.5      First Amendment to the Zygo Corporation Profit Sharing Plan
               (Exhibit 10.28 to the Company's Annual Report on Form 10-K for
               its year ended June 30, 1989)*

     10.6      Second Amendment to the Zygo Corporation Profit Sharing Plan
               (Exhibit 10.29 to the Company's Annual Report on Form 10-K for
               its year ended June 30, 1989)*

     10.7      Third Amendment to the Zygo Corporation Profit Sharing Plan
               (Exhibit 10.30 to the Company's Annual Report on Form 10-K for
               its year ended June 30, 1989)*

     10.8      Fourth Amendment to the Zygo Corporation Profit Sharing Plan
               (Exhibit 10.31 to the Company's Annual Report on Form 10-K for
               its year ended June 30, 1989)*

     10.9      Amended and Restated Zygo Corporation Profit Sharing Plan
               (Exhibit 10.15 to the Company's Annual Report on Form 10-K405 for
               its year ended June 30, 1995)*

     10.10     Canon/Zygo Confidentiality Agreement dated March 7, 1990, between
               the Company and Canon Inc. regarding confidential technical
               information received from each other (Exhibit 10.42 to the
               Company's Annual Report on Form 10-K for its year ended June 30,
               1991)*

     10.11     Employment Agreement dated February 13, 1992, relating to the
               employment of Gary K. Willis by the Company (Exhibit 10.38 to the
               Company's Annual Report on Form 10-K for its year ended June 30,
               1992)*

     10.12     Amendment, dated August 26, 1993, to the Employment Agreement
               dated February 13, 1992, between Gary K. Willis and the Company
               (Exhibit 10.22 to the Company's Annual Report on Form 10-K for
               its year ended June 30, 1993)*

     10.13     Second Amendment, dated March 10, 1995, to the Employment
               Agreement dated February 13, 1992, between Gary K. Willis and the
               Company (Exhibit 10.19 to the Company's Annual Report on Form
               10-K405 for its year ended June 30, 1996)*

     10.14     Stock Purchase Agreement dated March 4, 1992, relating to the
               purchase of Company Common Stock by Gary K. Willis from Wesleyan
               University (Exhibit 10.39 to the Company's Annual Report on Form
               10-K for its year ended June 30, 1992)*

     10.15     Services Agreement dated August 26, 1993, between the Company and
               Paul F. Forman (Exhibit 10.26 to the Company's Annual Report on
               Form 10-K for its year ended June 30, 1993)*

     10.16     Non-Competition Agreement dated August 26, 1993, between the
               Company and Paul F. Forman (Exhibit 10.27 to the Company's Annual
               Report on Form 10-K for its year ended June 30, 1993)*

     10.17     Services Agreement dated August 26, 1993, between the Company and
               Sol F. Laufer (Exhibit 10.28 to the Company's Annual Report on
               Form 10-K for its year ended June 30, 1993)*

     10.18     Non-Competition Agreement dated August 26, 1993, between the
               Company and Sol F. Laufer (Exhibit 10.29 to the Company's Annual
               Report on Form 10-K for its year ended June 30, 1993)*

* Incorporated herein by reference.



 
 <PAGE>
                                       22


     10.19     Zygo Corporation Amended and Restated Non-Qualified Stock Option
               Plan ratified and approved by the Company's Stockholders on
               November 19, 1992 (Exhibit 10.30 to the Company's Annual Report
               on Form 10-K for its year ended June 30, 1993)*

     10.20     Employment Agreement dated March 1, 1993, between Mark J. Bonney
               and the Company (Exhibit 10.31 to the Company's Annual Report on
               Form 10-K for its year ended June 30, 1993)*

     10.21     Amendment, dated March 12, 1996, to the Employment Agreement
               dated March 1, 1993, between Mark J. Bonney and the Company

     10.22     Termination Agreement dated November 30, 1993, covering the
               termination of the Shareholders' Agreement between Canon Inc.,
               Wesleyan University, Paul F. Forman, Carl A. Zanoni, and Sol F.
               Laufer dated October 17, 1983 (Exhibit 10.33 to the Company's
               Annual Report on Form 10-K for its year ended June 30, 1994)*

     10.23     Registration Rights Agreement dated November 30, 1993, between
               Canon Inc., Wesleyan University, Paul F. Forman, Carl A. Zanoni,
               Sol F. Laufer, and the Company (Exhibit 10.34 to the Company's
               Annual Report on Form 10-K for its year ended June 30, 1994)*

     10.24     Renewal of Line of Credit dated December 4, 1995, between the
               Company and Shawmut Bank Connecticut, N.A.

     10.25     Zygo Corporation Non-Employee Director Stock Option Plan ratified
               and approved by the Company's stockholders on November 17, 1994
               (Exhibit 10.30 to the Company's Annual Report on Form 10-K405 for
               its year ended June 30, 1996)*

     10.26     Agreement and Plan of Merger, dated as of August 7, 1996, by and
               among the Company, Technical Instrument Company, Zygo Acquisition
               Corporation, Francis E. Lundy, the Lundy 1996 Charitable Trust,
               The Sherman Family Living Trust, Frank J. Scheufele Trust, David
               Lytle, and Inspectron Development Partners L.P., a California
               Limited Partnership (Exhibit 2 to the Company's Current Report on
               Form 8-K dated August 19, 1996)*

     10.27     Employment Agreement, dated August 7, 1996, between Technical
               Instrument Company and Francis E. Lundy.

     10.28     Acquisition Agreement, dated August 12, 1996, among the Company,
               NX Acquisition Corporation, and NexStar Automation, Incorporated
               (Exhibit 2 to the Company's Current Report on Form 8-K dated
               September 27, 1996)*

     10.29     Employment Agreement, dated September 12, 1996, between NexStar
               Corporation and Ahmad Akrami

     11.       For computation of per share earnings see note 1 of the Notes to
               Consolidated Financial Statements in the 1996 Annual Report
               included herewith, which note is incorporated herein by
               reference.

     13.       Specified portions of 1996 Annual Report to Stockholders (such
               portions are furnished solely for the information of the
               Commission and are not filed herewith, except for those portions
               expressly incorporated herein by reference.)

* Incorporated herein by reference.



 
 <PAGE>
                                       23


     21.       Subsidiaries of Registrant

     23.       Accountants' Consent

     24.       Power of Attorney

     27.       Financial Data Schedule

(b)   Reports on Form 8-K

      No reports on Form 8-K have been filed during the last quarter of the
      period covered by this report.

* Incorporated herein by reference.



 
 <PAGE>
                                       24



 
                                    SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

       ZYGO CORPORATION
- - ---------------------------------
          Registrant

By    Mark J. Bonney                                     Date September 30, 1996
- - ---------------------------------
      Mark J. Bonney
      Vice President, Finance
      and Administration

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

       Signature                     Title
       ---------                     -----

/s/ Gary K. Willis         President, Chief Executive    Date September 30, 1996
- - -------------------------  Officer and Director
    Gary K. Willis         


/s/ Mark J. Bonney         Vice President, Finance and   Date September 30, 1996
- - -------------------------  Administration, Treasurer,
    Mark J. Bonney         and Chief Financial Officer


/s/ Carl A. Zanoni         Vice President, Research,     Date September 30, 1996
- - -------------------------  Development and Engineering 
    Carl A. Zanoni         and Director


/s/ Paul F. Forman*        Chairman of the Board
- - -------------------------  
    (Paul F. Forman)


/s/ Michael R. Corboy*     Director
- - -------------------------  
    (Michael R. Corboy)


/s/ Seymour E. Liebman*    Director
- - -------------------------  
    (Seymour E. Liebman)


/s/ Robert G. McKelvey*    Director
- - -------------------------  
    (Robert G. McKelvey)


/s/ Paul W. Murrill*       Director
- - -------------------------  
    (Paul W. Murrill)


/s/ John R. Rockwell*      Director
- - -------------------------  
    (John R. Rockwell)


/s/ Robert B. Taylor*      Director
- - -------------------------  
    (Robert B. Taylor)

*By   Mark J. Bonney                                     Date September 30, 1996
- - -------------------------  
      Mark J. Bonney
      Attorney-in-Fact


 
 <PAGE>

                  ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARY

                   Index to Financial Statements and Schedule

Page

*    Independent Auditors' Report

*    Consolidated balance sheets at June 30, 1996, and 1995

*    Consolidated statements of earnings for the years ended June 30, 1996,
     1995, and 1994

*    Consolidated statements of stockholders' equity for the years ended June
     30, 1996, 1995, and 1994

*    Consolidated statements of cash flows for the years ended June 30, 1996,
     1995, and 1994

*    Notes to consolidated financial statements

*    Selected consolidated quarterly financial data for the years ended June 30,
     1996, and 1995

Consolidated Schedules

F-2  Independent Auditors' Report on Schedule

F-3  VIII - Valuation and qualifying accounts

     All other schedules have been omitted since the required information is not
     present or not present in amounts sufficient to require submission of the
     schedules or the information required is included in the consolidated
     financial statements or notes thereto.

*    Incorporated herein by reference to Zygo Corporation 1996 Annual Report to
     Stockholders.

                                       F-1


 
 <PAGE>


 
                     INDEPENDENT AUDITORS' REPORT ON SCHEDULE

The Board of Directors
Zygo Corporation:

Under date of August 12, 1996, we reported on the consolidated balance sheets of
Zygo Corporation and consolidated subsidiary as of June 30, 1996, and 1995, and
the related consolidated statements of earnings, stockholders' equity and cash
flows for each of the years in the three-year period ended June 30, 1996, as
contained in the 1996 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
annual report on Form 10-K405 for the fiscal year ended June 30, 1996. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule listed in the accompanying index. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits.

In our opinion, this financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.

KPMG PEAT MARWICK LLP



Hartford, Connecticut
August 12, 1996

 
 

                                       F-2



 
 <PAGE>

                  ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARY

                SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS

                    Years ended June 30, 1996, 1995, and 1994

                                 Balance                              Balance
                              at Beginning                            at End
Description                    of Period    Provision   Write-Offs   of Period
- - -----------                    ---------    ---------   ----------   ---------

Year Ended June 30, 1996:
  Allowance for Doubtful
    Accounts                    $137,655     $153,402    $ 24,057    $267,000

  Inventory Reserve             $419,147     $244,603    $ 85,350    $578,400

Year Ended June  30, 1995:
  Allowance for Doubtful
    Accounts                    $ 70,981     $ 74,584    $  7,910    $137,655

  Inventory Reserve             $267,183     $248,576    $ 96,612    $419,147

Year Ended June 30, 1994:
  Allowance for Doubtful
    Accounts                    $ 88,919     $ 32,045    $ 49,983    $ 70,981

  Inventory Reserve             $190,100     $105,683    $ 28,600    $267,183


                                       F-3


 
 <PAGE>


 
                                   EXHIBIT INDEX

EXHIBIT
 TABLE                                                              FORM 10-K405
 NUMBER                                                             PAGE NUMBER
 ------                                                             -----------

 3.(ii)   Certificate of Amendment of Certificate of
          Incorporation, filed June 3, 1996

 10.21    Amendment, dated March 12, 1996, to the Employment
          Agreement dated March 1, 1993, between Mark J. Bonney
          and the Company

 10.24    Renewal of Line of Credit dated December 4, 1995,
          between the Company and Fleet Bank

 10.27    Employment Agreement, dated August 7, 1996, between
          Technical Instrument Company and Francis E. Lundy.

 10.29    Employment Agreement, dated September 12, 1996, between
          NexStar Corporation and Ahmad Akrami

 11.      For computation of per share earnings, see note 1 of
          the Notes to Consolidated Financial Statements in the
          1996 Annual Report included herewith, which note is
          incorporated herein by reference

 13.      Specified portions of 1996 Annual Report to
          Stockholders (such portions are furnished solely for
          the information of the Commission and are not filed
          herewith, except for those portions expressly
          incorporated herein by reference.)

 21.      Subsidiaries of Registrant

 23.      Accountants' Consent

 24.      Power of Attorney

 27.      Financial Data Schedule


 
 

 
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