AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 5, 1996
REGISTRATION NO. 33-_____
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
7 WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
QC OPTICS, INC.
(Exact name of small business issuer as specified in its charter)
---------------
ERIC T. CHASE, PRESIDENT
154 Middlesex Turnpike
Burlington, Massachusetts 01803
(617) 272-4949
(Address, including zip code, and telephone number of
registrant's principal executive office and name,
address and telephone number of agent for service)
DELAWARE 3559 04-2916548
-------- ---- ----------
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
Copies to:
NEIL H. ARONSON, ESQUIRE WILLIAM M. PRIFTI, ESQUIRE
ANN C. BONIS, ESQUIRE 220 Broadway, Suite 204
MARGUERITE J. HILL, ESQUIRE Lynnfield, Massachusetts 01940
O'Connor, Broude & Aronson (617) 593-4525
950 Winter Street, Suite 2300
Waltham, Massachusetts 02154
(617) 890-6600
---------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of
this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended, check the following box. [X]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Maximum Maximum Amount
Title of Each Class Amount Offering Aggregate of Regis-
of Securities to be to be Price Per Offering tration
Registered Registered Share (1) Price (1) Fees
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock,
$.01 par value per
share (2) ................................................ 1,092,500 $ 6.00 $6,555,000 $ 2,260.34
Redeemable Warrants ...................................... 1,092,500 $ .10 $ 109,250 $ 37.67
Shares of Common Stock
underlying the Redeemable
Warrants ................................................. 1,092,500 $ 7.80 $8,521,500 $ 2,938.44
Representative's Warrants ................................ 95,000 $ .01 $ 950 $ .33
Shares of Common Stock
underlying the Representa-
tive's Warrants .......................................... 95,000 $ 8.40 $ 798,000 $ 275.17
Redeemable Warrants
included in the Representa-
tive's Warrants........................................... 95,000 .14 $ 13,300 $ 4.59
Shares of Common Stock
underlying the Redeemable Warrants
included in the Representative's
Warrants ................................................. 95,000 $ 10.92 $1,037,400 $ 357.72
Total Registration Fee ................................... $ 5,874.26
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes 142,500 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
ii
Pursuant to Rule 416, there are also being registered such additional
indeterminate number of shares of Common Stock as may become issuable pursuant
to antidilution provisions of the Redeemable Warrants and the Representative's
Warrants, stock splits, stock dividends and similar adjustments.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501 OF REGULATION S-B
<TABLE>
<CAPTION>
ITEM NUMBER OF FORM SB-2 IN PROSPECTUS LOCATION OR CAPTION
-------------------------------------- -------------------
<S> <C>
1. Front of the Registration Statement and
Outside Front Cover Page of Prospectus......................................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages;
Inside Front Cover Page;
Outside of Prospectus.......................................................... Back Cover Page
3. Summary Information and Risk Factors........................................... Prospectus Summary;
Risk Factors
4. Use of Proceeds ............................................................... Use of Proceeds
5. Determination of Offering Price................................................ Outside Front Cover Page;
Risk Factors - Absence of Public
Market; Determination of Offering Price;
Underwriting
6. Dilution ...................................................................... Dilution
7. Selling Security Holders....................................................... Not Applicable
8. Plan of Distribution........................................................... Outside Front Cover
Page; Underwriting
9. Legal Proceedings.............................................................. Business - Legal
Proceedings
10. Directors, Executive Officers,
Promoters and Control Persons.................................................. Management - Directors
and Executive Officers
11. Security Ownership of Certain Beneficial Owners
and Management ................................................................ Principal Stockholders
iv
12. Description of Securities...................................................... Outside Front Cover Page;
Description of Securities
13. Interest of Named Experts and Counsel.......................................... Legal Matters
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities................................. Management -
Limitation on Officers'
and Directors' Liabilities
15. Organization Within Last Five Years............................................ The Company
16. Description of Business........................................................ Business
17. Management's Discussion and Analysis
of Operation .................................................................. Management's Discussion
and Analysis of Financial Condition
and Results of Operations
18. Description of Property ....................................................... Business - Facilities
19. Certain Relationships and Related
Transactions.................................................................. Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters............................................................ Risk Factors - Absence of
Public Market;
Determination of
Offering Price; Dividend
Policy; Description of
Securities
21. Executive Compensation......................................................... Management - Executive
Officers' Compensation
22. Financial Statements........................................................... Financial Statements
23. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......................................... Not Applicable
</TABLE>
v
SUBJECT TO COMPLETION, DATED JULY 5, 1996
PROSPECTUS
----------
QC OPTICS, INC.
950,000 SHARES OF COMMON STOCK
950,000 REDEEMABLE WARRANTS
---------------
QC Optics, Inc. ("QCO" or the "Company") hereby offers (the "Offering")
950,000 shares of Common Stock, $.01 par value per share (the "Common Stock"),
and 950,000 Redeemable Warrants (the "Redeemable Warrants"). The Common Stock
and the Redeemable Warrants offered hereby are sometimes hereinafter
collectively referred to as the "Securities." Each Redeemable Warrant entitles
the holder to purchase one share of Common Stock at a price of $7.80 per share
(130% of the public offering price per share) beginning ________________, 1997
(13 months after the date of this Prospectus) and ending _______________, 2001
(five years after the date of this Prospectus), unless the Redeemable Warrants
are redeemed as provided herein. The Redeemable Warrants are redeemable by the
Company at a redemption rate of $ .20 per Redeemable Warrant at any time
commencing thirteen (13) months from the date of this Prospectus upon 30 days'
prior written notice, provided that the average closing bid price of the
Company's Common Stock equals or exceeds $10.80 per share (180% of the public
offering price per share) for 20 consecutive trading days ending within ten (10)
days prior to the notice of redemption. See "Description of Securities."
Prior to this Offering, no public market for the Securities has existed
and no assurance can be given that any such market will develop after the
completion of the Offering or, that if developed, it will be sustained. For the
method of determining the initial public offering price of the Securities, see
"Risk Factors -- Arbitrary Determination of Offering Price" and "Underwriting."
The Company has applied for listing of the shares of Common Stock and Redeemable
Warrants on the National Association of Securities Dealers, Inc. Automated
Quotation System/National Market System ("NASDAQ/NMS") under the symbols "QCOI"
and "QCOI.W," respectively, upon official notice of issuance.
---------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AND "DILUTION."
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Price to Underwriting Proceeds to
Public Discounts (1) Company (2)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share...........................................
- -----------------------------------------------------------------------------------------------------------------
Per Redeemable Warrant..............................
- -----------------------------------------------------------------------------------------------------------------
Total (3)...........................................
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not include additional compensation in the form of (a) a 3%
non-accountable expense allowance in the amount of $173,850 and a
consulting fee payable to Schneider Securities, Inc., as the
Representative (the "Representative") of the Underwriters (the
"Underwriters") in the amount of $108,000 and (b) warrants (the
"Representative's Warrants") to purchase up to 95,000 shares of Common
Stock and 95,000 Redeemable Warrants at 140% of the public offering
price of the Securities. In addition, the Company has agreed to
indemnify the Underwriters against certain civil liabilities, including
liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting."
(2) Before deducting additional expenses of the Offering payable by the
Company, estimated at $_________, including the Representative's
non-accountable expense allowance and the consulting fee payable to the
Representative.
(3) The Company has granted the Underwriters an option to purchase up to an
additional 142,500 shares of Common Stock and/or 142,500 Redeemable
Warrants on the same terms and conditions set forth above, solely to
cover over-allotments, if any. If the overallotment option is exercised
in full, the total "Price to Public," "Underwriting Discount" and
"Proceeds to Company" will be $_________, $_______ and $_________,
respectively. See "Underwriting."
The Securities are being offered on a "firm commitment basis" by the
Underwriters, when, as, and if delivered to and accepted by the Underwriters and
subject to prior sale, withdrawal or cancellation of the offer without notice.
It is expected that delivery of certificates representing the Securities will be
made at the clearing offices of Schneider Securities, Inc., New York, New York,
on or about ___________, 1996.
---------------
SCHNEIDER SECURITIES, INC.
---------------
THE DATE OF THIS PROSPECTUS IS_________________ , 1996.
PHOTOS (Inside Front Cover)
1) QCO-4000, Advanced Photomask Inspection System
2) API-3000/5 with TCLS, Automatic Pelliclized Photomask Inspection System
with cassette load system
3) Pelliclized Photomask
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON NASDAQ/NMS, OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
PRIOR TO THIS OFFERING, THE COMPANY HAS NOT BEEN A REPORTING COMPANY
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT").
SUBSEQUENT TO THIS OFFERING, THE COMPANY INTENDS TO FURNISH TO ITS STOCKHOLDERS
ANNUAL REPORTS, WHICH WILL INCLUDE FINANCIAL STATEMENTS AUDITED BY INDEPENDENT
ACCOUNTANTS, AND SUCH OTHER PERIODIC REPORTS AS IT MAY DETERMINE TO FURNISH OR
AS MAY BE REQUIRED BY LAW.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information, including "Risk Factors" and the Company's financial
statements (including the Notes thereto), appearing elsewhere in this
Prospectus. Unless otherwise indicated, all per share data and information in
this Prospectus relating to the number of shares of Common Stock have been
adjusted to give effect to an approximate 1.7167040:1 stock split effected on
June 18, 1996.
A glossary of certain terms has been provided on page 72 of this
Prospectus.
THE COMPANY
QC Optics, Inc. is a rapidly growing company which designs,
manufactures and markets laser based defect detection systems for the
semiconductor, flat panel display and computer hard disk markets. QCO uses its
patented and other proprietary technology in lasers and optical systems that
scan a computer hard disk, photomask or flat panel display for defects or
contamination. The Company's systems combine automatic handling, clean room
capability and computer control with reliable laser based technology. The
Company believes that these features enable it to maintain a leading market
position in the United States in the semiconductor, flat panel display and
computer hard disk drive industries where high quality inspection capabilities
are required. The Company's customers include many of the world's largest
leading semiconductor and computer hard disk manufacturers. Currently, QCO has
over 200 systems installed in 14 countries.
QCO was formed in 1986 to acquire the assets of a division of GCA
Corporation. The Company funded its product development primarily with equity
investments and debt financing from Kobe Steel Ltd. and its subsidiaries
including Kobe Steel USA Holdings, Inc., a Delaware corporation, and Kobe Steel
USA International, Inc., a Delaware corporation (collectively "Kobe Steel").
From 1986 to 1990, the Company focused its efforts on developing inspection
systems for computer hard disk inspection. Using the Company's patented and
proprietary information, the Company expanded its efforts to use this technology
for inspection of photomasks used to image integrated circuit patterns onto
semiconductor wafers. In early 1996, management of the Company acquired a 62.2%
equity interest in the Company for $5 million through a management buyout with
bank supplied debt financing personally guaranteed by QCO's senior management.
See "Certain Transactions."
The Company introduced its QCO-4000 automatic pelliclized (a protective
cover) photomask laser based inspection systems in March 1996, which has the
sensitivity to detect defects or contamination of 0.3 micrometers (the
equivalent of 0.06 micrometers on the semiconductor wafer), which will be
required to detect defects in the next generation of semiconductors. As
semiconductor devices have become more complex, the semiconductor manufacturing
process has become very sensitive to photomask errors, requiring more complex
photomasks and, as a result, increasingly sophisticated photomask inspection
tools.
2
The Company's systems, such as its API-3000/5 and DISKAN-6000, are
designed to fit into its customers' production lines, virtually eliminating the
need for special handling or special production procedures while performing 100%
inspection throughout the process. In addition, these systems sort out fatal
defects on disks and pelliclized photomasks before they cause manufacturing
yield or other quality problems. As more manufacturers of computer hard disks
move toward total inspection protocols versus statistical sampling, demand
during the past year for the Company's products which can inspect computer hard
disks has increased significantly. The Company is also working on research and
development for porting the Company's technology in its other systems to the
inspection of flat panel displays.
The Company currently serves three markets with its inspection systems:
semiconductors, computer hard disks and flat panel displays. In addition, the
Company plans to continue to develop additional products, based on the Company's
existing patented and proprietary technologies, to further develop laser based
inspection systems.
The Company's goal is to maintain a leadership position in the United
States in photomask inspection systems for soft defects (e.g., particulates and
other contamination) and use its knowledge and contacts to pursue other
opportunities in high performance inspection markets. The Company intends to use
a portion of the proceeds of this Offering to expand its sales and marketing
activities; continue research and development activities in inspection
opportunities; and to continue to work closely with major customers and seek
strategic alliances with other industry participants in order to maintain a
leading edge position in the high performance inspection markets. In addition,
the Company may consider acquisitions in complementary businesses in the
inspection and handling markets.
QCO's principal offices and manufacturing facilities are based in
Burlington, Massachusetts. The Company also maintains regional sales or service
personnel in Texas, Florida, New Mexico, Oregon, Arizona and California. The
Company currently has approximately 60 employees and has manufacturer's
representatives in Europe and distributors in Asia.
The Company maintains its principal executive offices at 154 Middlesex
Turnpike, Burlington, Massachusetts 01803, and its telephone number is (617)
272-4949.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered by the Company ................ 950,000 shares of Common Stock and 950,000 Redeemable Warrants. See
"Description of Securities."
Redeemable Warrants .............................. Each Redeemable Warrant entitles the holder to purchase one share of Common
Stock at a price of $7.80 per share (130% of the public offering price per
share) beginning ___________, 1997 (13 months after the date of this
Prospectus) and ending ______________, 2001 (five years after the date of this
Prospectus), unless the Redeemable Warrants are redeemed as provided herein.
The Redeemable Warrants are redeemable by the Company at a redemption price of
$ .20 per Redeemable Warrant at any time commencing thirteen months from the
date of this Prospectus on 30 days' prior written notice, provided that the
average closing bid price of the Common Stock equals or exceeds $10.80 per
share (180% of the public offering price per share) for 20 consecutive trading
days ending within 10 days prior to the notice of redemption. See "Description
of Securities."
Shares of Common Stock
Outstanding Before Offering .................... 2,150,000 shares
Shares of Common Stock to be
Outstanding After Offering ..................... 3,100,000 shares
Use of Proceeds .................................. The net proceeds from the Offering will be used for sales and marketing,
research and development activities, repayment of debt to an affiliate and
general working capital and corporate purposes. See "Use of Proceeds."
Risk Factors ..................................... Investment in the Securities involves a high degree of risk and immediate
substantial dilution. See "Risk Factors" and "Dilution."
NASDAQ/NMS Symbols(1):
Common Stock ............................ QCOI
Redeemable Warrants ..................... QCOI.W
</TABLE>
- ----------
(1) No assurance can be given that an active trading market will develop
for the Securities. See "Risk Factors -- Absence of Public Market and
Possible Volatility of Stock Price;" "Risk Factors -- Arbitrary
Determination of Offering Price."
4
Except where otherwise indicated, all share and per share data in this
Prospectus (i) assumes no exercise of 950,000 Redeemable Warrants; (ii) gives no
effect to 285,000 shares issuable upon exercise of the Underwriters'
overallotment option, including 142,500 shares underlying the Redeemable
Warrants subject to such option; (iii) gives no effect to 95,000 shares issuable
upon exercise of the Representative's Warrants; (iv) gives no effect to 95,000
shares issuable upon the exercise of 95,000 Redeemable Warrants underlying the
Representative's Warrants; (v) assumes no exercise of stock options to purchase
up to 360,000 shares which may be issued pursuant to the Company's 1996 Stock
Option Plan (the "1996 Plan"), of which 231,992 options have been granted as of
the date of this Prospectus, including options to purchase up to 107,500 shares
which were granted to certain legal advisors to the Company (the "Advisor
Options") at an exercise price of $6.30 per share; and (vi) assumes no exercise
of stock options to purchase of up to 100,000 shares which may be issued
pursuant to the Company's 1996 Director Formula Stock Option Plan (the "Formula
Plan"), of which 30,000 options have been granted as of the date of this
Prospectus (collectively, the 1996 Plan and the Formula Plan are referred to as
the "Plans"). See "Management -- 1996 Stock Option Plan," "Management --
Director Formula Stock Option Plan," "Underwriting" and "Legal Matters."
5
SUMMARY FINANCIAL INFORMATION
The following sets forth certain historical financial information of
the Company.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Fiscal Years Ended December 31, Three Months Ended March 31,
------------------------------- ----------------------------
1995 1994 1993 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales .................................................. $10,373,464 $8,394,932 $6,003,843 $3,212,008 $1,777,600
Cost of sales .............................................. 4,798,902 3,911,108 3,269,363 1,521,052 932,934
----------- ---------- ---------- ---------- ----------
Gross profit ............................................... 5,574,562 4,483,824 2,734,480 1,690,956 844,666
----------- ---------- ---------- ---------- ----------
Operating expenses:
Selling, general and
administrative expenses .................................. 2,843,266 2,465,479 1,986,663 964,994 652,796
Engineering expenses ..................................... 1,586,951 1,347,480 1,334,364 365,113 380,316
---------- ---------- ---------- ---------- ----------
Total operating expenses ............................ 4,430,217 3,812,959 3,321,027 1,330,107 1,033,112
---------- ---------- ---------- ---------- ----------
Operating income(loss) ..................................... 1,144,345 670,865 (586,547) 360,849 (188,446)
Interest expense, net ...................................... 156,345 162,942 117,404 38,838 53,090
---------- ---------- -------- ---------- ----------
Income (loss) before
provision for income taxes ................................. 988,000 507,923 (703,951) 322,011 (241,536)
Provision for income taxes ................................. 79,781 37,866 11,101 21,870 10,820
---------- ---------- ----------- ---------- ----------
Net income (loss) .......................................... $ 908,219 $ 470,057 $ (715,052) $ 300,141 $ (252,356)
========== ========== =========== ========== ==========
Net income (loss) per
common and common equivalent share ......................... $ .42 $ .22 $ ( .33) $ .14 $ ( .12)
========== ========== =========== ========== ==========
Weighted average common and common
equivalent shares outstanding .............................. 2,173,174 2,173,174 2,173,174 2,173,174 2,173,174
========= ========= ========= ========= =========
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
At March 31, 1996
-----------------
At
December 31, 1995 Actual As Adjusted(1)
----------------- ------ --------------
<S> <C> <C> <C>
Working capital ............................................ $2,060,723 $4,676,498 $ 9,176,498
Total assets ............................................... $7,721,910 $7,769,169 $ 11,519,169
Short-term debt ............................................ $4,250,000 $1,012,791 $ 262,791
Long-term debt, less current maturities..................... $ -- $3,052,734 $ 3,052,734
Stockholders' equity ....................................... $2,203,838 $1,753,979 $ 6,253,979
</TABLE>
- ----------
(1) Gives effect to the receipt by the Company of the estimated net proceeds
of approximately $4,500,000 from the sale of the Securities and the use
of a portion of the net proceeds therefrom to repay the term loan from
Kobe Steel USA Holdings, Inc. See "Use of Proceeds" and "Certain
Transactions."
6
RISK FACTORS
The Securities offered hereby involve a high degree of risk.
Prospective investors should carefully consider, in addition to the other
information contained in this Prospectus, the information presented below.
CYCLICAL NATURE OF THE SEMICONDUCTOR, COMPUTER HARD DISK AND FLAT PANEL DISPLAY
INDUSTRIES
The Company's operating results depend on capital expenditures by
semiconductor, computer hard disk, and flat panel display manufacturers, which
in turn depend on the current and anticipated demand for computers. Although the
semiconductor industry in particular has recently experienced significant
growth, there can be no assurance that such growth will be sustained. Moreover,
the overall computer industry has been and is likely to continue to be cyclical
with periods of oversupply. A downturn in the demand for computers would likely
reduce the demand for the Company's inspection equipment. The Company's ability
to reduce expenses in response to any such downturn is limited by its need for
continued investment in research and development and in customer service and
support. A downturn in demand for semiconductor, computer hard disk and flat
panel display manufacturing equipment would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Markets."
FLUCTUATIONS IN OPERATING RESULTS; ACCUMULATED DEFICIT
The Company derives most of its annual revenues from a relatively small
number of sales of products, systems and upgrades. As a result, any delay in the
recognition of revenue for single products, systems or upgrades would have a
material adverse effect on the Company's results of operations for a given
accounting period. In addition, some of the Company's net sales have been
realized near the end of a quarter. Accordingly, a delay in a shipment scheduled
to occur near the end of a particular quarter could materially adversely affect
the Company's results of operations for that quarter.
The Company's operating results have historically been subject to
significant quarterly and annual fluctuations. The Company believes that its
operating results will continue to fluctuate on a quarterly and annual basis due
to a variety of factors, including but not limited to the cyclical nature of the
industries served by the Company's inspection products, patterns of capital
spending by customers, the timing of significant orders, order cancellations and
shipment rescheduling, market acceptance of the Company's products, fluctuations
in the grant and funding of development contracts, consolidation of customers,
unanticipated delays in design, engineering or production or in customer
acceptance of product shipments, changes in pricing by the Company or its
competitors, the timing of product announcements or introductions by the Company
or its competitors, the mix of systems sold, the relative proportions of product
revenues and service revenues, the timing of payments of sales commissions, the
availability of components and subassemblies, changes in product development
costs, expenses associated with acquisitions and exchange rate fluctuations.
Over the last three years, the Company's gross margin has fluctuated
7
and the Company anticipates that its gross margin will continue to fluctuate.
The Company's net income and cash flow will also be affected by its ability to
apply its net operating loss carryforwards ("NOLs"), which totaled approximately
$2,163,000 for federal income tax purposes at December 31, 1995, against taxable
income in future periods. Under the Tax Reform Act of 1986, the amount of the
benefit from NOLs may be impaired or limited in certain circumstances, including
a cumulative stock ownership change of more than 50% over a three-year period,
which occurred in connection with the management buyout. As a result of the
management buyout, the Company is limited to approximately $180,000 of loss
utilization per year. See "Certain Transactions." The Company cannot predict the
impact of these and other factors on its financial performance in any future
period.
As of March 31, 1996, the Company had an accumulated deficit of
approximately $1,406,000 as a result of losses incurred for the year ended
December 31, 1993 and prior years. Although the Company had net income of
$908,219 and $470,057 for the years ended December 31, 1995 and 1994,
respectively, and $300,141 for the three months ended March 31, 1996, no
assurance can be given that the Company will remain profitable in any future
period. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
CONCENTRATION OF CUSTOMERS
Historically, the Company has sold a significant proportion of its
systems to a limited number of customers as the markets that the Company
participates in are primarily dominated by a few major companies. Sales to the
Company's ten largest customers accounted for approximately 96% and 95% of net
sales for the years ended December 31, 1994 and December 31, 1995, respectively.
Sales to the largest customer during those periods accounted for approximately
32% of net sales. The failure to replace sales with sales to other customers in
succeeding periods would have a material adverse effect on the Company's
business, financial condition and results of operations. The Company expects
that sales to relatively few customers will continue to account for a high
percentage of the Company's revenues in any accounting period in the foreseeable
future. A reduction in orders from any such customer or the cancellation of any
significant order could have a material adverse effect on the Company's
business, financial condition and results of operations. None of the Company's
customers has entered into a long-term agreement requiring it to purchase the
Company's products. See "Business -- Customers."
IMPORTANCE OF RECENTLY INTRODUCED PRODUCTS
The Company's future success depends upon the market's acceptance of
new generations of its systems. The Company recently commenced shipments of its
QCO-4000, which has the capability to inspect the 0.25 to 0.35 micrometer
generation of semiconductor devices currently in pilot production and under
development. The inability of these systems to achieve widespread customer
acceptance or any technical or manufacturing difficulties with these systems (or
subsequent generations of the Company's systems) would have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, there can be no assurance that the market for leading-edge
applications targeted by the QCO-4000 systems will develop as quickly or to the
degree that the Company currently anticipates, or that these systems will
achieve widespread customer acceptance. See "Business -- Products and Services."
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON PRODUCT DEVELOPMENT
The semiconductor, computer hard disk drives and flat panel display
industries, in general, are characterized by rapid technological change and
evolving industry standards. As a result, the Company must continue to enhance
its existing products and develop and manufacture new products and upgrades with
improved capabilities, which has required and will continue to require
substantial investments in research and development by the Company to advance a
number of state-of-the-art technologies. Continuous investments in research and
development will also be required to respond to the emergence of new
technologies. The failure to develop, manufacture and market new products, or to
enhance existing products, would have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company's competitors can be expected to continue to develop and introduce new
and enhanced products, any of which could cause a decline in market acceptance
of the Company's products or a reduction in the Company's margins as a result of
intensified price competition.
8
Changes in manufacturing processes could also have a materially adverse
effect on the Company's business, financial condition and results of operations.
The Company anticipates continued changes in semiconductor, computer hard disk
and flat panel display technologies and processes. There can be no assurance
that the Company will be able to develop, manufacture and sell products that
respond adequately to such changes. See "Business -- Competition."
The Company's success in developing and selling new and enhanced
products depends upon a variety of factors, including accurate prediction of
future customer requirements, introduction of new products on schedule,
cost-effective manufacturing and product performance in the field. The Company's
new product decisions and development commitments must anticipate the equipment
needed to satisfy the requirements for inspection processes one year or more in
advance of sales. Any failure to predict accurately customer requirements and to
develop new generations of products to meet those requirements would have a
sustained material adverse effect on the Company's business, financial condition
and results of operations. New product transitions could adversely affect sales
of existing systems. Product introductions could contribute to quarterly
fluctuations in operating results as orders for new products commence and orders
for existing products or enhancements of existing products fluctuate. See
"Business -- Products Under Development" and "Business -- Engineering and
Product Development."
PATENTS AND PROPRIETARY INFORMATION
The Company's patent and trade secret rights are of material importance
to the Company and its future prospects because the Company relies on these
rights to protect proprietary technology. No assurance can be given as to the
issuance of additional patents or, if so issued, as to their scope and validity.
Patents granted may not provide meaningful protection from competitors. Even if
a competitor's products were to infringe patents owned by the Company, it would
be costly for the Company to enforce its rights in an infringement action and
would divert funds and other resources from the Company's operations.
Furthermore, no assurance can be given that the Company' products or processes
will not infringe any patents or other intellectual property rights of third
parties. If the Company's products or processes do infringe the rights of third
parties, no assurance can be given that the Company can obtain a license from
the intellectual property owner on commercially reasonable terms or at all.
The Company relies on trade secrets that it seeks to protect, in part,
through, confidentiality agreements with employees, consultants and its
customers and potential customers. No assurance can be given that these
agreements will not be breached, that the Company will have adequate remedies
for any breach or that the Company's trade secrets will not otherwise become
known to or independently developed by competitors. As the Company intends to
enforce its patents, trademarks and copyrights and protect its trade secrets, it
may be involved from time to time in litigation to determine the enforceability,
scope and validity of these rights. Any such litigation could result in
substantial cost to the Company and diversion of effort by the Company's
management and technical personnel. See "Business -- Patents and Proprietary
Information."
9
DEPENDENCE ON KEY SUPPLIERS
The Company does not maintain any long-term supply agreements with any
of its suppliers, and the majority of the critical components and subassemblies
included in the Company's products are obtained from a limited group of
suppliers. The manufacture of certain components and subassemblies is very
complex and requires long lead times and the Company's systems cannot be
produced without certain critical components. Additionally, alternative
suppliers for many of these components may not be readily available, and no
substantial increase in the number of alternative suppliers is anticipated. The
Company intends to continue to rely on outside suppliers because of their
specialized expertise in component fabrication and subsystem assembly. The
Company's reliance on a limited group of suppliers involves several risks,
including the potential inability to obtain an adequate supply of components and
reduced control over pricing and delivery time. To date, the Company has
generally been able to obtain adequate and timely delivery of critical
subassemblies and components, although it has experienced occasional delays.
There can be no assurance that delays or shortages caused by suppliers will not
occur in the future. Any inability to obtain adequate, timely deliveries of
subassemblies and components could prevent the Company from meeting scheduled
shipment dates, which would damage relationships with current and prospective
customers and materially adversely affect the Company's business, financial
condition and results of operations. See "Business -- Manufacturing."
LENGTHENED LEAD TIMES; LIMITED MANUFACTURING CAPACITY
The Company's systems have a large number of components and are highly
complex. The Company has experienced limited delays in manufacturing and
delivering its systems and upgrades and may experience similar or more extended
delays in the future. Any inability to manufacture and ship systems or upgrades
on schedule could adversely affect the Company's relationships with its
customers and thereby materially adversely affect the Company's business,
financial condition and results of operations. Due to recent increases in
demand, the average time between order and shipment of the Company's systems has
increased over the last fiscal year. The Company's ability to increase its
manufacturing capacity in response to an increase in demand is limited given the
complexity of the manufacturing process, the lengthy lead times necessary to
obtain critical components and the need for highly skilled personnel. The
failure of the Company to keep pace with customer demand would lead to further
extensions of delivery times, which could deter customers from placing
additional orders, and could adversely affect product quality. There can be no
assurance that the Company will be successful in increasing its manufacturing
capacity. See "Business -- Manufacturing."
10
RISKS OF ACQUISITIONS
The Company's business strategy includes expanding its product lines
and markets through internal product development or acquisitions. Although no
acquisitions are currently contemplated by the Company, any acquisition may
result in potentially dilutive issuances of equity securities, the incurrence of
debt and contingent liabilities, and amortization expense related to intangible
assets acquired, any of which could materially adversely affect the Company's
financial condition and results of operations. In addition, acquired businesses
may be experiencing operating losses. Any acquisition will involve numerous
risks, including difficulties in the assimilation of the acquired Company's
operations and products, uncertainties associated with operating in new markets
and working with new customers, and the potential loss of the acquired company's
key employees. To date, the Company has had no experience in acquisitions. See
"Use of Proceeds -- Working Capital and General Corporate Purposes" and
"Business -- Strategy."
RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS
Shipments to customers in countries other than the United States
accounted for 42.5%, 17.9% and 55.7% of net sales in Fiscal 1994, Fiscal 1995
and the first three months of Fiscal 1996, respectively. The Company anticipates
that international shipments will continue to account for a significant portion
of net sales of the foreseeable future. Sales and operations outside of the
United States are subject to certain inherent risks, including fluctuations in
the value of the U.S. dollar relative to foreign currencies, tariffs, quotas,
taxes and other market barriers, political and economic instability,
restrictions on the export or import of technology, potentially limited
intellectual property protection, difficulties in staffing and managing
international operations and potentially adverse tax consequences. There can be
no assurance that any of these factors will not have a material adverse effect
on the Company's business, financial condition or results of operations. In
particular, although the Company's international sales are primarily denominated
in U.S. dollars, currency exchange fluctuations in countries where the Company
does business could materially adversely affect the Company's business,
financial condition and results of operations by rendering the Company less
price-competitive than foreign manufacturers. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business --
Customers" and "Business -- Sales and Marketing."
11
LENGTHY SALES CYCLE
Installing and integrating inspection equipment requires a substantial
investment by a customer. In addition, customers often require a significant
number of product presentations and demonstrations, as well as substantial
interaction with the Company's senior management, before reaching a sufficient
level of confidence in the system's performance characteristics and
compatibility with the customer's target applications. Accordingly, the
Company's systems typically have a lengthy sales cycle during which the Company
may expend substantial funds and management time and effort with no assurance
that a sale will result. See "Business -- Sales and Marketing."
HEALTH AND SAFETY REGULATIONS AND STANDARDS
The Company's products and worldwide operations are subject to numerous
governmental regulations designed to protect the health and safety of operators
of manufacturing equipment. In particular, recent European Union ("EU")
regulations relating to electromagnetic fields, electrical power and human
exposure to laser radiation have been implemented. In addition, numerous
domestic semiconductor manufacturers, including certain of the Company's
customers, have subscribed to voluntary health and safety standards and decline
to purchase equipment not meeting such standards. The Company believes that its
products currently comply with all applicable material governmental health and
safety regulations and standards, including those of the EU, and with the
voluntary industry standards currently in effect. In part because the future
scope of these and other regulations and standards cannot be predicted, there
can be no assurance that the Company will be able to comply with any future
regulation or industry standard. Noncompliance could result in governmental
restrictions on sales or reductions in customer acceptance of the Company's
products. Compliance may also require significant product modifications,
potentially resulting in increased costs and impaired product performance. See
"Business -- Government Regulations and Industry Standards."
DEPENDENCE UPON KEY PERSONNEL; POSSIBLE LACK OF AVAILABILITY OF QUALIFIED
PERSONNEL
The Company is dependent to a large degree on the experience and
abilities of its Chief Executive Officer, President and Chairman, Eric T. Chase,
and its Vice President of Technology, Jay L. Ormsby. The loss of the services of
either of these individuals could have a material adverse effect on the Company.
The Company has entered into employment agreements, containing noncompetition
restrictions, with each of Messrs. Chase and Ormsby. The Company has and is the
sole beneficiary, subject to the bank's interest, of key-person life insurance
policies, each in the amount of $1,000,000, on the lives of Messrs. Chase and
Ormsby. See "Management -- Employment Agreements."
The Company's future success and growth strategy will depend in large
part upon its ability to attract and retain highly skilled managerial, technical
and marketing personnel. Competition for such personnel in the Company's
industry is intense. No assurance can be given that the Company
12
will be successful in attracting or retaining the qualified personnel necessary
for its business and anticipated growth, and the failure to attract or retain
such personnel could have a material adverse effect on the Company's business,
financial condition and results of operations.
CONTROL BY CURRENT PRINCIPAL STOCKHOLDERS
Upon completion of the Offering and assuming no exercise of the
Underwriters' overallotment option, the Redeemable Warrants, the
Representative's Warrants or other outstanding options, the Company's current
principal stockholders, QC Optics Voting Trust and Kobe Steel USA Holdings,
Inc., will beneficially own approximately 69.4% of the outstanding shares of
Common Stock of the Company. As a result, they will be able to control all
matters requiring approval by the stockholders of the Company, including the
election of directors. The Company's bylaws do not provide for cumulative
voting. See "Principal Stockholders" and "Description of Securities."
DISCRETIONARY USE OF PROCEEDS; POSSIBLE NEED FOR ADDITIONAL FINANCING;
SUBSTANTIALLY ALL ASSETS PLEDGED
The Board of Directors of the Company will have broad discretion in
allocating the net proceeds of the Offering among the categories discussed in
"Use of Proceeds." If the net proceeds of the Offering are not adequate for
completion of the Company's anticipated uses, additional financing may be
necessary. No assurance can be given that the Company will be able to secure
additional financing or that such financing will be available on favorable
terms. If the Company is unable to obtain such additional financing, the
Company's ability to maintain its current level of operations could be
materially adversely affected and the Company may be required to reduce its
overall expenditures. See "Use of Proceeds," "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company has a revolving line of credit facility with a bank,
pursuant to which it has pledged substantially all of its assets. The
cancellation by the bank, or any future lender, of the Company's credit
facilities would have a material adverse effect on the Company's operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
CLASSIFIED BOARD OF DIRECTORS
The Company's bylaws provide for its Board of Directors to be divided
into three classes of directors serving staggered three-year terms. As a result,
approximately one-third of the Board of Directors will be elected each year.
Moreover, under the Delaware General Corporation Law, in the case of a
corporation having a classified Board of Directors, stockholders may remove a
director only for cause. This provision, when coupled with the provision of the
bylaws authorizing only the Board of Directors to fill vacant directorships,
will preclude a stockholder from removing incumbent directors without cause and
simultaneously gaining control of the Board of Directors by
13
filling the vacancies created by such removal with its own nominees. See
"Description of Securities -- Delaware Law and Certain Charter and Bylaw
Provisions."
ELIGIBILITY FOR NASDAQ/NMS TRADING
Although the Company has applied for listing of the Common Stock and
Redeemable Warrants on the NASDAQ/NMS, their approval for listing and continued
inclusion will depend on the Company's ability to meet certain eligibility
requirements established for the system. Loss of NASDAQ/NMS eligibility would
result, for example, if the Company has continuous material operating losses or
if the market price of the Common Stock falls below certain specified levels. If
the Company's Securities become ineligible for trading on the system for this or
any other reason, such Securities may be subject to a rule under the Securities
Exchange Act of 1934 that imposes additional stringent sales practice
requirements on broker-dealers who sell the Company's Common Stock which could
result in significantly less liquidity for and/or a decreased trading price of
the Company's Common Stock.
POSSIBLE ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK AND PREFERRED STOCK;
PREFERRED STOCK CURRENTLY OUTSTANDING
The Company is authorized to issue up to 10,000,000 shares of Common
Stock, of which 3,100,000 shares of Common Stock will be issued and outstanding
upon completion of the Offering (3,242,500 shares assuming the Underwriters'
overallotment option is exercised in full). The Company's Board of Directors has
authority, without action or vote of the stockholders, to issue all or part of
the authorized but unissued shares. Any such issuance would dilute the
percentage ownership interest of stockholders and may further dilute the book
value of the Common Stock.
In addition, the Company is authorized to issue up to 1,000,000 shares
of Preferred Stock, $ .01 par value per share (the "Preferred Stock"). Of these
shares of Preferred Stock, no shares are issued and outstanding as of the date
of this Prospectus. The Preferred Stock may be issued in one or more series, the
terms of which may be determined at the time of issuance by the Board of
Directors, without further action by stockholders, and may include voting rights
(including the right to vote as a series on particular matters), preferences as
to dividends and liquidation, conversion and redemption rights and sinking fund
provisions. The issuance of any shares of Preferred Stock could adversely affect
the rights of the holders of Common Stock and, therefore, reduce the value of
the Common Stock. In particular, specific rights granted to holders of Preferred
Stock could be used to restrict the Company's ability to merge with or sell its
assets to a third party, thereby preserving control of the Company by its then
owners, and may adversely affect the voting power of holders of the Common
Stock. See "Description of Securities."
ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
No public market for the Securities has existed prior to the Offering.
No assurance can be given that an active trading market in the Company's
Securities will develop after completion of
14
the Offering or, if developed, that it will be sustained. No assurance can be
given that the market price of the Company's Securities will not fall below the
initial public offering price. The Company believes factors such as quarterly
fluctuations in financial results and announcements of new technology in the
semiconductor, computer hard disk drive and flat panel display inspection
industries may cause the market price of the Company's Securities to fluctuate,
perhaps substantially. These fluctuations, as well as general stock market and
economic conditions such as recessions or high interest rates, may adversely
affect the market price of the Securities.
ARBITRARY DETERMINATION OF OFFERING PRICE
The initial public offering price of the Securities has been
arbitrarily determined by negotiation between the Company and the Underwriters
and does not necessarily bear any relationship to the Company's assets, book
value or financial condition, or to any other recognized criteria of value. See
"Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors who purchase Securities in the Offering will incur immediate
and substantial dilution in the net tangible book value of the Common Stock of
approximately $4.08 per share (includes the purchase price of $.10 per
Redeemable Warrant) or approximately 67% of the public offering price per share.
See "Dilution."
NO DIVIDENDS
The Company has not paid cash dividends on its Common Stock since its
inception and does not anticipate paying any cash dividends on its Common Stock
in the foreseeable future. The Company currently intends to reinvest earnings,
if any, in the development and expansion of its business. The Company's
agreement with its primary bank lender prohibits the payment of dividends
without the bank's prior consent. See "Dividend Policy."
LIMITATION ON OFFICERS' AND DIRECTORS' LIABILITIES UNDER DELAWARE LAW
Pursuant to the Company's Certificate of Incorporation, as authorized
under applicable Delaware law, directors of the Company are not liable for
monetary damages for breach of fiduciary duty, except in connection with a
breach of the duty of loyalty, for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, for dividend
payments or stock repurchases illegal under Delaware law or for any transaction
in which a director has derived an improper personal benefit. In addition, the
Company's bylaws provide that the Company must indemnify its officers and
directors to the fullest extent permitted by Delaware law for all expenses
incurred in the settlement of any actions against such persons in connection
with their having served as officers or directors of the Company. See
"Management -- Limitation on Officers' and Directors' Liabilities."
15
ANTI-TAKEOVER MEASURES; POTENTIAL ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER
PROVISIONS
The Company, as a Delaware corporation, is subject to the General
Corporation Law of the State of Delaware, including Section 203 thereof, an
anti-takeover law enacted in 1988. In general, the law restricts the ability of
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder. As a
result, potential acquirors of the Company may be discouraged from attempting to
effect an acquisition transaction with the Company, thereby possibly depriving
holders of the Company's securities of certain opportunities to sell or
otherwise dispose of such securities at above-market prices pursuant to such
transactions. As a result of the application of Section 203, certain provisions
in the Company's Certificate of Incorporation and bylaws, as amended, and
certain change in control provisions contained in the employment contracts of
the six officers of the corporation, potential acquirors of the Company may find
it more difficult or be discouraged from attempting to effect an acquisition
transaction with the Company, thereby possibly depriving holders of the
Company's securities of certain opportunities to sell or otherwise dispose of
such securities at above-market prices pursuant to such transactions. See
"Management -- Employment Agreements" and "Description of Securities -- Delaware
Law and Certain Charter and Bylaw Provisions."
FUTURE SALES OF COMMON STOCK
None of the 2,150,000 shares of Common Stock outstanding as of the date
of this Prospectus has been registered under the Securities Act, and all are
"restricted securities" under Rule 144 of the Securities Act ("Rule 144").
Ordinarily, under Rule 144, a person holding restricted securities for a period
of two years may, every three months, sell in ordinary brokerage transactions or
in transactions directly with a market maker an amount equal to the greater of
one percent of the Company's then outstanding Common Stock or the average weekly
trading volume during the four calendar weeks prior to such sale. Rule 144 also
permits sales by a person who is not an affiliate of the Company and who has
satisfied a three-year holding period without any quantity limitation. All of
the officers, directors and stockholders of the Company, with the exception of
Kobe Steel USA Holdings, Inc., have agreed not to sell any of their shares of
Common Stock for a period of at least 13 months from the date of this Prospectus
without the prior written consent of the Representative. Kobe Steel USA
Holdings, Inc. has agreed not to, directly or indirectly, offer to sell,
contract to sell, or sell any beneficial interest in the Company's Common Stock
for a period of six months from the date of this Prospectus without the prior
written consent of the Representative. Absent such agreements, 90 days from the
date of this Prospectus, 812,687 shares of Common Stock would be eligible for
sale pursuant to Rule 144. Future sales under Rule 144 may have a depressive
effect on the market price of the Common Stock should a public market develop
for such stock. See "Shares Eligible for Future Sale."
16
SUBSTANTIAL SHARES OF COMMON STOCK RESERVED FOR THE EXERCISE OR GRANT OF OPTIONS
AND WARRANTS; REGISTRATION RIGHTS OF WARRANT HOLDERS
The Company has reserved 460,000 shares of Common Stock for issuance
upon exercise of options granted or available for grant to employees, officers,
directors, advisors and consultants pursuant to the Company's Plans, as well as
an aggregate of 1,140,000 shares of Common Stock for issuance upon (i) exercise
of the Redeemable Warrants, and (ii) exercise of the Representative's Warrants.
The existence of the aforementioned options and warrants may prove to be a
hindrance to future financing by the Company. The holders of such options and
warrants may exercise them at a time when the Company would otherwise be able to
obtain additional equity capital on terms more favorable to the Company.
The Company has agreed that, under certain circumstances, it will
register under federal and state securities laws the Representative's Warrants
and the shares of Common Stock issuable thereunder. Exercise of these
registration rights could involve substantial expense to the Company at a time
when it could not afford such expenditures and may adversely affect the terms
upon which the Company may obtain additional financing.
See "Description of Securities."
POSSIBLE LIMIT ON EXERCISE OF REDEEMABLE WARRANTS
In order for a holder to exercise a Redeemable Warrant, there must be a
current registration statement on file with the Securities and Exchange
Commission (the "Commission") and various state securities commissions to
register the shares of Common Stock underlying the Redeemable Warrants for sale
to the holder of the Redeemable Warrant. The Company has agreed, so long as the
Redeemable Warrants are outstanding, to use its best efforts to keep a
registration statement effective under the Securities Act and state securities
laws to permit the issuance of the shares of Common Stock upon exercise or
exchange of the Redeemable Warrants. Nevertheless, although the Company intends
to do so, no assurance can be given that the registration statement will be kept
current, the failure of which may result in the Redeemable Warrants not being
exercisable or exchangeable and therefore worthless. See "Description of
Securities -- Redeemable Warrants."
POSSIBLE REDEMPTION OF REDEEMABLE WARRANTS
Beginning __________, 1997 (13 months after the date of this
Prospectus), the Redeemable Warrants are redeemable by the Company at $.20 per
Redeemable Warrant on 30 days' prior written notice, provided that the average
closing bid price of the Common Stock equals or exceeds $10.80 per share (180%
of the public offering price per share) for 20 consecutive trading days ending
within 10 days prior to the notice of redemption. See "Description of
Securities." The Redeemable Warrants can only be redeemed if they are then
exercisable and a current registration statement covering the Redeemable
Warrants and the shares of Common Stock issuable thereunder is then in effect.
Redemption of the Redeemable Warrants may force the holders to (i) exercise the
Redeemable Warrants and pay the exercise price at a time when it may be
disadvantageous for them to do so or (ii) sell the Redeemable Warrants at the
current market price when they might otherwise wish to hold the Redeemable
Warrants. See "Description of Securities -- Redeemable Warrants."
17
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Securities offered hereby, after deducting $579,500 for underwriting discounts
and approximately $640,000 for other estimated expenses of the Offering,
including the Representative's non-accountable expense allowance and the
consulting fee payable to the Representative, are expected to be approximately
$4,500,000 (approximately $5,300,000 if the Underwriters' overallotment option
is exercised in full). The net proceeds are intended to be used approximately as
follows:
Amount
------
Sales and Marketing $ 500,000
Repayment of Debt $ 750,000
Research and Development Activities $ 500,000
Working Capital and General Corporate Purposes $ 2,750,000
-----------
$ 4,500,000
===========
SALES AND MARKETING
Approximately $500,000 of the net proceeds of the Offering are intended
for use in expanding the Company's sales and marketing activities, particularly
outside of the United States. See "Business -- Sales and Marketing."
REPAYMENT OF DEBT
Approximately $750,000 of the net proceeds of the Offering will be used
to repay a loan due on December 31, 1996 to Kobe Steel USA Holdings, Inc. This
loan was made by Kobe Steel USA Holdings, Inc. to the Company in connection with
the management buyout in March 1996. The loan bears interest at 8% per annum. In
addition, the Company is required prior to repaying the $750,000 loan to Kobe
Steel USA Holdings, Inc. to first repay any overadvances outstanding from State
Street Bank and Trust Co. ("State Street") under a $4,000,000 revolving line of
credit issued in March 1996 (the "State Street Loan"). In connection with the
State Street Loan, State Street provided a $500,000 overadvance which is
required to be repaid by October 31, 1996. A portion of this overadvance was
used to complete the management buyout. However, the Company has not used the
State Street overadvance since May 31, 1996 and, as a result, no proceeds from
this Offering are expected to be necessary to repay any State Street
overadvance. See "Certain Transactions" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
RESEARCH AND DEVELOPMENT ACTIVITIES
Prior to the management buyout, ownership of a greater than 50%
interest in the Company by a non-U.S. stockholder, Kobe Steel Ltd., through Kobe
Steel USA Holdings, Inc., precluded the Company from participating in certain
research and development activities sponsored by U.S. government agencies and
federally funded
18
consortia, such as SEMATECH. As a result of the management buyout, the Company
intends to participate in these consortia and to seek federally provided
research and development funding, particularly in the fields of flat panel
displays and other inspection product areas. However, in addition to the
$500,000 of the net proceeds intended to be used for research and development
activities, the Company expects to continue to use a portion of its own funds to
support research and development activities. See "Business -- Engineering and
Product Development" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
WORKING CAPITAL AND GENERAL CORPORATE PURPOSES
Approximately $2,750,000 of the net proceeds from the Offering will be
used for working capital and general corporate purposes. Although the Company
intends to routinely explore potential acquisitions, none is currently being
negotiated and no portion of the net proceeds has been allocated to specific
acquisitions. The Company's business strategy includes expanding its product
lines and markets through internal product development or acquisitions. Any
acquisition may result in potentially dilutive issuances of equity securities,
the incurrence of debt and contingent liabilities, and amortization expense
related to intangible assets acquired, any of which could materially adversely
affect the Company's financial condition and results of operations.
In March 1996, the Company established a revolving line of credit
facility with State Street. At May 31, 1996, the Company had borrowings
outstanding under the State Street Loan of approximately $811,000 and additional
availability under the line of credit of approximately $2,400,000. The line of
credit is secured by the personal unlimited guarantees of each of Eric T. Chase
and K. Andrew Bernal, the Company's Chief Executive Officer and President, and
Vice President of Sales and Marketing, respectively. The line of credit is also
guaranteed on a limited basis by other Company officers. The terms of the State
Street Loan allow for the termination of these guarantees provided that (i) any
overadvance is paid in full by October 31, 1996 and the qualified inventory is
excluded from the Company's borrowing base; or (ii) upon the receipt of
$5,000,000 in net proceeds from an equity financing (gross proceeds less
underwriting discounts and commissions) and, in either case, there are no
defaults under the facility. Following the completion of this Offering, and in
order to reduce interest expense, the Company may use a portion of the proceeds
of the Offering to pay down all or a portion of the State Street Loan. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Certain Transactions."
Any net proceeds received from the exercise of the Underwriters'
overallotment option will be used to supplement general working capital.
The allocation of the net proceeds of the Offering set forth above
represents the Company's best estimate based upon its present plans and certain
assumptions regarding general economic and industry conditions and the Company's
future revenues and expenditures. The Company reserves the right to reallocate
the proceeds within the above described categories or to other purpose in
19
response to, among other things, changes in its plans, industry conditions, and
the Company's future revenues and expenditures.
Based on the Company's operating plan, management believes that the net
proceeds from the Offering, existing bank and other credit facilities, and
anticipated cash flow from operations will be sufficient to meet the Company's
anticipated cash needs and finance its plans for expansion for at least 12
months from the date of this Prospectus. See "Risk Factors -- Discretionary Use
of Proceeds; Possible Need for Additional Financing; Substantially All Assets
Pledged" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
Proceeds not immediately required for the purposes described above will
be invested principally in U.S. government securities, short-term certificates
of deposit, money market funds, or other high-grade, short-term interest-bearing
investments.
DILUTION
At March 31, 1996, the net tangible book value of the Company's
outstanding shares of Common Stock was $1,753,979, or approximately $.82 per
share. "Net tangible book value" per share represents the amount of the
Company's total assets less the amount of its total liabilities, divided by the
number of shares of Common Stock outstanding. Without taking into account any
other changes in net tangible book value after March 31, 1996, other than to
give effect to the sale of the Common Stock offered hereby at an assumed public
offering price of $6.10 per share(1), the pro forma net tangible book value of
the Company's outstanding shares of Common Stock at March 31, 1996 would have
been $6,253,979, or approximately $2.02 per share, representing an immediate
increase in net tangible book value of approximately $1.20 per share to current
stockholders and an immediate dilution of approximately $4.08 per share to new
investors. The following table illustrates this per share dilution:
Public offering price per share of Common Stock
offered hereby(1) ................................................... $ 6.10
Net tangible book value per share of
Common Stock at March 31, 1996..................... $ .82
Increase in net tangible book value per
share of Common Stock ............................ $ 1.20
------
Pro forma net tangible book value
per share of Common Stock after Offering............................. $ 2.02
------
Dilution per share of Common Stock to investors
in this Offering..................................................... $ 4.08
======
- ----------
(1) Includes the purchase price of $.10 per Redeemable Warrant.
20
In the event that the Underwriter exercises the overallotment option in
full, the pro forma net tangible book value per share of Common Stock after the
Offering (less underwriting commissions and discounts and estimated expenses of
the Offering) would be approximately $2.18 per share, representing an immediate
increase in net tangible book value of approximately $1.36 per share to current
stockholders and an immediate dilution of approximately $3.92 per share to new
investors.
The following table sets forth, at March 31, 1996 and as adjusted to
give effect to the sale of the Common Stock offered hereby, the number of shares
of Common Stock purchased, the percentage of Common Stock purchased, the total
consideration paid, the percentage of total consideration paid and the average
price per share paid by the existing stockholders of the Company and the
investors in the Offering, assuming a public offering price of $6.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Paid
---------------- ------------------------
Average Price
Number Percentage(1) Amount Percentage Per Share
------ ------------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
New Investors .......... 950,000 30.65% $5,700,000 64.33% $ 600
Existing Stockholders .. 2,150,000 69.35% $3,160,000 35.67% $1.47
--------- ----- ---------- -----
Total ......... 3,100,000 100% $8,860,000 100%
========= === ========== ===
</TABLE>
21
CAPITALIZATION
The following table sets forth the capitalization of the Company at
March 31, 1996, and as adjusted capitalization of the Company at March 31, 1996,
to reflect the sale and issuance of the Securities offered hereby and the
initial application thereof as described in "Use of Proceeds."
March 31, 1996
----------------
Actual As Adjusted(2)
------ --------------
Short-term debt(1):
Revolving line of credit ..................... $ 262,791 $ 262,791
Kobe Steel term loan ......................... 750,000 --
----------- -----------
Total short-term debt ........................ $1,012,791 $ 262,791
========== ==========
Long-term debt(1):
Revolving line of credit, less current
maturities ................................... $3,052,734 $3,052,734
Stockholders' equity:
Preferred stock -- $.01 par value,
1,000,000 shares authorized,
actual and as adjusted -- 0 shares
issued and outstanding........................ -- --
Common stock -- $.01 par value, 10,000,000
shares authorized, actual shares issued and
outstanding 2,150,000 and as adjusted
3,100,000 .................................... 21,500 31,000
Additional paid-in capital ........................ 3,138,500 7,629,000
Accumulated deficit ............................... (1,406,021) (1,406,021)
---------- ----------
Total stockholders' equity ................... 1,753,979 6,253,979
---------- ----------
Total capitalization .............................. $4,806,713 $9,306,713
========== ==========
- ----------
(1) See Notes 6 and 7 of Notes to Financial Statements included elsewhere
in this Prospectus for information regarding debt obligations of the
Company.
(2) See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
22
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock since its
inception and does not anticipate paying any cash dividends on its Common Stock
in the foreseeable future. The Company currently intends to reinvest earnings,
if any, in the development and expansion of its business. Any future
determination with respect to the payment of dividends will be subject to the
discretion of the Company's Board of Directors and will depend upon the
earnings, capital requirements, and financial position of the Company, general
economic conditions, and other pertinent factors. In addition, the Company's
agreement with its primary bank lender prohibits the payment of dividends
without the bank's prior written consent.
23
SELECTED FINANCIAL DATA
The selected financial data set forth below for the years ended December
31, 1995, 1994 and 1993 has been derived from the financial statements of the
Company which as of and for the years ended December 31, 1995, 1994 and 1993,
have been audited by Arthur Andersen LLP, independent public accountants. The
information as of and for the three months ended March 31, 1996 and 1995 has
been derived from unaudited financial statements of the Company which have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the information
shown therein. The unaudited results as of and for the three months ended March
31, 1996 are not necessarily indicative of the results to be expected for the
entire fiscal year. This information should be read in conjunction with the
Financial Statements and Notes thereto set forth elsewhere in this Prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Fiscal Years Ended December 31, Three Months Ended March 31,
------------------------------- ----------------------------
1995 1994 1993 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales .................................................. $10,373,464 $8,394,932 $6,003,843 $3,212,008 $1,777,600
Cost of sales .............................................. 4,798,902 3,911,108 3,269,363 1,521,052 932,934
----------- ---------- ---------- ---------- ----------
Gross profit ............................................... 5,574,562 4,483,824 2,734,480 1,690,956 844,666
----------- ---------- ---------- ---------- ----------
Operating expenses:
Selling, general and
administrative expenses .................................. 2,843,266 2,465,479 1,986,663 964,994 652,796
Engineering expenses ..................................... 1,586,951 1,347,480 1,334,364 365,113 380,316
---------- ---------- ---------- ---------- ----------
Total operating expenses ............................... 4,430,217 3,812,959 3,321,027 1,330,107 1,033,112
---------- ---------- ---------- ---------- ----------
Operating income(loss) ..................................... 1,144,345 670,865 (586,547) 360,849 (188,446)
Interest expense, net ...................................... 156,345 162,942 117,404 38,838 53,090
---------- ---------- -------- ---------- ----------
Income (loss) before
provision for income taxes ................................. 988,000 507,923 (703,951) 322,011 (241,536)
Provision for income taxes ................................. 79,781 37,866 11,101 21,870 10,820
---------- ---------- ----------- ---------- ----------
Net income (loss) .......................................... $ 908,219 $ 470,057 $ (715,052) $ 300,141 $ (252,356)
========== ========== =========== ========== ==========
Net income (loss) per
common and common equivalent share ......................... $ .42 $ .22 $ ( .33) $ .14 $ ( .12)
========== ========== =========== ========== ==========
Weighted average common and common equivalent
shares outstanding ......................................... 2,173,174 2,173,174 2,173,174 2,173,174 2,173,174
========= ========= ========= ========= =========
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
At March 31, 1996
-----------------
At
December 31, 1995 Actual As Adjusted(1)
----------------- ------ --------------
<S> <C> <C> <C>
Working capital ............................................ $2,060,723 $4,676,498 $ 9,176,498
Total assets ............................................... $7,721,910 $7,769,169 $ 11,519,169
Short-term debt ............................................ $4,250,000 $1,012,791 $ 262,791
Long-term debt, less current maturities..................... $ -- $3,052,734 $ 3,052,734
Stockholders' equity ....................................... $2,203,838 $1,753,979 $ 6,253,979
</TABLE>
- -----------
(1) Gives effect to the receipt by the Company of the estimated net proceeds
of approximately $4,500,000 from the sale of the Securities and the use
of a portion of the net proceeds therefrom to repay the term loan from
Kobe Steel USA Holdings, Inc. See "Use of Proceeds" and "Certain
Transactions."
24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction
with the Financial Statements of the Company (including the Notes thereto)
appearing elsewhere in this Prospectus.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 ("INTERIM 1996") AND THREE MONTHS
ENDED MARCH 31, 1995 ("INTERIM 1995")
Net sales for Interim 1996 were $3,212,008 as compared to $1,777,600 in
Interim 1995, an increase of 80.7%. This increase was due primarily to (i)
significant increased demand from existing customers; (ii) increased demand for
the Company's products for the inspection of computer hard disks; and (iii) the
sale of the Company's first production version of its QCO-4000 optical
pelliclized photomask inspection system.
Cost of sales for Interim 1996 was $1,521,052 as compared to $932,934
for Interim 1995. As a result of increased sales, gross profit for Interim 1996
was $1,690,956 (52.6% of net sales) as contrasted to $844,666 in Interim 1995
(47.5% of net sales), an increase of 100.2%. This improvement in gross profit as
a percentage of net sales was due to spreading fixed overhead costs over a
larger revenue base.
Selling, general and administrative expenses increased to $964,994
(30.0% of net sales for Interim 1996) as compared to $652,796 (36.7% of net
sales for Interim 1995). This increase was due to increased commissions as well
as increased administrative expenses. However, selling, general and
administrative expenses increased by 47.8% in Interim 1996, as compared to an
80.7% increase in net sales for the same time period.
Engineering expenses remained relatively constant in both Interim 1996
and Interim 1995. Engineering expenses were $365,113 and $380,316 for Interim
1996 and Interim 1995, respectively. Engineering expenses as a percent of net
sales were 11.4% in Interim 1996 as compared to 21.4% of net sales in Interim
1995.
As a result of increased sales, total operating expenses as a
percentage of net sales decreased to 41.4% in Interim 1996 as compared to 58.1%
in Interim 1995. Net interest expense decreased from $53,090 in Interim 1995 to
$38,838 in Interim 1996 due to the investing of available excess cash in short
term investments.
25
Income before provision for income taxes was $322,011 in Interim 1996
(or 10.0% of net sales) as compared to a loss of $241,536 in Interim 1995. Due
to the Company's net operating loss ("NOLs") carryforwards, the provision for
income taxes for Interim 1996 was $21,870 as compared to $10,820 for Interim
1995. In connection with the management buyout and the issuances of shares in
connections with this Offering, the Company expects that it will be restricted
in the NOLs it can use in future fiscal years in accordance with Section 382 of
the Internal Revenue Code of 1986, as amended. As a result of the management
buyout, the Company is limited to approximately $180,000 of loss utilization per
year. See "Certain Transactions."
As a result of the improvement in net sales and gross profit and the
use of NOLs, the Company's net income for Interim 1996 was $300,141 (or 9.3% of
net sales) as compared to a net loss of $252,356 in Interim 1995.
FISCAL YEAR ENDED DECEMBER 31, 1995 ("FISCAL 1995") COMPARED TO FISCAL YEAR
ENDED DECEMBER 31, 1994 ("FISCAL 1994")
Net sales for Fiscal 1995 were $10,373,464, as compared to net sales of
$8,394,932 in Fiscal 1994, an increase of 23.6%. This increase in net sales was
attributable to increased demand for the Company's products from both existing
and new customers.
Cost of sales for Fiscal 1995 was $4,798,902 (or 46.3% of net sales),
as compared to cost of sales of $3,911,108 in Fiscal 1994 (or 46.6% of net
sales). This slight improvement in gross profit was due to increased net sales
covering certain fixed manufacturing costs.
Selling, general and administrative expenses were $2,843,266 in Fiscal
1995 (27.4% of net sales) as compared to $2,465,479 in Fiscal 1994 (29.4% of net
sales). This increase was due to the expansion of field service staffing along
with related travel costs, increased professional fees and provision for bad
debts. However, as a percentage of net sales, selling, general and
administrative expenses decreased due to the spread of certain fixed costs over
the increase in net sales.
Engineering expenses for Fiscal 1995 were $1,586,951 (or 15.3% of net
sales), as compared to $1,347,480 in Fiscal 1994 (16.1% of net sales). Increased
engineering expenses were associated primarily with completion of engineering
costs of the Company's QCO-4000. However, engineering expenses as a percentage
of net sales decreased due to increased sales volume.
Net interest expense for Fiscal 1995 was $156,345 (1.5% of net sales)
as compared to $162,942 in Fiscal 1994 (1.9% of net sales). This interest
expense is primarily associated with a loan from Kobe Steel USA International,
Inc., an affiliate of the Company's then principal stockholder, which loan was
repaid by a capital contribution to the Company in March 1996.
As a result of increased net sales volume, income before provision for
income taxes for Fiscal 1995 was $988,000 (9.5% of net sales) as compared to
$507,923 in Fiscal 1994 (6.1% of net sales). Due to the use of the Company's
NOLs, taxes in Fiscal 1995 were $79,781 (8.1% of income before provision for
income taxes) as contrasted to $37,866 in Fiscal 1994 (7.5% of income before
26
provision for income taxes). The increase in taxes of 110.7% is due to the
increase in pretax income of 94.5% from Fiscal 1994 to Fiscal 1995. However,
taxes paid as a percentage of net income before taxes was at a low rate due the
use of both Federal and state NOLs.
As a result of the increase in net sales, the slight improvement in
gross profit and the improvements in reducing operating expenses as a percentage
of net sales, the Company had net income in Fiscal 1995 of $908,219 (8.8% of net
sales) as compared to net income in Fiscal 1994 of $470,057 (or 5.6% of net
sales). This represents a 93.2% increase in net income for Fiscal 1995
contrasted to Fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has been funded primarily by equity investments and debt
financing by Kobe Steel. At March 31, 1996, the Company had stockholders' equity
of $1,753,979. The Company also had working capital of $4,676,498. Cash provided
by operating activities in Interim 1996 was $404,418. Net cash used in operating
activities was $155,532 in Interim 1995 and $1,102,581 in Fiscal 1995. During
Interim 1996 and Fiscal 1995, the Company had net income of $300,141 and
$908,219 respectively. During Interim 1996 and Fiscal 1995, the Company only
made limited investments in property and equipment. From time to time since
inception, the Company has received loans from Kobe Steel and it affiliates to
meet certain obligations, capital expenditures and general working capital
requirements of the Company. On March 29, 1996, Kobe Steel USA Holdings, Inc.
made a capital infusion of $4,250,000 to repay a loan of $4,250,000 previously
made to the Company by Kobe Steel USA International, Inc. In addition, the
Company repurchased 62.2% of the Company's common stock (99.5% of the Company
was previously held by Kobe Steel USA Holdings, Inc.) for $5,000,000. Payment
for the shares was made with $3,250,000 from a revolving line of credit from the
Company's bank, a $750,000 loan from Kobe Steel USA Holdings, Inc. due and
payable on December 31, 1996 and $1,000,000 of cash from the Company's cash
accounts. In connection with this transaction, a company formed by the
management of QCO exchanged their interests in that corporation for a 62.2%
interest in the Company. Each of the several stockholders of the QC Optics
Voting Trust, pledged their QCO shares to the bank as collateral for the bank
loan. In addition, Eric Chase and K. Andrew Bernal provided unlimited guarantees
for the bank loan. Upon completion of this Offering and if certain other
conditions are satisfied, the bank has agreed to release all personal
guarantees. See "Certain Transactions."
In connection with the stock repurchase from Kobe Steel USA Holdings,
Inc., the Company entered into a revolving line of credit with State Street Bank
& Trust Company. The revolving line of credit agreement allows for maximum
borrowings of $4,000,000 and requires monthly payment of interest on the
outstanding balance to maturity on June 30, 1998. Borrowings under the line of
credit are limited to 80% of qualifying accounts receivable and 10% (not to
exceed $350,000) of qualifying inventory. Borrowings under the revolving line
credit agreement bear interest at the bank's prime rate (8.25% at June 30, 1996)
plus 1.0%. The terms of the loan agreement provide for the maintenance of
certain specified financial ratios including, but not limited to, quick ratio,
debt to equity and net worth ratios, and restrict certain transactions without
the bank's prior written consent.
27
As of the date of this Prospectus, the Company is not in default of the
covenants and provisions of the credit agreement. Borrowings under the agreement
are secured by substantially all the assets of the Company. At May 31, 1996 the
Company had borrowings outstanding under the revolving credit agreement of
approximately $811,000 and additional availability of approximately $2,400,000.
Following the closing of the Offering, and in order to reduce interest expense,
the Company may use a portion of the proceeds of the Offering to temporarily pay
down all or a portion of the then outstanding balance of the bank's revolving
line of credit. See "Use of Proceeds" and "Certain Transactions."
The Company also intends to use approximately $750,000 of the proceeds
of the Offering to repay the term loan provided by Kobe Steel USA Holdings, Inc.
Following repayment of this term loan, the Company expects to have an additional
$3,750,000 available from the net proceeds of this Offering for working capital
and expansion purposes. See "Certain Transactions." The Company intends to use a
portion of these proceeds for expansion of sales and marketing activities both
in the United States and overseas, particularly in Asia. The Company also
intends to use a portion of the proceeds for further research and development
activities. The remainder of the proceeds will be used for working capital and
general corporate purposes. See "Use of Proceeds."
The Company may use a portion of the net proceeds of the Offering to
acquire businesses or product lines similar, complementary, or related to the
Company's current business. The Company's business plan includes considering
potential acquisitions. However, none is currently being negotiated and no
portion of the net proceeds have been allocated to specific acquisitions. The
Company's expansion plans will subject the Company to all of the risks inherent
to the expansion of an emerging business, particularly the possible adverse
impact associated with the integration of new and acquired businesses into the
Company's existing operations and the coordination of operations in joint
ventures. In particular, newly acquired businesses and joint ventures frequently
encounter unforeseen expenses, difficulties, complications and delays and no
assurances can be given that the Company will be successful in meeting its
business objectives. In addition, no assurance can be given that the Company
will pursue or consummate any such business opportunities in the future or that
any such business opportunity, if consummated, will prove beneficial to the
Company. See "Use of Proceeds."
The Company's operating results have historically been subject to
significant quarterly and annual fluctuations. The Company believes that its
operating results will continue to fluctuate on a quarterly and annual basis due
to a variety of factors, including the cyclicality of the photomask making and
semiconductor industries, the timing of significant orders, order cancellations,
shipment reschedulings, market acceptance of the Company's products,
fluctuations in the granting and funding of development contracts, consolidation
of the number of customers, unanticipated delays in design, engineering or
production or in customer acceptance of product shipments, changes in pricing by
the Company or its competitors, the timing of product announcements or
introductions by the Company or its competitors, the mix of systems sold, the
relative proportions of product revenues and service revenues, the timing of
payments of sales commissions, changes in product development costs, expenses
associated with acquisitions and exchange rate fluctuations. The
28
Company's net income and cash flow will also be affected by its ability
to apply its NOLs, which totaled approximately $1,863,000 for federal income tax
purposes at March 31, 1996, against taxable income in future periods. The
utilization of the Company's NOLs will in the future be significantly limited
due to the provisions of Section 382 of the Internal Revenue Code of 1986, as
amended. This provision allows the Company to utilize only a portion of its NOLs
on an annual basis following a change in control, which change occurred
following the management buyout. As a result of the management buyout, the
Company is limited to approximately $180,000 of loss utilization per year. The
Company cannot predict the impact of these and other factors on its financial
performance in any future period. See "Risk Factors -- Fluctuation in Operating
Results; Accumulated Deficit."
Historically, the Company's product revenues have fluctuated primarily
as a result of the timing of shipments and the number and mix of systems sold in
a particular quarter. The Company expects that such fluctuations will continue
in the future.
Based upon the anticipated proceeds of the Offering, current
anticipated bank and credit facilities, and anticipated results of operations,
management believes that the proceeds of the Offering will be adequate to meet
its working capital requirements for the 12 months following the Offering.
Thereafter, the Company anticipates that it could need additional financing to
meet its current plans for expansion. No assurance can be given of the Company's
ability to obtain financing on favorable terms, if at all. See "Risk Factors --
Discretionary Use of Proceeds; Possible Need for Additional Financing;
Substantially All Assets Pledged." If the Company is unable to obtain additional
financing, its ability to meet its current plan for expansion could be
materially adversely affected.
INFLATION
To date, inflation has not had a material effect on the Company's
business.
29
BUSINESS
GENERAL
QC Optics, Inc. (the "Company" or "QCO"), is a rapidly growing company
which designs, manufactures and markets laser based defect detection systems for
the semiconductor, flat panel display and computer hard disk drive markets. QCO
uses its patented and other proprietary technology in lasers and optical systems
that scan a computer hard disk, photomask or flat panel display for defects or
contamination. The Company's systems combine automatic handling, clean room
capability and computer control with reliable laser based technology. The
Company believes that these features enable the Company to maintain a leading
market position in the U.S. in the semiconductor, flat panel display and
computer hard disk drive industries where high quality inspection capabilities
are required. The Company's customers include many of the world's largest
leading semiconductor and computer hard disk manufacturers. Currently, QCO has
over 200 systems installed in 14 countries.
QCO was formed in 1986 to acquire the assets of a division of GCA
Corporation. The Company funded its product development primarily with equity
investments and debt financing from Kobe Steel. From 1986 to 1990, the Company
focused its efforts in developing inspection systems for computer hard disk
inspection. Using the Company's patented and proprietary information, the
Company expanded its efforts to use this technology for inspection of photomasks
used to image integrated circuit patterns onto semiconductor wafers. In early
1996, management of the Company acquired a 62.2% equity interest in the Company
for $5 million through a management buyout with bank supplied debt financing
personally guaranteed by QCO's senior management. See "Certain Transactions."
The Company introduced its QCO-4000 automatic pelliclized photomask
laser based inspection systems in March 1996, which has the sensitivity to
detect defects or contamination of 0.3 micrometers (the equivalent of 0.06
micrometers on the semiconductor wafer), which will be required to detect
defects in the next generation of semiconductors. As semiconductor devices have
become more complex, the semiconductor manufacturing process has become very
sensitive to photomask errors, requiring more complex photomasks and, as a
result, increasingly sophisticated photomask inspection tools.
The Company's systems, such as its API-3000/5 and DISKAN-6000, are
designed to fit into its customers' production line virtually eliminating the
need for special handling or special production procedures while performing 100%
inspection throughout the process. These systems sort out fatal defects on disks
and pelliclized photomasks before they cause manufacturing yield or other
quality problems. As more manufacturers of computer hard disks move toward total
inspection protocols versus statistical sampling, demand during the past year
for the Company's products which can inspect computer hard disks has increased
significantly. The Company is also working on research and development for
porting, which is applying the Company's technology in its other systems, to the
inspection of flat panel displays.
30
The Company's goal is to maintain a leadership position in the United
States in photomask inspection systems for soft defects (e.g., particulates and
other contamination) and use its knowledge and contacts to pursue other
opportunities in high performance inspection markets. The Company intends to use
a portion of the proceeds of this Offering to expand its sales and marketing
activities, continue research and development activities in inspection
opportunities, and to continue to work closely with major customers and seek
strategic alliances with other industry participants to maintain a leading edge
position in the high performance inspection markets. In addition, the Company
may consider acquisitions in complementary businesses in the inspection and
handling markets.
QCO's principal offices and manufacturing facilities are based in
Burlington, Massachusetts. The Company also maintains regional sales or service
personnel in Texas, Florida, New Mexico, Oregon, Arizona and California. The
Company currently has approximately 60 employees and has manufacturer's
representatives in Europe and distributors in Asia.
MARKETS
The Company currently serves three markets with its inspection systems:
semiconductors, computer hard disks and flat panel displays. In addition, the
Company plans to continue to develop additional products, based on the Company's
existing patented and proprietary technologies, to further develop laser based
inspection systems.
The Company's core technology inspects by illuminating critical
surfaces and examining and analyzing light reflected from the surface. This
analysis allows the end user to analyze and determine the type of defect on the
surface. Lasers are used to provide the stable high intensity light source
needed for these inspection processes. Certain ultraviolet light lasers are used
to detect smaller defects. The angular distribution and the intensity of the
reflected and scattered light from the surface provides a "fingerprint" of the
surface and its defects. This information passes through analog and digital
signal processes and is then analyzed using the Company's proprietary software.
Semiconductor Photomask Inspection Systems
In the manufacture of semiconductors, photomasks are used to image
integrated circuit patterns onto silicon wafers. Semiconductor manufacturing
begins with the creation of a photomask, in which the circuit design is written
onto the photomask, one layer at a time. A wafer stepper uses the photomask like
a photographic negative to rapidly make numerous repetitive images of the
circuit pattern on the wafer. The stepper transfers light through the photomask
onto photoresist that is spread over the surface of the wafer. Those areas of
the photoresist that have been exposed to light are dissolved by chemical
developers, and the exposed areas of the layer under the resist are then etched.
A different photomask is required for each layer of the integrated circuit.
Successive steps of deposition, lithography and etch build the layers of
patterns that make up a single integrated circuit.
31
In the 1990s, a number of advancements in photomask design have allowed
manufacturers to manufacture integrated circuits with increasingly smaller
linewidths. These linewidths are now as low as 0.5 micrometers and less. In the
late 1980s and early 1990s, the development of a number of technologies allowed
photomasks to be used much more efficiently. During this period, the demand for
photomask inspection equipment was less than the increased demand for
semiconductors as more advanced photomask technologies, such as
computer-automated design equipment and pellicles, were utilized. Pellicles are
a thin transparent membrane suspended over the photomask surface on a frame
mounted to the photomask. The pellicle increases semiconductor manufacturing
yields by preventing airborne particles from falling onto the surface of the
photomask and printing as defects on the wafer. Since their introduction in the
early 1980s, pellicles have significantly reduced the need to clean photomasks
during production, thus substantially extending the life of a photomask.
Accordingly, the introduction of pellicles significantly reduced the number of
photomasks required in high volume semiconductor device manufacturing.
Management believes that the increased complexity in semiconductor
devices has recently contributed to high demand for complex photomasks and for
increased sophistication in photomask inspection equipment. As semiconductors
become more and more complex, the potential for defects in photomasks has
increased. Similarly, demand for inspection of photomasks has increased to
improve manufacturing yields by identifying defects or contaminations in
photomasks as early as possible. Quickly attaining and then maintaining high
yields is one of the most important determinants of profitability in the
semiconductor industry. The Company believes that its customers typically
experience rapid paybacks on their investments in the Company's inspection
systems. Semiconductor factories are increasingly expensive to build and equip.
Yield management and monitoring systems, which typically represent a small
percentage of the total investment required to build and equip a fabrication
facility, enable integrated circuit manufacturers to leverage these expensive
facilities and improve their returns on investment. In addition to utilizing
state-of-the-art inspection systems on a statistical basis to improve
manufacturing yields, semiconductor manufacturers increasingly demand the
ability to inspect photomasks during the manufacturing process to provide real
time inspection capability. In-process inspection is a critical yield
enhancement and cost reduction technique because it allows defect detection in
real-time rather than waiting until after final test results become available to
discover problems that have a significant negative impact on yield.
Although the semiconductor industry has recently experienced
significant growth, there can be no assurance that such growth can be sustained.
The overall semiconductor industry has been and could continue to be cyclical
with periods of oversupply. A downturn in the demand for semiconductors would
likely reduce the demand for photomasks and could reduce the demand for
photomask inspection equipment or, alternatively, place pricing pressure on
photomask inspection equipment vendors. The Company's ability to reduce expenses
in response to any such downturn is limited by its needs for continued research
and development expenses and in customer service and support. Previous downturns
in capital investment by the semiconductor fabrication industry have materially
affected the operating results of other businesses in the semiconductor capital
equipment industry and future downturns may have similar adverse effects. In
order to address these concerns,
32
the Company sells its inspection technologies into other markets, such as
computer hard disk inspection, and plans to expand into other emerging markets,
such as flat panel displays.
Computer Hard Disk Inspection
Disk drive manufacturers use advanced deposition processes to produce
thin film disks. In order to assure cost-effective yields, disk drive
manufacturers are switching from low-volume sample inspection to production line
inspection techniques, rapidly increasing the demand for inspection of computer
hard disks. This demand is also driven by more memory requirements on the same
size or smaller disks. Any defect or contaminant on the disk increases the risk
that memory cannot be properly stored. Defect detection includes inspection of
substrates and in process computer hard disks. The Company believes that the
demand for production line inspection of computer hard disks could dramatically
increase the demand for its computer hard disk inspection products.
Flat Panel Displays
Over time, the use of flat panel displays ("FPDs") is expected to
significantly replace vacuum tube monitors used in televisions and computer
monitors, providing users with quality images on less bulky displays. This
market is in the very early stages of commercial development in the United
States and extensive funding by government and industry consortia, as well as
private efforts to advance this technology, are proceeding at a fast pace. FPDs
are currently being designed to include electronic substrates which undergo a
lithography process similar to semiconductors as well as glass substrates which
require inspection prior to the lithography process. Following the management
buyout, the Company now qualifies to join United States government-industry
consortia which have been formed to help speed the development and
commercialization of the flat panel display industry in the United States. The
Company has already collaborated with several companies, including one Fortune
100 company, to speed the development of technology solutions in this market.
The market for FPDs has grown significantly in recent years as a result
of the increasing popularity of portable computers and other electronic devices
which utilize screens and other types of displays to provide information in
digital format and graphical displays to the end user. The weight and narrow
form factor of FPDs are enabling new display applications where the previously
predominant monitor technology, cathode ray tubes ("CRTs"), did not allow such
use. Laptop and notebook computers, personal digital assistants, portable video
games, digital phones and a variety of devices for the automotive, technical,
medical and military markets are examples of electronic products in fast growing
markets which cannot be served by CRT technology. The FPD market is estimated by
Stanford Resources, Inc. ("Stanford Resources"), a market research firm located
in San Jose, California, to have grown from approximately $2 billion in 1990 to
approximately $10.7 billion in 1995, and is estimated to grow to approximately
$18 billion by the year 2001. The Company expects that FPD manufacturers will
increase their purchases of inspection equipment in response to both the growth
in the FPD market as well as the shift to larger and higher resolution displays.
33
Different applications for FPDs have varying cost, size and performance
requirements, and alternative FPD technologies have been developed to address
these different applications. Different types of FDPs that are currently being
produced to address certain segments in the broader FPD market include liquid
crystal ("LCD"), plasma, electroluminescent ("EL") and field emissive ("FED")
displays and digital micro-mirror devices ("DMDs"). Currently the most common
type of FPD is the LCD, which first emerged in the form of watch and calculator
displays in the 1970s. The most advanced form of LCD available today is the
AMLCD which utilizes three individual emissive transistors at each pixel,
enabling the AMLCD both to produce full color images and to operate at much
faster refresh rates than earlier passive monochrome LCDs. The color capability,
resolution, speed and picture quality of AMLCDs currently make these displays a
preferred choice for high performance portable computer, multimedia and other
applications requiring the display of video and graphics. Stanford Resources
estimates that AMLCDs represented more than 50% of the overall dollar volume of
the FPD market in 1995. The trend toward higher resolution video and graphic
displays has been reflected in a generational movement from VGA displays (640 x
480 lines of resolution) to higher resolution SVGA displays (800 x 600 lines of
resolution) which in turn are anticipated to be replaced by the next generation
XGA displays (1,280 x 1,024 lines of resolution). To achieve these higher
resolution display capabilities and enhanced picture quality, the number of
pixels utilized in AMLCDs is increased which in turn increases the complexity
associated with the manufacture of these displays.
STRATEGY
The Company's goal is to maintain a leadership position in the
photomask and computer hard disk inspection system markets and use its patented
and proprietary technology to pursue other opportunities in high performance
inspection systems. The Company intends to achieve this goal through the
implementation of the following strategies:
* Expand Marketing Efforts for Existing Products. Since its
introduction of photomask and computer hard disk inspection
systems, the Company's objective has been to expand its position
in these fields. The Company is also working to extend its sales
and marketing activities outside of the United States into Europe
and Asia, where the Company believes very sizable market demand
exists for state-of-the-art inspection systems in both photomasks
and computer hard disks. In particular, the Company believes that
significant demand exists in Korea, Singapore, Malaysia, and other
areas in Asia. In addition, in the computer hard disk market, the
Company intends to market its computer hard disk inspection
systems for 100% production line inspection versus statistical
sampling inspection.
* Maintain Technology Leadership Position. Since its formation, the
Company's objective has been to maintain a leadership position in
inspection technology in the photomask and computer hard disk
inspection system markets. To maintain technology leadership, the
Company intends to continue to work closely with major customers,
several of which are the leading suppliers of microprocessors and
34
computer hard disks in their respective industries. Now that a
majority of the Company is no longer owned by a foreign company,
the Company is eligible and intends to join government-industry
consortia to develop leading edge technologies for existing and
other inspection markets not yet served by the Company. In
addition, the Company believes that the recent management buyout,
as well as the funds to be received from this Offering, will
increase its attraction as a joint venture or strategic alliance
partner with other semiconductor and computer hard disk
manufacturers.
* Broaden Product Offerings through Acquisitions. QCO plans to
expand its activities in related inspection markets, such as the
expected market for flat panel displays. In addition, there are a
number of smaller companies in the inspection market that have
technology and market links with the Company's existing
businesses, including material handling and stocking equipment,
cleaning equipment, and related products.
* Provide Broad Range of Photomask Inspection Solutions. The
Company's strategy is to provide a broad range of technical
solutions, leveraged off of existing technologies, with different
performance characteristics. Certain of the Company's inspection
systems currently address less complex photomask designs while new
products, such as the QCO-4000, are designed to address the most
sophisticated photomasks currently used.
* Leverage Installed Base. In marketing new products to existing
customers, the Company intends to leverage its existing customer
base to upgrade the over 200 Company systems currently in the
field with new product offerings. Many of the Company's products
are built with modular systems which are designed to facilitate
future enhancements, as well as new system software.
* Expand Customer Support Services. The Company currently provides
local support and service with personnel located in California,
Texas, New Mexico, Oregon, Florida and Arizona in addition to its
principal engineering services at its Burlington, Massachusetts
headquarters. The Company intends to expand the number of customer
support sites in both the United States and overseas to help
facilitate customer support as well as support future sales
opportunities.
PRODUCTS AND SERVICES
QCO's current products consist of photomask, computer hard disk and
flat panel display inspection systems. The Company's systems are designed to
provide a lower cost of ownership through high performance, reliability and
integration into the manufacturing process. The Company utilizes a number of
different forms of lasers in its laser based inspection systems, allowing it to
cover a broad range of technical requirements and cost sensitivities for its
customers.
35
Many of QCO's newer systems are designed to fit into its customer
production lines virtually eliminating the need for special handling or
production procedures while performing 100% inspection throughout the process.
QCO's systems sort out fatal defects on disks and pelliclized photomasks before
they become manufacturing yield or other quality problems. Many of QCO's systems
have the sensitivity to detect defects or contamination less than 0.5
micrometers. The Company also introduced its new QCO-4000 in March 1996. This
new system has the ability to detect defects or contamination of 0.3 micrometers
(the equivalent of 0.06 micrometers on the semiconductor wafer), which will be
required to detect defects in the next generation of semiconductors. Specific
Company products include the following:
QCO-4000: The QCO-4000 represents what the Company believes is a
state-of-the-art breakthrough for inspecting pelliclized photomasks. Defects on
complex, small featured photomasks are non-destructively detected and
characterized with a sensitivity down to .25 micrometers, using the latest
technologies in ultraviolet argon ion laser optics and innovative signal
processing. The QCO-4000 is capable of inspecting all four critical surfaces of
the photomask, which are the front and back pellicles and the front and back of
the photomask. The QCO-4000 also provides for inspection both on a sampling
basis as well as 100% inspection. This allows this system to be extremely
versatile for needs ranging from incoming inspection to complete process
characterization and documentation. Utilizing advanced systems control
technology, the operator has complete control over all system operations and
decisions. Computers incorporated in the product and several communication ports
allow the QCO-4000 to be easily integrated into the manufacturing process,
manufacturing resource planning ("MRP") and similar systems. The average selling
price for this system is approximately $900,000 to $1,300,000, although various
options can increase or reduce the cost of a specific system.
API-3000: This automatic pelliclized photomask inspection system has a
sensitivity of 0.5 micrometers and is compatible with many of the photomasks
most commonly used in today's semiconductor manufacturing processes. This
product is used by semiconductor manufacturers to qualify the photomask just
prior to its use on lithography equipment as well as for incoming inspection.
Photomask manufacturers utilize the system for final inspection as well as
process control. The average selling price for this system is approximately
$500,000 to $750,000, although various options can increase or reduce the cost
of a specific system.
RSO (RETICLE SYSTEM ONE): The RSO is a cluster tool incorporating an
inspection system, a cassette handling system (which holds cassettes of
photomasks) which loads photomasks into lithography equipment cassettes, and an
original equipment manufacturer ("OEM") photomask stocker with a storage
capacity of between 740 and 1500 photomasks. The RSO is utilized by
semiconductor manufacturers for photomask management and can eliminate manual
handling and the associated risks of damage and contamination of the photomask
once incoming inspection is accomplished. The average selling price for this
system is approximately $1,500,000, although various options can increase or
reduce the cost of a specific system.
36
API-1100: This equipment is a photomask blank inspection system with
full automatic handling capable of detecting pinholes and particulates as small
as 0.3 micrometers. This product is utilized by photomask blank substrate
manufacturers for final inspection and transfers the finished product directly
into a shipping cassette from a process cassette. Quartz manufacturers also use
this equipment for final inspection. The average selling price for this system
is approximately $300,000 to $600,000, although various options can increase or
reduce the cost of a specific system.
DISKAN SERIES: These are computer hard disk inspection systems with
integrated automatic handling, manual handling and external handling systems.
DISKANs are used by magnetic media and other substrate manufacturers for both
100% inspection and sample inspection. In the United States, all of the major
media manufacturers use the DISKAN for sample inspection on their lines to
achieve process control. Over the past several months, the Company has
experienced increasing demand by manufacturers to incorporate DISKANs directly
in the production line for 100% inspection. Selling prices for these systems
range from approximately $130,000 to $300,000, although various options can
increase or reduce the cost of a specific system.
API-1100FP: The API-1100FP is the Company's first product to address
the inspection demands for flat panel display substrates inspection systems,
including systems with automatic handling capability. This product is utilized
for process control by flat panel display manufacturers, as well as flat panel
display glass substrate manufacturers. The average selling price for this system
is approximately $300,000 to $600,000, although various options can increase or
reduce the cost of a specific system.
PRODUCTS UNDER DEVELOPMENT
The Company's product development strategy is to make
continuous improvements to its existing product line relying on its proprietary
technologies and to expand prior development efforts in applications related to
the markets it serves. The Company currently has an engineering and product
development staff of 16 individuals who assist the Company's customers in
integrating the Company's products into the customer's work environment. This
engineering work provides the Company an opportunity to keep abreast of new
market opportunities for the Company's technologies.
Currently the Company is working on product enhancements to both its
QCO-4000 and DISKAN product lines. The Company is commencing early development
activities for the next generation of the photomask inspection market and
anticipates introducing a new product in 1998 which will provide even higher
sensitivities in measurements then currently provided with the QCO-4000. The
Company is also working on a transfer system which will allow it to
automatically handle different photomask storage boxes. Currently many of the
photomasks are in different sizes and are kept in different sizes and types of
storage boxes. The new transfer system is designed to allow the systems to
automatically handle the boxes so that the photomasks will never be manually
handled. Management expects that this new system will significantly reduce the
risk of contamination or damage to the photomask. The Company believes that this
system will allow it to be the only
37
Company that can handle all of the different photomasks used in stepper systems.
In addition, the Company continues its efforts in the flat panel display market
to modify its existing products for research and development in the inspection
of flat panel displays. The technology used in flat panel displays will continue
to evolve significantly in the near term and as a result, the Company expects
that it will be required to continue to spend significant efforts in improving
and developing new technologies for the flat panel display markets.
The Company's success in developing and selling new and enhanced
products depends upon a variety of factors, including accurate prediction of
future customer requirements, introduction of new products on schedule,
cost-effective manufacturing and product performance in the field. The Company's
new product decisions and development commitments must anticipate the equipment
needed to satisfy the requirements for inspection processes one or more years in
advance of sales. Any failure to accurately predict customer requirements and to
develop new generations of products to meet those requirements would have a
sustained material adverse effect on the Company's business, financial condition
and results of operations. New product transitions could adversely affect sales
of existing systems, and product introductions could contribute to quarterly
fluctuations in operating results as orders for new products commence and orders
for existing products or enhancements of existing products fluctuate. See "Risk
Factors -- Rapid Technological Change; Dependence on Product Development."
CUSTOMER SERVICE AND SUPPORT
In addition to selling and installing standard products and providing
support services, the Company also provides individualized engineering services
for customers as well as technical support worldwide. In addition to providing
technical support, the Company's service and support personnel advise customers
about product applications, provide customer training, coordinate upgrades,
manage spare parts and provide preventative maintenance.
The Company's warranty obligations for its systems generally cover a
12-month period beginning upon final customer acceptance. However, many
customers request service and support beyond the warranty period. The Company
has historically derived less than 10% of its revenues from annual service and
maintenance for its installed base of systems. Some of the Company's systems are
currently serviced under service contracts and other customers purchase repairs
on a labor and materials basis. Service revenues for the three months ended
March 31, 1996, the fiscal year ended December 31, 1995 and the fiscal year
ended December 31, 1994 were $278,302, $614,590 and $745,335, respectively.
Historically, warranty expenses have been consistent with established
allowances.
CUSTOMERS
The Company's customers include semiconductor fabricators, photomask
fabricators and suppliers, computer hard disk manufacturers and customers
interested in developing flat panel displays. Repeat sales to existing customers
represent a significant portion of the Company's
38
product revenues, and the Company believes that its installed base of over 200
systems represents a significant competitive advantage, particularly in the
United States.
Historically, the Company has sold a significant proportion of its
systems to a limited number of customers as the markets that the Company
participates in are primarily dominated by a few major companies. Sales to the
Company's ten largest customers accounted for approximately 96% and 95% of net
sales in Fiscal 1994 and Fiscal 1995, respectively. Sales to the largest
customer during those periods accounted for approximately 32% of net sales. The
failure to replace sales with sales to other customers in succeeding periods
would have a material adverse effect on the Company's business, financial
condition and results of operations. The Company expects that sales to
relatively few customers will continue to account for a high percentage of the
Company's revenues in any accounting period in the foreseeable future. A
reduction in orders from any such customer or the cancellation of any
significant order could have a material adverse effect on the Company's
business, financial condition and results of operations. None of the Company's
customers has entered into a long-term agreement requiring it to purchase the
Company's products.
In addition, due to the substantial purchase price for the Company's
products and systems, revenues and operating results may vary significantly from
quarter to quarter depending upon the timing of orders and shipments.
SALES AND MARKETING
QCO markets and distributes its products directly in the United States.
The Company maintains sales offices in Burlington, Massachusetts and Santa
Clara, California, and service or sales personnel in Arizona, Oregon, New
Mexico, Florida and Texas. The Company also sells directly to certain customers
in Europe and uses ETEC Japan as its distributor in Japan.
Due to the significant involvement required to purchase QCO's systems
and their highly technical nature, the sales process is often complex, requiring
interaction with several levels of the customer's organization and extensive
technical exchanges, product demonstrations and commercial negotiations. As a
result, the sales cycle can often be quite long. Purchase decisions are
typically made at a high level within the customer's organization and the sales
process often requires broad participation across the QCO organization, from the
President to the engineers who designed the product. Accordingly, the Company's
systems typically have a lengthy sales cycle during which the Company may expend
substantial funds and management time and effort with no assurance that a sale
will result. See "Risk Factors -- Lengthy Sales Cycle."
ENGINEERING AND PRODUCT DEVELOPMENT
The Company directs its engineering and design efforts at products for
which the Company believes there is growing market demand and strong margins. In
particular, the Company seeks to meet the requirements of its customers for
products aimed at emerging applications in the semiconductor, computer hard disk
and flat panel display inspection markets by applying the latest
39
available technology and the design and engineering know-how gained from the
Company's focus on this market. For many of its customers, the Company provides
engineering and design support to help integrate the Company's products into
production environments. By working closely with these customers, the Company is
exposed to new market opportunities for its products.
The Company employed 15 individuals in engineering and product
development as of June 20, 1996. During Fiscal 1994, Fiscal 1995 and the first
three months of Fiscal 1996, the Company's engineering expenses totaled
approximately $1,347,000, $1,587,000 and $365,000, or 16.1%, 15.3% and 11.4% of
sales, respectively. The Company expenses all software development costs as
incurred. During Fiscal Years 1994 and 1995, engineering expenses increased due
to efforts in connection with development of the QCO-4000.
The Company's business strategy includes investing in or acquiring
companies which offer the Company access to complementary technologies, and new
markets within the Company's target industries. Historically, governmental
sources did not fund QCO's product development efforts as a majority of QCO was
foreign owned. As a result of the management buyout, the Company expects to join
SEMI-SEMATECH, an organization of equipment manufacturers and suppliers serving
SEMATECH, and expects to seek funding for product development efforts from
SEMATECH, a consortium of semiconductor manufacturers, Advanced Research
Projects Agency ("ARPA") and other governmental and quasi-governmental agencies,
including the U.S. Display Consortium. There can be no assurance that the
Company will be successful in obtaining such funding.
COMPETITION
The markets in which the Company competes are characterized by rapid
technological change, evolving industry standards, rapid product obsolescence
and intense competition. Competitors in the semiconductor photomask inspection
market include KLA Instruments, Hitachi and Nikon. In the computer hard disk
inspection market competitors include DPI Technology Systems and Hitachi. Based
on the number of installations, the Company believes it is a leading supplier of
semiconductor photomask soft defect inspection systems and computer hard disk
inspection systems in the United States. The Company competes based on its
installed base of customers, engineering and service capabilities, breadth of
products, patents and proprietary information, and reputation. Many of the
Company's competitors or potential competitors have greater financial, marketing
and technological resources than the Company.
The Company expects competition to continue in the future from existing
competitors and from other companies that may enter the Company's existing or
future markets with similar or alternative solutions that may be less costly or
provide additional features. The Company believes that its ability to compete
successfully depends on a number of factors, which include product quality and
performance, order turnaround, the provision of competitive design capabilities,
success in developing new applications, adequate manufacturing capacity,
efficiency of production, timing of new product introductions by the Company,
its customers and its competitors, the number and nature of the Company's
competitors in a given market, price and general market and economic
40
conditions. In addition, increased competitive pressure may lead to intensified
price competition, resulting in lower prices and gross margins, which could
materially adversely affect the Company's business and results of operations. No
assurance can be given that the Company will compete successfully in the future.
The semiconductor, computer hard disk and flat panel display industries
in general, are characterized by rapid technological change and evolving
industry standards. As a result, the Company must continue to enhance its
existing products and to develop and manufacture new products and upgrades with
improved capabilities. This has required and will continue to require
substantial investments in research and development by the Company to advance a
number of state-of-the-art technologies. Continuous investments in research and
development will also be required to respond to the emergence of new
technologies. The failure to develop, manufacture and market new products, or to
enhance existing products, would have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company's competitors can be expected to continue to develop and introduce new
and enhanced products, any of which could cause a decline in market acceptance
of the Company's products or a reduction in the Company's margins as a result of
intensified price competition. See "Risk Factors -- Rapid Technological Change;
Dependence on Product Development."
Changes in manufacturing processes could also have a materially adverse
effect on the Company's business, financial condition and results of operations.
The Company anticipates continued changes in semiconductor and flat panel
display technologies and processes. There can be no assurance that the Company
will be able to develop, manufacture and sell products that respond adequately
to such changes.
BACKLOG
The Company's backlog for products and services was approximately
$4,029,380 at June 30, 1996, compared to $4,021,242 at June 30, 1995. QCO
defines backlog to include only those systems, accessories and upgrades with
respect to which a purchase order has been received and a delivery schedule has
been specified for shipment over the next twelve (12) months, and contracts for
services to be provided for longer periods up to 36 months. Cancellations of
product purchase orders are subject to penalties, depending upon the time of
cancellation. Although a significant indicator of business levels, backlog is
not necessarily representative of future sales.
MANUFACTURING
The Company's manufacturing activities consist of final assembly of
subassemblies, which are then integrated into finished systems and tested for
compliance with customer requirements. The Company believes that production lead
time, product quality and customer response are key elements to its success.
41
Although the Company manufactures some of the subassemblies used in its
systems, most are purchased from unaffiliated subcontractors, typically to the
Company's specifications. None of the Company's suppliers is obligated to
provide the Company with any specific quantity of components or subassemblies
over any specific period. Certain of the components and subassemblies included
in the Company's products are obtained from a limited group of suppliers. In
addition, because the Company believes that subsystem vendors have increased
their manufacturing expertise, the Company expects to continue to obtain
virtually all of its components and subassemblies from third parties in order to
devote its resources toward systems design, software development and systems
integration, its primary areas of competence. To date, the Company has generally
been able to obtain adequate and timely delivery of critical subassemblies and
components, although it has experienced occasional delays. Because the
manufacture of these components and subassemblies is very complex and requires
long lead times, and although alternative sources are available, such sources
may not be readily available. As a result, there can be no assurance that delays
or shortages caused by suppliers will not occur in the future. Any disruption of
the Company's supply of critical components and subassemblies could prevent the
Company from meeting its manufacturing schedules, which could damage
relationships with customers and would have a materially adverse effect on the
Company's business, financial condition and results of operations.
The Company's systems have a large number of components and are highly
complex. To date, the Company has experienced only limited delays in
manufacturing and delivering systems and upgrades and may experience similar or
more extended delays in the future. Any inability to manufacture and ship
systems or upgrades on schedule could adversely affect the Company's
relationships with its customers and thereby materially adversely affect the
Company's business, financial condition and results of operations. Due to recent
increases in demand, the average time between order and shipment of the
Company's systems has increased over the last fiscal year. The Company's ability
to increase its manufacturing capacity in response to an increase in demand is
limited given the complexity of the manufacturing process, the lengthy lead
times necessary to obtain critical components and the need for highly skilled
personnel. The failure of the Company to keep pace with customer demand would
lead to further extensions of delivery times, which could deter customers from
placing additional orders, and could adversely affect product quality. There can
be no assurance that the Company will be successful in increasing its
manufacturing capacity. See "Risk Factors -- Lengthened Lead Times; Limited
Manufacturing Capacity."
GOVERNMENTAL REGULATIONS AND INDUSTRY STANDARDS
The Company's products and worldwide operations are subject to numerous
governmental regulations designed to protect the health and safety of operators
of manufacturing equipment. In particular, the European Union ("EU") has
recently issued regulations relating to electromagnetic fields, electrical power
and human exposure to laser radiation. In addition, numerous domestic
semiconductor manufacturers including certain of the Company's customers, have
subscribed to voluntary health and safety standards and decline to purchase
equipment not meeting such standards. The Company believes that its products
currently comply with all applicable material governmental
42
health and safety regulations, including those of the EU, and with the voluntary
industry standards currently in effect. See "Risk Factors -- Health and Safety
Regulations and Standards."
PROTECTION OF PROPRIETARY INFORMATION
The Company holds six United States patents and has an additional seven
patent applications pending. Several of the issued patents are also issued in
Japan, Europe and Canada. The Company has many patent applications pending, a
number of which are associated with the new QCO-4000. Most of the issued patents
relate to advanced inspection measurement techniques. The issued United States
patents expire from 2001 to 2112.
The Company's products require technical know-how to engineer and
manufacture and are based, in part, upon proprietary technology. To the extent
proprietary technology is involved, the Company relies on patents and trade
secrets that it seeks to protect, in part, through confidentiality agreements.
There can be no assurance that such agreements will not be breached, that the
Company will have adequate remedies for any breach, or that the Company's trade
secrets will not otherwise become known to, or independently developed by,
existing or potential competitors of the Company. The Company may be involved
from time to time in litigation to determine the enforceability, scope and
validity of its rights. In addition, no assurance can be given that the
Company's products will not infringe any patents of others. Litigation could
result in substantial cost to the Company and diversion of effort by the
Company's management and technical personnel. See "Risk Factors -- Protection of
Proprietary Information."
EMPLOYEES
As of May 31, 1996, the Company had 59 full-time employees, of which 17
were in sales, marketing and service, 15 were in engineering and product
development, 6 were in administration and 21 were in manufacturing.
None of the Company's employees are represented by a labor union. The
Company considers its relationships with its employees to be good. The Company's
financial performance will depend significantly upon the continued contributions
of its officers and key management, technical, sales and support personnel, many
of whom would be difficult to replace. In addition, the Company believes that
certain of its former employees currently provide services or technical support
to the Company's customers or competitors. There can be no assurance that the
Company will be successful in attracting or retaining qualified personnel.
FACILITIES
The Company maintains its principal executive offices, research and
development, and manufacturing operations in an approximately 30,000 square foot
facility in Burlington, Massachusetts leased from N.W. Building 24 Trust. The
Company currently pays base rent in the
43
amount of approximately $16,250 per month plus taxes, betterment assessments,
insurance costs and utility charges with respect to the facility, pursuant to a
lease that expires on June 30, 1997.
The Company also maintains a sales office in an approximately 720
square foot facility in Santa Clara, California, leased from Koll/Intereal Bay
Area. The Company currently pays base rent of $936 per month plus certain
expenses related to the facility, pursuant to a lease that expires on September
12, 1996.
The Company believes that its facilities are adequate for its current
needs and that adequate facilities for expansion, if required, are available at
competitive rates. Although the Company has no present plans to acquire
additional research and development or manufacturing facilities, it may in the
future seek to establish additional research and development, manufacturing and
shipping facilities as a result of its anticipated growth or acquisitions.
LEGAL PROCEEDINGS
The Company is not involved in any litigation of a material nature.
44
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Company, their ages
and their positions held with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Eric T. Chase .............................. 37 Chief Executive Officer, President,
Chairman of the Board, and Founder
John R. Freeman............................. 51 Vice President of Finance, and Treasurer
Karl Andrew Bernal.......................... 47 Vice President of Sales and Marketing,
and Secretary
Abdu Boudour................................ 43 Vice President of Engineering
Jay L. Ormsby............................... 56 Vice President of Technology and Founder
Albert E. Tobey............................. 60 Vice President of Operations
Yutaka Goto................................. 37 Director
Charles H. Fine............................. 39 Director
John M. Tarrh............................... 48 Director
Michael R. Splinter......................... 45 Advisor to Board of Directors
</TABLE>
- --------------
The Company's Certificate of Incorporation and Bylaws, as amended,
provide that the members of the Board of Directors (the "Board") shall be
classified as nearly as possible into three classes, each with, as nearly as
possible, one-third of the members of the Board. A classified board is designed
to assure continuity and stability in the Board's leadership and policies. Eric
T. Chase is classified as a Class I director and shall serve until the 1999
Annual Meeting; Charles H. Fine and John M. Tarrh are classified as Class II
directors and shall serve until the 1998 Annual Meeting; and Yutaka Goto is
classified as a Class III director and shall serve until the 1997 Annual
Meeting. The successors to the class of directors whose terms expire at an
annual meeting would be elected for a term of office to expire at the third
succeeding annual meeting after their election and until their successors have
been duly elected by the stockholders. Directors chosen to fill vacancies on a
45
classified board shall hold office until the next election of the class for
which directors shall have been chosen, and until their successors are duly
elected by the stockholders. Officers are elected by, and serve at the
discretion of, the Board of Directors. No director, executive officer, or
significant employee is related by blood, marriage or adoption to any other
director, executive officer, or significant employee. The Board of Directors has
established Audit and Compensation Committees, which are composed of the
Company's outside directors.
The following is a brief summary of the background of each director and
executive officer named above:
ERIC T. CHASE, CHIEF EXECUTIVE OFFICER, PRESIDENT, CHAIRMAN OF THE
BOARD, AND FOUNDER. Mr. Chase co-founded the Company in July 1986 and served as
its Vice President of Sales and Marketing until May 1990 when he was elected
President of the Company. In June 1996, Mr. Chase was also elected the Chief
Executive Officer and Chairman of the Board. He was formerly with GCA
Corporation, a semiconductor equipment manufacturer, in the position of Staff
Scientist and Technical Marketing Specialist. Mr. Chase holds five patents and
has authored a variety of articles related to inspection equipment. Mr. Chase
graduated from the University of California, Irvine with Bachelor degrees in
both Physics and Economics.
JOHN R. FREEMAN, VICE PRESIDENT OF FINANCE, AND TREASURER. Mr. Freeman
has been the Company's Vice President of Finance since June 1996 and was elected
Treasurer in June 1996. Over the past 20 years, he has been involved with
several companies in various roles, including chief financial officer and
controller. In 1984, Mr. Freeman founded Freeman & Associates, a consulting firm
which provided chief financial officer/controller services to small businesses
and, through his firm, he served as the Company's part-time controller as a
consultant from January 1987 until he joined the Company as an employee in May
1996. Mr. Freeman has a Bachelor of Arts degree in accounting from Duke
University.
KARL ANDREW BERNAL, VICE PRESIDENT OF SALES AND MARKETING, AND
SECRETARY. In June 1993, Mr. Bernal joined the Company as a Sales Manager and
advanced to Director of Marketing and Sales in January 1994. In October 1994, he
became the Company's Vice President of Sales and Marketing and is responsible
for management of the sales, marketing and field services departments. In June
1996, Mr. Bernal was elected Secretary of the Company. In May 1991 he joined
Rippey Corporation, also a manufacturer of semiconductor processing equipment,
as a Product Manager where he managed the sales of equipment. Mr. Bernal founded
Tritec Industries, a manufacturer of semiconductor processing equipment, in
August 1981 and held the position of Vice President of Sales and Marketing. Mr.
Bernal holds a Bachelor of Technology degree in Chemical Engineering from the
University of Dayton.
ABDU BOUDOUR, VICE PRESIDENT OF ENGINEERING. Mr. Boudour has held
various positions at the Company, including Senior Physicist in the Engineering
Department from April 1987 to February 1994, where he was responsible for design
and development of the Company's equipment, and Far East Marketing Manager for
which he was based in Japan from February 1994 to April 1995. In July 1995, Mr.
Boudour advanced to Director of Engineering and in June 1996, he was
46
elected Vice President of Engineering. Prior to joining the Company in April
1987, Mr. Boudour was with PTR Optics, an optical component manufacturer. He
earned his Bachelor of Science degree from the University of Oran, Algeria and
has a Master of Science degree in Physics from Northeastern University.
JAY L. ORMSBY, VICE PRESIDENT OF TECHNOLOGY AND FOUNDER. Mr. Ormsby
co-founded the Company in July 1986 with Mr. Chase and served as the Company's
Vice President of Engineering until June 1996. In June 1996, he was elected as
the Company's Vice President of Technology. Mr. Ormsby has over 30 years
experience in design, development and marketing of high technology systems. Mr.
Ormsby was formerly with GCA Corporation, a company that was a semiconductor
equipment manufacturer, in the position of Chief Engineer, Technology Division.
Mr. Ormsby has a Bachelor of Science degree in Mechanical Engineering from The
Cooper Union for the Advancement of Science and Art and a Master of Science
degree in Engineering from Northeastern University.
ALBERT E. TOBEY, VICE PRESIDENT OF OPERATIONS. Since joining the
Company in June 1988, Mr. Tobey has served as its Vice President of Operations
with responsibility for manufacturing operations. Mr. Tobey has over 30 years
experience in engineering as a system designer and in various management
positions both in engineering and manufacturing. Mr. Tobey served as the
Principal Engineer - RTOS Program at AVCO Systems ("AVCO"), a defense
contractor, and worked for over 19 years with AVCO, advancing from an
electronics technician to a senior systems engineer. His primary positions at
AVCO were in telemetry and instrumentation systems. Mr. Tobey received his
Bachelor of Science degree in Electrical Engineering from Northeastern
University.
YUTAKA GOTO, DIRECTOR. Mr. Goto has served as a director of the Company
since January 1994. In April 1981, Mr. Goto joined Kobe Steel, Ltd., a Japanese
steel company, and held various positions based in Japan until December 1990. In
January 1991, he moved to the United States, and was assigned to Kobe Steel USA,
Inc., a wholly owned subsidiary of Kobe Steel Ltd. Mr. Goto is a Senior Manager
for New Business Development for Kobe Steel USA, Inc., where he provides
coordination between the parent company and its affiliates and identifies new
business opportunities. Mr. Goto earned his Bachelor of Arts degree from the
University of Tokyo.
CHARLES H. FINE, DIRECTOR. Mr. Fine has served as a director of the
Company since June 1996. Since January 1983, Mr. Fine has served on the faculty
of the Sloan School of Management at Massachusetts Institute of Technology
("MIT"). Mr. Fine has expertise in manufacturing and technology management and
his research has focused on the automotive, semiconductor, and capital equipment
industries. Mr. Fine received his Bachelor of Arts degree from Duke University
and earned both his Master of Science and Ph.D. degrees from Stanford
University.
JOHN M. TARRH, DIRECTOR. Mr. Tarrh has served as a director of the
Company since May 1996. Since January 1987, Mr. Tarrh has been the Senior Vice
President, Chief Financial Officer and a director of Applied Science and
Technology, Inc. ("ASTeX"), a publicly held corporation he
47
co-founded that manufactures systems and controls for advanced materials such as
semiconductors and diamond. Prior to January, 1987, Mr. Tarrh was the Manager of
the Mirror Confinement Division of MIT's Plasma Fusion Center where he was
responsible for financial management, project management and administration. Mr.
Tarrh earned his Master of Science degree in Electrical Engineering from MIT.
MICHAEL R. SPLINTER, ADVISOR TO BOARD OF DIRECTORS. Mr. Splinter has
served as an advisor to the Board of Directors since June 1996. He joined Intel
Corporation ("Intel"), a manufacturer of computer chips, in 1984. Over the past
twelve years at Intel, Mr. Splinter has held various management positions with
responsibility for development and manufacturing operations and in 1991, he
advanced to Corporate Vice President of Manufacturing. Since 1981, and before
joining Intel, Mr. Splinter worked for Rockwell International, a defense and
electronic manufacturer, in various management capacities. Mr. Splinter earned
his Master of Science degree in Electrical Engineering from the University of
Wisconsin.
48
EXECUTIVE OFFICERS' COMPENSATION
The following table sets forth the compensation paid to the Company's
named executive officers during the three year period ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
- -------------------------------------------------------------------------------------------------------
(A) (B) (C) (D) (E)
OTHER ANNUAL
NAME AND PRINCIPAL POSITION(1) YEAR SALARY(2) BONUS COMPENSATION(3)
------------------------------ ---- -------- ----- ---------------
<S> <C> <C> <C> <C>
Eric T. Chase.................................... 1995 $134,000 $-0- $6,000
Chief Executive Officer, President 1994 $127,000 $-0- $6,000
and Chairman of the Board 1993 $126,000 $-0- $6,000
Jay L. Ormsby.................................... 1995 $109,000 $-0- $ -0-
Vice President of Technology 1994 $104,000 $-0- $ -0-
1993 $102,000 $-0- $ -0-
Albert E. Tobey.................................. 1995 $105,000 $-0- $ -0-
Vice President of Operations 1994 $ 99,000 $-0- $ -0-
1993 $ 97,000 $-0- $ -0-
</TABLE>
- ----------
(1) See "Management -- Employment Agreements."
(2) Amounts shown indicate cash compensation earned and received by
executive officers. Executive officers participate in group health and
other benefits generally available to all employees of the Company.
(3) The Company provides a $500 per month automobile allowance for Mr.
Chase.
CASH COMPENSATION OF DIRECTORS
Each of the non-management and non-affiliated directors receives a fee
of $1,000 per meeting plus out-of-pocket expenses.
49
EMPLOYMENT AGREEMENTS
Effective as of July 1, 1996, the Company entered into employment and
non-competition agreements (the "Agreements") with each of Eric T. Chase, Jay L.
Ormsby, Albert E. Tobey, K. Andrew Bernal, Abdu Boudour and John R. Freeman.
Eric T. Chase's and Jay L. Ormsby's Agreements provide for annual base salaries
of $147,000 and $114,500, respectively, through June 30, 1997 and at least the
same base salaries, as determined by the Company's Board of Directors or
Compensation Committee, for the next two years until the Agreements expire on
June 30, 1999. Albert E. Tobey's, Abdu Boudour's and John R. Freeman's
Agreements provide for annual base salaries of $110,300, $90,000 and $100,000,
respectively, and expire on December 31, 1997. K. Andrew Bernal's Agreement
provides for an annual base salary of $79,000 plus incentive payments of
one-half (1/2) of one percent (1%), subject to reduction by the Company's Board
of Directors or Compensation Committee, of all "Major Orders," which are defined
as orders for systems or products of the Company other than orders for spare
parts or service less than $25,000 or from Company distributors or
representatives, and expires on December 31, 1997. The Agreements also provide
for vacation, insurance, participation in the Company's 401(k) plan, and certain
other benefits as may be determined by the Compensation Committee or the
Company's Board of Directors. Each individual is entitled to receive benefits
offered to the Company's employees generally. Each individual is also entitled
to receive severance in the event his employment is terminated by the Company
without cause (the "Severance Benefits"). The Severance Benefits are equal to
the individual's current annual base salary in Eric T. Chase's and Jay L.
Ormsby's Agreements and six (6) months of the individual's current annual base
salary in Albert E. Tobey's, Abdu Boudour's, John R. Freeman's and K. Andrew
Bernal's Agreements.
In the event of a Change in Control in the Company, each individual
will receive certain benefits upon certain events. A Change in Control is
defined generally as: the acquisition by an individual, entity or group of
beneficial ownership of 25% or more of the outstanding shares of Common Stock;
unapproved changes in the Board of Directors; tender offers to acquire any of
the Common Stock; certain reorganizations, mergers or consolidations; a complete
or substantial liquidation or dissolution of the Company; or the sale or
disposition of all or substantially all of the assets of the Company.
In the event of a Change in Control during the term of an Agreement or
any renewal or extension thereof and provided the individual remains employed by
the Company for a period of twelve months from the date of the Change in
Control, the individual will receive, at the one-year anniversary of the Change
in Control, a supplemental amount in a lump sum, irrespective of whether he
thereafter actually terminates employment with the Company. The lump sum is
equal to the individual's annual Base Salary immediately preceding the Change in
Control in Eric T. Chase's and Jay L. Ormsby's Agreements and six (6) months of
the individual's annual Base Salary immediately preceding the Change in Control
in Albert E. Tobey's, Abdu Boudour's, John R. Freeman's and K. Andrew Bernal's
Agreements. In the event of the actual termination of an individual's employment
contemporaneous with or following a Change in Control, except (i) because of the
individual's death, (ii) by the Company for cause or disability (as defined in
the
50
employment agreement), or (iii) by the individual other than for good reason (as
defined in the employment agreement) the individual shall be entitled to receive
an amount equal to 299% of the individual's annual Base Salary immediately
preceding the Change in Control in Eric T. Chase's and Jay L. Ormsby's
Agreements and 150% of the individual's annual Base Salary immediately preceding
the Change in Control in Albert E. Tobey's, Abdu Boudour's, John R. Freeman's
and K. Andrew Bernal's Agreements. Certain additional provisions also apply.
Each Agreement also contains non-competition provisions for a period of
two (2) years following termination, a confidentiality provision and an
ownership provision in the Company's favor for techniques, discoveries and
inventions arising during the term of employment. The Agreements provide for
successive one-year renewals after the initial term.
1996 STOCK OPTION PLAN
In June 1996, the Board of Directors of the Company adopted a 1996
Stock Option Plan that provides for the granting to employees, officers,
directors, consultants and non-employees of the Company of options to purchase
up to 360,000 shares of Common Stock, $.01 par value per share. Options granted
under the 1996 Plan may be either "incentive stock options" within the meaning
of Section 422(a) of the United States Internal Revenue Code of 1986, as amended
(the "Code"), or non-qualified options. Incentive stock options may be granted
only to employees of the Company (including directors who are employees), while
non-qualified options may be issued to non-employee directors, employees,
consultants, and any other non-employee of the Company.
The per share exercise price of the Common Stock subject to all options
granted pursuant to the 1996 Plan shall be determined by the Board of Directors
at the time any option is granted. In the case of incentive stock options, the
exercise price shall not be less than 100% of the fair market value of the
shares covered thereby at the time the incentive stock option is granted (but in
no event less than par value). If, at any time an option is granted under the
Plan, the Company's Common Stock is publicly traded, "fair market value" shall
be determined as of the last business day for which the prices or quotes
discussed in this sentence are available prior to the date such option is
granted and shall mean (i) the average (on that date) of the high and low prices
of the Common Stock on the principal national securities exchange on which the
Common Stock is traded, if the Common Stock is then traded on a national
securities exchange; or (ii) the last reported sale price (on that date) of the
Common Stock on the NASDAQ National Market List, if the Common Stock is not then
traded on a national securities exchange; or (iii) the closing bid price (or
average of bid prices) last quoted (on that date) by an established quotation
service for over-the-counter securities, if the Common Stock is not reported on
the NASDAQ National Market List. However, if the Common Stock is not publicly
traded at the time an option is granted under the Plan, "fair market value"
shall be deemed to be the fair value of the Common Stock as determined by the
Board after taking into consideration all factors which it deems appropriate,
including, without limitation, recent sale and offer prices of the Common Stock
in private transactions negotiated at arm's length. No person who owns, directly
or indirectly, at the time of the granting of an incentive stock option to him,
10% or more of the total combined voting power of all classes of common
52
stock of the Company (a "10% Stockholder"), shall be eligible to receive any
incentive stock options under the 1996 Plan unless the option price is at least
110% of the fair market value of the Common Stock subject to the option,
determined on the date of grant. Non-qualified options are not subject to this
limitation.
No incentive stock option may be transferred by an optionee other than
by will or the laws of descent and distribution, and during the lifetime of an
optionee, the option will be exercisable only by the optionee. In the event of
termination of employment, other than by death or permanent total disability,
the optionee will have three months after such termination to exercise the
option. Upon termination of employment of an optionee by reason of death or
permanent total disability, an option remains exercisable for one year
thereafter to the extent it was exercisable on the date of such termination. No
similar limitation applies to non-qualified options.
Options under the 1996 Plan must be granted within 10 years from the
effective date of the 1996 Plan. Incentive stock options granted under the 1996
Plan cannot be exercised more than 10 years from the date of grant, except that
incentive stock options issued to a 10% stockholder are limited to five year
terms.
All options granted under the 1996 Plan provide for the payment of the
exercise price in cash, by promissory note, or by delivery to the Company of
shares of Common Stock already owned by the optionee having a fair market value
equal to the exercise price of the options being exercised, or by a combination
of such methods of payment. Therefore, an optionee may be able to tender shares
of Common Stock to purchase additional shares of Common Stock and may
theoretically exercise all of his or her stock options with no additional
investment other than his or her original shares.
Any unexercised options that expire or that terminate upon an
employee's ceasing to be employed with the Company become available once again
for issuance. To date, options to purchase 231,992 shares of the Company's
Common Stock have been granted under the 1996 Plan at a weighted average
exercise price of $5.66 per share.
DIRECTOR FORMULA STOCK OPTION PLAN
In June 1996, the Company's Board of Directors adopted a Formula Plan
to incentivize non-employee directors who will administer the Company's
discretionary stock option plans, but who are ineligible to receive option
grants pursuant to Rule 16b-3 promulgated under the Securities Exchange Act of
1934 (the "Exchange Act"). Administration by such "disinterested directors," as
that term is defined under Rule 16b-3, allows the Company's discretionary stock
option plans to meet the requirements of the "short swing profit" rules, which
provide that an affiliate of the Company (broadly defined as officers,
directors, and 10% stockholders) may not buy and then sell stock (or may not
sell and then buy stock) within any six month period. An affiliate of the
Company who receives options under a discretionary plan that is not administered
by disinterested directors will be deemed to have purchased the underlying
Common Stock for purposes of the six-
52
month "short swing" period. Disinterested directors are defined as directors
that have not received options under any discretionary plan of the Company they
serve during the preceding 12 months and who do not, directly or indirectly, own
five percent (5%) or more of the Company and its affiliated corporations.
Disinterested directors may receive options under a non-discretionary plan in
which the grant of an option is based on an objective formula. As of the date of
this Prospectus, the Company's directors who are eligible to participate in the
Formula Plan are Messrs. Fine and Tarrh.
Under the Formula Plan, options will be granted to eligible
non-employee directors pursuant to a formula that determines the timing, pricing
and amount of the option awards using only objective criteria, without
discretion on the part of the administrators of the Formula Plan. The Formula
Plan provides that its provisions may not be amended more than once every six
months, other than to comply with changes in the Internal Revenue Code, the
Employee Retirement Income Security Act, or the rules thereunder. Also, any
provision for forfeiture or termination of an option award will be specific and
objective, rather than general, subjective or discretionary.
Options granted under the Formula Plan will not exceed 100,000 shares.
Beginning on June 18, 1996, and every four years thereafter on the business day
immediately following the Company's annual meeting of stockholders, options
shall be granted under the Formula Plan, without approval or discretion on the
part of the Board, to eligible non-employee directors as follows. All
non-employee directors are eligible to be granted options under the Formula Plan
provided the person has not irrevocably elected to be ineligible to participate
in the Plan and provided the person is not a direct or indirect holder of more
than 5% of the outstanding shares of the stock of the Company and its affiliated
corporations or a person who is in control of such holder.
Each eligible non-employee director who is a director on June 18, 1996
will receive options to purchase 15,000 shares of stock. These options shall
vest and be exercisable in sixteen (16) equal installments over a period of four
(4) years (the "Four Year, Fiscal Quarter Vesting") beginning with a
one-sixteenth (1/16th) installment on the first day of the Company's fiscal
quarter immediately following the grant and continuing in one-sixteenth (1/16th)
installments on the first day of the company's subsequent fifteen (15) fiscal
quarters, subject to the director's continued service as a director on such
dates.
Each non-employee director who becomes a director after June 18, 1996
and does not, directly or indirectly, own five percent (5%) or more of the
Company and its affiliated corporations will receive, on the date he or she
becomes a director, options to purchase a total of 15,000 shares of Common
Stock. Said options shall vest and be exercisable pursuant to the Four Year,
Fiscal Quarter Vesting.
Upon complete vesting of any non-employee director's grant pursuant to
this Plan (i.e., after a sixteenth (16th) installment), on the date immediately
following the Company's next annual meeting of shareholders, said director shall
be granted options to purchase another 15,000 shares of stock. The options shall
be granted to a non-employee director only if he or she is a director on
53
the date of the grant and has attended, during the Company's fiscal year
immediately preceding the grant, at least 75% of the meetings of the Board of
Directors and the Committees on which the director has served. Said options
shall also vest and be exercisable pursuant to the Four Year, Fiscal Quarter
Vesting.
The exercise price of options granted under the Formula Plan will be
the fair market value of the shares of stock on the date of the grant.
No stock option may be transferred by an optionee other than by will or
the laws of descent and distribution, and during the lifetime of an optionee,
the option will be exercisable only by him or her. In the event that the
optionee ceases to be a director for any reason other than death, the option
will be exercisable only to the extent of the purchase rights, if any, which
have accrued as of the date of such cessation; provided that upon any such
cessation of service, the remaining rights to purchase shall in any event
terminate upon the expiration of the original term of the option.
Upon termination of service as a director by reason of death, his or
her option remains exercisable until the expiration of the original term of the
options. However, any such exercise is limited to the purchase rights that have
accrued as of the date when the optionee ceased to be a director whether by
death or otherwise.
Options under the Formula Plan must be granted within ten years from
the effective date of the Formula Plan. The options granted under the Formula
Plan cannot be exercised more than ten years from the date of grant.
Under the Formula Plan, the number of options that will be granted to
the eligible recipients (only non-employee directors) can be determined;
however, the exercise price of such options cannot be determined, as the
exercise price will be that which is equal to the fair market value of the
Company's Common Stock on the date of each grant.
As of the date of this Prospectus, options to purchase 30,000 shares of
Common Stock have been granted under the Formula Plan at exercise prices of
$5.10 per share.
LIMITATION ON OFFICERS' AND DIRECTORS' LIABILITIES
Pursuant to the Company's Certificate of Incorporation and under
Delaware law, directors of the Company are not liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of loyalty, for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, or for dividend payments or stock repurchases in violation of Delaware law
or for any transaction in which a director has derived an improper personal
benefit.
54
In addition, the Company's bylaws include provisions to indemnify its
officers and directors and other persons against expenses, judgments, fines and
amounts paid in settlement in connection with threatened, pending or completed
suits or proceedings against such persons by reason of serving or having served
as officers, directors or in other capacities, except in relation to matters
with respect to which such persons shall be determined not to have acted in good
faith, lawfully or in the best interests of the Company. With respect to matters
to which the Company's officers, directors, employees, agents or other
representatives are determined to be liable for misconduct or negligence in the
performance of their duties, the Company's bylaws provide for indemnification
only to the extent that the Company determines that such person acted in good
faith and in a manner not opposed to the best interests of the Company.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
55
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus,
certain information concerning stock ownership of the Company by (i) each person
who is known by the Company to own of record or beneficially five percent (5%)
or more of the Company's Common Stock, (ii) each of the Company's directors and
(iii) all directors and executive officers as a group. Except as otherwise
indicated, the stockholders listed in the table have sole voting and investment
powers with respect to the shares indicated.
PERCENTAGE OF CLASS(1)
----------------------
NUMBER OF
SHARES
NAME AND ADDRESS BENEFICIALLY BEFORE AFTER
OF BENEFICIAL OWNER(2) OWNED OFFERING OFFERING
- ---------------------- ----- -------- --------
QC Optics Voting Trust(3) ............ 1,347,613 62.7% 43.5%
Kobe Steel USA Holdings, Inc. ........ 802,387 37.3% 25.9%
Eric T. Chase(3)(4) .................. 634,517 29.5% 20.5%
K. Andrew Bernal(3)(5) ............... 314,754 14.6% 10.2%
Jay L. Ormsby(3)(6) .................. 162,599 7.5% 5.2%
Yutaka Goto(7) ....................... 802,387 37.3% 25.9%
Charles H. Fine(8) ................... 938 * *
John M. Tarrh(8) ..................... 938 * *
All Directors and Officers as a group
(9 people)(3)(4)(5)(7)(8)(9)(10) ..... 2,151,876 100% 69.4%
- ----------
* Less than one percent
(1) Pursuant to the rules of the Securities and Exchange Commission, shares
of Common Stock which an individual or group has a right to acquire
within 60 days pursuant to the exercise of options or warrants are
deemed to be outstanding for the purpose of computing the percentage
ownership of such individual or group, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of
any other person shown in the table.
(2) The address for all of these individuals is c/o QC Optics, Inc., 154
Middlesex Turnpike, Burlington, Massachusetts 01803.
(3) Eric T. Chase is the sole voting trustee of the QC Optics Voting Trust
(the "Voting Trust"). The stockholders participating in the Voting
Trust and the number of their shares subject to the Voting Trust are as
follows: Eric T. Chase - 634,517 shares; Karl Andrew Bernal -
56
314,754 shares; Jay L. Ormsby - 162,599 shares; John R. Freeman -
78,581; Albert E. Tobey - 78,581 shares; Abdu Boudour - 78,581 shares.
See "Certain Transactions."
(4) Excludes an option to purchase 5,292 shares of the Company's Common
Stock at an exercise price of $5.10. The option expires on June 19,
2006 and vests in equal installments over a three year period
commencing one year after the date of the grant. See "Management --
1996 Stock Option Plan."
(5) Excludes an option to purchase 2,844 shares of the Company's Common
Stock at an exercise price of $5.10. The option expires on June 19,
2006 and vests in equal installments over a three year period
commencing one year after the date of the grant. See "Management --
1996 Stock Option Plan."
(6) Excludes an option to purchase 4,140 shares of the Company's Common
Stock at an exercise price of $5.10. The option expires on June 19,
2006 and vests in equal installments over a three year period
commencing one year after the date of the grant. See "Management --
1996 Stock Option Plan."
(7) Includes the shares of Common Stock held by Kobe Steel.
(8) Includes 938 shares of Common Stock issuable upon the exercise of an
option to purchase 15,000 shares of the Company's Common Stock at an
exercise price of $5.10. The option expires on June 17, 2006 and vests
in 16 equal installments over a period of four years commencing July 1,
1996. See "Management -- Director Formula Stock Option Plan."
(9) Includes the shares subject to the Voting Trust and owned by the
officers as set forth in footnote 6.
(10) Excludes (i) an option owned by Mr. Boudour to purchase 3,240 shares of
the Company's Common Stock; (ii) an option owned by Mr. Freeman to
purchase 3,600 shares of the Company's Common Stock; and (iii) an
option owned by Mr. Tobey to purchase 3,960 shares of the Company's
Common Stock. The exercise price for each of these options is $5.10.
These options expire on June 19, 2006 and vest in equal installments
over a three year period commencing one year after the date of the
grant. See "Management -- 1996 Stock Option Plan."
57
CERTAIN TRANSACTIONS
RELATED TRANSACTIONS
In July 1996, the Company entered into employment agreements with
Messrs. Chase, Freeman, Bernal, Boudour, Ormsby and Tobey. See "Management --
Employment Agreements."
In October 1995, the Company, Kobe Steel USA Holdings, Inc., a
controlling shareholder of the Company, and certain management employees of the
Company pursuant to the QC Optics Voting Trust (the "Voting Trust") entered into
a Stock Repurchase and Loan Repayment Agreement (the "Agreement"). Pursuant to
the terms of the Agreement, as amended on March 29, 1996, the Company purchased
an aggregate of 1,337,313 shares (the "Kobe Shares") of its voting and
non-voting Common Stock from Kobe Steel USA Holdings, Inc. or approximately
62.5% of all of the Company's Common Stock then owned by Kobe Steel USA
Holdings, Inc. for a purchase price of $5,000,000. Of the $5,000,000 purchase
price, $3,250,000 was financed by State Street Bank and Trust Company pursuant
to the terms of a $4,000,000 revolving line of credit (the "Line of Credit")
evidenced by a promissory note secured by all of the assets of the Company (the
"Bank Note"), $1,000,000 was provided from available cash of the Company and
$750,000 was financed pursuant to a promissory note from the Company to Kobe
Steel USA Holdings, Inc., which is also secured by all of the assets of the
Company (the "Kobe Note"). The Kobe Note is subordinated to the Bank Note. In
connection with this transaction, a corporation formed in February 1995 by
Messrs. Chase, Bernal, Ormsby, Freeman, Tobey and Boudour (collectively, the
"Stockholders") to acquire an equity interest in the Company was merged into the
Company. As a result of this merger, the Stockholders exchanged their shares in
such corporation for an aggregate of 1,337,313 shares of the Company's Common
Stock. The consideration for the merger was the unlimited personal guarantees
provided to the Bank by Messrs. Chase and Bernal and the limited guarantees
provided by Messrs. Ormsby, Freeman, Tobey and Boudour to secure the Bank Note.
In addition, all of the shares issued to these individuals have been pledged as
collateral to secure both the Line of Credit and the Kobe Note.
The Line of Credit and Bank Note mature on June 30, 1998 and the
interest rate per annum is the bank's prime rate plus 1%. Upon the closing of
this Offering, the interest rate will be the bank's prime rate plus 1/2%. The
Line of Credit has a fee on the daily unused portion of the facility at the rate
of 1/4% per annum. The aggregate amount outstanding under the Line of Credit
shall not exceed the sum of 80% of qualifying receivables and 10% (not to exceed
$350,000) of qualifying inventory, except that this maximum amount may be
exceeded by $500,000 through October 31, 1996 (the "Overadvance"). The Bank Note
is secured by unlimited personal guarantees from Messrs. Chase and Bernal. In
addition, each of the several stockholders of the Voting Trust pledged their QCO
shares held in the Voting Trust to the bank as collateral. Upon (i) the
completion of the Offering, or (ii) if the Overadvance is paid in full by
October 31, 1996 and the qualified inventory is excluded from the Company's
borrowing base and, in either case, if there are no defaults under the facility,
the guarantees and the pledges will be released by the bank.
The Kobe Note is due on December 31, 1996 and bears interest at the
rate of 8% per annum. In the event that the Company fails to pay the Kobe Note
when due, Kobe Steel USA Holdings, Inc. has the option to repurchase from the
Company the Kobe Shares for an aggregate payment of $4,250,000; provided
58
that any such payment by Kobe Steel USA Holdings, Inc. to the Company shall be
applied first to payment of any indebtedness senior to the Company's
indebtedness to Kobe Steel USA Holdings, Inc.; and provided, further, that the
aggregate principal amount of any indebtedness senior to the Company's
indebtedness to Kobe Steel USA Holdings, Inc. will not exceed $4,000,000 without
the prior written consent of Kobe Steel USA Holdings, Inc. Kobe Steel USA
Holdings, Inc.'s option to repurchase the Kobe Shares can be exercised at any
time during the pendency of a default under the Kobe Note.
Of the remaining 802,387 shares held by Kobe Steel USA Holdings, Inc.,
the Voting Trust holds an option (the "Option") to purchase up to 588,418 shares
at a price of $3.74 per share. The Option expires on the earlier of March 28,
1998 or the completion of an initial public offering. Notwithstanding the
foregoing, the Option may not be exercised until the Kobe Note has been paid in
full. The Voting Trust currently has no immediate plans to exercise the Option.
On October 27, 1995, the Company and Messrs. Chase, Bernal, Ormsby,
Freeman, Tobey and Boudour entered into a voting trust agreement known as the
"QC Optics Voting Trust, u/d/t dated as of October 27, 1995" (the "Voting
Trust"). Mr. Chase is the trustee of the Voting Trust. The Voting Trust holds
all voting rights to all Company shares held by each beneficiary and continues
in force for a period of 21 years from October 27, 1995, unless terminated
earlier as a result of a merger, dissolution, sale of all or substantially all
of the Company's assets or liquidation, or agreement of the parties.
Kobe Steel USA International, Inc. has provided loans to the Company
since July 1991 by means of a revolving credit arrangement. At March 29, 1996,
the principal amount due totaled $4,250,000. This amount plus accrued interest
of approximately $6,000 was paid in full by the Company on March 29, 1996 in
connection with the closing of the Agreement utilizing amounts received from
Kobe Steel USA Holdings, Inc. as a capital infusion in the same amount and on
the same date.
Until December 1994, Kobe Steel Ltd. and the Company were parties to a
distributor agreement. In connection with this distributor agreement, sales of
approximately $2.2 million were generated for the year ended December 31, 1994
and approximately $611,000 was generated for the year ended December 31, 1995.
Subsequent to December 31, 1995, Kobe Steel Ltd. has not been a distributor of
the Company's products.
Any future transactions between the Company and its officers, directors,
principal stockholders or other affiliates will be on terms no less favorable
than could be obtained from independent third parties and will be subject to
approval by a majority of the independent and disinterested directors.
59
DESCRIPTION OF SECURITIES
The following summary description of the Company's capital stock is
qualified in its entirety by reference to the Company's Certificate of
Incorporation, as amended.
COMMON STOCK
The Company is authorized to issue up to 10,000,000 shares of Common
Stock, $.01 par value per share. As of the date of this Prospectus, 2,150,000
shares of Common Stock are issued and outstanding.
The holders of Common Stock are entitled to one vote for each share held
of record on each matter submitted to a vote of stockholders. There is no
cumulative voting for election of directors, with the result that the holders of
more than fifty percent (50%) of the shares voted for the election of directors
can elect all of the directors. Subject to the prior rights of any series of
Preferred Stock which may from time to time be outstanding, if any, holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor and in the
event of liquidation, dissolution, or winding up of the Company, are entitled to
share ratably in all assets remaining after payment of liabilities and payment
of accrued dividends and liquidation preferences on the Preferred Stock, if any.
Holders of Common Stock have no preemptive rights and have no rights to convert
their Common Stock into any other securities. All of the outstanding shares of
Common Stock are, and the shares of Common Stock to be outstanding upon
completion of the Offering will be, validly issued, fully paid, and
nonassessable.
Prior to the Offering, the Company's current principal stockholders,
Kobe Steel USA Holdings, Inc. and the Voting Trust beneficially own
approximately 100% of the outstanding shares of Common Stock of the Company.
Subsequent to the Offering, the current principal stockholders, who consist of
the Voting Trust and Kobe Steel USA Holdings, Inc., will beneficially own 69.4%
of the outstanding shares of the Common Stock of the Company. As a result, they
will likely be able to control all matters requiring approval by the
stockholders of the Company, including the election of directors. The Company's
bylaws do not provide for cumulative voting.
REDEEMABLE WARRANTS
The following is a brief summary of certain provisions of the Warrants,
but such summary does not purport to be complete and is qualified in all
respects by reference to the actual text of the Warrant Agreement by and among
the Company and State Street Bank and Trust Company (the "Warrant Agent"). A
copy of the Warrant Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. See "Additional Information."
60
Each Warrant entitles the holder thereof to purchase one share of Common
Stock at an exercise price of $7.80 per share. Unless the Warrants are redeemed
as provided below, the Warrants may be exercised at any time on or before
____________, at which time the Warrants expire.
The Warrants are redeemable by the Company at $.20 per Redeemable
Warrant on 30 days' prior written notice, provided that the average closing bid
price of the Common Stock equals or exceeds $10.80 per share for 20 consecutive
trading days ending within 10 days prior to the notice of redemption. For
purposes of the Warrant Agreement, "average closing bid price" is defined as the
closing bid price as quoted on the NASDAQ/NMS. The Warrants may not be redeemed
unless they are then exercisable and a current prospectus covering the Warrants
and the shares of Common Stock issuable thereunder is then in effect. The
Warrants will remain exercisable until the close of business on the fifth
business day prior to the date of redemption. Redemption of the Warrants may
force the holders to exercise the Warrants and pay the exercise price at a time
when it may be disadvantageous for them to do so or sell the Warrants at the
current market price when they might otherwise desire to hold the Warrants.
The Company has agreed with the Representative that the Company will pay
the Representative a Warrant Solicitation Fee of 5% of the exercise price of the
Redeemable Warrants exercised commencing on _________, 1997 and to the extent
not inconsistent with the guidelines of the NASD and the rules and regulations
of the Commission. Such Warrant Solicitation Fee will be paid to the
Representative if: (i) the market price of the Common Stock on the date of the
Redeemable Warrant is exercised is equal to or greater than the exercise price
of the Redeemable Warrant; (ii) the exercise of the Redeemable Warrant was
solicited by an NASD member firm; (iii) prior specific written approval for
exercise is received from the customer if the Redeemable Warrant is held in a
discretionary account; (iv) disclosure of this compensation arrangement is made
prior to or upon the exercise of the Redeemable Warrant; (v) solicitation of the
exercise is not in violation of Rule 10b-6 of the Exchange Act; and (vi)
solicitation of the exercise is in compliance with NASD notice to Members 92-28.
In addition, unless granted an exemption by the Commission from its Rule 10b-6
under the Exchange Act, the Representative will be prohibited from engaging in
any market making activities or solicited brokerage activities with regard to
the Company's securities for the period from nine business days prior to any
solicitation of the exercise of any Redeemable Warrant or nine business day
prior to the exercise of any Redeemable Warrant based on prior solicitation
until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right the Representative may have to
receive a fee for the exercise of the Redeemable Warrants following such
solicitation. As a result, the Representative may be unable to continue to
provide a market for the Company's securities during certain periods while the
Redeemable Warrants are exercisable.
The holders of the Warrants will not have any of the rights or
privileges of stockholders of the Company (except to the extent they otherwise
own Common Stock) prior to the exercise of the Warrants. The Warrants will be
entitled to the benefit of adjustments in the exercise price and in
61
the number of shares of Common Stock deliverable upon the exercise thereof upon
the occurrence of certain events, including a stock dividend, stock split or
similar reorganization.
The foregoing is a summary of the principal terms of the Warrants and
does not purport to be complete. Reference is made to a copy of the Warrant
Agreement which has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. See "Available Information."
In order for a holder to exercise a Warrant, there must be a current
registration statement on file with the Commission and various state securities
commissions to register the shares of Common Stock underlying the Warrants for
sale to the holder of the Warrant. Pursuant to Section 10(a)(3) of the
Securities Act, the information contained in this Prospectus will be deemed
"stale" nine months from the date of this Prospectus. The Company has agreed, so
long as the Warrants are outstanding, to use its best efforts to keep a
registration statement effective under the Securities Act and state securities
laws to permit the issuance of the shares of Common Stock upon exercise or
exchange of the Warrants. Nevertheless, although the Company intends to do so,
no assurance can be given that the registration statement will be kept current,
the failure of which may result in the Warrants not being exercisable or
exchangeable and therefore worthless.
REPRESENTATIVE'S WARRANT
In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, warrants to purchase from the Company
95,000 shares of Common Stock and 95,000 Redeemable Warrants (the
"Representative's Warrant"). The Representative's Warrant is initially
exercisable at a price of $8.40 per share of Common Stock and $10.92 per
Redeemable Warrant for a period of four years commencing one year from the
effective date of this Prospectus and are restricted from sale, transfer,
assignment or hypothecation for a period of twelve months from the date hereof,
except to officers of the Representative and by operation of law. The shares of
Common Stock and the Redeemable Warrants issuable upon exercise of the
Representative's Warrant are identical to those offered hereby except for the
exercise prices and that the Redeemable Warrants contained therein cannot be
redeemed.
The Company has agreed to register, at its expense, under the Securities
Act, the Representative's Warrant and/or the securities underlying the
Representative's Warrant at the request of a majority in interest of the holders
thereof. Such request may be made at any time during a period ending five years
from the date of this Prospectus. The Company also granted the Representative
"piggyback" registration rights concerning the Representative's Warrant and the
underlying securities which may be exercised at any time during a four year
period beginning one year from the date of this Prospectus. Further, upon the
exercise the Representative's Warrant, the holders of the warrants thereunder
shall be entitled to tender a portion of the shares of Common Stock to be
granted upon the exercise of the warrants as payment for the exercise price.
62
For the term of the Representative's Warrant, the holder thereof has the
opportunity to profit from a rise in the market price of the Company's
securities which may result in a dilution of the interest of the stockholders.
The Company may find it more difficult to raise additional equity capital if it
should be needed for the business of the Company while the Representative's
Warrant is outstanding. At any time when the holders thereof might be expected
to exercise it, the Company would probably be able to obtain additional equity
capital on terms more favorable than those provided by the Representative's
Warrant.
PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of Preferred
Stock, $.01 par value (the "Preferred Stock") none of which are issued and
outstanding as of the date of this Prospectus. The Preferred Stock may be issued
in one or more series, the terms of which may be determined at the time of
issuance by the Board of Directors, without further action by stockholders, and
may include voting rights (including the right to vote as a series on particular
matters), preferences as to dividends and liquidation, conversion, redemption
rights, and sinking fund provisions. The Company has no present plans for the
issuance of any shares of Preferred Stock. The issuance of any such Preferred
Stock could reduce the rights, including voting rights, of the holders of the
Common Stock, and, therefore, reduce the value of the Common Stock. In
particular, specific rights granted to future holders of Preferred Stock could
be used to restrict the Company's ability to merge with or sell its assets to a
third party, thereby preserving control of the Company by existing management.
"Risk Factors -- Possible Issuance of Additional Shares of Common Stock and
Preferred Stock; Preferred Stock Currently Outstanding."
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of the Delaware General Corporation Law, the
Company's Certificate of Incorporation and bylaws as summarized in the following
paragraphs and employment agreements with the Company's management, may be
deemed to have an anti-takeover effect and may delay, defer or prevent a hostile
tender offer or takeover attempt that a stockholder might consider in his or her
best interest, including those attempts that might result in a premium over the
market price for the shares held by stockholders. See "Management -- Employment
Agreements."
DELAWARE ANTI-TAKEOVER LAW
Section 203 of the Delaware General Corporation Law ("Section 203")
applies to a Delaware corporation with a class of voting stock listed on a
national securities exchange, authorized for quotation on an interdealer
quotation system or held of record by 2,000 or more persons. In general, Section
203 prevents an "interested stockholder" (defined generally as any person
owning, or who is an affiliate or associate of the corporation and has owned in
the preceding three years, fifteen percent (15%) or more of a corporation's
outstanding voting stock and affiliates and associates of such person) from
engaging in a "business combination" (as defined) with a Delaware corporation
for three years following the date such person became an interested
63
stockholder unless (1) before such person became an interested stockholder, the
board of directors of the corporation approved either the business combination
or the transaction that resulted in the stockholder becoming an interested
stockholder; (2) the interested stockholder owned at least eighty-five percent
(85%) of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
of the corporation and by employee stock plans that do not provide employees
with the rights to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer); or (3) on or subsequent to
the date such person became an interested stockholder, the business combination
is approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of two-thirds of
the outstanding voting stock of the corporation not owned by the interested
stockholder. Under Section 203, the restrictions described above do not apply to
certain business combinations proposed by an interested stockholder following
the announcement or notification of one of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors.
SPECIAL MEETING OF STOCKHOLDERS
The Company's bylaws provide that special meetings of the stockholders
of the Company may be called only by the Board of Directors of the Company. This
provision will make it more difficult for stockholders to take action opposed by
the Board of Directors.
STOCKHOLDER ACTION BY WRITTEN CONSENT
The Certificate of Incorporation, as amended, provides that no action
required or permitted to be taken at an annual or a special meeting of the
stockholders of the Company may be taken without a meeting unless such action is
authorized by unanimous consent in writing of all stockholders.
CLASSIFIED BOARD OF DIRECTORS
The Company's bylaws provide for a Board of Directors to be divided into
three classes of directors serving staggered three-year terms. As a result,
approximately one-third of the Board of Directors will be elected each year.
Moreover, under the Delaware General Corporation Law, in the case of a
corporation having a classified Board of Directors, stockholders may remove a
director only for cause. This provision, when coupled with the provision of the
bylaws authorizing only the Board of Directors to fill vacant directorships,
will preclude a stockholder from removing incumbent directors without cause and
simultaneously gaining control of the Board of Directors by filling the
vacancies created by such removal with its own nominees.
64
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
The Company's bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual or a special meeting of stockholders, must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive offices of the
Company (i) in the case of an annual meeting that is called for a date that is
within 30 days before or after the anniversary date of the immediately preceding
annual meeting of stockholders, not less than 60 days nor more than 90 days
prior to such anniversary date, and (ii) in the case of an annual meeting that
is called for a date that is not within 30 days before or after the anniversary
date of the immediately preceding annual meeting, or in the case of a special
meeting of stockholders called for the purpose of electing directors, not later
than the close of business on the tenth day following the day on which notice of
the date of the meeting was mailed or public disclosure of the date of the
meeting was made, whichever occurs first. The bylaws specify certain
requirements for a stockholder's notice to be in proper written form. These
provisions may preclude some stockholders from bringing matters before the
stockholders at an annual or special meeting or from making nominations for
directors at an annual or special meeting.
AMENDMENTS TO THE BYLAWS
The Company's Certificate of Incorporation, as amended, and bylaws, as
amended, provide that the majority of all directors or the vote of holders of a
majority of the outstanding stock entitled to vote is required to alter, amend
or repeal the Bylaws.
TRANSFER AGENT
The Company has appointed State Street Bank and Trust Company, Boston,
Massachusetts, as its Transfer and Warrant Agent for its Common Stock and
Redeemable Warrants.
65
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom Schneider
Securities, Inc. is acting as the Representative, have severally agreed, subject
to the terms and conditions of the Underwriting Agreement (the form of which has
been filed as an exhibit to the Registration Statement), to purchase from the
Company the respective numbers of Shares and Redeemable Warrants set forth
opposite their names in the table below. The Underwriting Agreement provides
that the obligations of the Underwriters are subject to certain conditions
precedent and that the Underwriters shall be obligated to purchase all of the
Shares and Redeemable Warrants, if any are purchased.
Number of
Shares of Number of
Common Redeemable
Name Stock Warrants
---- -------- ----------
Schneider Securities, Inc.
TOTAL 950,000 950,000
======= =======
Through the Representative, the several Underwriters have advised the
Company that they propose to offer the Shares and Redeemable Warrants to the
public at the initial public offering prices set forth on the cover of this
Prospectus. The Representative has advised the Company that it may allow to
certain dealers concessions of not in excess of $____ per share of Common Stock
and $___ per Redeemable Warrant, of which a sum not in excess of $___ per share
of Common Stock and $_____ per Redeemable Warrant may in turn be reallowed by
such dealers to other dealers. After the issuance of the Shares, the public
offering prices, the concessions and the reallowances may be changed. The
Representative has further advised the Company that they do not expect sales to
discretionary accounts to exceed five percent of the total number of Shares
offered hereby.
The Company has agreed to pay to the Representative a non-accountable
expense allowance equal to three percent of the total proceeds of the Offering,
of which $25,000 has already been paid.
The Company has granted an option to the Underwriters, exercisable
during the 45-day period following the effective date of the Underwriting
Agreement, to purchase up to 142,500 shares of Common Stock and/or 142,500
Redeemable Warrants at the offering price less underwriting discounts and the
non-accountable expense allowance. The Underwriters may exercise such option
only to satisfy over-allotments in the sale of the Shares and Redeemable
Warrants.
66
Upon the exercise of the Redeemable Warrants more than one year after
this Offering and to the extent not inconsistent with the guidelines of the
National Association of Securities Dealers, Inc., and the Rules and Regulations
of the Commission, the Company has agreed to pay the Representative a commission
equal to five percent of the exercise price of the Redeemable Warrants. However,
no compensation will be paid to the Representative in connection with the
exercise of the Redeemable Warrants if (a) the market price of the underlying
shares of Common Stock is lower than the exercise price, (b) the Redeemable
Warrants are exercised in an unsolicited transaction, or (c) the Redeemable
Warrants subject to the Representative's Warrant are exercised. In addition,
unless granted an exemption by the Commission from Rule 10b-6 under the Exchange
Act, the Representative will be prohibited from engaging in any market making
activities or solicited brokerage activities with regard to the Company's
securities for two to nine days before the solicitation of the exercise of any
Redeemable Warrant or before the exercise of any Redeemable Warrant based upon a
prior solicitation, until the later of the termination of such solicitation
activity or the termination by waiver or otherwise of any right the
Representatives may have to receive a fee for the exercise of the Redeemable
Warrants following such solicitation.
In connection with this Offering, the Company has agreed to sell the
Representative, for nominal consideration, a Warrant (the "Representative's
Warrant"), which confers the right to purchase up to 95,000 shares of Common
Stock and up to 95,000 Redeemable Warrants. The Representative's Warrant is
initially exercisable at the price (the "Exercise Price") of $8.40 per share of
Common Stock and $.14 per Redeemable Warrant (140% of the respective initial
public offering price) for a period of four years commencing one year from the
effective date of this Prospectus. The shares of Common Stock and Redeemable
Warrants issuable upon exercise of the Representative's Warrant are identical to
those offered hereby. The Representative's Warrant contains provisions providing
for adjustment of the Exercise Price and the number and type of securities
issuable upon the exercise thereof upon the occurrence of certain events. The
Representative's Warrant grants to the holders thereof certain demand and
"piggyback" rights of registration of the securities issuable upon the exercise
thereof upon the occurrence of certain events beginning one year after the date
of this Prospectus.
The Company has agreed to enter into a three-year consulting agreement
with the Representative, pursuant to which the Representative will act as a
financial consultant to the Company, commencing upon the closing date of this
Offering. The Representative will make available qualified personnel for this
purpose. The consulting fee of $3,000 per month for a period of 36 months is
payable in full at the closing of this Offering.
Certain principal stockholders and the Company have agreed that, for a
period of 13 months from the date of this Prospectus, they will not sell any
securities (except for shares of Common Stock issued pursuant to exercise of
options which may be granted under the Plan and for shares issued pursuant to
the exercise of the Redeemable Warrants) without the Representative's prior
written consent, which shall not be unreasonably withheld. Kobe Steel has agreed
not to, directly or indirectly, offer to sell, contract to sell, or sell any
beneficial interest in the Company's Common
67
Stock for a period of six months from the date of this Prospectus without the
prior written consent of the Representative, which shall not be unreasonably
withheld.
The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Underwriters against certain liabilities in
connection with the Registration Statement, including liabilities under the
Securities Act.
The foregoing is a brief summary of certain provisions of the
Underwriting Agreement and does not purport to be a complete statement of its
terms and conditions. A copy of the Underwriting Agreement is on file with the
Commission as an exhibit to the Registration Statement of which this Prospectus
is a part.
Prior to the Offering, there has been no public market for any of the
Company's securities. The initial public offering prices of the Shares and
Redeemable Warrants will be determined by negotiations between the Company and
the Representative and are not necessarily related to the Company's assets,
earnings, or book value or any other established criteria of value. Factors
considered in determining the Offering price of the Shares and Redeemable
Warrants included estimates of business potential, historical earnings, future
prospects, gross proceeds to be raised, percentage of stock owned by officers
and directors on the date hereof, the type of business in which the Company
engages, and an assessment of the Company's management. The foregoing factors
were evaluated in light of the existing state of the securities market.
68
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 3,100,000 shares
of Common Stock outstanding (assuming no exercise of the over-allotment option,
the Redeemable Warrants, the Representative's Warrant or the Redeemable Warrants
underlying the Representative's Warrant or other outstanding options). Of these
shares, 950,000 shares will be freely tradeable without further registration
under the Securities Act.
Up to 95,000 additional shares of Common Stock and 95,000 additional
Redeemable Warrants may be purchased by the Representative at any time after
_____________, 1997 through the exercise of the Representative's Warrant. Any
and all shares of Common Stock purchased upon exercise of the Representative's
Warrant or issued pursuant to the exercise of the Redeemable Warrants underlying
the Representative's Warrant may be freely tradeable, provided that the Company
satisfies certain securities registration and qualification requirements in
accordance with the terms of the Representative's Warrant.
To date, the Company and its directors and officers have agreed not to,
directly or indirectly, offer to sell, contract to sell, or sell any beneficial
interest in the Company's securities for a period of 13 months from the date of
this Prospectus without the prior written consent of the Representative. Kobe
Steel USA Holdings, Inc. has agreed not to, directly or indirectly, offer to
sell, contract to sell, or sell any beneficial interest in the Company's Common
Stock for a period of six months from the date of this Prospectus without the
prior written consent of the Representative. An appropriate legend shall be
marked on the face of certificates representing all such securities. Without the
restriction, 812,687 shares of the 2,150,000 shares outstanding prior to this
Offering would become eligible for sale under Rule 144 under the Act commencing
90 days after the date of this Prospectus. The remaining 1,337,313 shares of
Common Stock would become eligible for sale under Rule 144 on March 29, 1998.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed to be an
"affiliate" of the Company as that term is defined under the Securities Act,
will be entitled to sell within any three-month period a number of shares
beneficially owned for at least two years that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock, or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice, and the availability of current
public information about the Company. However, a person who is not deemed to
have been an affiliate of the Company during the 90 days preceding a sale by
such person, and who has beneficially owned shares of Common Stock for at least
three years, may sell such shares without regard to the volume, manner of sale,
or notice requirements of Rule 144. See "Risk Factors -- Future Sales of Common
Stock."
69
Prior to this Offering, no public market for the Common Stock has
existed. No predictions can be made of the effect, if any, of future public
sales of restricted shares or the availability of restricted shares for sale in
the public market. Moreover, the Company cannot predict the number of shares of
Common Stock that may be sold in the future pursuant to Rule 144 because such
sales will depend upon, among other factors, the market price of the Common
Stock and individual circumstances of the holders thereof. Sales of substantial
amounts of Common Stock under Rule 144 could adversely affect prevailing market
prices of the Common Stock.
INTERIM FINANCIAL INFORMATION
The financial statements as of March 31, 1996 and for the three months
ended March 31, 1996 and 1995 are unaudited. In management's opinion, these
unaudited financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, necessary for the fair statement of the financial
data for such periods. The unaudited results for the three months ended March
31, 1996 are not necessarily indicative of the results expected for the entire
fiscal year.
LEGAL MATTERS
Certain legal matters relating to the securities offered hereby will be
passed upon for the Company by O'Connor, Broude & Aronson, Bay Colony Corporate
Center, 950 Winter Street, Suite 2300, Waltham, Massachusetts 02154. Certain
attorneys in the firm of O'Connor, Broude & Aronson were issued options, which
expire five years from the date of this Prospectus, to purchase up to 107,500
shares of Common Stock at a price equal to $6.30 per share. Payment of a portion
of the legal fees for services rendered in connection with the Offering is
contingent upon the completion of the Offering. William M. Prifti, Esquire, 220
Broadway, Suite 204, Lynnfield, Massachusetts 01940 is acting as counsel for the
Representative in connection with certain legal matters related to the Offering.
EXPERTS
The financial statements included in this Prospectus to the extent and
for the periods indicated in their report have been audited by Arthur Andersen
LLP, independent public accountants, and are included herein in reliance upon
the authority of said firm as experts in accounting and auditing in giving said
report.
ADDITIONAL INFORMATION
The Company has filed with the Commission, 7 World Trade Center, Suite
1300, New York, New York 10048, a Registration Statement. This Prospectus does
not contain all the information set forth in the Registration Statement and the
exhibits thereto, as permitted by the Rules and Regulations of the Commission.
For further information with respect to the Company and to the securities
offered hereby, reference is made to the Registration Statement including the
70
exhibits thereto. Statements contained in this Prospectus as to the contents of
any contract or other document summarize only the material provisions thereof
and are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement and exhibits thereto may be inspected
without charge at the office of the Commission in New York. Copies of such
materials may be obtained at prescribed rates by writing to the Commission's
Public Reference Section, Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at certain of the regional offices of the Commission located at 7
World Trade Center, Suite 1300, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Prior to this Offering, the Company has not been a reporting company
under the Securities Exchange Act of 1934, as amended. Subsequent to this
Offering, the Company intends to furnish to its stockholders annual reports,
which will include financial statements audited by independent accountants, and
such other periodic reports as it may determine to furnish or as may be required
by law.
71
GLOSSARY
COMPUTER HARD DISK - The disk shaped object, with magnetic material,
located inside a hard disk drive, where information is actually recorded. The
computer hard disk is typically 48, 65, or 95 mm in diameter and approximately
1/40 of an inch thick. A computer hard disk is comprised of a nickel-plated
aluminum, glass or other material substrate which is used for mechanical
strength, and a thin-film of magnetic material which is applied to the substrate
for recording of information. The recording method is similar to that used when
recording an audio cassette tape.
FLAT PANEL DISPLAYS - Screens used to display information, such as
liquid crystal displays (LCD's) commonly used in wrist watches, or Active Matrix
Liquid Crystal Displays (AMLCD's) commonly used in lap-top computers. See page
35 of the Prospectus.
MICROMETER - One millionth of a meter. As examples, a human hair,
wavelength of light, and minimum dimensions of an advanced computer chip are
approximately 75, 0.5 and 0.25 micrometers, respectively.
PELLICLE - A protective cover, attached to a photomask, which protects
the patterned surface from adventitious contamination and particulates, similar
to a dust cover. Typically a pellicle consists of an aluminum frame, which
suspends a thin membrane above the patterned surface of the photomask.
Particulates which land on the membrane are then far enough away from the
patterned surface to be out of focus, and thus not imaged onto the computer
chip.
PELLICILIZED PHOTOMASK - A photomask with an attached pellicle (see
photo on inside cover).
PIXEL - The small discrete elements that together constitute an image,
such as the "dots" on a television or flat panel display screen.
PHOTOMASK - A glass or quartz plate, usually five or six inches square,
with an image of a layer of a computer chip on one surface (i.e., the patterned
surface). This pattern or image is then photographically reproduced on thousands
of individual computer chips each hour. This process is analogous to a snap-shot
negative being used to produce thousands of individual snap-shot prints. If
there is a defect on the photomask, it can result in the production of thousands
of defective computer chips each hour.
SOFT/HARD DEFECT - Defects on photomasks are separated into two broad
categories: soft and hard defects. Soft defects are defects such as particulates
and contamination, which can be removed from the photomask through cleaning.
Hard defects are defects such as missing pattern, which cannot be removed by
cleaning.
72
QC OPTICS, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
BALANCES SHEETS AS OF DECEMBER 31, 1995 AND MARCH 31, 1996 (UNAUDITED) F-3
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND
1995 AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED) F-4
STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31,
1994 AND 1995 AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED) F-5
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1994 AND
1995 AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED) F-6
NOTES TO FINANCIAL STATEMENTS (INCLUDING DATA APPLICABLE TO UNAUDITED
PERIODS) F-7
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
QC Optics, Inc.:
We have audited the accompanying balance sheets of QC Optics, Inc. (a Delaware
corporation) as of December 31, 1995, and the related statements of operations,
stockholders' equity and cash flows for each of the two years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of QC Optics, Inc. as of December
31, 1995, and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 15, 1996 (except with respect to
the matters discussed in Note 7, as to
which the date is July 3, 1996)
F-2
QC OPTICS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, MARCH 31,
1995 1996
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,430,964 $ 900,907
Accounts receivable, less allowance of $75,000
at December 31, 1995 and March 31, 1996 3,236,706 3,886,184
Inventory 2,893,122 2,833,686
Prepaid expenses 18,003 18,177
----------- -----------
Total current assets 7,578,795 7,638,954
----------- -----------
PROPERTY AND EQUIPMENT, AT COST:
Furniture and fixtures 99,686 99,686
Machinery and equipment 296,193 296,193
Leasehold improvements 57,085 57,085
Motor vehicles 23,458 23,458
----------- -----------
476,422 476,422
Less--Accumulated depreciation and amortization 358,243 371,143
----------- -----------
Property and equipment, net 118,179 105,279
----------- -----------
OTHER ASSETS 24,936 24,936
----------- -----------
Total assets $ 7,721,910 $ 7,769,169
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loan payable to affiliate $ 4,250,000 $ --
Revolving line of credit -- 262,791
Kobe term loan -- 750,000
Accounts payable 487,774 826,268
Accrued payroll and related expenses 332,829 315,011
Accrued expenses 411,552 574,851
Customer deposits 35,917 233,535
----------- -----------
Total current liabilities 5,518,072 2,962,456
REVOLVING LINE OF CREDIT, NET OF CURRENT MATURITIES -- 3,052,734
----------- -----------
Total liabilities 5,518,072 6,015,190
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value-
Authorized--1,000,000 shares
Issued and outstanding--no shares at
December 31, 1995 and March 31, 1996 -- --
Common stock, $.01 par value-
Authorized--10,000,000 shares
Issued and outstanding--2,150,000 shares 21,500 21,500
Additional paid-in capital 3,888,500 3,138,500
Accumulated deficit (1,706,162) (1,406,021)
----------- -----------
Total stockholders' equity 2,203,838 1,753,979
----------- -----------
Total liabilities and stockholders' equity $ 7,721,910 $ 7,769,169
=========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-3
QC OPTICS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1994 1995 1995 1996
(Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 8,394,932 $10,373,464 $ 1,777,600 $ 3,212,008
COST OF SALES 3,911,108 4,798,902 932,934 1,521,052
----------- ----------- ----------- -----------
Gross profit 4,483,824 5,574,562 844,666 1,690,956
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling, general and administrative expenses
2,465,479 2,843,266 652,796 964,994
Engineering expenses 1,347,480 1,586,951 380,316 365,113
----------- ----------- ----------- -----------
Total operating expenses 3,812,959 4,430,217 1,033,112 1,330,107
----------- ----------- ----------- -----------
Operating income (loss) 670,865 1,144,345 (188,446) 360,849
INTEREST EXPENSE, NET 162,942 156,345 53,090 38,838
----------- ----------- ----------- -----------
Income (loss) before provision for
income taxes 507,923 988,000 (241,536) 322,011
PROVISION FOR INCOME TAXES 37,866 79,781 10,820 21,870
----------- ----------- ----------- -----------
Net income (loss) $ 470,057 $ 908,219 $ (252,356) $ 300,141
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARES $ .22 $ .42 $ (.12) $ .14
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 2,173,174 2,173,174 2,173,174 2,173,174
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-4
QC OPTICS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
NUMBER PAR NUMBER PAR PAID-IN ACCUMULATED STOCKHOLDERS'
OF SHARES VALUE OF SHARES VALUE CAPITAL DEFICIT EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 4,120 $ 41 2,145,880 $ 21,459 $ 3,888,500 $ (3,084,438) $ 825,562
Net income - - - - - 470,057 470,057
Conversion of preferred stock
to common stock (4,120) (41) 4,120 41 - - -
---------- --------- ------------ ----------- -------------- -------------- --------------
BALANCE, DECEMBER 31, 1994 - - 2,150,000 21,500 3,888,500 (2,614,381) 1,295,619
Net income - - - - - 908,219 908,219
---------- --------- ------------ ----------- -------------- -------------- --------------
BALANCE, DECEMBER 31, 1995 - - 2,150,000 21,500 3,888,500 (1,706,162) 2,203,838
Net income - - - - - 300,141 300,141
Recapitalization and management
buyout (Note 7)
- - - - (750,000) - (750,000)
---------- --------- ------------ ----------- -------------- -------------- --------------
BALANCE, MARCH 31, 1996 (UNAUDITED) - $ - 2,150,000 $ 21,500 $ 3,138,500 $ (1,406,021) $ 1,753,979
========== ====== ============ ========== ============= ============== =============
</TABLE>
The accompanying notes are
an integral part of these financial statements.
F-5
QC OPTICS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1994 1995 1995 1996
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited)
Net income (loss) $ 470,057 $ 908,219 $ (252,356) $ 300,141
----------- ----------- ----------- -----------
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities-
Depreciation and amortization 86,632 55,504 13,050 12,900
Loss on sale of property -- 3,226 -- --
Changes in operating assets and liabilities-
Accounts receivable 385,550 (1,334,675) 350,348 (649,478)
Inventory 86,936 (608,677) (106,244) 59,436
Prepaid expenses and other assets 1,131 (710) 5,302 (174)
Accounts payable 255,920 (89,864) (76,770) 338,494
Accrued payroll and related expenses and
accrued expenses 58,099 182,028 (22,004) 145,481
Customer deposits 14,695 (217,632) (66,858) 197,618
----------- ----------- ----------- -----------
Total adjustments
888,963 (2,010,800) 96,824 104,277
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities
1,359,020 (1,102,581) (155,532) 404,418
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (30,651) (43,691) (26,415) --
Proceeds on sale of property and equipment -- 6,438 -- --
----------- ----------- ----------- -----------
Net cash used in investing
activities
(30,651) (37,253) (26,415) --
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from revolving line of credit for
working capital -- -- -- 65,525
Recapitalization and management buyout-
Capital contribution from Kobe Steel -- -- -- 4,250,000
Payment on loan payable to affiliate -- -- -- (4,250,000)
Borrowings from revolving line of credit -- -- -- 3,250,000
Redemption of common stock from
Kobe Steel (cash portion) -- -- -- (4,250,000)
----------- ----------- ----------- -----------
Net cash used in financing
activities
-- -- -- (934,475)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,328,369 (1,139,834) (181,947) (530,057)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 1,242,429 2,570,798 2,570,798 1,430,964
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD
$ 2,570,798 $ 1,430,964 $ 2,388,851 $ 900,907
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for-
Interest $ 187,365 $ 288,886 $ 89,692 $ 61,781
=========== =========== =========== ===========
Income taxes $ 12,866 $ 35,021 $ 27,521 $ 56,581
=========== =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND
INVESTING ACTIVITIES:
Repurchase of common from Kobe Steel
through the issuance of Kobe term loan
(see Note 7)
$ -- $ -- $ -- $ 750,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-6
QC OPTICS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) DESCRIPTION OF BUSINESS
QC Optics, Inc. (the Company) was formed in 1986 and manufactures
high-end critical surface inspection systems for sales to the
semiconductor, flat panel display and computer hard disk drive
industries.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenues from product sales are recognized at the time equipment is
shipped. Revenues from service and maintenance agreements are recognized
ratably over the period covered by the agreement. Service and maintenance
revenues were less than 10% of total net sales in each of the two years
in the period ended December 31, 1995.
Research and Development Costs
Research and development costs are expensed as incurred and are included
in engineering expenses in the accompanying statements of operations.
Research and development costs for the years ended December 31, 1994 and
1995 amounted to $969,301 and $925,938, respectively.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less.
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or market
and consist of the following:
DECEMBER 31, MARCH 31,
1995 1996
(Unaudited)
Raw materials and finished parts $ 1,390,362 $ 1,815,327
Work-in-process 1,502,760 1,018,359
--------------- ---------------
$ 2,893,122 $ 2,833,686
============= =============
Work-in-process and finished parts inventories include material, labor
and manufacturing overhead.
F-7
QC OPTICS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment
Property and equipment are stated at cost. Maintenance and repair items
are charged to expense when incurred; renewals and betterments are
capitalized. When property and equipment are retired or sold, their costs
and related accumulated depreciation are removed from the accounts, and
any resulting gain or loss is included in income.
The Company provides for depreciation using the straight-line method to
amortize the cost of plant and equipment over their estimated useful
lives, which generally are as follows:
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
Furniture and fixtures 5-8 Years
Machinery and equipment 3-8 Years
Leasehold improvements 8-10 Years
Motor vehicles 5 Years
Income Taxes
The Company utilizes the liability method of accounting for income taxes,
as set forth in Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes. SFAS No. 109 requires the recognition
of deferred tax assets and liabilities for the temporary differences
between the tax and financial statement carrying amounts of assets and
liabilities. Deferred tax assets are recognized net of any valuation
allowance. The Company and Kobe Steel USA Holdings, Inc. (Kobe Steel),
99.5% owner of the Company prior to March 29, 1996 (see Note 7) have a
tax-allocation agreement. Prior to March 29, 1996, the Company's results
of operations were included in the consolidated federal return of Kobe
Steel. The agreement calls for the provision (benefit) and payments
(refunds) to be made as if the Company were to file its own separate
company tax returns.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to a
concentration of credit risk include accounts receivable and cash and
cash equivalents.
The Company sells its products primarily to large corporate customers in
the semiconductor, flat panel displays and computer hard disk drive
industries and performs ongoing evaluations of its customers' financial
conditions. The Company's sales also include significant sales to Kobe
Steel, Ltd. (Kobe
F-8
QC OPTICS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentration of Credit Risk (Continued)
Japan), an affiliated Japanese company (see Note 6). Concentration of
credit risk with respect to sales and trade receivables is primarily due
to the following:
<TABLE>
<CAPTION>
NET SALES
FOR THE THREE
MONTHS ENDED
NET SALES FOR THE MARCH 31, 1996 ACCOUNTS RECEIVABLE AS OF
YEARS ENDED DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Company A $ 2,930,000 $ 3,295,000 $192,000 $ 1,945,000 $ 509,000
Company B 287,000 1,641,000 - 113,000 -
Company C 48,000 1,309,000 - 277,000 -
Company D - 1,209,000 900,000 446,000 1,037,000
Company E 2,191,000 611,000 - - -
Company F 30,000 512,000 - 344,000 -
Company G 550,000 - - - -
Company H 330,000 - - - -
Company I - - 516,000 - 530,000
Company J - - 693,000 - 693,000
Company K - - 491,000 - 493,000
</TABLE>
The Company maintains cash balances and short-term investments in
commercial paper at a financial institution in Massachusetts. Accounts at
the institution are insured by the Federal Deposit Insurance Corporation
up to $100,000. Uninsured cash and cash equivalent bank balances amounted
to approximately $1,501,000 at December 31, 1995.
Shipments to customers in countries other than the United States
accounted for 41.1% and 18% of net sales in fiscal 1994 and 1995,
respectively.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable and loan payable to
affiliate. The carry amounts of the Company's cash and cash equivalents,
accounts receivable and accounts payable approximate fair value due to
their short-term nature. See Note 6 for fair value information pertaining
to the Company's loan payable to affiliate.
F-9
QC OPTICS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments
On January 1, 1994, the Company adopted SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities. SFAS No. 115 addresses
the accounting and reporting for investments in equity securities that
have readily determinable fair market values and for all investments in
debt securities. The Company's financial condition and results of
operations were not materially impacted in fiscal 1994 as a result of
adopting SFAS No. 115.
Impairment of Long-Lived Assets
Beginning on January 1, 1996, the Company was required to adopt SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of. SFAS No. 121 addresses accounting
and reporting requirements for long-term assets based on their fair
market values. Adoption of SFAS No. 121 did not have a material impact on
its financial condition and results of operations.
Stock Options
In December 1995, the Financial Accounting Standards Board issued SFAS
No. 123, Accounting for Stock-Based Compensation, which is to become
effective for fiscal years beginning after December 15, 1995. SFAS No.
123 requires employee stock-based compensation to be either recorded or
disclosed at its fair value. Management intends to continue to account
for employee stock-based compensation under Accounting Principles Board
Opinion No. 25 and will not adopt the new accounting provision for
employee stock-based compensation under SFAS No. 123, but will include
the additional required disclosures in the fiscal 1996 financial
statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expense
during the reporting period. Actual results could differ from those
estimates.
F-10
QC OPTICS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Interim Financial Statements
The financial statements as of March 31, 1996 and for the three months
ended March 31, 1995 and 1996 are unaudited. In management's opinion,
these unaudited financial statements have been prepared on the same basis
as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
statement of the financial data for such periods. The unaudited results
for the three months ended March 31, 1996 are not necessarily indicative
of the results expected for the entire fiscal year.
The Company derives most of its annual revenues from a relatively small
number of sales of products, systems and upgrades. As a result, any delay
in the recognition of revenue for single products, systems or upgrades
would have a material adverse effect on the Company's results of
operations for a given accounting period. In addition, some of the
Company's net sales have been realized near the end of a quarter.
Accordingly, a delay in a shipment scheduled to occur near the end of a
particular quarter could materially adversely affect the Company's
results of operations for that quarter.
The Company's operating results have historically been subject to
significant quarterly and annual fluctuations. The Company believes that
its operating results will continue to fluctuate on a quarterly basis due
to a variety of factors, including the cyclicality of the industries
served by the Company's inspection products; patterns of capital spending
by customers; the timing of significant orders; order cancellations and
shipment rescheduling; unanticipated delays in design, engineering or
production, or in customer acceptance of product shipments; changes in
pricing by the Company or its competitors; the mix of systems sold; and
the availability of components and subassemblies, among others.
Net Income (Loss) per Common Share
Net income (loss) per common share has been determined by dividing net
income (loss) by the weighted average common and common equivalent shares
outstanding during the period. As required by the Securities and Exchange
Commission, common stock issued or sold and options issued at prices
below the offering price in the Company's proposed initial public
offering in the year before the offering have been included in the
calculation as if outstanding for all periods presented using the
treasury stock method.
F-11
QC OPTICS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(Continued)
(3) INCOME TAXES
The components of the income tax provision are as follows:
FOR THE YEARS ENDED DECEMBER 31,
1994 1995
Current-
Federal $ - $ -
State 37,866 79,781
------------- -------------
37,866 79,781
------------- -------------
Deferred-
Federal - -
State - -
------------- -------------
- -
------------- -------------
$ 37,866 $ 79,781
=========== ===========
The income tax provision differs from the amounts computed by applying
the statutory federal income tax rate of 34% to income before the
provision for income taxes, primarily as a result of state income taxes
and the utilization of federal net operating loss carryforwards in 1994
and 1995. Under the Tax Reform Act of 1986, the amount of the benefit
from NOLs may be impaired or limited in certain circumstances, including
a cumulative stock ownership change of more than 50% over a three-year
period, which occurred in connection with the management buyout (see Note
7). As a result of the management buyout, the Company is limited to
approximately $180,000 of loss utilization per year.
Deferred income taxes at December 31, 1995 consists primarily of net tax
assets for reserves not currently deductible and net operating loss
carryforwards, offset by a corresponding valuation allowance of
$3,144,000 in 1995.
For tax reporting purposes, the Company has a U.S. net operating loss
carryforward of approximately $2,163,000, subject to Internal Revenue
Service review and approval and certain IRS limitations on net operating
loss utilization. Utilization of the net operating loss carryforward is
contingent on the Company's ability to generate income in the future. The
net operating loss carryforwards will expire from 2000 to 2008 if not
utilized.
F-12
QC OPTICS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(Continued)
(4) COMMITMENTS AND CONTINGENCIES
The Company leases its operating facilities under two noncancelable
operating lease agreements, the largest of which expires in June 1997.
Rent expense for the years ended December 31, 1994 and 1995 amounted to
approximately $272,000 and $264,000, respectively. Future minimum
commitments under all noncancelable operating leases at December 31, 1995
are as follows:
1996 $ 203,000
1997 98,000
---------------
$ 301,000
(5) EMPLOYEE BENEFIT PLAN
The Company participates in the 401(k) retirement savings plan of an
affiliated company (the Plan). The Plan is a defined contribution plan
which covers substantially all of the Company's employees. Participants
may make voluntary contributions of 1% to 15% of their annual
compensation. The Company makes matching contributions up to a certain
maximum percentage, and a future Company contribution can be made at the
Company's discretion.
The Company charged to expense approximately $78,000 and $92,000 related
to contributions to the Plan for the years ended December 31, 1994 and
1995, respectively. Included in accrued expenses is approximately $53,000
and $63,000 for Company matching and discretionary contributions to the
Plan for the years ended December 31, 1994 and 1995, respectively.
(6) RELATED PARTY TRANSACTIONS
In 1987, the Company entered into an agreement with Kobe Japan which
granted Kobe Japan an exclusive license to distribute and manufacture the
Company's products in Japan and other Pacific Rim countries. During 1994,
this agreement was terminated by mutual consent.
The Company's sales to Kobe Japan amounted to approximately $2,191,000 or
26% and $611,000 or 6% of net sales for the years ended December 31, 1994
and 1995, respectively.
Kobe Japan, through its various subsidiaries, has provided loans to the
Company by means of a revolving credit arrangement (the Affiliate Loan)
over the years (interest rate of 6% at December 31, 1995). At December
31, 1995, the amount due totaled $4,250,000 (see Note 7). The carrying
value approximates fair market value, as the amounts are payable upon
demand. Interest on the loans during the year ended December 31, 1994 and
1995 amounted to approximately $200,000 and $269,000, respectively.
F-13
QC OPTICS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(Continued)
(7) SUBSEQUENT EVENTS
During October 1995, the Company, certain management employees (through
its wholly owned subsidiary, Sally, Inc.) and Kobe Steel entered into a
series of related agreements designed to restructure the capital of the
Company and allow management to acquire up to 89.6% of the common stock
of the Company for $7,200,000 (collectively referred to as the Management
Buyout Agreement). The Management Buyout Agreement allowed management to
acquire 62.2% of the Company by March 31, 1996 for $5,000,000 (the
Original Repurchase) and an additional 27.4% of the Company for
$2,200,000 within two years from the date of closing of the Original
Repurchase or upon the closing of an underwritten public offering,
pursuant to a registration statement declared effective under the
Securities Act of 1933, as amended. The Original Repurchase under the
Management Buyout Agreement, as amended on March 29, 1996, was
accomplished on March 29, 1996 through the redemption of shares from Kobe
Steel for $5,000,000 (the Redemption Price) and the tax-free merger under
Section 368 (a)(1)(A) of the Internal Revenue Code of 1986, as amended,
of Sally, Inc. and the Company. Of the $5,000,000 Redemption Price,
$3,250,000 was financed pursuant to the terms of a $4,000,000 revolving
credit agreement (the Revolving Line of Credit), $1,000,000 was provided
from available cash of the Company and $750,000 was financed pursuant to
a promissory note from the Company to Kobe Steel (the Kobe Term Note).
The transaction has been accounted for as a recapitalization and
leveraged buyout. Both the Revolving Line of Credit and the Kobe Term
Note are secured by all of the assets of the Company. The Kobe Term Note
is due on December 31, 1996, bears interest at the rate of 8% per annum
and is subordinated to the Revolving Line of Credit in an amount not to
exceed $4,000,000 without prior written consent of Kobe Steel.
Simultaneous with the Original Repurchase and as required per the terms
of the Management Buyout Agreement, Kobe Steel made a capital
contribution in cash of $4,250,000 on March 29, 1996 to the Company. The
Company used the proceeds received to pay off the outstanding principal
due on the Affiliate Loan in the same amount. In addition, as required
per the terms of the Management Buyout Agreement, the Company filed a
Restated Certificate of Incorporation providing for the recapitalization
of the Company such that all shares of Class A voting common stock and
Class B nonvoting common stock became one class of voting common stock.
On October 27, 1995, the Company and certain management employees of the
Company entered into a voting trust agreement known as the QC Optics
Voting Trust (the Voting Trust), of which the President of the Company is
trustee. The Voting Trust continues in force for a period of 21 years
from October 27, 1995, unless terminated earlier as a result of a merger,
dissolution, sale of all or substantially all of the Company's assets or
liquidation.
F-14
QC OPTICS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(Continued)
(7) SUBSEQUENT EVENTS (Continued)
The Revolving Line of Credit matures on June 30, 1998, and the interest
rate per annum is the bank's prime rate (8.25% at June 4, 1996) plus 1%.
The Revolving Line of Credit has a fee on the daily unused portion of the
facility at the rate of 1/4% per annum. The aggregate amount outstanding
under the Revolving Line of Credit is limited to the sum of 80% of
qualifying receivables and 10% of qualifying inventory (not to exceed
$350,000), except that this maximum amount may be exceeded by $500,000
through October 31, 1996 (the Overadvance). Upon the elimination of the
Overadvance, the interest rate charged per annum shall be the bank's
prime rate plus .5%. In addition, the Revolving Line of Credit is secured
by unlimited personal guarantees from two management employees, and all
of the stockholders of the Voting Trust have pledged their Company shares
to the bank as collateral (the Guarantees). The terms of the Revolving
Line of Credit allow for the termination of these Guarantees provided
that any Overadvance is paid in full by November 1, 1996 and the
qualified inventory is excluded as part of the borrowing base, or upon
the receipt of $5,000,000 in net proceeds from an equity financing (gross
proceeds, less underwriting discounts and commissions) and if no event of
default exists, as defined in the Revolving Line of Credit agreement. At
March 31, 1996, the Company had outstanding borrowings under the
Revolving Line of Credit in the aggregate of $3,315,525, of which
$262,791 represents Overadvances, which have been properly reflected as a
current liability in the accompanying balance sheet as of March 31, 1996.
The Revolving Line of Credit provides for the maintenance of certain
specified financial ratios, including, but not limited to, a quick ratio,
minimum capital funds, maximum debt/capital funds ratio, and a minimum
earnings test, among other negative and affirmative covenants, and
restricts certain transactions without the bank's prior written consent.
In June 1996, the Company's Board of Directors approved an approximate
1.72-for-1 common stock split. Accordingly, all share and per share
amounts of common stock for all periods presented have been retroactively
adjusted to reflect the split. In addition, the stockholders increased
the authorized capital stock of the Company to 1,000,000 shares of $.01
par value preferred stock and 10,000,000 shares of $.01 par value common
stock.
In June 1996, the Board of Directors approved the 1996 Stock Option Plan
(the 1996 Plan) under which employees, including Directors who are
employees, may be granted options to purchase shares of the Company's
common stock at not less than fair market value on the date of grant, as
determined by the Board of Directors. The 1996 Plan also allows for
nonqualified stock options to be issued to employees and nonemployees at
prices that are less than fair market value. Options granted under the
1996 Plan are exercisable for up to a 10-year period from the date of
grant. The Company has reserved 360,000 shares of common stock for
issuance under the 1996 Plan. In June 1996, the Company granted options
under the 1996 Plan for the purchase of 124,492 shares at $5.10 per
share, estimated
F-15
QC OPTICS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(Continued)
(7) SUBSEQUENT EVENTS (Continued)
fair market value on the date of grant, which become exercisable over
three years, beginning on June 20, 1997, one year from the date of grant.
Additionally, in June 1996, the Company granted options to purchase
107,500 shares of common stock at $6.30 per share, which become
exercisable at the time the initial public offering becomes effective.
In June 1996, the Board of Directors approved a Director Formula Stock
Option Plan (the Formula Plan) in which options will be granted beginning
on June 18, 1996, and every four years thereafter, immediately following
the Company's annual meeting of stockholders, options shall be granted to
eligible nonemployee directors. Each director will receive options to
purchase 15,000 shares of common stock, which vest and are exercisable in
16 equal installments over a period of four years beginning on the first
day of the fiscal quarter immediately following the grant. The options
may be exercised at the fair market value of the shares of common stock
on the date of grant. The Company has reserved 100,000 shares of common
stock for issuance under the Formula Plan. In June 1996, the Company
granted options under the Formula Plan for the purchase of 30,000 shares
at $5.10 per share, estimated fair market value on the date of grant,
which become exercisable as previously discussed.
F-16
PHOTOS (Inside Back Cover)
1) Diskan-6000, Rigid Disk Inspection System
2) API-1100 FP, Flat Panel Display Inspection System
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus in
connection with the Offering made hereby, and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company, or any Underwriter. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make such an
offer or solicitation in such jurisdiction. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
time subsequent to the dates of which such information is furnished.
--------------
TABLE OF CONTENTS
Page
----
Prospectus Summary....................................................
Summary Financial Information.........................................
Risk Factors..........................................................
Use of Proceeds.......................................................
Dilution..............................................................
Capitalization........................................................
Dividend Policy.......................................................
Selected Financial Data...............................................
Management's Discussion and Analysis
of Financial Condition and Results
of Operations......................................................
Business..............................................................
Management............................................................
Principal Stockholders................................................
Certain Transactions..................................................
Description of Securities.............................................
Underwriting .........................................................
Shares Eligible for Future Sale.......................................
Interim Financial Information.........................................
Legal Matters.........................................................
Experts...............................................................
Additional Information................................................
Glossary..............................................................
Financial Statements..................................................
Until ____, 1996 (25 days after the later of the effective date of the
Registration Statement or the first date on which the Unites were offered to the
public) all dealers effecting transactions in the registered securities, whether
or not participating in the distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
================================================================================
QC OPTICS, INC.
950,000 SHARES OF COMMON STOCK
950,000 REDEEMABLE WARRANTS
PROSPECTUS
SCHNEIDER SECURITIES, INC.
_________________, 1996
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Delaware General Corporation Law, Section 102(b)(7), enables a
corporation in its original certificate of incorporation or an amendment thereto
validly approved by stockholders to eliminate or limit personal liability of
members of its Board of Directors for violations of a director's fiduciary duty
of care. However, the elimination or limitation shall not apply where there has
been a breach of the duty of loyalty, failure to act in good faith, engaging in
intentional misconduct or knowingly violating a law, paying a dividend,
approving a stock repurchase which is deemed illegal or obtaining an improper
personal benefit. The Company's Certificate of Incorporation includes the
following language:
To the maximum extent permitted by Section 102(b)(7) of the
General Corporation Law of Delaware, a director of this Corporation
shall not be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except
for liability (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director
derived an improper personal benefit.
Section 13 of the Company's Certificate of Incorporation, as amended,
which is filed as Exhibit 3a hereto, provides the following:
A. Right to Indemnification
Each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she, or a person for
whom he or she is the legal representative, is or was a director or
officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall
be indemnified and held harmless by the Corporation to the fullest
extent authorized by the General Corporation Law of the State of
Delaware, as the same now exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide prior to such amendment), against
all expenses, liability and loss (including attorney's fees, judgments,
fines, liability under federal tax laws or the Employee Retirement
Income Security Act of 1974, as amended from time to time
with respect to employee benefit plans, and amounts to be paid in
settlement) reasonably incurred or suffered by such person in
connection therewith; provided however that the Corporation shall
indemnify in connection with a proceeding (or part thereof) initiated
by such person only if such proceeding (or part thereof) was authorized
by the Board of Directors of the Corporation. The right to
indemnification referred to in the preceding sentence shall be a
contract right and shall include the right to be paid, by the
Corporation, expenses incurred in defending any such proceeding, in
advance of its final disposition; provided, however, that the payment
of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or
officer, including, without limitation, service to any employee benefit
plan) in advance of the final disposition of such proceeding, shall be
made only upon delivery to the Corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so advanced if
it should be determined ultimately that such director or officer is not
entitled to be indemnified under this Article 13 or otherwise.
B. Right of Claimant to Bring Suit.
If a claim under Part A of this Article 13 is not paid in full
by the Corporation within ninety (90) days after a written claim has
been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the
claimant shall be entitled to be paid also the expense of prosecuting
such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending
any proceeding in advance of its final disposition where the required
undertaking has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the
General Corporation Law of the State of Delaware for the Corporation to
indemnify the claimant for the amount claimed, but the burden of
providing such defense shall be on the Corporation. Neither the failure
of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is
proper in the circumstance because he or she has met the applicable
standard of conduct set forth in said law, nor an actual determination
by the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) that the claimant had not met such
applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant had not met the applicable
standard of conduct.
C. Non-Exclusivity of Rights.
The rights conferred on any person by Parts A and B of this
Article 13 shall not be exclusive of any other right which such person
may have or hereafter acquire under any statute, provision of this
Certificate of Incorporation, bylaw, agreement,
vote of stockholders or disinterested directors or otherwise.
D. Insurance.
The Corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including any
employee benefit plan, against any liability asserted against any such
person and incurred by such person in any such capacity, or arising out
of such person's status as such, whether or not the Corporation would
have the power to indemnify such person against such liability under
the General Corporation Law of the State of Delaware.
Delaware General Corporation Law, Section 145, permits a corporation
organized under Delaware Law to indemnify directors and officers with respect to
any matter in which the director or officer acted in good faith and in a manner
he reasonably believed to be not opposed to the best interests of the Company,
and, with respect to any criminal action, had reasonable cause to believe his
conduct was lawful. The bylaws of the Company include the following provision:
Reference is made to Section 145 and any other relevant
provisions of the General Corporation Law of the State of Delaware.
Particular reference is made to the class of persons, hereinafter called
"Indemnitees," who may be indemnified by a Delaware corporation pursuant
to the provisions of such Section 145, namely, any person, or the heirs,
executors, or administrators of such person, who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, by reason of the fact that such person is or was a
director, officer, employee, or agent of such corporation or is or was
serving at the request of such corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise. The Corporation shall, and is hereby
obligated in addition to any obligation incurred pursuant to the
Corporation's Certificate of Incorporation, as amended, to indemnify the
Indemnitees, and each of them, in each and every situation where the
Corporation is obligated to make such indemnification pursuant to the
aforesaid statutory provisions. The Corporation shall indemnify the
Indemnitees, and each of them, in each and every situation where, under
the aforesaid statutory provisions, the Corporation is not obligated,
but is nevertheless permitted or empowered, to make such
indemnification, it being understood that, before making such
indemnification with respect to any situation covered under this
sentence, (i) the Corporation shall promptly make or cause to be made,
by any of the methods referred to in Subsection (d) of such Section 145,
a determination as to whether each Indemnitee acted in good faith and in
a manner he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, in the case of any criminal action or
proceeding, had no reasonable cause to believe that his conduct was
unlawful, and (ii) that no such indemnification shall be made unless it
is determined that such indemnification shall be made unless it is
determined that such Indemnitee acted in good faith and in
a manner he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, in the case of any criminal action or
proceeding, had no reasonable cause to believe that his conduct was
unlawful.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all expenses (subject to future
contingencies) incurred or expected to be incurred by the Company in connection
with the issuance and distribution of the Securities being offered hereby other
than underwriting discounts and commissions (items marked with an asterisk (*)
represent estimated expenses):
SEC Filing Fee............................................... $ 5,874.26
NASD Filing Fee.............................................. $ 2,203.54
Blue Sky Filing Fees* ....................................... $ 10,000.00
Listing Fee*................................................. $ 21,387.50
Printing and Engraving Costs*................................ $ 75,000.00
Transfer Agent Fees*......................................... $ 10,000.00
Legal Fees*.................................................. $ 300,000.00
Accounting Fees*............................................. $ 90,000.00
Representative's Expense Allowance........................... $ 173,850.00
Financial Consulting Fee..................................... $ 108,000.00
Miscellaneous*............................................... $ 90,684.70
-------------
TOTAL*.............................................. $ 887,000.00
=============
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below in chronological order is information regarding the
issuance and sales of securities of the Company without registration under the
Securities Act in the past three (3) years. Except as otherwise indicated, no
sales of securities involved the use of an underwriter and no commissions were
paid in connection with the sale of any securities.
1. On September 15, 1994, the Company issued 2,400 shares of Class B
Non-Voting Common Stock, $.01 par value per share to Kobe Steel USA Holdings,
Inc. in connection with a conversion of Class A Cumulative Preferred Stock, $.01
par value.
2. On March 29, 1996, the Company issued an aggregate of 785,000 shares
of Common Stock, $.01 par value per share to QC Optics, Inc. Voting Trust u/t/d
October 27, 1995 in connection with a merger of Sally, Inc., a corporation owned
by Messrs. Chase, Bernal, Ormsby, Freeman, Tobey and Boudour.
3. On June 19, 1996, the Company issued 334,987 shares of Common Stock,
$.01 par value per share to Kobe Steel USA Holdings, Inc. in connection with an
approximate 1.716704:1 stock split accounted for in the form of a 0.716704:1
stock dividend.
4. On June 19, 1996, the Company issued 562,613 shares of Common Stock,
$0.1 par
value to QC Optics, Inc. Voting Trust u/t/d October 27, 1995 in connection with
a 1.716704:1 stock split accounted for in the form of a 0.716704:1 stock
dividend.
5. In June 1996, pursuant to its 1996 Stock Option Plan, the Company
granted options to employees and advisors to purchase an aggregate of 231,992
shares of Common Stock at an exercise prices of $5.10 and $6.30, respectively.
None of the 231,992 stock options have been exercised to date.
6. In June 1996, pursuant to its 1996 Director Formula Stock Option
Plan, the Company granted options to eligible disinterested directors to
purchase 30,000 shares of Common Stock at an exercise price of $5.10. None of
the 30,000 formula stock options have been exercised to date.
The foregoing transactions were exempt from registration under the
Securities Act by virtue of the provisions of Section 4(2) and/or Section 3(b)
of the Securities Act. Each purchaser of the securities described above has
represented or will represent prior to the purchase of the securities that he or
she understands that the securities acquired may not be sold or otherwise
transferred absent registration under the Securities Act or the availability of
an exemption from the registration requirements of the Securities Act, and each
certificate evidencing the securities owned by each purchaser bears or will bear
upon issuance a legend to that effect.
ITEM 27. EXHIBITS
The following exhibits are filed herewith:
EXHIBIT
NO. TITLE
--- -----
1a* -- Form of Agreement Among Underwriters.
1b -- Form of Underwriting Agreement.
1c -- Form of Selected Dealers Agreement.
2 -- Not applicable.
3a -- Certificate of Incorporation, as amended.
3b -- Bylaws, as amended.
4a -- Sections of Bylaws and Certificate of Incorporation defining the
rights of securityholders (contained in Exhibits 3a and 3b).
4b* -- Specimen Common Stock Certificate.
4c -- Form of Representative's Warrant Agreement.
4d -- Form of Lock-Up Letters.
4e* -- Specimen Warrant Certificate.
4f* -- Form of Warrant Agreement between the Company and the Warrant
Agent.
5 -- Opinion Letter of O'Connor, Broude & Aronson as to legality of
securities being registered.
6 -- Not applicable.
7 -- Not applicable.
8 -- Not applicable.
9 -- QC Optics Voting Trust u/d/t dated as of October 27, 1995 by and
among Eric T. Chase, as trustee, and Eric T. Chase, Karl Andrew
Bernal, Jay L. Ormsby, John R. Freeman, Albert E. Tobey and Abdu
Boudour.
10a -- Lease Agreement between the Company and Norwest Building 24 Trust,
as extended and amended.
10b -- Stock Repurchase and Loan Repayment Agreement among the Company,
Kobe Steel USA Holdings, Inc., and Eric T. Chase, as trustee of
the QC Optics Voting Trust, dated October 27, 1995.
10c -- Agreement and Plan of Merger by and among the Company, Sally, Inc.
and the Stockholders of Sally, Inc., dated October 30, 1995.
10d -- First Amendment to the Stock Repurchase and Loan Repayment
Agreement by and among the Company, Kobe Steel USA Holdings, Inc.,
and Eric T. Chase, as trustee and on behalf of the QC Optics
Voting Trust, dated March 29, 1996.
10e -- Secured Subordinated Promissory Note of the Company to Kobe Steel
USA Holdings, Inc., dated March 29, 1996.
10f -- Subordinated Security Agreement by and between the Company and
Kobe Steel USA Holdings, Inc., dated March 29, 1996.
10g -- Intercreditor Agreement between State Street Bank and Trust
Company, Kobe Steel USA Holdings, Inc. and the Company, dated
March 29, 1996.
10h -- Promissory Note of QC Optics, Inc. to State Street Bank and Trust
Company, dated March 29, 1996.
10i -- Security Agreement (All Assets) by and between the Company and
State Street Bank and Trust Company, dated March 29, 1996.
10j -- Credit Agreement by and between the Company and State Street Bank
and Trust Company, dated March 29, 1996.
10k -- Collateral Assignment of Trademarks and Patents by and between the
Company and State Street Bank and Trust Company, dated March 29,
1996.
10l -- Collateral Pledge Agreement by Eric T. Chase, as trustee on behalf
of QC Optics Voting Trust, dated March 29, 1996.
10m -- Unlimited Guarantee of Eric T. Chase as trustee of the QC Optics
Voting Trust for financing commitments of the Company with State
Street Bank and Trust Company, dated March 29, 1996.
10n -- Unlimited Guaranty of Eric T. Chase for financing commitments of
the Company with State Street Bank and Trust Company, dated March
29, 1996.
10o -- Unlimited Guaranty of K. Andrew Bernal for financing commitments
of the Company with State Street Bank and Trust Company, dated
March 29, 1996
10p -- 1996 Stock Option Plan.
10q -- 1996 Director Formula Stock Option Plan.
10r -- Form of Employment Agreements effective as of July 1, 1996 entered
into by and between the Company and Eric T. Chase, Jay L. Ormsby,
Albert E. Tobey, K. Andrew Bernal, Abdu Boudour and John R.
Freeman.
10s* -- Distribution Agreement by and between ETEC Systems, Inc. and the
Company, dated December 19, 1994.
11 -- Earnings Per Share Computations.
12 -- Not applicable.
13 -- Not applicable.
14 -- Not applicable.
15 -- Not applicable.
16 -- Not applicable
17 -- Not applicable.
18 -- Not applicable.
19 -- Not applicable.
20 -- Not applicable.
21 -- Not applicable.
22 -- Not applicable.
23a -- Consent of O'Connor, Broude & Aronson (contained as Opinion filed
as Exhibit 5).
23.1 -- Consent of Arthur Andersen LLP
24 -- Not applicable.
25 -- Not applicable.
26 -- Not applicable.
27 -- Financial Data Schedule.
28 -- Not applicable.
- ----------
* To be filed by amendment
ITEM 28. UNDERTAKINGS
(a) The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement
to:
(i) include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) reflect in the prospectus any facts or events
which, individually or together, represent a fundamental
change in the information set forth in the registration
statement; and
(iii) include any additional or changed material
information on the plan of distribution;
(2) For determining liability under the Securities Act of
1933, treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of such
securities at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
Offering.
(b) The undersigned small business issuer will provide to the
underwriter at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers, and controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer, or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(d) The small business issuer hereby undertakes that for the purpose of
determining liability under the Securities Act:
(1) it will treat the information omitted from the form of
Prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
issuer under Rule 424(b)(1), or (4), or 497(h) under the Securities
Act, as part of this registration statement as of the time the
Commission declared it effective; and
(2) it will treat each post-effective amendment that contains a
form of prospectus as a new registration statement for the securities
offered in the registration statement, and that offering of the
securities at that time as the initial bona fide offering of those
securities.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
Town of Burlington, Commonwealth of Massachusetts, on July 3, 1996.
QC OPTICS, INC.
By: /s/ Eric T. Chase
---------------------------------------
Eric T. Chase,
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates stated.
<TABLE>
<CAPTION>
Name Capacity Date
---- -------- ----
<S> <C> <C>
/s/ Eric T. Chase President, Chief Executive Officer, July 3, 1996
- ---------------------------- and Chairman of the Board
Eric T. Chase of Directors
(Principal Executive Officer)
/s/ John R. Freeman Vice President of Finance July 3, 1996
- --------------------------- and Treasurer
John R. Freeman (Principal Financial and
Principal Accounting Officer)
/s/ Charles H. Fine Director July 3, 1996
- --------------------------
Charles H. Fine
/s/ Yutaka Goto Director July 3, 1996
- --------------------------
Yutaka Goto
/s/ John M. Tarrh Director July 3, 1996
- -------------------------
John M. Tarrh
</TABLE>
QC OPTICS INC.
950,000 SHARES
OF COMMON STOCK
AND
950,000 REDEEMABLE WARRANTS
UNDERWRITING AGREEMENT
Schneider Securities, Inc. , 1996
1120 Lincoln Street
Denver, Colorado 80203
DEAR SIRS:
QC Optics, Inc., a Delaware corporation (the "Company"), proposes to issue
and sell to the several Underwriters named in Schedule I hereto (the
"Underwriters"), 950,000 shares of common stock of the Company and 950,000
redeemable warrants (the "Securities"). The Company hereby confirms the
agreement made by it with respect to the purchase of the Securities by the
Underwriter, which Securities are more fully described in the Registration
Statement referred to below. Schneider Securities, Inc. is referred to herein as
the "Underwriter" or the "Representative."
You have advised the Company that the Underwriters desire to act on a firm
commitment basis to purchase the Securities from the Company and to publicly
offer and sell the Securities and that you are authorized to execute this
Agreement. The Company confirms the agreement made by it with respect to the
relationship with the Underwriters as follows:
1. Filing of Registration Statement with S.E.C. and Definitions. A Registration
Statement and Prospectus on Form SB-2 (File No. ) with respect to the Securities
has been carefully and accurately prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
published rules and regulations (the "Rules and Regulations") thereunder or
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
has been filed with the Securities and Exchange Commission (the "Commission")
and such other states that the Underwriter deems necessary in its discretion to
so file to permit a public offering and trading thereunder. Such registration
statement, including the prospectus, Part II, and all financial schedules and
exhibits thereto, as amended at the time when it shall become effective, is
herein referred to as the "Registration Statement," and the prospectus included
as part of the Registration Statement on file with the Commission that discloses
all the information that was omitted from the prospectus on the effective date
pursuant to Rule 430 A of the Rules and Regulations with any changes contained
in any prospectus filed with the commission by the Company with the Underwriters
consent after the effective date of the Registration Statement, is herein
referred to as the "Final Prospectus." The prospectus included as part of the
Registration Statement of the Company and in any amendments thereto prior to the
effective date of the Registration Statement is referred to herein as a
"Preliminary Prospectus."
2. Discount, Delivery, and Sale of the Securities
(a) Subject to the terms and conditions of this Agreement, and on the basis
of the representations, warranties, and agreements herein contained, the Company
agrees to sell to, and the Underwriters agree to buy from the Company at a
purchase price of $6.00 per Share and at $0.10 per Redeemable Warrant before any
underwriter expense allowance, an aggregate of 950,000 shares of Common Stock,
and 950,000 Redeemable Warrants on a firm commitment basis the "Initial
Securities".
It is understood that the Underwriters propose to sell the Securities to be
purchased hereunder to the public upon the terms and conditions set forth in the
Registration Statement, after the Registration Statement becomes effective.
(b) Delivery of the Securities against payment of the purchase price
therefor by certified or official bank check or checks or wire transfer in
next-day funds, payable to the order of the Company shall take place at the
offices of the clearing broker for the Underwriter at New York City, within four
(4) business days after the Securities are first traded (or such other place as
may be designated by agreement between you and the Company) at 11:00 A.M., New
York time or such time and date as you and the Company may agree upon in
writing, such time and date of payment and delivery for the Securities being
herein called the "Initial Closing Date."
The Company will make the certificates for the shares of Common Stock and
Redeemable Warrants to be purchased by the Underwriters hereunder available to
the Underwriter for inspection and packaging at least two (2) full business days
prior to the Initial Closing Date. The certificates shall be in such names and
denominations as the Underwriter may request to the Company in writing at least
two (2) full business days prior to any Closing Date.
(c) In addition, subject to the terms and conditions of this Agreement and
on the basis of the representations, warranties and agreements herein contained,
the Company grants an option to the Underwriters to purchase up to an additional
142,500 shares of Common Stock and/or up to 142,500 additional Warrants ("Option
Securities") at the same terms as the Underwriters shall pay for the Initial
Securities being sold by the Company pursuant to the provisions of Section 2(a)
hereof. This option may be exercised from time to time, for the purpose of
covering overallotments, within forty-five (45) days after (i) the effective
date of the Registration Statement if the Company has elected not to rely on
Rule 430A under the Rules and Regulations or (ii) the date of this Agreement if
the Company has elected to rely upon Rule 430A under the Rules and Regulations,
upon written notice by the Underwriter setting forth the number of Option
Securities as to which the Representative is exercising the option and the time
and date at which such certificates are to be delivered. Such time and date
shall be determined by the Representative. Nothing herein shall obligate the
Representative to make any overallotment.
(d) Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriter hereunder will be delivered at the closing by the
Company to the Underwriters against payment of the purchase price by the
Underwriters as described in section 2(b) above.
(e) The information set forth under "Underwriting" in any preliminary
prospectus and Prospectus relating to the Securities and the information set
forth in the last paragraph on the front cover page, under the last paragraph on
page 2 concerning stabilization and over-allotment by the Underwriters, and
(insofar as such information relates to the Underwriters) constitutes the only
information furnished by the Underwriter to the Company for inclusion therein,
and you represent and warrant to the Company that the statements made therein
are correct.
(f) On the Initial Closing Date, the Company shall issue and sell to the
Representative, warrants (the "Representative's Warrants") at a purchase price
of $.001 per Representative's Warrant, which shall entitle the holders thereof
to purchase an aggregate of 95,000 shares of Common Stock and 95,000 Redeemable
Warrants. The shares of Common Stock and Redeemable Warrants issuable upon the
exercise of the Representative's Warrants are hereafter referred to as the
"Representative's Securities" or "Representative's Warrants." The shares of
common stock issuable upon exercise of the redeemable warrants are hereinafter
referred to collectively as the "Warrant Shares". The Representative's Warrants
shall be exercisable for a period of four (4) years commencing one (1) year from
the effective date of the Registration Statement at a price equaling one hundred
and forty percent (140%)of the initial public offering price of the Securities.
The form and terms of the of Representative's Warrant Certificate shall be
substantially in the form filed as an Exhibit to the Registration Statement.
Payment for the Representative's Warrants shall be made on the Initial Closing
Date.
3. Representations and Warranties of the Company.
(a) The Company represents and warrants to you as follows:
2
(i) The Company has prepared and filed with the Commission a registration
statement, and an amendment or amendments thereto, on Form SB-2 (No._______),
including any related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Securities, the Representative's Warrant and the Warrant
Shares (sometimes referred to herein collectively as the "Registered
Securities"), under the Act, which registration statement and amendment or
amendments have been prepared by the Company in conformity with the requirements
of the Act, and the Rules and Regulations. The Company will promptly file a
further amendment to said registration statement in the form heretofore
delivered to the Underwriter and will not file any other amendment thereto to
which the Underwriter shall have objected verbally or in writing after having
been furnished with a copy thereof. Except as the context may otherwise require,
such registration statement, as amended, on file with the Commission at the time
the registration statement becomes effective (including the prospectus,
financial statements, any schedules, exhibits and all other documents filed as a
part thereof or that may be incorporated therein (including, but not limited to
those documents or information incorporated by reference therein) and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430(A) of the Rules and Regulations), is hereinafter called the
"Registration Statement," and the form of prospectus in the form first filed
with the Commission pursuant to Rule 424(b) of the Rules and Regulations, is
hereinafter called the "Prospectus."
(ii) Neither the Commission nor any state regulatory authority has issued
any order preventing or suspending the use of any Prospectus or the Registration
Statement and no proceeding for an order suspending the effectiveness of the
Registration Statement or any of the Company's securities has been instituted or
is pending or threatened. Each such Prospectus and/or any supplement thereto has
conformed in all material respects with the requirements of the Act and the
Rules and Regulations and on its date did not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein not misleading, in light of the circumstances under which they were
made; and when the Prospectus becomes legally effective and for twenty-five (25)
days subsequent thereto (i) the Prospectus and/or any supplement thereto will
contain all statements which are required to be stated therein by the Act and
Rules and Regulations, and (ii) the Prospectus and/or any supplement thereto
will not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, in light of the circumstances under which they were
made; provided, however, that no representations, warranties or agreements are
made hereunder as to information contained in or omitted from the Prospectus in
reliance upon, and in conformity with, the written information furnished to the
Company by you as set forth in Section 2(e) above.
(iii) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the state of its incorporation,
with full power and authority (corporate and other) to own its properties and
conduct its businesses as described in the Prospectus and is duly qualified to
do business as a foreign corporation in good standing in all other jurisdictions
in which the nature of its business or the character or location of its
properties requires such qualification, except where the failure to so qualify
would not have a material adverse effect on the business, properties or
operations of the Company and the subsidiaries as a whole.
(iv) The Company has full legal right, power and authority to authorize,
issue, deliver and sell the Securities, the Option Securities and the
Representative's Securities and to enter into this Agreement, the
Representative's Warrant dated as of the initial closing date to be exercised
and delivered by the Company to the Representative (the "Representative's
Warrant Agreement"), and the Financial Advisory and Investment Banking Agreement
dated as of the Initial Closing Date between the Company and the Representative
(the "Consulting Agreement"), and to consummate the transactions provided for in
such agreements, and each of such agreements has been duly and properly
authorized, and on the Initial Closing Date will be duly and properly executed
and delivered by the Company. This Agreement constitutes and on the Initial
Closing Date each of the Representative's Warrant Agreement and the Consulting
Agreement will then constitute valid and binding agreements, enforceable in
accordance with their respective terms (except as the enforceability thereof may
be limited by bankruptcy or other similar laws affecting the rights of creditors
generally or by general equitable principles and except as the enforcement of
indemnification provisions may be limited by federal or state securities laws).
(v) Except as disclosed in the Prospectus, the Company is not in
violation of its respective certificate or articles of incorporation or bylaws
or in default in the performance or observance of any material obligation,
agreement,
3
covenant or condition contained in any material bond, debenture, note or other
evidence of indebtedness or in any material contract, indenture, mortgage, loan
agreement, lease, joint venture, partnership or other agreement or instrument to
which the Company is a party or by which it may be bound or is not in material
violation of any law, order, rule, regulation, writ, injunction or decree of any
governmental instrumentality or court, domestic or foreign; and the execution
and delivery of this Agreement, the Representative's Warrant Agreement and the
Consulting Agreement, and the consummation of the transactions contemplated
therein and in the Prospectus and compliance with the terms of each such
agreement will not conflict with, or result in a material breach of any of the
terms, conditions or provisions of, or constitute a material default under, or
result in the imposition of any material lien, charge or encumbrance upon any of
the property or assets of the Company pursuant to, any material bond, debenture,
note or other evidence of indebtedness or any material contract, indenture,
mortgage, loan agreement, lease, joint venture, partnership or other agreement
or instrument to which the Company is a party nor will such action result in the
material violation by the Company of any of the provisions of its respective
certificate or articles of incorporation or bylaws or any law, order, rule,
regulation, writ, injunction, decree of any government, governmental
instrumentality or court, domestic or foreign, except where such violation will
not have a material adverse effect on the financial condition of the Company.
(vi) The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectus and the Company will have the adjusted
capitalization set forth therein on the Initial Closing Date; all of the shares
of issued and outstanding capital stock of the Company set forth therein have
been duly authorized, validly issued and are fully paid and nonassessable; the
holders thereof do not have any rights of rescission with respect therefor and
are not subject to personal liability for any obligations of the Company by
reason of being stockholders under the laws of the State in which the Company is
incorporated; none of such outstanding capital stock is subject to or was issued
in violation of any preemptive or similar rights of any stockholder of the
Company; and such capital stock (including the Securities, the Option Securities
and the Representative's Securities) conforms in all material respects to all
statements relating thereto contained in the Prospectus.
(vii) The Company is not a party to or bound by any instrument, agreement or
other arrangement providing for it to issue any capital stock, rights, warrants,
options or other securities, except for this Agreement or as described in the
Prospectus. The Securities, the Option Securities and the Representative's
Securities are not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when issued, paid for
and delivered in accordance with the terms hereof, will be validly issued, fully
paid and non-assessable and will conform to the respective descriptions thereof
contained in the Prospectus; except for payment of the applicable purchase price
paid upon exercise of the options or warrants, as the case may be the holders
thereof will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and sale of
the Securities, the Option Securities and the Representative's Securities has
been duly and validly taken; and the certificates representing the Securities,
the Option Securities and the Representative's Securities will be in due and
proper form. Upon the issuance and delivery pursuant to the terms hereof of the
Securities, the Option Securities and the Representative's Securities to be sold
by the Company hereunder, the Underwriter will acquire good and marketable title
to such Securities, Option Securities and Representative's Securities free and
clear of any lien, charge, claim, encumbrance, pledge, security interest, defect
or other restriction of any kind whatsoever other than restrictions as may be
imposed under the securities laws.
(viii) The Company has good and marketable title to all properties and
assets described in the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances or restrictions, except such as are described or referred
to in the Prospectus or which are not materially significant or important in
relation to its business or which have been incurred in the ordinary course of
business; except as described in the Prospectus all of the leases and subleases
under which the Company holds properties or assets as lessee or sublessee as
described in the Prospectus are in full force and effect, and the Company is not
in material default in respect of any of the terms or provisions of any of such
leases or subleases, and no claim has been asserted by anyone adverse to the
Company's rights as lessor, sublessor, lessee or sublessee under any of the
leases or subleases mentioned above or affecting or questioning the Company's
right to the continued possession of the leased or subleased premises or assets
under any such lease or sublease; and the Company owns or leases all such
properties as are necessary to its operations as now conducted and as
contemplated to be conducted, except as otherwise stated in the Prospectus.
4
(ix) The financial statements, together with related notes, set forth
in the Prospectus fairly present the financial position and results of
operations of the Company at the respective dates and for the respective periods
to which they apply. Said statements and related notes have been prepared in
accordance with generally accepted accounting principles applied on a basis
which is consistent in all material respects during the periods involved but any
stub period has not been audited by an independent accounting firm. There has
been no material adverse change or material development involving a prospective
change in the condition, financial or otherwise, or in the prospects, value,
operation, properties, business or results of operations of the Company whether
or not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the Prospectus.
(x) Subsequent to the respective dates as of which information is
given in the Prospectus as it may be amended or supplemented, and except as
described in the Prospectus, the Company has not, directly or indirectly,
incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business or entered into any transactions not in the ordinary
course of business, which are material to the business of the Company as a whole
and there has not been any change in the capital stock of, or any incurrence of
long term debts by, the Company or any issuance of options, warrants or rights
to purchase the capital stock of the Company or declaration or payment of any
dividend on the capital stock of the Company or any material adverse change in
the condition (financial or other), net worth or results of operations of the
Company as a whole and the Company has not become a party to, any material
litigation whether or not in the ordinary course of business.
(xi) To the knowledge of the Company, there is no pending or
threatened, action, suit or proceeding to which the Company is a party before or
by any court or governmental agency or body, which might result in any material
adverse change in the condition (financial or other), business or prospects of
the Company as a whole or might materially and adversely affect the properties
or assets of the Company as a whole nor are there any actions, suits or
proceedings against the Company related to environmental matters or related to
discrimination on the basis of age, sex, religion or race which might be
expected to materially and adversely affect the conduct of the business,
property, operations, financial condition or earnings of the Company as a whole;
and no labor disturbance by the employees of the Company individually exists or
is, to the knowledge of the Company, imminent which might be expected to
materially and adversely affect the conduct of the business, property,
operations, financial condition or earnings of the Company as a whole.
(xii) Except as may be disclosed in the Prospectus, the Company has
properly prepared and filed all necessary federal, state, local and foreign
income and franchise tax returns, has paid all taxes shown as due thereon, has
established adequate reserves for such taxes which are not yet due and payable,
and does not have any tax deficiency or claims outstanding, proposed or assessed
against it.
(xiii) The Company has sufficient licenses, permits, right to use trade
or service marks and other governmental authorizations currently required for
the conduct of its business as now being conducted and as contemplated to be
conducted and the Company is in all material respects complying therewith.
Except as set forth in the Prospectus, the expiration of any such licenses,
permits, or other governmental authorizations would not materially affect the
Company's operations. To its knowledge, none of the activities or businesses of
the Company are in material violation of, or cause the Company to materially
violate any law, rule, regulations, or order of the United States, any state,
county or locality, or of any agency or body of the United States or of any
state, county or locality.
(xiv) The Company has not at any time (i) made any contributions to any
candidate for political office in violation of law, or failed to disclose fully
any such contribution, or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public or
quasipublic duties, other than payments required or allowed by applicable law.
(xv) Except as set forth in the Prospectus the Company knows of no
outstanding claims for services either in the nature of a finder's fee,
brokerage fee or otherwise with respect to this financing for which the Company
or the Underwriters may be responsible, or which may affect the Underwriter's
compensation as determined by the
5
National Association of Securities Dealers, Inc. ("NASD") except as otherwise
disclosed in the Prospectus or known by the Underwriters.
(xvi) The Company has its property adequately insured against loss or
damage by fire and maintains such other insurance as is customarily maintained
by companies in the same or similar business.
The Representative's Warrants herein described are duly and validly
authorized and upon delivery to the Representative in accordance herewith will
be duly issued and legal, valid and binding obligations of the Company, except
as the enforceability thereof may be limited by bankruptcy or other similar laws
affecting the rights of creditors generally or by equitable principles, and
except as the enforcement of indemnification provisions may be limited by
federal or state securities laws.
(xvii) The Representative's Securities issuable upon exercise of any of
the Representative's Warrants have been duly authorized, and when issued upon
payment of the exercise price therefor, will be validly issued, fully paid and
nonassessable.
(xviii) Except as set forth in the Prospectus, no default exists in the
due performance and observance of any term, covenant or condition of any
material license, contract, indenture, mortgage, installment sale agreement,
lease, deed of trust, voting trust agreement, stockholders agreement, note, loan
or credit agreement, purchase order, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which the Company is a party or by which the Company may be bound
or to which the property or assets (tangible or intangible) of the Company is
subject or affected.
(xix) To the best of the Company's knowledge it has generally enjoyed a
satisfactory employer-employee relationship with its employees and, to the best
of its knowledge, is in substantial compliance in all material respects with all
federal, state, local, and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and
hours. To the best of the Company's knowledge, there are no pending
investigations involving the Company, by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. To the best of the Company's
knowledge, there is no unfair labor practice charge or complaint against the
Company pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or to its knowledge involving the Company, or any predecessor entity, and none
has ever occurred. To the best of the Company's knowledge, no representation
question is pending respecting the employees of the Company, and no collective
bargaining agreement or modification thereof is currently being negotiated by
the Company. To the best of the Company's knowledge, no grievance or arbitration
proceeding is pending or to its knowledge threatened under any expired or
existing collective bargaining agreements of the Company. No labor dispute with
the employees of the Company is pending, or, to its knowledge is imminent; and
the Company is not aware of any pending or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or contractors which
may result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs, position, prospects, value,
operation, properties, business or results of operations of the Company.
(xx) Except as may be set forth in the Registration Statement, the
Company does not maintain, sponsor or contribute to any program or arrangement
that is an "employee pension benefit plan," an "employee welfare benefit plan,"
or a "multiemployer plan" as such terms are defined in Sections 3(2), 3(l) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). The Company does not maintain or contribute,
now or at any time previously, to a defined benefit plan, as defined in Section
3(35) of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Internal Revenue Code (the "Code"), which could subject the Company
to any tax penalty on prohibited transactions and which has not adequately been
corrected. Each ERISA Plan is in compliance with all material reporting,
disclosure and other requirements of the Code and ERISA as they relate to any
such ERISA Plan. Determination letters have been received from the Internal
Revenue Service with respect to each ERISA Plan which is intended to comply with
Code Section 401 (a), stating that such ERISA
6
Plan and the attendant trust are qualified thereunder. The Company has never
completely or partially withdrawn from a "multiemployer plan."
(xxi) None of the Company, or any of its employees, directors,
stockholders, or affiliates (within the meaning of the Rules and Regulations)
has taken or will take, directly or indirectly, any action designed to or which
has constituted or which might be expected to cause or result in, under the
Exchange Act, or otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Securities,
Option Securities, Representative's Securities or otherwise.
(xxii) None of the patents, patent applications, trademarks, service
marks, trade names, copyrights, and licenses and rights to the foregoing
presently owned or held by the Company, are in dispute or, to the best knowledge
of the Company's management are in any conflict with the right of any other
person or entity. The Company (i) except as disclosed in the Prospectus owns or
has the right to use, all patents, trademarks, service marks, trade names and
copyrights, technology and licenses and rights with respect to the foregoing,
used in the conduct of its business as now conducted or proposed to be conducted
without infringing upon or otherwise acting adversely to the right or claimed
right of any person, corporation or other entity under or with respect to any of
the foregoing, and except as set forth in the Prospectus or otherwise disclosed
to the Underwriter in writing, to the best knowledge of the Company's management
is not obligated or under any liability whatsoever to make any material payments
by way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, any patent, trademark, service mark, trade name, copyright,
know-how, technology or other intangible asset, with respect to the use thereof
or in connection with the conduct of its business or otherwise.
(xxiii) Except as disclosed in the Prospectus the Company owns and has
adequate right to use to the best knowledge of the Company's management all
trade secrets, know-how (including all other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), inventions,
designs, processes, works of authorship, computer programs and technical data
and information (collectively herein "intellectual property") required for or
incident to the development, manufacture, operation and sale of all products and
services sold or proposed to be sold by the Company. The Company is not aware of
any such development of similar or identical trade secrets or technical
information by others. The Company has valid and binding confidentiality
agreements with all of its officers, covering its intellectual property (subject
to the equitable powers of any court), which agreements have remaining terms of
at least two years from the effective date of the Registration Statement except
where the failure to have such agreements would not materially and adversely
effect the Company's business taken as a whole. The Company has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property stated in the Prospectus, to be owned or leased by it
free and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects, or other restrictions or equities of any kind whatsoever,
other than those referred to in the Prospectus and liens for taxes not yet due
and payable.
(xxiv) Arthur Andersen, LLP whose reports are filed with the Commission
as a part of the Registration Statement, are independent certified public
accountants as required by the Act and the Rules and Regulations.
(xxv) Except for Kobe Steel Co. and except in connection with
acquisitions or pursuant to warrants and options outstanding immediately prior
to the closing, the Company has agreed to execute and the Company has also
caused to be duly executed, agreements pursuant to which each of the Company's
officers and directors and shareholders and any person or entity deemed to be an
affiliate of the Company pursuant to the Rules and Regulations has agreed not
to, directly or indirectly, sell, assign, transfer, or otherwise dispose of any
shares of Common Stock or securities convertible into, exercisable or
exchangeable for or evidencing any right to purchase or subscribe for any shares
of Common Stock (either pursuant to Rule 144 of the Rules and Regulations or
otherwise) for a period of not less than thirteen (13) months following such
effective date without the prior written approval of the Representative and if
such approval is granted, then to be extended on a pro-rata basis to all other
restricted shareholders. The Company will cause the Transfer Agent, as defined
below, to mark an appropriate legend on the face of stock certificates
restricting the transfer of all of such securities and to place "stop transfer"
orders on the Company's stock ledgers.
7
(xxvi) The Registered Securities have been approved for listing on
NASDAQ-National Market System, NASDAQ or an Exchange.
(xxvii) Except as set forth in the Prospectus or disclosed in writing
to the Underwriter (which writing specifically refers to this Section), no
officer or director of the Company, holder of 5% or more of securities of the
Company or any "affiliate" or "associate" (as these terms are defined in Rule
405 promulgated under the Rules and Regulations) of any of the foregoing persons
or entities has or has had, either directly or indirectly, (i) an interest in
any person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or services, or
(ii) a beneficiary interest in any contract or agreement to which the Company is
a party or by which it may be bound or affected. Except as set forth in the
Prospectus under "Certain Transactions" or disclosed in writing to the
Underwriter (which writing specifically refers to this Section) there are no
existing agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company, and any officer, director, principal stockholder of the Company, or any
partner, affiliate or associate of any of the foregoing persons or entities.
(xxviii) Any certificate signed by any officer of the Company, and
delivered to the Underwriter or to the Underwriter's counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the Underwriter
as to the matters covered thereby.
(xxix) Each of the minute books of the Company has been made available
to the Underwriter and contains a complete summary of all meetings and actions
of the directors and stockholders of the Company, since the time of its
incorporation and reflect all transactions referred to in such minutes
accurately in all respects.
(xxx) As of the Initial Closing Date, the Company will enter into the
Consulting Agreement substantially in the form filed as an Exhibit to the
Registration Statement with respect to the furnishing of consulting services by
the Representative to the Company.
(xxxi) Except and only to the extent described in the Prospectus or
disclosed in writing to the Underwriter (which writing specifically refers to
this Section), no holders of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company have the
right to include any securities issued by the Company in the Registration
Statement or any registration statement to be filed by the Company or to require
the Company to file a registration statement under the Act and no person or
entity holds any anti-dilution rights with respect to any securities of the
Company. Except as disclosed in the Prospectus, all rights so described or
disclosed have been waived or have not been triggered with respect to the
transactions contemplated by this Agreement, the Consulting Agreement and the
Representative's Warrant Agreement (including the warrants issuable thereunder).
(xxxii) The Company has not entered into any employment agreements with
its executive officers, except as disclosed in the Prospectus.
(xxxiii) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Registered Securities pursuant to
the Prospectus and the Registration Statement, the issuance of the Underwriter's
Warrants, the performance of this Agreement, the Representative's Warrant
Agreement and the Consulting Agreement, and the transactions contemplated hereby
and thereby, including without limitation, any waiver of any preemptive, first
refusal or other rights that any entity or person may have for the issue and/or
sale of any of the Securities, the Option Securities and the Underwriter's
Securities, except such as have been or may be obtained under the Act, otherwise
or may be required under state securities or blue sky laws in connection with
the Underwriter's purchase and distribution of the Securities, the Option
Securities, the Representative's Securities and the Underwriter's Warrants to be
sold by the Company hereunder or may be required by the Rules of the National
Association of Securities Dealer, Inc. ("NASD").
8
(xxxiv) All executed agreements, contracts or other documents or copies
of executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or businesses may be subject have been
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company, enforceable
against the Company, in accordance with their respective terms. The descriptions
in the Registration Statement of agreements, contracts and other documents are
accurate and fairly present the information required to be shown with respect
thereto by Form SB-2, and there are no contracts or other documents which are
required by the Act to be described in the Registration Statement or filed as
exhibits to the Registration Statement which are not described or filed as
required, and the exhibits which have been filed are complete and correct copies
of the documents of which they purport to be copies.
(xxxv) Within the past five (5) years, none of the Company's
independent public accountants has brought to the attention of the Company's
management any "material weakness" as defined in the Statement of Auditing
Standard No. 60 in any of the Company's internal controls.
4. Covenants of the Company. The Company covenants and agrees with you that:
(a) It will cooperate in all respects in making the Prospectus effective and
will not at any time, whether before or after the effective date, file any
amendment to or supplement to the Prospectus of which you shall not previously
have been advised and furnished with a copy or to which you or your counsel
shall have reasonably objected or which is not in material compliance with the
Act and the Rules and Regulations or applicable state law.
As soon as the Company is advised thereof, the Company will advise you, and
confirm the advice in writing, of the receipt of any comments of the Commission
or any state securities department, when the Registration Statement becomes
effective if the provisions of Rule 430A promulgated under the Act will be
relied upon, when the Prospectus has been filed in accordance with said Rule
430A, of the effectiveness of any posteffective amendment to the Registration
Statement or Prospectus, or the filing of any supplement to the Prospectus or
any amended Prospectus, of any request made by the Commission or any state
securities department for amendment of the Prospectus or for supplementing of
the Prospectus or for additional information with respect thereto, of the
issuance of any stop order suspending the effectiveness of the Prospectus or any
order preventing or suspending the use of any Prospectus or any order suspending
trading in the Common Stock of the Company, or of the suspension of the
qualification of the Securities, the Option Securities or the Representatives
Securities for offering in any jurisdiction, or of the institution of any
proceedings for any such purposes, and will use its best efforts to prevent the
issuance of any such order and, if issued, to obtain as soon as possible the
lifting or dismissal thereof.
The Company has caused to be delivered to you copies of such Prospectus, and the
Company has consented and hereby consents to the use of such copies for the
purposes permitted by law. The Company authorizes you and the dealers to use the
Prospectus and such copies of the Prospectus in connection with the sale of the
Securities, the Option Securities and the Representative's Securities for such
period as in the opinion of your counsel and our counsel the use thereof is
required to comply with the applicable provisions of the Act and the Rules and
Regulations. The Company will prepare and file with the states, promptly upon
your request, any such amendments or supplements to the Prospectus, and take any
other action, as, in the opinion of your counsel, may be necessary or advisable
in connection with the initial sale of the Securities, the Option Securities and
the Underwriter's Securities and will use its best efforts to cause the same to
become effective as promptly as possible.
The Company shall file the Prospectus (in form and substance satisfactory to
the Underwriter) or transmit the Prospectus by a means reasonably calculated to
result in filing with the Commission pursuant to rule 424(b)(1) or pursuant to
Rule 424(b)(3) not later than the Commission's close of business on the earlier
of (i) the second business day following the execution and delivery of this
Agreement, and (ii) the fifth business day after the effective date of the
Registration Statement.
9
In case of the happening, at any time within such period as a Prospectus is
required under the Act to be delivered in connection with the initial sale of
the Securities, the Option Securities and the Representative's Securities of any
event of which the Company has knowledge and which materially affects the
Company, or the securities thereof, and which should be set forth in an
amendment of or a supplement to the Prospectus in order to make the statements
therein not then misleading, in light of the circumstances existing at the time
the Prospectus is required under the Act to be delivered, or in case it shall be
necessary to amend or supplement the Prospectus to comply with the Act, the
Rules and Regulations or any other law, the Company will forthwith prepare and
furnish to you copies of such amended Prospectus or of such supplement to be
attached to the Prospectus, in such quantities as you may reasonably request, in
order that the Prospectus, as so amended or supplemented, will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances under which they are made. The preparation and
furnishing of any such amendment or supplement to the Prospectus or supplement
to be attached to the Prospectus shall be without expense to you.
The Company will to the best of its ability comply with the Act, the
Exchange Act and applicable state securities laws so as to permit the initial
offer and sales of the Securities, the Option Securities and the Representatives
Securities under the Act, the Rules and Regulations, and applicable state
securities laws.
(b) It will cooperate to qualify the Securities and the Option Securities
and the Representative's Securities for initial sale under the securities laws
of such jurisdictions as you may designate and will make such applications and
furnish such information as may be required for that purpose, provided the
Company shall not be required to qualify as a foreign corporation or a dealer in
securities. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualification
in effect for so long as the Underwriter may reasonably request.
(c) So long as any of the Securities, the Option Securities or the
Representative's Securities remain outstanding in the hands of the public, the
Company, at its expense, will annually furnish to its shareholders a report of
its operations to include financial statements audited by independent public
accountants, and will furnish to the Underwriter as soon as practicable after
the end of each fiscal year, a balance sheet of the Company as at the end of
such fiscal year, together with statements of operations, shareholders' equity,
and changes in cash flow of the Company for such fiscal year, all in reasonable
detail and accompanied by a copy of the certificate or report thereon of
independent public accountants.
(d) It will deliver to you at or before the Initial Closing Date two signed
copies of the Registration Statement including all financial statements and
exhibits filed therewith, whether or not incorporated by reference. The Company
will deliver to you, from time to time until the effective date of the
Prospectus, as many copies of the Prospectus as you may reasonably request. The
Company will deliver to you on the effective date of the Prospectus and
thereafter for so long as a Prospectus is required to be delivered under the Act
and the Rules and Regulations as many copies of the Prospectus, in final form,
or as thereafter amended or supplemented, as you may from time to time
reasonably request.
(e) The Company will apply the net proceeds from the sale of the Securities
and the Option Securities substantially in the manner set forth under "Use of
Proceeds" in the Prospectus. No portion of the proceeds shall be used, directly
or indirectly, to acquire any securities issued by the Company, without the
prior written consent of the Underwriter.
(f) As soon as it is practicable, but in any event not later than the first
(lst) day of the fifteenth (15th) full calendar month following the effective
date of the Registration Statement, the Company will make available to its
security holders and the Underwriter an earnings statement (which need not be
audited) covering a period of at least twelve (12) consecutive months beginning
after the effective date of the Registration Statement, which shall satisfy the
requirements of Section 11(a) of the Act and Rule 158(a) of the Rules and
Regulations.
10
(g) Non-Accountable Expense Allowance. The Company shall pay to the
Representative at each closing date, and to be deducted from the purchase price
for the Securities and the Option Securities, an amount equal to three percent
(3%) of the gross proceeds received by the Company from the sale of the
Securities and the Option Securities at such closing date less in the case of
the Initial Closing Date, the sum of $50,000 previously paid by the Company. If
the sale of the Securities by the Underwriter is not consummated for any reason
not attributable to the Underwriter, or if (i) the Company withdraws the
Registration Statement from the Commission or does not proceed with the public
offering, or (ii) the representations in Section 3 hereof are not correct or the
covenants cannot be complied with, or (iii) there has been a materially adverse
change in the condition, prospects or obligations of the Company or a materially
adverse change in stock market conditions from current conditions, all as
determined by the Underwriter, then the Company shall reimburse the Underwriter
for its out of pocket expenses including without limitation, its legal fees and
disbursements all on an accountable basis but not to exceed $100,000 (less the
$50,000 previously paid by the Company), and if any excess remains from the
advance previously paid, such excess will be returned to the Company.
If however, in the event of the sale or merger of the Company, or any
significant subsidiary or significant assets of the Company or substitution of
Underwriter's or the Representative (the "Transaction") after such date as the
Company has filed a Registration Statement with the Securities and Exchange
Commission the Company shall reimburse the Representative for its fees and
expenses in accordance with the preceding paragraph and shall also pay the
Representative an amount in cash equal to two percent (2%) of the total legal
consideration of the Transaction up to a maximum of $250,000 less the fees and
expenses so reimbursed. Such amount will be paid on the date of closing of the
Transaction.
(h) The Company shall not, without the Representative's prior written
consent which shall not be unreasonably withheld, sell or offer to sell any
shares of Common Stock for thirteen (13) months after the effective date
including other equity securities or warrants or options to purchase any shares
of Common Stock or equity securities except (i) in connection with acquisitions,
(ii) pursuant to warrants and options outstanding immediately prior to or as a
result of the Closing, or (iii) pursuant to options granted under Company's
Stock Option Plan as described in the Prospectus
(i) During a date five years after the date hereof, the Company will make
available to its shareholders, as soon as practicable, and deliver to the
Representative:
(1) as soon as they are available, copies of all reports (financial or
other) mailed to shareholders;
(2) as soon as they are available, copies of all reports and financial
statements furnished to or filed with the Commission, the NASD or any
securities exchange;
(3) every press release and every material news item or article of
interest to the financial community in respect of the Company or its
affairs which was prepared and released by or on behalf of the Company;
and
(4) any additional information of a public nature concerning the
Company (and any future subsidiaries) or its businesses which the
Underwriter may request.
During such five-year period, if the Company has active subsidiaries, the
foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(j) The Company will maintain a Transfer Agent and, if necessary under the
jurisdiction of incorporation of the Company, a Registrar (which may be the same
entity as the Transfer Agent) for its Common Stock.
(k) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Final Prospectus the
Registration Statement and any pre-effective or post-effective amendments
thereto (two of which copies will be
11
signed and will include all financial statements and exhibits), the Prospectus,
and all amendments and supplements thereto, including any prospectus prepared
after the effective date of the Registration Statement, in each case as soon as
available and in such quantities as the Representative may request.
(1) Neither the Company nor any of its officers, directors, stockholders or
any of its affiliates will take, directly or indirectly, any action designed to,
or which might in the future reasonably be expected to cause or result in
stabilization or manipulation of the price of any of the Company's securities.
(m) The Company shall timely file all such reports, forms or other documents
as may be required (including, but not limited to, a Form SR as may be required
pursuant to Rule 463 under the Act) from time to time, under the Act, the
Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and Regulations.
(n) The Company shall cause the Securities to be listed on NASDAQ-NMS for a
period of five (5) years from the date hereof, use its best efforts to maintain
the listing of the Securities to the extent they are outstanding.
(o) As soon as practicable, (i) before the effective date of the
Registration Statement, file a Form 8-A with the Commission providing for the
registration under the Exchange Act of the Securities and (ii) but in no event
more than 30 days from the effective date of the Registration Statement, take
all necessary and appropriate actions to be included in Standard and Poor's
Corporation Descriptions and/or Moody's OTC Manual and to continue such
inclusion for a period of not less than five years if the securities are not
listed on NASDAQ-NMS.
(p) Until the completion of the distribution of the Securities, the Company
shall not without the prior written consent of the Underwriter and its counsel
which consent shall not be unreasonably withheld or delayed, issue, directly or
indirectly, any press release or other communication or hold any press
conference with respect to the Company or its activities or the offering
contemplated hereby, other than trade releases issued in 'the ordinary course of
the Company's business consistent with past practices with respect to the
Company's operations.
(q) Commencing one year from the effective date of the registration
statement, the Company agrees to pay the Representative a 5% solicitation fee
for the exercise of the publicly-held warrants such solicitation being subject
to applicable SEC and NASD Rules.
5. Conditions of the Underwriter's Obligations. The obligation of the
Underwriters to offer and sell the Securities and the Option Securities is
subject to the accuracy (as of the date hereof, and as of the Closing Dates) of
and compliance with the representations and warranties of the Company to the
performance by it of its agreement and obligations hereunder and to the
following additional conditions:
(a) The Registration Statement shall have become effective as and when
cleared by the Commission, and you shall have received notice thereof, on or
prior to any closing date no stop order suspending the effectiveness of the
Prospectus shall have been issued and no proceedings for that or similar purpose
shall have been instituted or shall be pending, or, to your knowledge or to the
knowledge of the Company, shall be contemplated by the Commission; any request
on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of counsel to the Underwriter; and
qualification, under the securities laws of such states as you may designate, of
the issue and sale of the Securities upon the terms and conditions herein set
forth or contemplated and containing no provision unacceptable to you shall have
been secured, and no stop order shall be in effect denying or suspending
effectiveness of such qualification nor shall any stop order proceedings with
respect thereto be instituted or pending or threatened under such law.
(b) On any closing date and, with respect to the letter referred to in
subparagraph (iii), as of the date hereof, you shall have received:
(i) the opinion, together with such number of signed or photostatic copies
of such opinion as you may reasonably request, addressed to you by O'Connor,
Broude & Aronson, counsel for the Company, and in form and
12
substance reasonably satisfactory to the Representative and William M. Prifti,
Esq., counsel to the Representative, dated each such closing date, to the effect
that:
(A) The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the jurisdiction in which it is
incorporated and has all necessary corporate power and authority to carry on its
business as described in the Prospectus.
(B) The Company is qualified to do business in each jurisdiction in which
conducting its business requires such qualification, except where the failure to
be so qualified would not have a material adverse effect on the Company's
business or assets.
(C) The Company has the full corporate power and authority to enter into
this Agreement, the Representative's Warrant Agreement and the Consulting
Agreement and to consummate the transactions provided for therein and each such
Agreement has been duly and validly authorized, executed and delivered by the
Company. Each of this Agreement, the Consulting Agreement and the
Representative's Warrant Agreement, assuming due authorization, execution and
delivery by each other party thereto, constitutes a legal, valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms, subject to bankruptcy, insolvency or similar laws governing the rights of
creditors and to general equitable principles, and provided that no opinion need
be given as to the enforceability of any indemnification or contribution
provisions, and none of the Company's execution or delivery of this Agreement,
the Consulting Agreement or the Representative's Warrant Agreement, its
performance hereunder or thereunder, its consummation of the transactions
contemplated herein or therein, or the conduct of its business as described in
the Registration Statement, the Prospectus, and any amendments or supplements
thereto, conflicts with or will conflict with or results or will result in any
material breach or violation of any of the terms or provisions of, or
constitutes or will constitute a material default under, or result in the
creation or imposition of any material lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction of any kind whatsoever upon, any
property or assets (tangible or intangible) of the Company pursuant to the terms
of (A) the articles of incorporation or by-laws of the Company, (B) to the
knowledge of such counsel, any material license, contract, indenture, mortgage,
deed of trust, voting trust agreement, stockholders' agreement, note, loan or
credit agreement or any other agreement or instrument to which the Company is a
party or by which it is or may be bound, or (C) to the knowledge of such
counsel, any statute, judgment, decree, order, rule or regulation applicable to
the Company, whether domestic or foreign.
(D) The Company had authorized and outstanding capital stock as set forth in
the Prospectus under the heading "Capitalization" as of the date set forth
therein, and all of such issued and outstanding shares of capital stock have
been duly and validly authorized and issued, and to the knowledge of such
counsel are fully paid and nonassessable, and to the knowledge of such counsel
no stockholder of the Company is entitled to any preemptive rights to subscribe
for, or purchase shares of the capital stock and to the knowledge of such
counsel none of such securities were issued in violation of the preemptive
rights of any holders of any securities of the Company.
(E) To the knowledge of such counsel, the Company is not a party to or bound
by any instrument, agreement or other arrangement providing for it to issue any
capital stock, rights, warrants, options or other securities, except for this
Agreement, the Representative's Warrant Agreement, and except as described in
the Prospectus. The Common Stock, the Warrants and the Representative's Warrants
each conforms in all material respects to the respective descriptions thereof
contained in the Prospectus. The outstanding shares of Common Stock and the
Warrants the Warrant Stock and the Representative's Warrant Stock will have been
upon payment and delivery, in the manner described herein, the Warrant Agreement
and the Representative Agreement, as the case may be, will be, duly authorized,
validly issued, fully paid and nonassessable. There are no preemptive or other
rights to subscribe for or to purchase, or any restriction upon the voting or
transfer of, any shares of Common Stock pursuant to the Company's articles of
incorporation, by-laws, other governing documents or any agreement or other
instrument known to such counsel to which the Company is a party or by which it
is bound.
(F) The certificates representing the Securities are in due and proper form
and each of the Warrant Stock and the Representative's Warrant Stock has been
duly authorized and reserved for issuance and when issued and
13
delivered in accordance with the respective terms of the Warrant Agreement and
Representative's Warrant Agreement, respectively, will duly and validly issued,
fully paid and nonassessable.
(G) To the knowledge of such counsel, there are no claims, suits or other
legal proceedings pending or threatened against the Company in any court or
before or by any governmental body which might materially affect the business of
the Company or the financial condition of the Company as a whole, except as set
forth in or contemplated by the Prospectus.
(H) Based on oral and/or written advice from the staff of the Commission,
the Registration Statement has become effective and, to the knowledge of such
counsel, no stop order suspending the effectiveness of the Prospectus is in
effect and no proceedings for that purpose are pending before, or threatened by,
federal or by a state securities administrator.
(I) To the knowledge of such counsel, there are no legal or governmental
proceedings, actions, arbitrations, investigations, inquiries or the like
pending or threatened against the Company of a character required to be
disclosed in the Prospectus which have not been so disclosed, questions the
validity of the capital stock of the Company or this Agreement or the
Representative's Warrant Agreement or might adversely affect the condition,
financial or otherwise, or the prospects of the Company or which could adversely
affect the Company's ability to perform any of its obligations under this
Agreement, the Representative's Warrant Agreement or the Consulting Agreement.
(J) To such counsel's knowledge, there are no material agreements, contracts
or other documents known to such counsel required by the Act to be described in
the Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration Statement
and the Prospectus and filed as exhibits thereto, and to such counsel's
knowledge (A) the exhibits which have been filed are correct copies of the
documents of which they purport to be copies; (B) the descriptions in the
Registration Statement and the Prospectus and any supplement or amendment
thereto of contracts and other documents to which the Company is a party or by
which it is bound, including any document to which the Company is a party or by
which it is bound incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate in all material respects and
fairly represent the information required to be shown by Form SB-2.
(K) No consent, approval, order or authorization from any regulatory board,
agency or instrumentality having jurisdiction over the Company, or its
properties (other than registration under the Act or qualification under state
or foreign securities law or approval by the NASD) is required for the valid
authorization, issuance, sale and delivery of the Securities, the Option
Securities or the Representative's Warrant.
(L) The statements in the Prospectus under "Risk Factors-Control by Existing
Stockholders," "Management-Limitation of Liability" "Description of the
Securities," and "Shares Eligible For Future Sale" have been reviewed by such
counsel, and insofar as they refer to statements of law, descriptions of
statutes, licenses, rules or regulations or legal conclusions, are correct in
all material respects.
In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Representatives, Representative's Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not certified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the Closing Date and on any later date on which Option Shares are to
be purchased, the Registration Statement and any amendment or supplement, when
such documents became effective or were filed with the Commission (other than
the financial statements including the notes thereto and supporting schedules
and other financial and statistical information derived therefrom, as to which
such counsel need express no comment) contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or at the Closing
Date or any later date on which the
14
Option Shares are to be purchased, as the case may be, the Prospectus and any
amendment or supplement thereto (other than the financial statements including
the notes thereto and other financial and statistical information derived
therefrom, as to which such counsel need express no comment) contained any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
Such opinion shall also cover such other matters incident to the
transactions contemplated hereby and the offering Prospectus as you or counsel
to the Representative shall reasonably request. In rendering such opinion, to
the extent deemed reasonable by them, such counsel may rely upon certificates of
any officer of the Company or public officials as to matters of fact of which
the maker of such certificate has knowledge.
(ii) a certificate, signed by the Chief Executive Officer and the Principal
Financial or Accounting Officer of the Company dated the Closing Date, to the
effect that with regard to the Company, each of the conditions set forth in
Section 5(d) have been satisfied.
(iii) a letter, addressed to the Representative and in form and substance
satisfactory to the Representative in all respects (including the nonmaterial
nature of the changes or decreases, if any, referred to in clause (D) below),
from Arthur Andersen, LLP dated, respectively, as of the effective date of the
Registration Statement and as of the Closing Date, as the case may be:
(A) Confirming that they are independent public accountants with respect to
the Company and its consolidated subsidiaries, if any, within the meaning of the
Act and the applicable published Rules and Regulations.
(B) Stating that, in their opinion, the financial statements, related notes
and schedules of the Company and its consolidated subsidiaries, if any, included
in the Registration Statement examined by them comply as to form in all material
respects with the applicable accounting requirements of the Act and the
published Rules and Regulations thereunder.
(C) Stating that, with respect to the period from December 31, 1995, to a
specified date (the specified date") not earlier than five (5) business days
prior to the date of such letter, they have read the minutes of meetings of the
stockholders and board of directors (and various committees thereof) of the
Company and its consolidated subsidiaries, if any, for the period from December
31, 1995 through the specified date, and made inquiries of officers of the
Company and its consolidated subsidiaries, if any, responsible for financial and
accounting matters and, especially as to whether there was any decrease in
sales, income before extraordinary items or net income as compared with the
corresponding period in the preceding year; or any change in the capital stock
of the Company or any change in the longterm debt or any increase in the
short-term bank borrowings or any decrease in net current assets or net assets
of the Company or of any of its consolidated subsidiaries, if any, and further
stating that while such procedures and inquiries do not constitute an
examination made in accordance with generally accepted auditing standards,
nothing came to their attention which caused them to believe that during the
period from December 31, 1995, through the specified date there were any
decreases as compared with the corresponding period in the preceding year in
sales, income before extraordinary items or net income; or any change in the
capital stock of the Company or consolidated subsidiary, if any, or any change
in the longterm debt or any increase in the short-term bank borrowings (other
than any increase in short-term bank borrowings in the ordinary course of
business) of the Company or any consolidated subsidiary, if any, or any decrease
in the net current assets or net assets of the Company or any consolidated
subsidiary, if any; and
(D) Stating that they have carried out certain specified procedures
(specifically set forth in such letter or letters) as specified by the
Underwriter (after consultations with Arthur Andersen, LLP relating to such
procedures), not constituting an audit, with respect to certain tables,
statistics and other financial data in the Prospectus specified by the
Underwriter and such financial data not included in the Prospectus but from
which information in the Prospectus is derived, and which have been obtained
from the general accounting records of the Company or consolidated subsidiaries,
if any, or from such accounting records by analysis or computation, and having
compared such
15
financial data with the accounting records of the Company or the consolidated
subsidiaries, if any, stating that they have found such financial data to agree
with the accounting records of the Company.
(c) All corporate proceedings and other legal matters relating to this
Agreement, the Prospectus and other related matters shall be satisfactory to or
approved by counsel to the Underwriter and you shall have received from
O'Connor, Broude & Aronson, a signed opinion dated as of each closing date, with
respect to the incorporation of the Company, the validity of the Securities, the
form of the Prospectus, (other than the financial statements together with
related notes and other financial and statistical data contained in the
Prospectus or omitted therefrom, as to which such counsel need express no
opinion), the execution of this Agreement and other related matters as you may
reasonably require.
(d) At each closing date, (i) the representations and warranties of the
Company contained in this Agreement shall be true and correct in all material
respects with the same effect as if made on and as of such closing date; (ii)
the Prospectus and any amendments or supplements thereto shall contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations and in all material respects conform to the
requirements thereof, and neither the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary, in light of the
circumstances under which they were made, in order to make the statements
therein not misleading; (iii) there shall have been since the respective dates
as of which information is given no material adverse change in the business,
properties or condition (financial or otherwise), results of operations, capital
stock, longterm debt or general affairs of the Company from that set forth in
the Prospectus, except changes which the Prospectus indicates might occur after
the effective date of the Prospectus, and the Company shall not have incurred
any material liabilities or material obligations, direct or contingent, or
entered into any material transaction, contract or agreement not in the ordinary
course of business other than as referred to in the Prospectus and which would
be required to be set forth in the Prospectus; and (iv) except as set forth in
the Prospectus, no action, suit or proceeding at law or in equity shall be
pending or threatened against the Company which would be required to be set
forth in the Prospectus, and no proceedings shall be pending or threatened
against the Company or any subsidiary before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
property, condition (financial or otherwise), results of operations or general
affairs of the Company.
(e) On the Initial Closing Date, the Company shall have executed and
delivered to the Underwriter, (i) the Representatives' Warrant Agreement
substantially in the form filed as an Exhibit to the Registration Statement in
final form and substance satisfactory to the Underwriter, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
(f) On or before the Initial Closing Date, the Securities shall have been
duly approved for listing on NASDAQ-NMS.
(g) On or before the Initial Closing Date, there shall have been delivered
to the Representative all of the Lock-up Agreements required to be delivered
pursuant to Section 3(a)(xxv) and 4(h), in form and substance satisfactory to
the Representative and Representative's counsel.
(h) On or before the Initial Closing Date, the Company shall have (i)
executed and delivered to the Underwriter the Consulting Agreement, in the form
filed as an Exhibit to the Registration Statement and (ii) paid the Underwriter
the full retainer pursuant to the Consulting Agreement.
If any condition to the Representative's obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representative may terminate this
Agreement or, if the Representative so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
6. Conditions of the Company's Obligations. The obligation of the Company to
sell and deliver
16
the Securities is subject to the following:
(a) The provisions regarding the effective date, as described in Section
10.
(b) At the Initial Closing Date, no stop order suspending the
effectiveness of the Prospectus shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission or by any state
securities department.
(c) Tender of payment by the Representative in accord with Section 2
hereof.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
its employees and each person, if any, who controls you within the meaning of
the Act, against any losses, claims, damages or liabilities, joint or several
(which shall, for any purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), to which
each Underwriter or such controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission made in the Prospectus, or such amendment or supplement to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, which is in reliance upon and in conformity
with written information furnished by the Company to you specifically for use in
the preparation thereof, and provided further that the indemnity agreement
contained in this subsection (a) shall not inure to the benefit of you with
respect to any person asserting any such loss, claim, damage or liability who
has purchased the Securities which are the subject thereof if you or any
participants failed to send or give a copy of the Prospectus to such person at
or prior to the written confirmation of the sale of such Securities to such
person and except that, with respect to any untrue statement or omission or any
alleged untrue statement or omission, made in any Pre-Effective Prospectus, the
indemnity agreement contained in this subsection (a) shall not inure to the
benefit of any Underwriter ( or to any person controlling any such underwriter)
from whom the person asserting any such loss, claim, damage or liability
purchased the securities concerned to the extent that such untrue statement or
omission, or alleged untrue statement or omission, has been corrected in a later
Pre-Effective Prospectus or in the Final Prospectus unless the Underwriter
circulated a later Pre-Effective Prospectus or the Final Prospectus to such
person
(b) Each Underwriter will indemnify and hold harmless the Company, each of
its directors, each of its officers, each person, if any, who controls the
Company within the meaning of the Act against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such director, officer or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission was made in the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by you specifically for use in the preparation thereof. This indemnity
will be in addition to any liability which any Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party, similarly notified, to assume the
defense
17
thereof, subject to the provisions herein stated, with counsel satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that, if the indemnified party is you or a person who controls you, the fees and
expenses of such counsel shall be at the expense of the indemnifying party if
(i) the employment of such counsel has been specifically authorized in writing
by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both you or such controlling person
and the indemnifying party and you or such controlling person shall have been
advised by such counsel that there is a conflict of interest which would prevent
counsel for the indemnifying party from representing the indemnifying party and
you or such controlling person (in which case the indemnifying party shall not
have the right to assume the defense of such action on behalf of you or such
controlling person, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction or which are consolidated
into the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for you and all such controlling persons, which firm
shall be designated in writing by you). No settlement of any action against an
indemnified party shall be made without the consent of the indemnified party,
which shall not be unreasonably withheld in light of all factors of importance
to such indemnified party.
8. Contribution. In order to provide for just and equitable contribution
tinder the Act in any case in which (i) the indemnifying party makes a claim for
indemnification pursuant to Section 7 hereof but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of the
Underwriters, then the Company and the Underwriters in the aggregate shall
contribute to the aggregate losses, claims, damages, or liabilities to which
they may be subject (which shall, for all purposes of this Agreement, include,
but not be limited to, all costs of defense and investigation and all attorneys'
fees) in either such case (after contribution from others) in such proportions
that the Underwriters are responsible in the aggregate for that portion of such
losses, claims, damages or liabilities determined by multiplying the total
amount of such losses, claims, damages or liabilities times the difference
between the public offering price and the commission to the Underwriter and
dividing the product thereof by the public offering price, and the Company, if
applicable, shall be responsible for that portion of such losses, claims,
damages or liabilities times the commission to the Underwriters and dividing the
product thereof by the public offering price; provided, however, that the
Underwriters shall not be required to so contribute any amount in excess of the
underwriting discount applicable to the Securities purchased by the Underwriters
hereunder if such allocation is not permitted by applicable law, then the
relative fault of the Company and the Underwriters in connection with the
statements or omissions which resulted in such damages and other relevant
equitable considerations shall also be considered. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 12(2) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The foregoing contribution agreement shall in no
way affect the contribution liabilities of any person having liability under
Section 12 of the Act other than the Company and the Underwriter. As used in
this paragraph, the term "Underwriters" includes any person who controls the
Underwriters within the meaning of Section 15 of the Act. If the full amount of
the contribution specified in this paragraph is not permitted by law, then any
Underwriter and each person who controls any Underwriter shall be entitled to
contribution from the Company, to the full extent permitted by law.
9. Costs and Expenses. Subject to the provisions of Section 4(g) the Company
will pay all costs and expenses incident to the performance of this Agreement by
the Company including, but not limited to, the fees and expenses of counsel to
the Company and of the Company's accountants; the costs and expenses incident to
the preparation, printing, filing and distribution under the Act of the
Registration Statement and Prospectus (including the fee of the Commission, any
securities exchange and the NASD in connection with the filing required by the
NASD relating to
18
the offering of the Securities contemplated hereby); all expenses, including
fees of counsel, which shall be due and payable on the Closing Date in
connection with the qualification of the Securities under the state securities
or blue sky laws; the cost of furnishing to you copies of the Prospectus, this
Agreement, the cost of printing the certificates representing the Securities and
of preparing and photocopying the Underwriting Agreement and related
Underwriting documents, the cost of four (4) underwriter's bound volumes, any
advertising costs and expenses, including but not limited to the Company's
expenses on "road show" information meetings and presentations, prospectus
memorabilia, issue and transfer taxes, if any. The Company will also pay all
costs and expenses incident to the furnishing of any amended Prospectus of or
any supplement to be attached to the Prospectus.
10. Effective Date. This Agreement shall become effective at 11:00 a.m. New
York time on the next full business day following the effective date of the
Registration Statement, or at such other time after the effective date of the
Prospectus as you in your discretion shall first commence the public offering of
any of the Securities covered thereby, provided, however, that at all times the
provisions of Sections 7, 8, 9 and 11 shall be effective.
11. Termination.
(a) This Agreement, may be terminated at any time prior to the Closing
Date by you if in your judgment it is impracticable to offer for sale or to
enforce contracts made by you for the sale of the Securities agreed to be sold
hereunder by reason of (i) the Company as a whole having sustained a material
loss, whether or not insured, by reason of fire, earthquake, flood, accident or
other calamity, or from any labor dispute or court or government action, order
or decree, (ii) trading in securities of the Company having been suspended by a
state securities administrator or by the Commission, (iii) material governmental
restrictions having been imposed on trading in securities generally (not in
force and effect on the date hereof) or trading on the New York Stock Exchange,
American Stock Exchange, or in the over-the-counter market shall have been
suspended, (iv) a banking moratorium having been declared by federal or New York
State authorities, (v) an outbreak or escalation of hostilities or other
national or international calamity having occurred, (vi) the passage by the
Congress of the United States or by any state legislative body, of any act or
measure, or the adoption of any orders, rules or regulations by any governmental
body or any authoritative accounting institute or board, or any governmental
executive, which is believed likely by you to have a material impact on the
business, financial condition or financial statements of the Company; or (vii)
any material adverse change having occurred, since the respective dates as of
which information is given in the Prospectus, in the condition, financial or
otherwise, of the Company as a whole, whether or not arising in the ordinary
course of business, (viii) David Nicholson ceases to be employed by the Company
in his present capacity; (ix) the Securities are not listed the or on NASDAQ-NMS
or NASDAQ.
(b) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section 11 or in Section 10, the
Company shall be promptly notified by you, by telephone or telegram, confirmed
by letter.
12. Representations, Warrants and Agreements to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company (or its officers) and the Underwriter set forth in or
made pursuant to this Agreement will remain in full force and effect, regardless
of any investigation made by or on behalf of the Representative, the Company, or
any of their officers or directors and will survive delivery of and payment for
the Securities.
13. Notices. All communications hereunder will be in writing and, except as
otherwise expressly provided herein, if sent to you, will be mailed, delivered
or telephoned and confirmed to you at Schneider Securities, Inc. 1120 Lincoln
Street Denver, Colorado 80203 Attn: T.J. O'Rourke, President; to the Company
Attn: Eric Chase, QC Optics, Inc., 154 Middlesex Turnpike, Burlington, MA 01803.
14. Parties in Interest. This Agreement is made solely for the benefit of
the Underwriter(s), and the Company, and their respective controlling persons,
directors and officers, and their respective successors, assigns, executors and
administrators. No other person shall acquire or have any right under or by
virtue of this Agreement.
19
15. Headings. The Section headings in this Agreement have been inserted as a
matter of convenience of reference and are not a part of this Agreement.
16. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflict of law principles.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which together shall constitute one and the same
instrument.
If the foregoing correctly sets forth the understanding between the Company
and you, as Representative of the several underwriters, please so indicate in
the space provided below for such purpose, whereupon this letter and your
acceptance shall constitute a binding agreement between us.
Very truly yours,
QC OPTICS, INC.
By:
-----------------------------
(Authorized Officer)
Eric Chase, President
Accepted as of the date first above written:
SCHNEIDER SECURITIES, INC.
As Representative of the several Underwriters
By:
----------------------------
(Authorized Officer)
T.J. O'Rourke, President
20
EXHIBIT A
SCHEDULE I
UNDERWRITERS
Underwriter Common Stock
- ----------- and
Redeemable Warrant
------------------
Schneider Securities, Inc.
-------------
TOTAL
- ----- 950,000
21
EXHIBIT B
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO
OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE
CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY
SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY
KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE
DATE. YOUR EXECUTION HEREOF WELL INVOLVE NO OBLIGATION OR COMMITMENT OF ANY KIND
UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE.
QC OPTICS, INC.
SELECTED DEALERS AGREEMENT
--------------------------
, 1996
Dear Sirs:
1. Schneider Securities, Inc. named as the Underwriter ("Underwriter") in
the enclosed preliminary Prospectus, proposes to offer on a firm commitment
basis, subject to the terms and conditions and execution of the Underwriting
Agreement, 950,000 shares of common stock and 950,000 redeemable warrant at
$6.00 per share and $0.10 per Redeemable Warrant ("Securities") of the above
Company. The Securities are more particularly described in the enclosed
preliminary Prospectus, additional copies of which will be supplied in
reasonable quantities upon request. Copies of the definitive Prospectus will be
supplied after the effective date of the Registration Statement.
2. The Underwriter is soliciting offers to buy, upon the terms and
conditions hereof, a part of the Securities from Selected Dealers, including you
who are to act as principal and who are (i) registered with the Securities and
Exchange Commission ("Commission") as broker-dealers under the Securities
Exchange Act of 1934, as amended ("1934 Act"), and members in good standing with
the National Association of Securities Dealers, Inc. ("NASD"), or (ii) dealers
or institutions with their principal place of business located outside the
United States, its territories and possessions who are not eligible for
membership in the NASD and who agree to make no sales within the United States,
its territories or possessions or to persons who are nationals thereof or
residents therein and, in making sales, to comply with the NASD's Interpretation
with Respect to FreeRiding and Withholding and with Sections 8, 24p 25, to the
extent applicable to foreign nonmember brokers or dealers, and Section 36 of the
NASD's Rules of Fair Practice. The Securities are to be offered at a public
price of $6.00 per share and $0.10 per redeemable warrant. Selected Dealers will
be allowed a concession of not less than $_____ per share and $_____ per
Redeemable Warrant, except as provided below. You will be notified of the
precise amount of such concession prior to the effective date of the
Registration Statement. You may reallow not in excess of $_____ per share and
$_____ per Redeemable Warrants to dealers who meet the requirements set forth in
this Section 2. This offer is solicited subject to the issuance and delivery of
the Securities and their acceptance by the Underwriter, to the approval of legal
matters by counsel and to the terms and conditions as herein set forth.
3. Your offer to purchase may be revoked in whole or in part without obligation
or commitment of any kind by you and any time prior to acceptance and no offer
may be accepted by us and no sale can be made until after the registration
statement covering the Securities has become effective with the Commission.
Subject to the foregoing, upon execution by you of the Offer to Purchase below
and the return of same to us, you shall be deemed to have offered to purchase
the number of Securities set forth in your offer on the basis set forth in
paragraph 2 above. Any oral notice by us of acceptance of your offer shall be
immediately followed by written or telegraphic confirmation
preceded or accompanied by a copy of the Prospectus. If a contractual commitment
arises hereunder, all the terms of this Selected Dealers Agreement shall be
applicable. We may also make available to you an allotment to purchase
Securities, but such allotment shall be subject to modification or termination
upon notice from us any time prior to an exchange of confirmations reflecting
completed transactions. All references hereafter in this Agreement to the
purchase and sale of Securities assume and are applicable only if contractual
commitments to purchase are completed in accordance with the foregoing.
4. You agree that in reoffering said Securities, if your offer is accepted
after the effective date, you will make a bona fide public distribution of same.
You will advise us upon request of Securities purchased by you remaining unsold
and we shall have the right to repurchase such Securities upon demand at the
public offering price without paying the concession with respect to any
Securities so repurchased. Any of the Securities purchased by you pursuant to
this Agreement are to be subject to the terms hereof. Securities shall not be
offered or sold by you below the public offering price before the termination of
this Agreement.
5. Payment for Securities which you purchase hereunder shall be made by you
on or before five (5) business days after the date of each confirmation by
certified or bank cashier's check payable to the Underwriter. Certificates for
the Securities shall be delivered as soon as practicable after delivery
instructions are received by the Underwriter.
6. A registration statement covering the offering has been filed with the
Securities and Exchange Commission in respect to the Securities. You will be
promptly advised when the registration statement becomes effective. Each
Selected Dealer in selling Securities pursuant hereto agrees (which agreement
shall also be for the benefit of the Company) that it will comply with the
applicable requirements of the Securities Act of 1933 and of the Securities
Exchange Act of 1934 and any applicable rules and regulations issued under said
Acts. No person is authorized by the Company or by the Underwriter to give any
information or to make any representations other than those contained in the
Prospectus in connection with the sale of the Securities. Nothing contained
herein shall render the Selected Dealers a member of the Underwriting Group or
partners with the Underwriter or with one another.
7. You will be informed by us as to the states in which we have been advised
by counsel that the Securities have been qualified for sale or are exempt under
the respective securities or blue sky laws of such states, but we have not
assumed and will not assume any obligation or responsibility as to the right of
any Selected Dealer to sell Securities in any state. You agree not to sell
Securities in any other state or jurisdiction and to not sell Securities in any
state or jurisdiction unless you are qualified or licensed to sell securities in
such state or jurisdiction.
8. The Underwriter shall have full authority to take such action as it may
deem advisable in respect of all matters pertaining to the offering or arising
thereunder. The Underwriter shall not be under any liability to you, except such
as may be incurred under the Securities Act of 1933 and the rules and
regulations thereunder, except for lack of good faith and except for obligations
assumed by us in this Agreement, and no obligation on our part shall be implied
or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate when the
offering is completed. Nothing herein contained shall be deemed a commitment on
our part to sell you any Securities; such contractual commitment can only be
made in accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of the NASD and
registered as a broker-dealer with the Commission, or that you are a foreign
broker-dealer not eligible for membership under Section 1 of the Bylaws of the
NASD who agrees to make no sales within the United States, its territories or
possessions or to persons who are nationals thereof or residents therein and, in
making sales, to comply with the NASD's interpretation with Respect to
FreeRiding and Withholding and with Sections 8, 24, 25 to the extent applicable
to foreign nonmember brokers and dealers, and Section 36 of the NASD's Rules of
Fair Practice. Your attention is called to and you agree to comply with the
following: (a) Article III, Section 1 of the Rules of Fair Practice of the NASD
and the interpretations of said Section promulgated by the Board of Governors of
the NASD including Section 24 and the interpretation with respect to
"Free-Riding and Withholding;" (b) Section 10(b) of the 1934 Act and Rules
10b-6, 10b-10 of the general
2
rules and regulations promulgated under the 1934 Act; and (c) Rule 15c2-8 of the
general rules and regulations promulgated under the 1934 Act requiring the
distribution of a preliminary Prospectus to all persons reasonably expected to
be purchasers of the Securities from you at least 48 hours prior to the time you
expect to mail confirmations. You, as a member of the NASD, by signing this
Agreement, acknowledge that you are familiar with the cited laws and rules and
agree that you will not directly and/or indirectly violate any provisions of
applicable law in connection with your participation in the distribution of the
Securities.
11. In addition to compliance with the provisions of paragraph 10 hereof,
you will not, until advised by us in writing or by wire that the entire offering
has been distributed and closed, bid for or purchase Securities in the open
market or otherwise make a market in the Securities or otherwise attempt to
induce others to purchase the Securities in the open market. Nothing contained
in this paragraph 11 shall, however, preclude you from acting as agent in the
execution of unsolicited orders of customers in transactions effectuated for
them through a market maker.
12. You understand that the Underwriter may in connection with the offering
engage in stabilizing transactions. If the Underwriter contracts for or
purchases in the open market in connection with such stabilization any
Securities sold to you hereunder and not effectively placed by you, the
Underwriter may charge you the Selected Dealer's concession originally allowed
you on the Securities so purchased and you agree to pay such amount to us on
demand.
13. By submitting an Offer to Purchase you confirm that you may, in
accordance with Rule 156-1 adopted under the 1934 Act, agree to purchase the
number of Securities you may become obligated to purchase under the provisions
of this Agreement.
14. All communications from you should be directed to us at 2 Charles
Street, Providence, R.I. 02904, (1-800-709-4040) and (fax 401-274-8942). All
communications from us to you shall be directed to the address to which this
letter is mailed.
VERY TRULY YOURS,
SCHNEIDER SECURITIES, INC.
By
--------------------------
(Authorized Officer)
3
OFFER TO PURCHASE
The undersigned does hereby offer to purchase (subject to the right to
revoke as set forth in paragraph 3) _____________ * Securities in accordance
with the terms and conditions set forth above. We hereby acknowledge receipt of
the Prospectus referred to in the first paragraph thereof relating to such
Securities. We further state that in purchasing such Securities we have relied
upon such Prospectus and upon no other statement whatsoever, written or oral.
- -----------------------------------
By
---------------------------------
(Authorized Officer)
*If a number appears here which does not correspond with what you wish to offer
to purchase, you may change the number by crossing out the number, inserting a
different number and initializing the change.
4
RESTATED CERTIFICATE OF INCORPORATION
OF
QC OPTICS, INC.
*****
QC OPTICS, INC. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware on February 24, 1986, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors held on June 18, 1996,
and by a consent of a majority of the outstanding shares of the
Corporation dated June 18, 1996, all of the directors and a majority
of the stockholders of the Corporation, approved this Restated
Certificate of Incorporation.
1. The name of the corporation is QC OPTICS, INC.
2. The address of its registered office in the State of Delaware is
1209 Orange Street, in the City of Wilmington, County of New Castle. The name of
its registered agent at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or
promoted is:
To engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
4. The total number of shares of stock which the Corporation shall
have authority to issue is eleven million (11,000,000) shares, ten million
(10,000,000) shares of which shall be Common Stock, of the par value of One Cent
($.01) per share, and one million (1,000,000) shares of which shall be Preferred
Stock, of the par value of One Cent ($.01) per share, amounting in the aggregate
to One Hundred Ten Thousand and 00/100 Dollars ($110,000.00).
Additional designations and powers, preferences and rights and
qualifications, limitations or restrictions thereof of the shares of each class
shall be determined by the Board of Directors of the Corporation from time to
time.
The holders of Common Stock shall be entitled to receive
dividends and the Corporation shall pay dividends thereon, as and when declared
by the board of directors of the Corporation out of moneys properly applicable
to the payment of dividends, in such amount and in such form as the board of
directors may from time to time determine and all dividends which the directors
may declare on the Common Stock shall be declared and paid in equal amounts per
share on all outstanding shares of Common Stock at the time of such declaration.
-1-
In the event of the dissolution, liquidation or winding-up of the
Corporation, whether voluntary or involuntary, or any other distribution of
assets of the Corporation among its stockholders for the purpose of winding-up
its affairs, the holders of the Common Stock shall be entitled to receive the
remaining property and assets of the Corporation on a proportionate basis.
The holders of the Common Stock shall be entitled to receive
notice of and to attend all meetings of the stockholders of the Corporation and
shall have one vote for each share of Common Stock held of record on each matter
submitted to a vote of the stockholders, including the election of directors.
5. The name and mailing address of the Corporation's incorporator is
Eric T. Chase, c/o QC Optics, Inc., 154 Middlesex Turnpike Road, Burlington,
Massachusetts 01803.
6. The name and address of the persons who are to serve as the
directors of the Corporation until the next annual meeting of the stockholders
or until his successor(s) are elected and qualified are:
Eric T. Chase Yutaka Goto
19 Craigle Circle 5053 Woodbrae Ct.
Carlisle, MA 01740 Saratoga, CA 95070
Charles H. Fine John M. Tarrh
325 Highland Ave. 40 Estate Lane
W. Newton, MA 02165 Reading, MA 01867
7. The Corporation is to have perpetual existence.
8. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
o To make, alter or repeal the bylaws of the Corporation.
o To authorize and cause to be executed mortgages and liens upon
the real and personal property of the Corporation.
o To set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper
purpose and to abolish any such reserve in the manner in which
it was created.
o By a majority of the whole board, to designate one or more
committees, each committee to consist of one or more of the
directors of the Corporation. The Board may designate one or
more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the
committee. The bylaws may provide that in the absence or
disqualification of a member of a
-2-
committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of
any such agent or disqualified member. Any such committee, to
the extent provided in the resolution of the Board of
Directors, or in the bylaws of the Corporation, shall have and
may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to
amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the
stockholders the sale, lease, or exchange of all or
substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the
Corporation or a revocation of a dissolution, or amending the
bylaws of the Corporation; and, unless the resolution or bylaws
expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of
stock.
o When and as authorized by the stockholders in accordance with
statute, to sell, lease or exchange all or substantially all of
the property and assets of the Corporation, including its
goodwill and its corporate franchises, upon such terms and
conditions and for such consideration, which may consist in
whole or in part of money or property, including shares of
stock in, and/or other securities of, any other Corporation or
Corporations, as its Board of Directors shall deem expedient
and for the best interests of the Corporation.
9. To the maximum extent permitted by Section 102(b)(7) of the General
Corporation Law of Delaware, a director of this Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit.
10. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court or equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directors. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case
-3-
may be, agree to any compromise or arrangement to any reorganization of this
Corporation as consequences of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders of this Corporation, as the case may be, and also on this
Corporation.
11. Meetings of the stockholders may be held within or without the
State of Delaware, as the bylaws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the bylaws of the Corporation. Elections of
directors need not be by written ballot unless the bylaws of the Corporation
shall so provide.
12. The Corporation reserves the right to amend, alter, change, or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation; except that any
such amendment shall be made by the holders of at least a majority of the
outstanding shares of Common Stock of the Corporation entitled to vote thereon.
13. Indemnification
A. Right to Indemnification
Each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative ("proceeding"), by reason of the fact
that he or she, or a person for whom he or she is the legal representative, is
or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the General Corporation Law of
the State of Delaware, as the same now exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide prior to such amendment), against all
expenses, liability and loss (including attorney's fees, judgments, fines,
liability under federal tax laws or the Employee Retirement Income Security Act
of 1974, as amended from time to time with respect to employee benefit plans,
and amounts to be paid in settlement) reasonably incurred or suffered by such
person in connection therewith; provided however that the Corporation shall
indemnify in connection with a proceeding (or part thereof) initiated by such
person only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation. The right to indemnification referred to in the
preceding sentence shall be a contract right and shall include the right to be
paid, by the Corporation, expenses incurred in defending any such proceeding, in
advance of its final disposition; provided, however, that the payment of such
expenses incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered by
-4-
such person while a director or officer, including, without limitation, service
to any employee benefit plan) in advance of the final disposition of such
proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it should be determined ultimately that such director or officer
is not entitled to be indemnified under this Article 13 or otherwise.
B. Right of Claimant to Bring Suit.
If a claim under Part A of this Article 13 is not paid in full by
the Corporation within ninety (90) days after a written claim has been received
by the Corporation, the claimant may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking
has been tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under the General Corporation Law
of the State of Delaware for the Corporation to indemnify the claimant for the
amount claimed, but the burden of providing such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstance because he or she has met the
applicable standard of conduct set forth in said law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the claimant had not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the claimant had not met the applicable standard of conduct.
C. Non-Exclusivity of Rights.
The rights conferred on any person by Parts A and B of this
Article 13 shall not be exclusive of any other right which such person may have
or hereafter acquire under any statute, provision of this Certificate of
Incorporation, bylaw, agreement, vote of stockholders or disinterested directors
or otherwise.
D. Insurance.
The Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including any employee benefit plan, against
any liability asserted against any such person and incurred by such person in
any such capacity, or arising out of such person's status as such, whether or
not the Corporation would have the power to indemnify such person against such
liability under the General Corporation Law of the State of Delaware.
-5-
THE UNDERSIGNED, being the President of QC OPTICS, INC. named
hereinbefore, for the purposes of filing a Restated Certificate of Incorporation
pursuant to the General Corporation Law of the State of Delaware, does make this
certificate, hereby declaring and certifying that this is his act and deed and
the facts herein stated are true, and accordingly, has hereunto set his hand
this ____ day of ________, 1996.
-----------------------------
Eric T. Chase, President
COMMONWEALTH OF MASSACHUSETTS )
) ss.:
COUNTY OF MIDDLESEX )
BE IT REMEMBERED that on this ____ day of _______, 1996, personally
came before me, a Notary Public for the Commonwealth of Massachusetts, Eric T.
Chase, the party to the foregoing Restated Certificate of Incorporation, known
to me personally to be such, and acknowledged the said certificate to be his act
and deed and that the facts stated therein are true.
GIVEN under my hand and seal of office the day and year aforesaid.
-----------------------------
Notary Public
BYLAWS
OF
QC OPTICS, INC.
Article I. Offices.
Section 1. Registered Office. The registered office of the Corporation
shall be The Corporation Trust Company, 1209 Orange Street, in the City of
Wilmington, County of New Castle, State of Delaware 19801, or such other
resident agent as the Board of Directors shall approve.
Section 2. Additional Offices. The Corporation may also have offices at
such other places, both within and without the State of Delaware, as the Board
of Directors may from time to time determine or as the business of the
Corporation may require.
Article II. Meetings of Stockholders.
Section 1. Time and Place. A meeting of stockholders for any purpose
may be held at such time and place within or without the State of Delaware as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
Section 2. Annual Meeting. Annual meetings of stockholders, commencing
with the year 1997, shall be held on the third Thursday in March, if not a legal
holiday, or, if a legal holiday, then on the next secular day following, at
10:00 a.m., or at such other date and time as shall, from time to time, be
designated by the Board of Directors and stated in the notice of the meeting. At
such annual meetings, the stockholders shall elect a Board of Directors and
transact such other business as may properly be brought before the meetings.
Section 3. Notice of Annual Meeting. Written notice of the annual
meeting, stating the place, date, and time thereof, shall be given to each
stockholder entitled to vote at such meeting not less than ten (unless a longer
period is required by law) nor more than sixty days prior to the meeting.
Section 4. Special Meetings. Except as otherwise specifically provided
by law, special meetings of the stockholders may be called at any time, only by
the Board of Directors.
Upon the call of a special meeting by the Board, which call shall set
forth the purpose for which the meeting is desired, it shall be the duty of the
Secretary to give prompt written notice of such meeting to be held at such time
and place as shall be stipulated by the Board in its call of the meeting.
Section 5. Notice of Special Meeting. Written notice of a special
meeting, stating the place, date, and time thereof and the purpose or purposes
for which the meeting is called, shall be given to each stockholder entitled to
vote at such meeting not less than ten (unless a longer period is required by
law) nor more than sixty days prior to the meeting.
Section 6. List of Stockholders. The transfer agent or the officer in
charge of the stock ledger of the Corporation shall prepare and make, at least
ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, at a
place within the city where the meeting is to be held, which place, if other
than the place of the meeting, shall be specified in the notice of the meeting.
The list shall also be produced and kept at the place of the meeting during the
whole time thereof and may be inspected by any stockholder who is present in
person thereat.
Section 7. Presiding Officer and Order of Business.
(a) Meetings of stockholders shall be presided over by the Chairman of
the Board. If he is not present or there is none, they shall be presided over by
the President, or, if he is not present or there is none, by a Vice President,
or, if he is not present or there is none, by a person chosen by the Board of
Directors, or, if no such person is present or has been chosen, by a chairman to
be chosen by the stockholders owning a majority of the shares of capital stock
of the Corporation issued and outstanding and entitled to vote at the meeting
and who are present in person or represented by proxy. The Secretary of the
Corporation, or, if he is not present, an Assistant Secretary, or, if he is not
present, a person chosen by the Board of Directors, shall act as Secretary at
meetings of stockholders; if no such person is present or has been chosen, the
stockholders owning a majority of the shares of capital stock of the Corporation
issued and outstanding and entitled to vote at the meeting who are present in
person or represented by proxy shall choose any person present to act as
secretary of the meeting.
(b) The following order of business, unless otherwise determined at the
meeting, shall be observed as far as practicable and consistent with the
purposes of the meeting:
(1) Call of the meeting to order.
(2) Presentation of proof of mailing of the notice of the meeting
and, if the meeting is a special meeting, the call thereof.
(3) Presentation of proxies.
(4) Announcement that a quorum is present.
(5) Reading and approval of the minutes of the previous meeting.
(6) Reports, if any, of officers.
(7) Election of directors, if the meeting is an annual meeting
or a meeting called for that purpose.
(8) Consideration of the specific purpose or purposes, other
than the election of directors, for which the meeting has
been called, if the meeting is a special meeting.
(9) Transaction of such other business as may properly come
before the meeting.
(10) Adjournment.
-2-
Section 8. Quorum and Adjournments. The presence in person or
representation by proxy of the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote
shall be necessary to, and shall constitute a quorum for, the transaction of
business at all meetings of the stockholders, except as otherwise provided by
statute or by the Certificate of Incorporation. If, however, a quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat who are present in person or represented by proxy shall
have the power to adjourn the meeting from time to time until a quorum shall be
present or represented. If the time and place of the adjourned meeting are
announced at the meeting at which the adjournment is taken, no further notice of
the adjourned meeting need be given. Even if a quorum shall be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat who are present in person or represented by proxy shall have the
power to adjourn the meeting from time to time for good cause to a date that is
not more than thirty days after the date of the original meeting. Further notice
of the adjourned meeting need not be given if the time and place thereof are
announced at the meeting at which the adjournment is taken. At any adjourned
meeting at which a quorum is present in person or represented by proxy, any
business may be transacted that might have been transacted at the meeting as
originally called. If the adjournment is for more than thirty days, or if, after
the adjournment, a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote thereat.
Section 9. Voting.
(a) At any meeting of the stockholders, every stockholder having the
right to vote shall be entitled to vote in person or by proxy. Except as
otherwise provided by law or the Certificate of Incorporation, each stockholder
of record shall be entitled to one vote for each share of capital stock
registered in his name on the books of the Corporation.
(b) All elections shall be determined by a plurality vote, and, except
as otherwise provided by law or the Certificate of Incorporation, all other
matters shall be determined by a vote of a majority of the shares present in
person or represented by proxy and voting on such other matters.
Section 10. Action by Consent. Any action required or permitted by law
or the Certificate of Incorporation to be taken at any meeting of stockholders
may be taken without a meeting, without prior notice if a written consent,
setting forth the action so taken, shall be signed by unanimous consent of the
holders of outstanding stock.
Section 11. Business at Meetings of Stockholders.
Except as otherwise provided by law (including but not limited to Rule
14a-8 of the Securities and Exchange Act of 1934, as amended, or any successor
provision thereto) or in these By-laws, the business which shall be conducted at
any meeting of the stockholders shall (a) have been specified in the written
notice of the meeting (or any supplement thereto) given by the Corporation, or
(b) be brought before the meeting at the direction of the Board of Directors, or
(c) be brought before the meeting by the presiding officer of the meeting unless
a majority of the Directors then in office object to such business being
conducted at the meeting, or (d) have been specified in a written notice given
-3-
to the Secretary of the Corporation, by or on behalf of any stockholder who
shall have been a stockholder of record on the record date for such meeting and
who shall continue to be entitled to vote thereat (the "Stockholder Notice"), in
accordance with all of the following requirement:
(1) Each Stockholder Notice must be delivered to, or mailed and
received at, the principal executive offices of the Corporation (i) in the case
of an annual meeting that is called for a date that is within 30 days before or
after the anniversary date of the immediately preceding annual meeting of
stockholders, not less than 60 days nor more than 90 days prior to such
anniversary date, and (ii) in the case of an annual meeting that is called for a
date that is not within 30 days before or after the anniversary date of the
immediately preceding annual meeting, not later than the close of business on
the tenth day following the day on which notice of the date of the meeting was
mailed or public disclosure of the date of the meeting was made, whichever
occurs first; and
(2) Each such Stockholder Notice must set forth: (i) the name and
address of the stockholder who intends to bring the business before the meeting;
(ii) the general nature of the business which such stockholder seeks to bring
before the meeting and, if a specific action is to be proposed, the text of the
resolution or resolutions which the proposing stockholder proposes that the
stockholders adopt; and (iii) a representation that the stockholder is a holder
of record of the stock of the Corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to bring the business
specified in the notice before the meeting. The presiding officer of the meeting
may, in his or her sole discretion, refuse to acknowledge any business proposed
by a stockholder not made in compliance with the foregoing procedure.
Section 12. Nominations. Notwithstanding the provisions of Section 11
of Article II of these By-laws (dealing with business at meetings of
stockholders), nominations for the election of Directors may be made by the
Board of Directors, a committee appointed by the Board of Directors or by any
stockholder of record entitled to vote on the election of Directors who is a
stockholder at the record date of the meeting and also on the date of the
meeting at which Directors are to be elected; provided, however, that with
respect to a nomination made by a stockholder, such stockholder must provide
timely written notice to the Secretary of the Corporation in accordance with the
following requirements:
(1) To be timely, a stockholder's notice must be delivered to, or
mailed and received at, the principal executive offices of the Corporation (i)
in the case of an annual meeting that is called for a date that is within 30
days before or after the anniversary date of the immediately preceding annual
meeting of stockholders, not less than 60 days nor more than 90 days prior to
such anniversary date, and (ii) in the case of an annual meeting that is called
for a date that is not within 30 days before or after the anniversary date of
the immediately preceding annual meeting, or in the case of a special meeting of
stockholders called for the purpose of electing Directors, not later than the
close of business on the tenth day following the day on which notice of the date
of the meeting was mailed or public disclosure of the date of the meeting was
made, whichever occurs first; and
(2) Each such written notice must set forth: (i) the name and address
of the stockholder who intends to make the nomination; (ii) the name and address
of the person or persons to be nominated; (iii) a representation that the
stockholder is a holder of record of the stock of the
-4-
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (iv) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder; (v) such other information regarding each nominee proposed by
such stockholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission had
the nominee been nominated, or intended to be nominated, by the Board of
Directors; and (vi) the consent of each nominee to serve as a Director of the
Corporation if so elected. The presiding office of the meeting may refuse, in
his or her sole discretion, to acknowledge the nomination of any person as not
made in compliance with the foregoing procedure.
Article III. Directors.
Section 1. General Powers, Number, and Tenure. The business of the
Corporation shall be managed by its Board of Directors, which may exercise all
powers of the Corporation and perform all lawful acts that are not by law, the
Certificate of Incorporation, or these Bylaws directed or required to be
exercised or performed by the stockholders. The number of directors shall be
determined by the Board of Directors; if no such determination is made, the
number of directors shall be one. The Directors shall be classified, with
respect to the duration of the term for which they severally hold office, into
three classes (denominated Class I, Class II and Class III) as nearly equal in
number as reasonably possible. The Board of Directors shall increase or decrease
the number of Directors in one or more classes as may be appropriate whenever it
increases or decreases the number of Directors in order to ensure that the three
classes shall be as nearly equal in number as reasonably possible. The term of
office of the initial Class I Directors shall expire at the annual meeting of
stockholders in 1999, the term of office of the initial Class II Directors shall
expire at the annual meeting of stockholders in 1998, and the term of office of
the Initial Class III Directors shall expire at the annual meeting of
stockholders in 1997. At each annual meeting of stockholders, beginning in 1997,
the successors of the class of Directors whose term expires at the meeting shall
be elected to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election. When a
Director is elected, such Director's Class shall be identified. A Directors
elected to fill a vacancy on the Board shall be elected for a term expiring at
the annual meeting when the term of a Director in such Class would naturally
expire. Each Director shall serve and hold office until such Director's
successor is elected and qualified, or until such Director's earlier death,
resignation or removal. Directors need not be stockholders.
Section 2. Vacancies. If any vacancies occur in the Board of Directors,
or if any new directorships are created, they may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. Each director so chosen shall hold office until the next annual
meeting of stockholders and until his successor is duly elected and shall
qualify. If there are no directors in office, any officer or stockholder may
call a special meeting of stockholders in accordance with the provisions of the
Certificate of Incorporation or these Bylaws, at which meeting such vacancies
shall be filled.
-5-
Section 3. Resignation.
Any director may resign at any time by giving written notice to the
Board of Directors, the Chairman of the Board, if any, or the President or
Secretary of the Corporation. Unless otherwise specified in such written notice,
a resignation shall take effect on delivery thereof to the Board of Directors or
the designated officer. It shall not be necessary for a resignation to be
accepted before it becomes effective.
Section 4. Place of Meetings. The Board of Directors may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. Annual Meeting. The annual meeting of each newly elected
Board of Directors shall be held immediately following the annual meeting of
stockholders, and no notice of such meeting shall be necessary to the newly
elected directors in order to constitute the meeting legally, provided a quorum
shall be present.
Section 6. Regular Meetings. Additional regular meetings of the Board
of Directors may be held without notice of such time and place as may be
determined from time to time by the Board of Directors.
Section 7. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President, or by two or more
directors on at least two days' notice to each director, if such notice is
delivered personally or sent by telegram, or on at least three days' notice if
sent by mail. Special meetings shall be called by the Chairman of the Board,
President, Secretary, or two or more directors in like manner and on like notice
on the written request of one-half or more of the number of directors then in
office. Any such notice need not state the purpose or purposes of such meeting,
except as provided in Article XI.
Section 8. Quorum and Adjournments. At all meetings of the Board of
Directors, a majority of the directors then in office shall constitute a quorum
for the transaction of business, and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors, except as may be otherwise specifically provided by law or the
Certificate of Incorporation. If a quorum is not present at any meeting of the
Board of Directors, the directors present may adjourn the meeting from time to
time, without notice other than announcement at the meeting at which the
adjournment is taken, until a quorum shall be present.
Section 9. Compensation. Directors shall be entitled to such
compensation for their services as directors and to such reimbursement for any
reasonable expenses incurred in attending directors' meetings as may from time
to time be fixed by the Board of Directors. The compensation of directors may be
on such basis as is determined by the Board of Directors. Any director may waive
compensation for any meeting. Any director receiving compensation under these
provisions
-6-
shall not be barred from serving the Corporation in any other capacity and
receiving compensation and reimbursement for reasonable expenses for such other
services.
Section 10. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting,
and without prior notice, if a written consent to such action is signed by all
members of the Board of Directors and such written consent is filed with the
minutes of its proceedings.
Section 11. Meetings by Telephone or Similar Communications Equipment.
The Board of Directors may participate in a meeting by conference telephone or
similar communications equipment by means of which all directors participating
in the meeting can hear each other, and participation in such a meeting shall
constitute presence in person by any such director at such meeting.
Article IV. Committees.
Section 1. Executive Committee. The Board of Directors, by resolution
adopted by a majority of the whole Board, may appoint an Executive Committee
consisting of one or more directors, one of whom shall be designated as Chairman
of the Executive Committee. Each member of the Executive Committee shall
continue as a member thereof until the expiration of his term as a director or
his earlier resignation, unless sooner removed as a member or as a director.
Section 2. Powers. The Executive Committee shall have and may exercise
those rights, powers, and authority of the Board of Directors as may from time
to time be granted to it by the Board of Directors to the extent permitted by
law, and may authorize the seal of the Corporation to be affixed to all papers
that may require it.
Section 3. Procedure and Meetings. The Executive Committee shall fix
its own rules of procedure and shall meet at such times and at such place or
places as may be provided by such rules or as the members of the Executive
Committee shall fix. The Executive Committee shall keep regular minutes of its
meetings, which it shall deliver to the Board of Directors from time to time.
The Chairman of the Executive Committee or, in his absence, a member of the
Executive Committee chosen by a majority of the members present, shall preside
at meetings of the Executive Committee; and another member chosen by the
Executive Committee shall act as Secretary of the Executive Committee.
Section 4. Quorum. A majority of the Executive Committee shall
constitute a quorum for the transaction of business, and the affirmative vote of
a majority of the members present at any meeting at which there is a quorum
shall be required for any action of the Executive Committee; provided, however,
that when an Executive Committee of one member is authorized under the
provisions of Section 1 of this Article, that one member shall constitute a
quorum.
Section 5. Other Committees. The Board of Directors, by resolutions
adopted by a majority of the whole Board, may appoint such other committee or
committees as it shall deem advisable and with such rights, power, and authority
as it shall prescribe. Each such committee shall consist of one or more
directors.
-7-
Section 6. Committee Changes. The Board of Directors shall have the
power at any time to fill vacancies in, to change the membership of, and to
discharge any committee.
Section 7. Compensation. Members of any committee shall be entitled to
such compensation for their services as members of the committee and to such
reimbursement for any reasonable expenses incurred in attending committee
meetings as may from time to time be fixed by the Board of Directors. Any member
may waive compensation for any meeting. Any committee member receiving
compensation under these provisions shall not be barred from serving the
Corporation in any other capacity and from receiving compensation and
reimbursement of reasonable expenses for such other services.
Section 8. Action by Consent. Any action required or permitted to be
taken at any meeting of any committee of the Board of Directors may be taken
without a meeting if a written consent to such action is signed by all members
of the committee and such written consent is filed with the minutes of its
proceedings.
Section 9. Meetings by Telephone or Similar Communications Equipment.
The members of any committee designated by the Board of Directors may
participate in a meeting of such committee by conference telephone or similar
communications equipment by means of which all persons participating in such
meeting can hear each other, and participation in such a meeting shall
constitute presence in person by any such committee member at such meeting.
Article V. Notices.
Section 1. Form and Delivery. Whenever a provision of any law, the
Certificate of Incorporation, or these Bylaws requires that notice be given to
any director or stockholder, it shall not be construed to require personal
notice unless so specifically provided, but such notice may be given in writing,
by mail addressed to the address of the director or stockholder as it appears on
the records of the Corporation, with postage prepaid. These notices shall be
deemed to be given when they are deposited in the United States mail. Notice to
a director may also be given personally or by telephone or by telegram sent to
his address as it appears on the records of the Corporation.
Section 2. Waiver. Whenever any notice is required to be given under
the provisions of any law, the Certificate of Incorporation, or these Bylaws, a
written waiver thereof signed by the person entitled to said notice, whether
before or after the time stated therein, shall be deemed to be equivalent to
such notice. In addition, any stockholder who attends a meeting of stockholders
in person or is represented at such meeting by proxy, without protesting at the
commencement of the meeting the lack of notice thereof to him, or any director
who attends a meeting of the Board of Directors without protesting at the
commencement of the meeting of the lack of notice, shall be conclusively deemed
to have waived notice of such meeting.
Article VI. Officers.
Section 1. Designations. The officers of the Corporation shall be
chosen by the Board of Directors. The Board of Directors may choose a Chairman
of the Board, a President, a Vice
-8-
President or Vice Presidents, a Secretary, a Treasurer, one or more Assistant
Secretaries and/or Assistant Treasurers, and other officers and agents that it
shall deem necessary or appropriate. All officers of the Corporation shall
exercise the powers and perform the duties that shall from time to time be
determined by the Board of Directors. Any number of offices may be held by the
same person, unless the Certificate of Incorporation or these Bylaws provide
otherwise.
Section 2. Term of, and Removal From, Office. At its first regular
meeting after each annual meeting of stockholders, the Board of Directors shall
choose a President, a Secretary, and a Treasurer. It may also choose a Chairman
of the Board, a Vice President or Vice Presidents, one or more Assistant
Secretaries and/or Assistant Treasurers, and such other officers and agents as
it shall deem necessary or appropriate. Each officer of the Corporation shall
hold office until his successor is chosen and shall qualify. Any officer elected
or appointed by the Board of Directors may be removed, with or without cause, at
any time by the affirmative vote of a majority of the directors then in office.
Removal from office, however, shall not prejudice the contract rights, if any,
of the person removed. Any vacancy occurring in any office of the Corporation
may be filled for the unexpired portion of the term by the Board of Directors.
Section 3. Compensation. The salaries of all officers of the
Corporation shall be fixed from time to time by the Board of Directors, and no
officer shall be prevented from receiving a salary because he is also a director
of the Corporation.
Section 4. The Chairman of the Board. The Chairman of the Board, if
any, shall be an officer of the Corporation and, subject to the direction of the
Board of Directors, shall perform such executive, supervisory, and management
functions and duties as may be assigned to him from time to time by the Board of
Directors. He shall, if present, preside at all meetings of stockholders and of
the Board of Directors.
Section 5. The President.
(a) The President shall be the chief executive officer of the
Corporation and, subject to the direction of the Board of Directors, shall have
general charge of the business, affairs, and property of the Corporation and
general supervision over its other officers and agents. In general, he shall
perform all duties incident to the office of President and shall see that all
orders and resolutions of the Board of Directors are carried into effect.
(b) Unless otherwise prescribed by the Board of Directors, the
President shall have full power and authority to attend, act, and vote on behalf
of the Corporation at any meeting of the security holders of other corporations
in which the Corporation may hold securities. At any such meeting, the President
shall possess and may exercise any and all rights and powers incident to the
ownership of such securities that the Corporation might have possessed and
exercised if it had been present. The Board of Directors may from time to time
confer like powers upon any other person or persons.
Section 6. The Vice President. The Vice President, if any, or in the
event there be more than one, the Vice Presidents in the order designated, or in
the absence of any designation, in the order of their election, shall, in the
absence of the President or in the event of his disability, perform
-9-
the duties and exercise the powers of the President and shall generally assist
the President and perform such other duties and have such other powers as may
from time to time be prescribed by the Board of Directors.
Section 7. The Secretary. The Secretary shall attend all meetings of
the Board of Directors and the stockholders and record all votes and the
proceedings of the meetings in a book to be kept for that purpose. He shall
perform like duties for the Executive Committee or other committees, if
required. He shall give, or cause to be given, notice of all meetings of
stockholders and special meetings of the Board of Directors, and shall perform
such other duties as may from time to time be prescribed by the Board of
Directors, the Chairman of the Board, or the President, under whose supervision
he shall act. He shall have custody of the seal of the Corporation, and he, or
an Assistant Secretary, shall have authority to affix it to any instrument
requiring it, and, when so affixed, the seal may be attested by his signature or
by the signature of the Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing thereof by his signature.
Section 8. The Assistant Secretary. The Assistant Secretary, if any, or
in the event there be more than one, the Assistant Secretaries in the order
designated, or in the absence of any designation, in the order of their
election, shall, in the absence of the Secretary or in the event of his
disability, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors.
Section 9. The Treasurer. The Treasurer shall have custody of the
corporate funds and other valuable effects, including securities, and shall keep
full and accurate accounts of receipts and disbursements in books belonging to
the Corporation and shall deposit all moneys and other valuable effects in the
name and to the credit of the Corporation in such depositories as may from time
to time be designated by the Board of Directors. He shall disburse the funds of
the Corporation in accord with the orders of the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the Chairman of the
Board, if any, the President, and the Board of Directors, whenever they may
require it or at regular meetings of the Board, an account of all his
transactions as Treasurer and of the financial condition of the Corporation.
Section 10. The Assistant Treasurer. The Assistant Treasurer, if any,
or in the event there shall be more than one, the Assistant Treasurers in the
order designated, or in the absence of any designation, in the order of their
election, shall, in the absence of the Treasurer or in the event of his
disability, perform such other duties and have such other powers as may from
time to time be prescribed by the Board of Directors.
Article VII. Indemnification.
Reference is made to Section 145 and any other relevant provisions of
the General Corporation Law of the State of Delaware. Particular reference is
made to the class of persons, hereinafter called "Indemnitees", who may be
indemnified by a Delaware corporation pursuant to the provisions of such Section
145, namely, any person, or the heirs, executors, or administrators of such
person, who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, by
-10-
reason of the fact that such person is or was a director, officer, employee, or
agent of such corporation or is or was serving at the request of such
corporation as a director, officer, employee, or agent of such corporation or is
or was serving at the request of such corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise. The Corporation shall, and is hereby obligated, in addition to
any obligation incurred pursuant to the Corporation's Certificate of
Incorporation, as amended, to indemnify the Indemnitees, and each of them, in
each and every situation where the Corporation is obligated to make such
indemnification pursuant to the aforesaid statutory provisions. The Corporation
shall indemnify the Indemnitees, and each of them, in each and every situation
where, under the aforesaid statutory provisions, the Corporation is not
obligated, but is nevertheless permitted or empowered, to make such
indemnification, it being understood that, before making such indemnification
with respect to any situation covered under this sentence, (i) the Corporation
shall promptly make or cause to be made, by any of the methods referred to in
Subsection (d) of such Section 145, a determination as to whether each
Indemnitee acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of the Corporation, and, in the case of
any criminal action or proceeding, had no reasonable cause to believe that his
conduct was unlawful, and (ii) that no such indemnification shall be made unless
it is determined that such Indemnitee acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, in the case of any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful.
Article VIII. Affiliated Transactions and Interested Directors.
Section 1. Affiliated Transactions. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or committee thereof that authorizes
the contract or transaction or solely because his or their votes are counted for
such purpose if:
(a) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board of Directors or committee in good faith authorizes
the contract or transaction by the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or
(b) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by the vote of the stockholders; or
(c) The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved, or ratified by the Board of Directors, a
committee thereof, or the stockholders.
Section 2. Determining Quorum. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee thereof which authorizes the contract or
transaction.
-11-
Article IX. Stock Certificates.
Section 1. Form and Signatures.
(a) Every holder of stock of the Corporation shall be entitled to a
certificate stating the number and class, and series, if any, of shares owned by
him, signed by the Chairman of the Board, if any, or the President and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation, and bearing the seal of the Corporation. The signatures and
the seal may be facsimiles. A certificate may be signed, manually or by
facsimile, by a transfer agent or registrar other than the Corporation or its
employee. In case any officer who has signed, or whose facsimile signature was
placed on, a certificate shall have ceased to be such officer before the
certificate is issued, it may nevertheless be issued by the Corporation with the
same effect as if he were such officer at the date of its issue.
(b) All stock certificates representing shares of capital stock that
are subject to restrictions on transfer or to other restrictions may have
imprinted thereon any notation to that effect determined by the Board of
Directors.
Section 2. Registration of Transfer. Upon surrender to the Corporation
or any transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment, or
authority to transfer, the Corporation or its transfer agent shall issue a new
certificate to the person entitled thereto, cancel the old certificate, and
record the transaction upon the books of the Corporation.
Section 3. Registered Stockholders.
(a) Except as otherwise provided by law, the Corporation shall be
entitled to recognize the exclusive right of a person who is registered on its
books as the owner of shares of its capital stock to receive dividends or other
distributions and to vote or consent as such owner, and to hold liable for calls
and assessments any person who is registered on its books as the owner of shares
of its capital stock. The Corporation shall not be bound to recognize any
equitable or legal claim to, or interest in, such shares on the part of any
other person.
(b) If a stockholder desires that notices and/or dividends shall be
sent to a name or address other than the name or address appearing on the stock
ledger maintained by the Corporation, or its transfer agent or registrar, if
any, the stockholder shall have the duty to notify the Corporation, or its
transfer agent or registrar, if any, in writing of his desire and specify the
alternate name or address to be used.
Section 4. Record Date. In order that the Corporation may determine the
stockholders of record who are entitled to receive notice of, or to vote at, any
meeting of stockholders or any adjournment thereof or to express consent to
corporate action in writing without a meeting, to receive payment of any
dividend or other distribution or allotment of any rights, or to exercise any
rights in respect of any change, conversion, or exchange of stock or for the
purpose of any lawful action, the Board of Directors may, in advance, fix a date
as the record date for any such determination. Such date shall not be more than
sixty nor less than ten days before the date of such meeting,
-12-
nor more than sixty days prior to the date of any other action. A determination
of stockholders of record entitled to notice of, or to vote at, a meeting of
stockholders shall apply to any adjournment of the meeting taken pursuant to
Section 8 of Article II; provided, however, that the Board of Directors may fix
a new record date for the adjourned meeting.
Section 5. Lost, Stolen, or Destroyed Certificates. The Board of
Directors may direct that a new certificate be issued to replace any certificate
theretofore issued by the Corporation that, it is claimed, has been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen, or destroyed. When authorizing the
issue of a new certificate, the Board of Directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of the lost,
stolen, or destroyed certificate, or his legal representative, to advertise the
same in such manner as it shall require, and/or to give the Corporation a bond
in such sum, or other security in such form, as it may direct as indemnity
against any claims that may be made against the Corporation with respect to the
certificate claimed to have been lost, stolen, or destroyed.
Article X. General Provisions.
Section 1. Dividends. Subject to the provisions of law and the
Certificate of Incorporation, dividends upon the outstanding capital stock of
the Corporation may be declared by the Board of Directors at any regular or
special meeting, and may be paid in cash, in property, or in shares of the
Corporation`s capital stock.
Section 2. Reserves. The Board of Directors shall have full power,
subject to the provisions of law and the Certificate of Incorporation, to
determine whether any, and, if so, what part, of the funds legally available for
the payment of dividends shall be declared as dividends and paid to the
stockholders of the Corporation. The Board of Directors, in its sole discretion,
may fix a sum that may be set aside or reserved over and above the paid-in
capital of the Corporation as a reserve for any proper purpose, and may, from
time to time, increase, diminish, or vary such amount.
Section 3. Fiscal Year. Except as from time to time otherwise provided
by the Board of Directors, the fiscal year of the Corporation shall end on
December 31 in each year.
Section 4. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its incorporation, and the words "Corporate
Seal" and "Delaware".
Article XI. Amendments.
The Board of Directors or the stockholders shall have the power to
alter and repeal these Bylaws and to adopt new Bylaws by an affirmative vote of
a majority of the whole Board or of the stockholders, provided that notice of
the proposal to alter or repeal these Bylaws or to adopt new Bylaws must be
included in the notice of the meeting of the Board of Directors or meeting of
the stockholders at which such action takes place.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION STATEMENT AS TO SUCH
SECURITIES FILED UNDER THE ACT, OR AN EXEMPTION FROM REGISTRATION, AND
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. THE ISSUER MAY REQUIRE AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER HEREOF THAT SUCH REGISTRATION IS
NOT REQUIRED AND THAT SUCH LAWS ARE COMPLIED WITH.
VOID AFTER 3:30 P.M., EASTERN TIME, ON . 199
REPRESENTATIVE'S
WARRANT TO PURCHASE
COMMON STOCK AND REDEEMABLE WARRANTS
QC OPTICS, INC.
This is to Certify That, FOR VALUE RECEIVED, Schneider Securities, Inc. (the
"Holder") is entitled to purchase, subject to the provisions of this Warrant,
from QC Optics, Inc. ("Company"), a Delaware corporation, at any time on or
after______________ , and not later than 3:30 p.m., Eastern Time, on____________
,1997 _______________ shares of Common Stock and ______________ Redeemable
Warrants of the Company ("Securities") exercisable at a purchase price for the
Securities which is ___% of the public offering price ,in the case of the 95,000
shares of Common Stock at $_____ per share and, in the case of the 95,000
Redeemable Warrants at $ per Redeemable Warrant .The number of Securities to be
received upon the exercise of this Warrant and the price to be paid for the
Securities may be adjusted from time to time as hereinafter set forth. The
purchase price of a Security in effect at any time and as adjusted from time to
time is hereinafter sometimes referred to as the "Exercise Price." This Warrant
is or may be one of a series of Warrants identical in form issued by the Company
to purchase an aggregate of 950,000 Shares of Common Stock and 95,000 Redeemable
Warrants or 50,000 Units. The Securities, as adjusted from time to time,
underlying the Warrants are hereinafter sometimes referred to as "Warrant
Securities". The Securities issuable upon the exercise hereof are in all
respects identical to the securities being purchased by the Underwriter for
resale to the public pursuant to the terms and conditions of the Underwriting
Agreement entered into on this date between the Company and Holder, except that
the Exercise Price per share of Common Stock to be acquired upon the exercise of
the Redeemable Warrants issuable to Holder pursuant hereto shall be $ per share.
(a) Exercise of Warrant. Subject to the provisions of Section (g) hereof, this
Warrant may be exercised in whole or in part at anytime or from time to time on
or after ____________ , 1997, but not later than 3:30 p.m., Eastern Time on
___________, 2001, or if _____________, 2001, is a day on which banking
institutions are authorized by law to close, then on the next succeeding day
which shall not be such a day, by presentation and surrender hereof to the
Company or at the office of its stock transfer agent, if any, with the Purchase
Form annexed hereto duly executed and accompanied by payment of the Exercise
Price for the number of shares of Common Stock or Redeemable Warrants, as the
case may be as speficied in such Form, together with all federal and state taxes
applicable upon such exercise. The Company agrees to provide notice to the
Holder that any tender offer is being made for the Securities no later than the
day the Company becomes aware that any tender offer is being made for the
Securities. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a new
Warrant evidencing the right of the Holder to purchase the balance of the shares
purchasable hereunder along with any additional Redeemable Warrants not
exercised. Upon receipt by the Company of this Warrant at the office of the
Company or at the office of the Company's stock transfer agent, in proper form
for exercise and accompanied by the total Exercise Price, the Holder shall be
deemed to be the holder of record of the Securities issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Securities shall not then be
actually delivered to the Holder.
(b) Reservation of Securities. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of shares of Securities as shall be required for issuance or
delivery upon exercise of this Warrant. The Company covenants and agrees that,
upon exercise of the Warrants and payment of the Exercise Price therefor, all
Securities and other securities issuable upon such exercise shall be duly and
validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all Securities issuable upon the
exercise of the Warrants to be listed (subject to official notice of issuance)
on all securities exchanges on which the Common Stock issued to the public in
connection herewith may then be listed and/or quoted on NASDAQ.
(c) Fractional Shares. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant. With respect to any
fraction of a share called for upon any exercise hereof, the Company shall pay
to the Holder an amount in cash equal to such fraction multiplied by the current
market value of such fractional share, determined as follows:
(1) If the Securities are listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange, the current value
shall be the last reported sale price of the Common Stock on such exchange on
the last business day prior to the date of exercise of this Warrant or if no
such sale is made on such day, the average of the closing bid and asked prices
for such day on such exchange; or
(2) If the Securities are not so listed or admitted to unlisted trading
privileges, the current value shall be the mean of the last reported bid and
asked prices reported by the National Association of Securities Dealers
Automated Quotation System (or, if not so quoted on NASDAQ or by the National
Quotation Bureau, Inc.) on the last business day prior to the date of the
exercise of this Warrant; or
(3) If the Securities are not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current value shall
be an amount, not less than book value, determined in such reasonable manner as
may be prescribed by the Board of Directors of the Company, such determination
to be final and binding on the Holder.
(d) Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, for
other Warrants of different denominations entitling the Holder thereof to
purchase (under the same terms and conditions as provided by this Warrant) in
the aggregate the same number of Securities purchasable hereunder. This Warrant
may not be sold, transferred, assigned, or hypothecated until after one year
from the effective date of the registration statement except that it may be (i)
assigned in whole or in part to the officers of the "Underwriter(s)", and
(ii)transferred to any successor to the business of the "Underwriter(s)." Any
such assignment shall be made by surrender of this Warrant to the Company, or at
the office of its stock transfer agent, if any, with the Assignment Form annexed
hereto duly executed and with funds sufficient to pay any transfer tax;
whereupon the Company shall, without charge, execute and deliver a new Warrant
in the name of the assignee named in-such instrument of assignment, and this
Warrant shall promptly be canceled. This Warrant may be divided or combined with
other Warrants which carry the same rights upon presentation hereof at the
office of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any Warrants issued in substitution for or
replacement of this Warrant, or into which this Warrant may be divided or
exchanged. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
2
surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute an additional contractual obligation on
the part of the Company, whether or not the Warrant so lost, stolen, destroyed,
or mutilated shall be at any time enforceable by anyone.
(e) Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) Notices to Warrant Holders. So long as this Warrant shall be outstanding
and unexercised (i) if the Company shall pay any dividend exclusive of a cash
dividend, or make any distribution upon the Common Stock, or (ii) if the Company
shall offer to the holders of Common Stock for subscription or purchase by them
any shares of stock of any class or any other rights, or (iii) if any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with or into another
corporation, sale, lease or transfer of all or substantially all of the property
and assets of the Company to another corporation, or voluntary or involuntary
dissolution, liquidation or winding up of the Company shall be effected, then,
in any such case, the Company shall cause to be delivered to the Holder, at
least ten (10) days prior to the date specified in (x) or (y) below, as the case
may be, a notice containing a brief description of the proposed action and
stating the date on which (x) a record is to be taken for the purpose of such
dividend, distribution or rights, or (y) such reclassification, reorganization,
consolidation, merger, conveyance, lease, dissolution, liquidation or winding up
is to take place and the date, if any, is to be fixed, as of which the holders
of Common Stock of record shall be entitled to exchange their shares of Common
Stock for equivalent securities or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
(g) Adjustment of Exercise Price and Number of Shares of Common Stock
Deliverable.
(A)(i) Except as hereinafter provided, in the event the Company shall, at
any time or from time to time after the date hereof, issue any shares of Common
Stock as a stock dividend to the holders of Common Stock, or subdivide or
combine the outstanding shares of Common Stock into a greater or lesser number
of shares (any such issuance, subdivision or combination being herein call a
"Change of Shares"), then, and thereafter upon each further Change of Shares,
the Exercise Price of the Common Stock issuable upon the exercise of the Warrant
and the Redeemable Warrant in effect immediately prior to such Change of Shares
shall be changed to a price (including any applicable fraction of a cent to the
nearest cent) determined by dividing (i) the sum of (a) the total number of
shares of Common Stock outstanding immediately prior to such Change of Shares,
multiplied by the Exercise Price in effect immediately prior to such Change of
Shares, and (b) the consideration, if any, received by the Company upon such
issuance, subdivision or combination by (ii) the total number of shares of
Common Stock outstanding immediately after such Change of Shares; provided,
however, that in no event shall the Exercise Price be adjusted pursuant to this
computation to an amount in excess of the Exercise Price in effect immediately
prior to such computation, except in the case of a combination of outstanding
shares of Common Stock.
For the purposes of any adjustment to be made in accordance with this
Section (g) the following provisions shall be applicable:
(I) Shares of Common Stock issuable by way of dividend or other distribution
on any capital stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(II) The number of shares of Common Stock at any one time outstanding shall
not be deemed to include the number of shares issuable (subject to readjustment
upon the actual issuance thereof) upon the exercise of options, rights or
warrants and upon the conversion or exchange of convertible or exchangeable
securities.
(ii) Upon each adjustment of the Exercise Price pursuant to this Section
(g), the number of shares of Common Stock and Redeemable Warrants purchasable
upon the exercise of each Warrant shall be the number derived by
3
multiplying the number of shares of Common Stock and Redeemable Warrants
purchasable immediately prior to such adjustment by the Exercise Price in effect
prior to such adjustment and dividing the product so obtained by the applicable
adjusted Exercise Price.
(B) In case of any reclassification or change of outstanding Securities
issuable upon exercise of the Warrants (other than a change in par value, or
from par value to no par value, or from no par value to par value or as a result
of a subdivision or combination), or in case of any consolidation or merger of
the Company with or into another corporation other than a merger with a
"Subsidiary" (which shall mean any corporation or corporations, as the case may
be, of which capital stock having ordinary power to elect a majority of the
Board of Directors of such corporation (regardless of whether or not at the time
capital stock of any other class or classes of such corporation shall have or
may have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned by the Company or by one or more Subsidiaries)
or by the Company and one or more Subsidiaries in which merger the Company is
the continuing corporation and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other capital stock
issuable upon exercise of the Warrants (other than a change in par value, or
from par value to no par value, or from no par value to par value or as a result
of subdivision or combination) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, then, as a condition of such reclassification, change, consolidation,
merger, sale or conveyance, the Company, or such successor or purchasing
corporation, as the case may be, shall make lawful and adequate provision
whereby the Holder of each Warrant then outstanding shall have the right
thereafter to receive on exercise of such Warrant the kind and amount of
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of
securities issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and shall
forthwith file at the principal office of the Company a statement signed by its
President or a Vice President and by its Treasurer or an Assistant Treasurer or
its Secretary or an Assistant Secretary evidencing such provision. Such
provisions shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Section
(g)(A). The above provisions of this Section (g)(B) shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(C) Irrespective of any adjustments or changes in the Exercise Price or the
number of Securities purchasable upon exercise of the Warrants, the Warrant
Certificates theretofore and thereafter issued shall, unless the Company shall
exercise its option to issue new Warrant Certificates pursuant hereto, continue
to express the Exercise Price per share and the number of shares purchasable
thereunder as the Exercise Price per share and the number of shares purchasable
thereunder as expressed in the Warrant Certificates when the same were
originally issued.
(D) After each adjustment of the Exercise Price pursuant to this Section
(g), the Company will promptly prepare a certificate signed by the Chairman or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, of the Company setting forth: (i) the Exercise Price as so
adjusted, (ii) the number of Securities purchasable upon exercise of each
Warrant, after such adjustment, and (iii' a brief statement of the facts
accounting for such adjustment. The Company will promptly file such certificate
in the Company's minute books and cause a brief summary thereof to be sent by
ordinary first class mail to each Holder at his last address as it shall appear
on the registry books of the Company. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity thereof
except as to the holder to whom the Company failed to mail such notice, or
except as to the holder whose notice was defective. The affidavit of an officer
or the Secretary or an Assistant Secretary of the Company that such notice has
been mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(E) No adjustment of the Exercise Price shall be made as a result of or in
connection with the issuance or sale of Securities if the amount of said
adjustment shall be less than $.10, provided, however, that in such case, any
adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment that shall amount, together with any adjustment so carried
4
forward, to at least $.10. In addition, Holders shall not be entitled to cash
dividends paid by the Company prior to the exercise of any Warrant or Warrants
held by them.
(F) In the event that the Company shall at any time prior to the exercise of
all Warrants declare a dividend consisting solely of shares of Common Stock or
otherwise distribute to its stockholders any assets, property, rights, evidences
of indebtedness, the Holders of the unexercised Warrants shall thereafter be
entitled, in addition to the Securities or other securities and property
receivable upon the exercise thereof, to receive, upon the exercise of such
Warrants, the same property, assets, rights, evidences of indebtedness, that
they would have been entitled to receive at the time of such dividend or
distribution as if the Warrants had been exercised immediately prior to such
dividend or distribution. At the time of any such dividend or distribution, the
Company shall make appropriate reserves to ensure the timely performance of the
provisions of this Section (g).
(h) Piggyback Registration. If, at any time commencing one year from the
effective date of the registration statement and expiring four (4) years
thereafter, the Company proposes to register any of its securities under the
Securities Act of 1933, as amended (the "Act") (other than in connection with a
merger or pursuant to Form S-8, S-4 or other comparable registration statement)
it will give written notice by registered mail, at least thirty (30) days prior
to the filing of each such registration statement, to the Holders and to all
other Holders of the Warrants and/or the Warrant Securities of its intention to
do so. If the Holder or other Holders of the Warrants and/or Warrant Securities
notify the Company within twenty (20) days after receipt of any such notice of
its or their desire to include any such securities in such proposed registration
statement, the Company shall afford each of the Underwriter and such Holders of
the Warrants and/or Warrant Securities the opportunity to have any such Warrant
Securities registered under such registration statement.
Notwithstanding the provisions of this Section, the Company shall have the
right at any time after it shall have given written notice pursuant to this
Section (irrespective of whether a written request for inclusion of any such
securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
(i) Demand Registration.
(1) At any time commencing one year from the effective date of the registration
statement and expiring four (4) years thereafter, the Holders of the Warrants
and/or Warrant Securities representing a "Majority" (as hereinafter defined) of
such securities (assuming the exercise of all of the Warrants) shall have the
right (which right is in addition to the registration rights under Section (i)
hereof), exercisable by written notice to the Company, to have the Company
prepare and file with the Securities and Exchange Commission (the "Commission"),
on one occasion, a registration statement and such other documents, including a
prospectus, as may be necessary in the opinion of both counsel for the Company
and counsel for the Underwriter and Holders, in order to comply with the
provisions of the Act, so as to permit a public offering and sale of their
respective Warrant Securities for nine (9) consecutive months by such Holders
and any other holders of the Warrants and/or Warrant Securities who notify the
Company within ten (10) days after receiving notice from the Company of such
request.
(2) The Company covenants and agrees to give written notice of any
registration request under this Section (i) by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(3) In addition to the registration rights under this Section (i) at any
time commencing one year after the effective date of the registration statement
and expiring four (4) years thereafter, the Holders of Representative's Warrants
and/or Warrant Securities shall have the right, exercisable by written request
to the Company, to have the Company prepare and file, on one occasion, with the
Commission a registration statement so as to permit a public offering and sale
for nine (9) consecutive months by such Holders of its Warrant Securities;
provided, however, that
5
the provisions of Section (i)(2) hereof shall not apply to any such registration
request and registration and all costs incident thereto shall be at the expense
of the Holder or Holders making such request.
(j) Covenants of the Company With Respect to Registration. In connection with
any registration under Section (h) or (i) hereof, the Company covenants and
agrees as follows:
(i) The Company shall use its best efforts to file a registration statement
within sixty (60) days of receipt of any demand therefor, shall use its best
efforts to have any registration statement declared effective at the earliest
possible time, and shall furnish each Holder desiring to sell Warrant Securities
such number of prospectuses as shall reasonably be requested.
(ii) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections (h), (i) and (j) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. If the
Company shall fail to comply with the provisions of Section (j)(i), the Company
shall, in addition to any other equitable or other relief available to the
Holder(s), extend the Exercise Period by such number of days as shall equal the
delay caused by the Company's failure.
(iii) The Company will take all necessary action which may be required in
qualifying or registering the Warrant Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as are reasonably requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process to qualify as a foreign corporation to do business under the laws of any
such jurisdiction.
(iv) The Company shall indemnify the Holder(s) of the Warrant Securities to
be sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), from
and against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify the Underwriter contained in Section 7 of the
Underwriting Agreement relating to the offering.
(v) The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, for
specific inclusion in such registration statement to the same extent with the
same effect as the provisions contained in Section 7 of the Underwriting
Agreement pursuant to which the Underwriter has agreed to indemnify the Company.
(vi) The Holder(s) may exercise their Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(vii)The Company shall not permit the inclusion of any securities other than
the Warrant Securities to be included in any registration statement filed
pursuant to Section (i) hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a registration statement filed
pursuant to Section (i) hereof, other than a secondary offering of equity
securities of the Company, without the prior written consent of the Holders of
the
6
Warrants and Warrant Securities representing a Majority of such securities
(assuming an exercise of all the Warrants underlying the Warrants).
(viii) The Company shall furnish to each Holder participating in the offering
and to each underwriter, if any, a signed counterpart, addressed to such Holder
or underwriter, of (x) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (y) a "cold comfort" letter dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(ix) The Company shall as soon as practicable after the effective date of
the registration statement, and in any event within 15 months thereafter, make
"generally available to its security holders" (within the meaning of Rule 158
under the Act) an earnings statement (which need not be audited) complying with
Section 11(a) of the Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(x) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and to the
managing underwriters, copies of all correspondence between the Commission and
the Company, its counsel or auditors and all memoranda relating to discussions
with the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD") or an Exchange. Such investigation shall include access
to books, records and properties and opportunities to discuss the business of
the Company with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such Holder or
underwriter shall reasonably request.
(xi) The Company shall enter into an underwriting agreement with the
managing underwriters, which may be the Underwriter. Such agreement shall be
satisfactory in form and substance to the Company, and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter; provided however, that no Holder
shall be required to make any representations, warranties or covenants or grant
any indemnity to which it shall object in any such underwriting agreement. The
Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Warrant Securities and may, at their option, require
that any or all the representations, warranties and covenants of the Company to
or for the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(xii) For purposes of this Agreement, the term " Majority" in reference to
the Holders of Warrants or Warrant Securities, shall mean in excess of fifty
(50%) of the then outstanding Warrants and Warrant Securities that (i) are not
held by the Company, an affiliate, officer, creditor, employee or agent thereof
or any of their respective affiliates, members of their family, persons acting
as nominees or in conjunction therewith or (ii) have not been resold to the
public pursuant to a registration statement filed with the Commission under the
Act.
(k) Conditions of Company's Obligations. The Company's obligation under Section
j hereof shall be conditioned as to each such public offering, upon a timely
receipt by the Company in writing of:
7
(A) Information as to the terms of such public offering furnished by or on
behalf of the Holders making a public distribution of their Warrant Securities;
and
(B) Such other information as the Company may reasonably require from such
Holder, or any underwriter for any of them, for inclusion in such registration
statement or offering statement or post-effective amendment.
(C) An agreement by the Holder to sell his Warrants and Warrant Securities
on the basis provided in the Underwriting Agreement.
(1) Continuing Effect of Agreement. The Company's agreements with respect to
the Warrant Securities in this Warrant will continue in effect regardless of the
exercise or surrender of this Warrant.
(m) Notices. Any notices or certificates by the Company to the Holder and by
the Holder to the Company shall be deemed delivered if in writing and delivered
personally or sent by certified mail, to the Holder, addressed to him or sent
to, Schneider Securities, Inc. 1120 Lincoln Street, Denver, CO 80203, or, if the
Holder has designated, by notice in writing to the Company, any other address,
to such other address, and, if to the Company, addressed to it at 154 Middlesex
Turnpike, Burlington, MA 01803. The Company may change its address by written
notice to Schneider Securities, Inc.
(n) Limited Transferability. This Warrant Certificate and the Warrant may
not be sold, transferred, assigned or hypothecated for a one-year period after
the effective date of the Registration Statement except to underwriters of the
Offering referred to in the Underwriting Agreement or to individuals who are
either partners or officers of such an underwriter or by will or by operation of
law. The Warrant may be divided or combined, upon request to the Company by the
Warrantholder, into a certificate or certificates evidencing the same aggregate
number of Warrants. The Warrant may not be offered, sold, transferred, pledged
or hypothecated in the absence of any effective registration statement as to
such Warrant filed under the Act, or an exemption from the requirement of such
registration, and compliance with the applicable federal and state securities
laws. The Company may require an opinion of counsel satisfactory to the Company
that such registration is not required and that such laws are complied with. The
Company may treat the registered holder of this Warrant as he or it appears on
the Company's book at any time as the Holder for all purposes. The Company shall
permit the Holder or his duly authorized attorney, upon written request during
ordinary business hours, to inspect and copy or make extracts from its books
showing the registered holders of Warrants.
(o) Transfer to Comply With the Securities Act of 1933. The Company may
cause the following legend, or one similar thereto, to be set forth on the
Warrants and on each certificate representing Warrant Securities, or any other
security issued or issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to the public
pursuant to Sections (h) or (i) hereof; unless counsel satisfactory to the
Company is of the opinion as to any such certificate that such legend, or one
similar thereto, is unnecessary:
"The warrants represented by this certificate are restricted securities and
may not be offered for sale, sold or otherwise transferred unless an opinion of
counsel satisfactory to the Company is obtained stating that such offer , sale
or transfer is in compliance wrath state and federal securities law.
(p) Applicable Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to
conflict of law principles.
(q) Assignability. This Warrant may not be amended except in a writing signed by
each Holder and the Company.
8
(r) Survival of Indemnification Provisions. The indemnification provisions of
this Warrant shall survive until , 2003.
QC Optics, Inc.
By
------------------------
Eric Chase, President
Date:
----------------------
Attest:
- -------------------------------
, Secretary
Schneider Securities, Inc.
-------------------------------
9
PURCHASE FORM
Dated 19
----------------- -----
The undersigned hereby irrevocably elects to exercise the Warrant to the
extent of purchasing ________ shares of Common Stock and Redeemable Warrants and
hereby makes payment of $ _______ in payment of the actual exercise price
thereof. ____________
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name
----------------------------------------------------------------------------
(please typewrite or print in block letters)
Address
-------------------------------------------------------------------------
Signature
----------------------------------------------------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED,
-------------------------------------------------------------
hereby sells, assigns and transfers unto
Name
----------------------------------------------------------------------------
(please typewrite or print in block letters)
Address
-------------------------------------------------------------------------
the right to purchase shares of Common Stock and Redeemable Warrants as
represented by this Warrant to the extent of shares of Common Stock and
Redeemable Warrants as to which such right is exercisable and does hereby
irrevocably constitute and appoint ,____________________________ attorney, to
transfer the same on the books of the Company with full power of substitution in
the premises.
Signature
-----------------------------------------------------------------------
Dated: 19
-------------- -------
10
, 1996
Schneider Securities, Inc.
Two Charles Street
Providence, Rhode Island 02904
QC Optics, Inc.
154 Middlesex Turnpike
Burlington, Massachusetts 01803
Ladies and Gentlemen:
In order to induce Schneider Securities, Inc. (the "Underwriter") and
QC Optics, Inc., a Delaware corporation, and any successor thereof (the
"Company"), to enter into an underwriting agreement with respect to the initial
public offering of shares of Common Stock to be issued by the Company, as
described in the Company's Registration Statement on Form SB-2, the undersigned
hereby agrees that for a period of six (6) months following the effective date
of the Registration Statement, the undersigned will not sell, transfer, assign,
hypothecate, pledge or otherwise dispose of any beneficial interest in (either
pursuant to Rule 144 or the regulations under the Securities Act of 1933, as
amended, or otherwise) any securities issued by the Company (the "Securities")
registered in the name of the undersigned or beneficially owned by it without
the prior consent of the Underwriter.
In order to enable you to enforce the aforesaid covenants, the
undersigned hereby consents to the placing of legends and stop-transfer offers
with the transfer agent of the Company's securities with respect to any of the
Securities registered in my name or beneficially owned by me.
Schneider Securities, Inc.
QC Optics, Inc.
Page 2
This letter agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts, without giving effect to
conflict of law principles thereof.
-------------------------------------
Signature
-------------------------------------
Print Name
-------------------------------------
Print Address
-------------------------------------
Print Social Security Number
Number or Taxpayer I.D. Number
, 1996
Schneider Securities, Inc.
Two Charles Street
Providence, Rhode Island 02904
QC Optics, Inc.
154 Middlesex Turnpike
Burlington, Massachusetts 01803
Ladies and Gentlemen:
In order to induce Schneider Securities, Inc. (the "Underwriter") and
QC Optics, Inc., a Delaware corporation, and any successor thereof (the
"Company"), to enter into an underwriting agreement with respect to the initial
public offering of shares of Common Stock to be issued by the Company, as
described in the Company's Registration Statement on Form SB-2, I hereby agree
that for a period of thirteen (13) months following the effective date of the
Registration Statement, I will not sell, transfer, assign, hypothecate, pledge
or otherwise dispose of any beneficial interest in (either pursuant to Rule 144
or the regulations under the Securities Act of 1933, as amended, or otherwise)
any securities issued by the Company (the "Securities") registered in my name or
beneficially owned by me without the prior consent of the Underwriter, which
consent shall not be unreasonably withheld or delayed in the event of a transfer
of Securities to be effected by gifting for estate planning purposes.
In order to enable you to enforce the aforesaid covenants, I hereby
consent to the placing of legends and stop-transfer offers with the transfer
agent of the Company's securities with respect to any of the Securities
registered in my name or beneficially owned by me.
Schneider Securities, Inc.
QC Optics, Inc.
Page 2
This letter agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts, without giving effect to
conflict of law principles thereof.
-------------------------------------
Signature
-------------------------------------
Print Name
-------------------------------------
Print Address
-------------------------------------
Print Social Security Number
Number or Taxpayer I.D. Number
O'CONNOR, BROUDE & ARONSON
ATTORNEYS AT LAW
THE BAY COLONY CORPORATE CENTER
ROUTE 128 AND WINTER STREET
950 WINTER STREET, SUITE 2300
WALTHAM, MASSACHUSETTS 02154
________
617-890-6600
FACSIMILE: 617-890-9261
July 3, 1996
Board of Directors
QC Optics, Inc.
154 Middlesex Turnpike
Burlington, Massachusetts 01803
Re: QC Optics, Inc.
Gentlemen:
This firm has acted as counsel to QC Optics, Inc., a Delaware
corporation (hereinafter called the "Company") in connection with the proposed
offering described below.
In our capacity as corporate counsel to the Company, we are familiar
with the Certificate of Incorporation of the Company, as amended, and the Bylaws
of the Company, as amended. We are also familiar with the corporate proceedings
taken by the Company in connection with the preparation and filing of a
Registration Statement on Form SB-2 (the "Registration Statement") covering (1)
a public offering by the Company through Schneider Securities, Inc. (the
"Representative"), as the representative of the underwriters (the
"Underwriters") of (a) 950,000 shares of Common Stock, $.01 par value per share
(the "Common Stock"), and (b) 950,000 Redeemable Warrants exercisable for a four
year period commencing 13 months from the effective date of the Registration
Statement at an exercise price of $7.80 per share (the "Warrants"); (2) the sale
by the Company of (a) 95,000 warrants to the Representative (the
"Representative's Warrants"), (b) 95,000 Shares of Common Stock underlying the
Representative's Warrants, (c) 95,000 Redeemable Warrants included in the
Representatives Warrants, and (d) 95,000 Shares of Common Stock underlying the
Redeemable Warrants included in the Representative's Warrants; and (3) 142,500
shares of Common Stock and 142,500 Redeemable Warrants which may be sold by the
Underwriters to cover over-allotments.
Board of Directors
QC Optics, Inc.
Re: QC Optics, Inc.
July 3, 1996
Page 2
Based upon the foregoing, we are of the opinion that:
1. The Corporation is duly organized and validly existing under
the laws of the state of Delaware;
2. The 950,000 shares of Common Stock and 950,000 Redeemable
Warrants have been duly authorized, and upon the sale thereof
as described in the Registration Statement, such Common Stock
and Redeemable Warrants will be legally issued, fully paid and
non-assessable.
3. The 95,000 Representative's Warrants, 95,000 Shares of Common
Stock underlying the Representative's Warrants, 95,000
Redeemable Warrants included in the Representatives Warrants,
and 95,000 Shares of Common Stock underlying the Redeemable
Warrants included in the Representative's Warrants, when paid
for and issued upon the exercise of the Representative's
Warrant in accordance with its terms, will be legally issued,
fully paid and non-assessable.
4. The 142,500 shares of Common Stock and 142,500 Redeemable
Warrants which may be sold by the Underwriters to cover
over-allotments, if any, have been duly authorized, and upon
the sale thereof as described in the Registration Statement,
such Common Stock and Redeemable Warrants will be legally
issued, fully paid and non-assessable.
This opinion is provided solely for the benefit of the addressee hereof
and is not to be relied upon by any other person or party without prior
notification to, and the consent of, this firm. Nevertheless, we hereby consent
to the use of this opinion and to all references to our firm in or made part of
the Registration Statement and any amendments thereto.
Very truly yours,
O'CONNOR, BROUDE & ARONSON
By:/s/Neil H. Aronson
-------------------------
Neil H. Aronson
NHA/ECL:abc
VOTING TRUST AGREEMENT
AGREEMENT made as of this 27th day of October, 1995 by and between each
of the individuals listed in Schedule A attached hereto (hereinafter
collectively referred to as the "STOCKHOLDERS" and individually as a
"STOCKHOLDER"), each holding voting shares of Common Stock, $.01 par value, of
QC Optics, Inc., a Delaware corporation (hereinafter referred to as the
"COMPANY"), and Eric T. Chase, as trustee (hereinafter referred to as the
"TRUSTEE").
WHEREAS, each of the Stockholders is an employee of QC and the
Stockholders have determined that it would be in their best interest to deposit
in trust all of the shares of the Company's Common Stock that the Stockholders
presently own and that they may hereafter acquire; and
WHEREAS, the Stockholders desire that Eric T. Chase shall be the Voting
Trustee hereunder and that the Trustee shall have the exclusive power to vote
the shares held by the Trustee; and
WHEREAS, the Stockholders desire to retain all the incidents of
ownership of their shares of the Company except for the power to vote their
shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereby agree as follows:
1. DEPOSIT OF SHARES INTO VOTING TRUST. Each of the parties hereto
agrees to the establishment of this Voting Trust, to be known as the "QC Optics
Voting Trust, u/d/t dated as of October 27, 1995." Each of the Stockholders
hereby agrees that he will forthwith deposit with the Trustee the certificate or
certificates for all of the shares of Common Stock of the Company presently
owned by the Stockholder, any any certificates of QC issued to the undersigned
upon the merger of Sally, Inc. into QC, together with proper assignment or
assignments thereof to the Trustee. The Stockholder shall also forthwith pay or
provide for the payment of all transfer taxes and fees required to be paid in
connection with vesting the ownership of such shares in the Trustee. Further
deposits of stock certificates with the Trustee may occur, and the Trustee
agrees that he will hold such stock and the certificates representing it subject
to the provisions of this Agreement.
2. ISSUANCE OF VOTING TRUST CERTIFICATE. Upon the deposit with the
Trustee, by each of the Stockholders, of the certificate or certificates
evidencing their ownership of common stock of the Company, together with proper
assignment or assignments thereof, as aforesaid, and upon the payment of all
transfer taxes and fees required in connection therewith, as provided above, the
Trustee shall deliver to each of the Stockholders a voting trust certificate or
certificates (hereinafter referred to as the "VOTING TRUST CERTIFICATE" or
"VOTING TRUST CERTIFICATES") in substantially the form annexed hereto as EXHIBIT
A, for the number of shares of common stock so held by him on behalf of each
such Stockholder.
3. TRANSFER OF SHARES. Said Voting Trust Certificates shall be
transferable only insofar as the underlying shares of the Company's common stock
is transferable and any and all consents and procedures necessary to effect a
transfer of the Company's common stock shall be applicable hereto. Any transfers
so made shall vest in the transferee all rights and interests of the transferor
in and under the Voting Trust Certificate or Certificates transferred and under
this Agreement, and upon such transfer and the payment of all transfer taxes and
fees, the Trustee will deliver or cause to be delivered to the transferee a
Voting Trust Certificate or Certificates for the same number of shares of common
stock of the Company as represented by the Voting Trust Certificate so
transferred. Until such transfer, the Trustee and the Company may treat the
registered holder of a Voting Trust Certificate as the owner thereof for all
purposes whatsoever.
4. RIGHTS OF TRUSTEE. Title in and to all common stock of the Company
deposited hereunder shall be vested in the Trustee and may be transferred to the
Trustee on the books of the Company, and the Trustee shall, in respect of all
shares so held by him, possess and be entitled to exercise all rights of common
stockholders of every kind and character, including the right to vote such
shares in person or by proxy and to take part in or consent in writing or
otherwise to any corporate or stockholders' action, whether ordinary or
extraordinary, including but not limited to, any amendment of the Certificate of
Incorporation and/or the Bylaws of the Company deemed by him desirable in his
unrestricted discretion, exercised in good faith, the mortgage or pledge of its
properties and assets or any part thereof, the issuance of bonds or other
obligations, consolidation with, or merger into, any other corporation, the
sale, exchange or other disposition of all or any part of the Company's
properties and assets for consideration and upon such terms and conditions as he
shall in his unrestricted discretion determine, the election of directors,
changes in the number of directors, reclassification of the Company's shares,
increases in the number of shares, and the dissolution of the Company, all upon
such terms and conditions and under such circumstances as he in his unrestricted
discretion, exercised in good faith, may from time to time determine, and to do
or perform any other act or thing which the common stockholders of the Company
are now or may hereafter be entitled to do or perform, including the receipt of
dividends on said shares; and it is expressly understood and agreed that the
holders of Voting Trust Certificates shall not have any right, either under said
Voting Trust Certificates or under this Agreement, or under any agreement
express or implied, or otherwise, with respect to any shares held by the Trustee
hereunder to vote such shares or to take part in or consent to any corporate or
stockholders' action, or to do or perform any other act or thing which common
stockholders of the Company are now or may hereafter become entitled to do or
perform.
5. DIVIDENDS AND DISTRIBUTIONS. The registered holder of each Voting
Trust Certificate shall be entitled to receive, from time to time, payments
equal to the cash dividends, if any, collected by the Trustee, upon the like
number of shares of capital stock of the Company represented by such Voting
Trust Certificate. In case certificates for any shares of capital stock of the
Company shall be issued to the Trustee as a stock dividend on the stock of the
Company held by the Trustee, he shall hold such stock and the certificates
representing it subject to the provisions of this Agreement, but
-2-
the registered holder of each Voting Trust Certificate then outstanding shall be
entitled to receive from the Voting Trustee, Voting Trust Certificates for the
number of shares received by the Trustee as a stock dividend on the shares
represented by such Voting Trust Certificate. If any dividend or distribution,
including any liquidation distribution, other than cash or stock of the Company
shall be received by the Trustee, he shall distribute the same among the holders
of Voting Trust Certificates ratably, in accordance with the number of shares
represented by their respective Voting Trust Certificates.
6. FUTURE SUBSCRIPTIONS. In case any stock or other securities of the
Company are offered for subscription to the holders of capital stock of the
Company deposited hereunder, the Trustee, promptly upon receipt of notice of
such offer, shall mail a copy thereof to each of the holders of the Voting Trust
Certificates. Upon receipt by the Trustee, at least five (5) days prior to the
last day fixed by the Company for subscription and payment, of a request from
any such registered holder of Voting Trust Certificates to subscribe in his
behalf, accompanied with the sum of money required to pay for such stock or
securities (not in excess of the amount subject to subscription in respect of
the shares represented by the Voting Trust Certificate held by such Certificate
holder), the Trustee shall make such subscription and payment, and upon
receiving from the Company the certificates for shares or securities so
subscribed for, shall issue to such holder a Voting Trust Certificate in respect
thereof if the same be stock having general voting powers, but if the same be
securities other than stock having general voting powers, the Trustee shall mail
or deliver such securities to the certificate holder in whose behalf the
subscription was made, or may instruct the Company to make delivery directly to
the certificate holder entitled thereto.
7. TERM AND TERMINATION. This voting trust shall continue in force for
a period of twenty-one (21) years from the date hereof, unless terminated prior
thereto in accordance with this Section 7. In the event that during the term of
this Agreement the Company is merged into or consolidated with another
corporation or all or substantially all of the assets of the Company are
transferred to another corporation or the Company is dissolved or totally
liquidated, then this Agreement and the Trust created hereby, shall terminate
within thirty (30) days of such dissolution or liquidation. Within five (5) days
of the termination of this Trust, the shares of the Company held by the Trustee
hereunder shall be distributed to the registered holders of Voting Trust
Certificates as follows: Upon presentation and surrender of Voting Trust
Certificates accompanied, if required by the Trustee, by properly executed
transfers thereof to the Trustee, and upon payment of all transfer taxes and
fees, he shall deliver certificates for stock of the Company for the number of
shares specified in the Voting Trust Certificates so surrendered.
8. OTHER RIGHTS OF TRUSTEE. The Trustee may adopt his own rules of
procedure, and, in all matters, may act by proxy to any other person. The
Trustee may act as a Director and/or officer of the Company, and may vote for
himself as such and may be interested in the shares of or otherwise interested
in the Company and may be a holder of or interested in Voting Trust Certificates
issued hereunder.
-3-
9. TRUSTEE'S JUDGMENT. In voting the shares deposited hereunder or in
doing any act with respect to the control or management of the Company of its
affairs, or otherwise acting hereunder, the Trustee shall exercise his
reasonable judgment in the interest of the Company to the end that its affairs
shall be properly promoted, but the Trustee assumes no responsibility with
respect to any actions taken by him or taken in pursuance of his consent
thereto, or in pursuance of his vote so cast. The Trustee may vote in respect of
said shares or take part in or consent to any corporate or stockholders' action
or may do or perform any other act or thing hereunder or by virtue hereof, in
person or by such person or persons as he shall at any time and from time to
time select as his proxy or proxies. This power of acting in person or by proxy,
however, shall not be construed to enable the Trustee or his proxy to act
otherwise than as in this Agreement provided.
10. VACANCY IN TRUSTEE. In the event of the resignation, death or
disability of the Trustee or any successor Trustee, the vacancy so occurring
shall be filled by vote of the holders of 67% of the shares then held in the
Voting Trust, or, if the Stockholders are unable to agree, by the designee of at
least two partners in the law firm then serving as general counsel to the
Company. The right, powers and privileges of the Trustee named hereunder shall
be possessed by the successor Trustee, with the same effect as though such
successor had originally been a party to this Agreement. The word "Trustee", as
used in this Agreement, shall mean the Trustee or any successor Trustee or
Trustees acting hereunder, and shall include both the single and plural number.
11. NOTICES. Any notices or other communications required or permitted
hereunder shall be sufficiently given if and when sent by certified mail,
postage prepaid, addressed:
if to the Stockholders: At the Addresses Set Forth
in Schedule A
if to Eric T. Chase: Eric T. Chase
19 Craigie Circle
Carlisle, Massachusetts 01741
with a copy to: O'Connor, Broude & Aronson
Bay Colony Corporate Center
950 Winter Street, Suite 2300
Waltham, Massachusetts 02154
Attention: Neil H. Aronson, Esquire
or such other parties or addresses as shall be furnished in writing by any such
party, and such notice or communication shall be deemed to have been given as of
the date so mailed.
12. TRUSTEE'S LIABILITY. No Trustee, as Stockholder, Trustee or
otherwise, shall be liable for any error of judgment or mistake of law or other
mistake, or for any act or omission of any agent
-4-
or attorney, or for any misconstruction of this Agreement, save only his own
individual willful misconduct. The Trustee shall not be entitled to any
compensation for serving as such.
The foregoing notwithstanding, the Trustee shall have the right to
incur and pay such reasonable expenses and charges, and to employ such agents,
attorneys and counsel, as he may deem necessary and proper for carrying this
Agreement into effect. Any such expenses or charges incurred by and due to the
Voting Trustee shall be paid by the Stockholder.
13. VALIDITY; IMPAIRMENT. The invalidity or non-enforceability of any
term or provision of this Agreement or of the Voting Trust Certificates shall in
no way impair or affect the balance thereof, which shall remain in full force
and effect.
14. GOVERNING LAWS; MISCELLANEOUS. This Agreement shall be construed
and enforced in accordance with and governed by the laws of the State of
Delaware. Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of such change, waiver, discharge, or
termination is sought. This Agreement embodies the entire agreement and the
understanding among the parties, superseding all prior agreements and
understandings relating to the subject matter hereof, and is not assignable by
any of the parties. This Agreement may be executed simultaneously in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15. COPIES. A copy of this Agreement and of every amendment or
supplement hereto shall be filed in the executive offices of the Company, and
shall be open to inspection by any stockholder upon reasonable notice during
normal business hours.
-5-
IN WITNESS WHEREOF, the Trustee and the Stockholders have signed this
Agreement the day and year first above mentioned.
TRUSTEE:
/s/ Neil H. Aronson /s/ Eric T. Chase
- ------------------- ---------------------------
Witness Eric T. Chase, as Trustee and
not individually
STOCKHOLDERS:
/s/ Neil H. Aronson /s/ Eric T. Chase
- ------------------- ---------------------------
Witness Eric T. Chase
/s/ Neil H. Aronson /s/ Karl Andrew Bernal
- ------------------- ---------------------------
Witness Karl Andrew Bernal
/s/ Neil H. Aronson /s/ Jay L. Ormsby
- ------------------- ---------------------------
Witness Jay L. Ormsby
/s/ Neil H. Aronson /s/ John R. Freeman
- ------------------- ---------------------------
Witness John R. Freeman
/s/ Neil H. Aronson /s/ Albert E. Tobey
- ------------------- ---------------------------
Witness Albert E. Tobey
/s/ Neil H. Aronson /s/ Abdu Boudour
- ------------------- ---------------------------
Witness Abdu Boudour
-6-
EXHIBIT A
---------
VOTING TRUST CERTIFICATE
------------------------
No. Shares
---- -------
THIS CERTIFIES that _________________ is entitled to all of the
benefits arising from the deposit with the Trustee under the Voting Trust
Agreement hereinafter mentioned of Certificates for _________ shares of the
Common Stock, $.01 par value per shares, of QC OPTICS, INC., a Delaware
corporation (hereinafter referred to as the "Company"), as provided in such
Voting Trust Agreement and subject to the terms thereof. The registered holder
thereof, or assigns, is entitled to receive payment equal to the amount of cash
dividends, if any, received by the Trustee on the number of shares of capital
stock of the Company in respect of which this Certificate is issued. Dividends
received by the Trustee in common or other stock of the Company having general
voting powers shall be payable in Voting Trust Certificates , in form similar
hereto. Until the Trustee shall have delivered the stock held under such Voting
Trust Agreement to the holders of the Voting Trust Certificates, or their
designees, as specified in such Voting Trust Agreement, the Trustee shall
possess and shall be entitled to exercise all rights and powers of an absolute
owner of such stock, including the right to vote thereon for every purpose, and
to execute consents in respect thereof for every purpose, it being expressly
stipulated that no voting right passes to the owner hereof, or his assigns,
under this Certificate or any agreement, expressed or implied.
This Certificate is issued, received and held, and the rights of the
Owner hereof are subject to the terms of the Voting Trust Agreement, dated as of
August 31, 1995, between the holder hereof and Eric T. Chase, as Trustee, to all
provisions of which Voting Trust Agreement the holder of this Certificate, by
acceptance hereof, assents and by which he is bound with like effect as if such
Voting Trust Agreement had been signed by him in person.
The Voting Trust Agreement shall continue in full force and effect
until August 31, 2016, unless terminated prior thereto, as provided in said
Agreement.
IN WITNESS WHEREOF, the Trustee has signed and sealed this Certificate
as of August 31, 1995.
- ------------------------ -------------------------
Neil H. Aronson, Witness Eric T. Chase, Trustee
u/a dated as of , 1995
-7-
SCHEDULE A
----------
Stockholder Name and Address Number of Shares
- ---------------------------- ----------------
Eric T. Chase 369,614
19 Craigie Circle
Carlisle, Massachusetts 01741
Karl Andrew Bernal 183,348
666 Main Street, Apt. 205
Winchester, Massachusetts 01890
Jay L. Ormsby 94,716
38 Crestwood Circle
Salem, New Hampshire 03079
John R. Freeman 45,774
300 Kent Street
Brookline, Massachusetts 02146
Albert E. Tobey 45,774
12 Auburn Avenue
Wilmington, Massachusetts 01887
Abdu Boudour 45,774
25 Star Road
West Newton, Massachusetts 02165
LEASE AMENDMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is entered into this ____ day of
November, 1995, by and between QC Optics, Inc., a Delaware corporation With
its principal place of business at 154 Middlesex Turnpike, Burlington,
Massachusetts 01803 (the "Tenant") and N.W. Building 24 Trust, a Massachusetts
nominee trust with its principal place of business at 50 Congress Street,
Boston, Massachusetts 02109 (the "Landlord").
W I T N E S S E T H :
WHEREAS, the Landlord and Tenant entered into an Indenture of Lease
(the "Lease") dated August 13, 1986, under which the Landlord leased to the
Tenant the premises located at 154 Middlesex Turnpike (Building 24),
Burlington, Massachusetts, which Lease was extended by a Lease Extension
Agreement dated July 12, 1990 and by a Second Lease Extension Agreement dated
July/August, 1995.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. The Lease is hereby amended to delete paragraph five of Section
5.2.1 ("Assignment and Subletting") of the Lease in its entirety, to wit:
"If, at any time during the term of this Lease, Kobe
Development Corporation shall own less than fifty-one percent (51%)
of the shares of Tenant or any person or entity other than Kobe
Development Corporation shall acquire, directly or indirectly,
effective control of Tenant, Tenant shall so notify Landlord and
(whether or not Tenant so notifies Landlord) Landlord may terminate
this Lease by notice to Tenant given within ninety (90) days
thereafter. This paragraph shall not apply if the initial Tenant
named herein is a corporation and the outstanding voting stock
thereof is listed on a recognized securities exchange."
2. Except to the extent herein modified as above provided, and by
the First and Second Lease Extension Agreements, the aforesaid Lease is hereby
confirmed in all other respects.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
QC OPTICS, INC.
By: /S/ Eric T. Chase
---------------------------
Eric T. Chase, President
N.W. BUILDING 24 TRUST
By: /s/ Rodger P. Nordbloom
----------------------------
[Name and Title]
SECOND LEASE EXTENSION AGREEMENT
AGREEMENT made by and between N. W. Building 24 Trust hereinafter
called the LANDLORD, and Q C OPTICS, INC., hereinafter called the Tenant.
WITNESSETH
WHEREAS by Indenture of Lease dated August 13, 1986, the LANDLORD
did lease unto the TENANT, certain premises located at 154 Middlesex Turnpike
(Building 24), Burlington, Massachusetts, more particularly described in said
Indenture of Lease for a term commencing September 1, 1986 and ending December
31, 1990; and WHEREAS said Lease was extended by "Lease EXtension Agreement"
dated July 12, 1990 commencing January 1, 1991 and ending December 31, 1995;
NOW, THEREFORE, it is agreed as follows:
1. The term of the aforesaid Lease is hereby further extended for a
period of 18 months commencing January 1, 1996 and ending June 30, 1997.
2. The Fixed Rent Rate shall continue to be $195,000.00 annually in
equal monthly installments of $16,250.00, paid on the first day of each and
every month and also at the expiration or other termination of the Lease
during said period, a proportionate part of said rent for any part of a month
then unexpired.
3. Except to the extent herein modified as above provided, and by
the first "Lease Extension Agreement", the aforesaid Indenture of Lease is
hereby confirmed in all other respects.
EXECUTED under seal in duplicate this day of July/August, 1995.
TENANT: LANDLORD:
Q.C. OPTICS, INC. N. W. BUILDING 24 TRUST
By: /S/ Eric Chase By: /s/ John Macomber
-------------------- -----------------------
Its: President As Trustee but not Individually
8/29/95
By: /s/ Rodger P. Nordbloom
------------------------
As Trustee but not Individually
LEASE EXTENSION AGREEMENT
AGREEMENT made by and between N.W. Building 24 Trust hereinafter
called the LANDLORD and Q.C. OPTICS, INC., hereinafter called the TENANT.
WITNESSETH
WHEREAS by Indenture of Lease dated August 13, 1986, the LANDLORD
did lease unto the TENANT, certain premises located at 154 Middlesex Turnpike
(Building 24), Burlington, Massachusetts, more particularly described in said
Indenture of Lease for a term commencing September 1, 1986 and ending December
31, 1990;
NOW, THEREFORE, it is agreed as follows:
1. The term of the aforesaid Lease is hereby further extended for a
period of five (5) years commencing January 1, 1991 and ending December 31,
1995, upon the same terms and conditions contained in said Lease, as modified
by Exhibit A, attached hereto, and that the TENANT shall pay during the term a
yearly rental of $195,000.00 payable in equal monthly installments of
$16,250.00 on the first day of each and every month, the first such payment to
be made on February 1, 1991, (no January rent) and also at the expiration or
other termination of the Lease during said period, a proportionate part of
said rent for any part of a month then unexpired.
2. As additional rent the TENANT will pay the LANDLORD annually a
sum not to exceed two thousand four hundred ($2,400) dollars for the
maintenance and upkeep of the landscaping provided the LANDLORD pay for the
initial shrub replacement, pruning, mulching and lawn care.
3. The TENANT shall have a right to further extend the term of the
Leave as reflected in Section 2.3.
4. The twelfth (12th) line of Section 5.2.5 Indemnification, shall
be deleted in its entirety and replaced with the following, "caused by an act
or omission of".
5. The twenty-second (22nd) line on page twenty eight (28) shall be
amended by adding the following after the word "Corporation": "and or its
parent, a subsidiary or affiliated corporation".
6. The twenty-fourth (24th) line on page twenty eight (28) shall be
amended by adding the following after the word "Corporation": "and or its
parent, a subsidiary or affiliated corporation".
7. Except to the extent herein modified as above provided, the
aforesaid Indenture of Lease is hereby confirmed in all other respects.
EXECUTED under seal in duplicate this 12 day of July, 1990.
TENANT: LANDLORD:
Q.C. OPTICS, INC. N. W. BUILDING 24 TRUST
By: /S/ Eric Chase By: /s/ Rodger P. Nordbloom
-------------------- -----------------------
Its: President As Trustee but not Individually
By: /s/ George Macomber
------------------------
As Trustee but not Individually
EXHIBIT A
LANDLORD shall, with due diligence after execution of this Lease Extension
AGREEMENT, perform the following work in the Premises at LANDLORD'S expense and
in a good and workmanlike manner:
1. Replace entire roof.
2. Replace EVAC units as necessary and correct air distribution. Relocate as
necessary the ductwork to provide a correct balance to the system.
3. Replace existing boiler with new boiler.
4. Replace executive area and reception area carpet. Shampoo all remaining
carpet (everything to left of reception area).
5. Strip and wax all agreed upon tile areas and replace any broken tile.
6. Replace fluorescent fixtures with new energy efficient fixtures.
7. Cut and cap plumbing where bubbler was. Replace all lavatory faucets in
mens and ladies rooms. Replace as necessary flushometers in both bathrooms.
Install the Cross Connection Devices as required by the Town of Burlington
and the Commonwealth of Massachusetts.
8. Replace two overhead doors.
9. Furnish and install three (3) ceiling hung electrical outlets to benches to
eliminate cords on floor.
10. Furnish and install wiring for four (4) milling machines and two (2)
lathes.
N E T L E A S E
-----------------
ARTICLE I
---------
Reference Data
--------------
1.1 Subjects Referred To.
Each reference in this Lease to any of the following subjects shall
be construed to incorporate the data stated for that subject in this Section
1.1.
Date of this Lease: August 13, 1986.
Building: One level building containing approximately 30,000
square feet of floor area.
Premises: The Building and the approximately 115,600 square foot
parcel of land on which the Building is situated, such
parcel of land being described in Exhibit A hereto.
Landlord: Rodger P. Nordblom, George Macomber, Robert C. Nordblom
and John D. Macomber, as Trustees of N.W. Building 24
Trust under Declaration of Trust dated March 6, 1967 and
filed for registration with the Middlesex South Registry
District of the Land Court as Document No. 441924.
Original Address of Landlord: 50 Congress Street,
-2-
Boston, Massachusetts
02109
Tenant: Q.C. Optics, Inc.
Original Address of Tenant:
Term: Four Years and four months
Commencement Date: September 1, 1986
Annual Fixed Rent Rate: $130,000.00 through June 30, 1987, and
$195,000.00 thereafter.
Permitted Uses: Offices, research and development, and light
manufacturing.
Public Liability Insurance Limits:
Bodily Injury: $1,000,000 per person and $2,000,000 for more than
one person
Property Damage: $500,000
1.2 Exhibits.
-3-
The Exhibits listed below in this section are incorporated in this
Lease by reference and are to be construed as a part of this Lease.
EXHIBIT A. Description of Premises.
EXHIBIT B. Description of Landlord's Work.
1.3 Table of Articles and Sections.
ARTICLE I - Reference Data
1.1 Subjects Referred To .................................................. 1
1.2 Exhibits .............................................................. 2
1.3 Table of Articles and Sections ........................................ 3
ARTICLE II - Premises and Term
2.1 Premises .............................................................. 5
2.2 Term .................................................................. 5
2.3 Extension Option ...................................................... 6
ARTICLE III - Landlord's Work and Repairs
3.1 Landlord's Work ....................................................... 8
3.2 Structural Repairs .................................................... 8
ARTICLE IV - Rent
4.1 The Fixed Rent ........................................................ 9
4.2 Additional Rent ....................................................... 9
4.2.1 Real Estate Taxes ............................................... 9
4.2.2 Betterment Assessments .......................................... 11
4.2.3 Tax Fund Payments ............................................... 12
4.2.4 Insurance ....................................................... 13
4.2.5 Utilities ....................................................... 17
-4-
4.3 Late Payment of Rent................................................... 18
4.4 Security Deposit....................................................... 18
ARTICLE V - Tenant's Additional Covenants
5.1 Affirmative Covenants.................................................. 19
5.1.1 Perform Obligations.............................................. 20
5.1.2 Use.............................................................. 20
5.1.3 Repair and Maintenance........................................... 20
5.1.4 Compliance with Law.............................................. 21
5.1.5 Indemnification.................................................. 22
5.1.6 Landlord's Right to Enter........................................ 23
5.1.7 Personal Property at Tenant's Risk............................... 23
5.1.8 Payment of Landlord's Cost of
Enforcement...................................................... 23
5.1.9 Yield Up........................................................ 24
5.1.10 Estoppel Certificate............................................ 25
5.1.11 Landlord's Expenses re Consents................................. 25
5.2 Negative Covenants..................................................... 25
5.2.1 Assignment and Subletting........................................ 26
5.2.2 Overloading and Nuisance......................................... 29
5.2.3 Hazardous Wastes................................................. 29
5.2.4 Installation, Alterations or
Additions........................................................ 30
5.2.5 Abandonment...................................................... 31
5.2.6 Signs............................................................ 31
5.2.7 Parking and Storage.............................................. 31
ARTICLE VI - Casualty or Taking
6.1 Termination............................................................ 32
6.2 Restoration............................................................ 32
6.3 Award ................................................................. 33
ARTICLE VII - Defaults
7.1 Events of Default...................................................... 33
7.2 Remedies............................................................... 35
7.3 Remedies Cumulative.................................................... 37
7.4 Landlord's Right to Cure Defaults...................................... 37
-5-
7.5 Effect of Waivers of Default........................................... 38
7.6 No Waiver, etc......................................................... 38
7.7 No Accord and Satisfaction............................................. 39
ARTICLE VIII - Rights of Holders
8.1 Rights of Holders...................................................... 39
8.2 Lease Superior or Subordinate to Mortgages............................. 41
ARTICLE IX - Miscellaneous Provisions
9.1 Notices From One Party to the Other ................................... 42
9.2 Quiet Enjoyment........................................................ 42
9.3 Lease Not to be Recorded............................................... 43
9.4 Limitation of Landlord's Liability..................................... 43
9.5 Acts of God............................................................ 44
9.6 Landlord's Default..................................................... 45
9.7 Brokerage.............................................................. 45
9.8 Applicable Law and Construction........................................ 45
ARTICLE II
----------
Premises and Term
-----------------
2.1 Premises. Landlord hereby leases to Tenant and Tenant hereby
Leases from Landlord, subject to and with the benefit of the terms, covenants,
conditions and provisions of this Lease, the Premises.
2.2 Term. TO HAVE AND TO HOLD for a term (the "original term")
beginning on the Commencement Date and continuinq for the Term, unless sooner
terminated as hereinafter provided.
-6-
2.3 Extension Option. Tenant shall have the right to extend the term
of the Lease for one additional period of five years to begin immediately upon
the expiration of the original term of this Lease (the "extended term"). All of
the terms, covenants and provisions of this Lease shall apply to such extended
term except that the Annual Fixed Rent Rate for such extension period shall be
the market rate. If Tenant shall elect to exercise the aforesaid option, it
shall do so by giving Landlord notice in writing of its intention to do so not
later than six months prior to the expiration of the original term of this
Lease. If Tenant gives such notice, the extension of this Lease shall be
automatically effected without the execution of any additional documents. The
original term and the extended term are hereinafter collectively called the
"term".
If the parties cannot agree upon the market rate, then the market
rate shall be submitted to arbitration as follows: market rate shall be
determined by impartial arbitrators, one to be chosen by the Landlord, one to be
chosen by Tenant, and a third to be selected, if necessary, as below provided.
The unanimous written decision of the two first chosen, without selection and
participation of a third arbitrator, or otherwise, the written decision of a
majority of three arbitrators chosen and selected as aforesaid, shall be
conclusive and binding upon Landlord and Tenant. Landlord and Tenant shall each
notify the other of its
-7-
chosen arbitrator within ten (10) days following the call for arbitration and,
unless such two arbitrators shall have reached a unanimous decision within
thirty (30) days after their designation, they shall so notify the then
President of the Boston Bar Association and request him to select an impartial
third arbitrator, who shall be another office building owner, a real estate
counsellor or a broker dealing with like types of properties, to determine
market rate as herein defined. Such third arbitrator and the first two chosen
shall hear the parties and their evidence and render their decision within
thirty (30) days following the conclusion of such hearing and notify Landlord
and Tenant thereof. Landlord and Tenant shall share equally the expense of the
third arbitrator (if any). If the dispute between two parties as to a market
rate has not been resolved before the commencement of Tenant's obligation to pay
Fixed Rent based upon such market rate, then Tenant shall pay Fixed Rent under
the Lease based upon the market rate designated by Landlord until either the
agreement of the parties as to the market rate, or the decision of the
arbitrators, as the case may be, at which time Tenant shall pay any
underpayment of Fixed Rent to Landlord, or Landlord shall refund any
overpayment of Fixed Rent to Tenant.
In any event, the Annual Fixed Rent for the extended term shall not be
less than the Annual Fixed Rent Rate for the last year of the original term of
this Lease.
-8-
ARTICLE III
-----------
Landlord's Work and Repairs
---------------------------
3.1 Landlord's Work. Landlord shall cause to be performed the work
required by Exhibit B Description of Landlord's Work. Landlord shall use
diligence to cause Landlord's Work to be substantially completed by the
Commencement Date, subject to the provisions of Section 9.5 hereof.
Except for Landlord's Work, the Premises are leased in an "as is"
condition. Tenant acknowledges that Landlord has made no warranties or
representations as to the condition thereof. Tenant further acknowledges that
Landlord has no present or future intention to make any alterations, renovations
or improvements to the Premises, other then as specified on Exhibit B.
3.2 Structural Repairs. Landlord covenants, except as otherwise
provided in Article VI and except in the case of damage caused by any act or
negligence of Tenant, its employees, customers, suppliers, contractors, and the
like, to make such repairs to the roof, and exterior walls (other than doors,
windows and glass) of the Premises as may be necessary.
-9-
ARTICLE IV
----------
Rent
----
4.1 The Fixed Rent. Tenant covenants and agrees to pay Fixed Rent to
Landlord at the Original Address of Landlord or at such other place or to such
other person or entity as Landlord may by notice in writing to Tenant from time
to time direct, at the Annual Fixed Rent Rate, in equal installments of 1/12th
of the Annual Fixed Rent Rate, in advance, on the first day of each calendar
month included in the term; and for any portion of a calendar month at the
beginning or end of the term, at that rate payable in advance for such portion.
4.2 Additional Rent. In order that the Fixed Rent shall be
absolutely net to Landlord, Tenant covenants and agrees to pay, as Additional
Rent, taxes, betterment assessments, insurance costs, and utility charges with
respect to the Premises as provided in this Section 4.2 as follows:
4.2.1 Real Estate Taxes. Tenant shall pay to Landlord all taxes
levied or assessed by, or becoming payable to the municipality or any
governmental authority having jurisdiction of the Premises, for or in respect of
the Premises or which may become a lien on the Premises, for each tax period
partially or wholly included in the term, such payments to be made to Landlord
in the manner provided in Subsection 4.2.3 of this Section 4.2. For any fraction
of a tax period included in the term at the
-10-
beginning or end thereof, Tenant shall pay to Landlord the fraction of taxes so
levied or assessed or becoming payable which is allocable to such included
period. Tenant may prosecute appropriate proceedings for abatement or reduction
of any tax with respect to which Tenant is required to make payments as herein
before provided, such proceedings to be conducted jointly with any other
parties, including Landlord, who have contributed to the payment of such taxes,
and Tenant agrees to save Landlord harmless from all costs and expenses incurred
on account of Tenant's participation in such proceedings. Landlord, without
obligating itself to incur any costs or expenses in connection with such
proceedings, shall cooperate with Tenant with respect to such proceedings so far
as reasonably necessary. Any abatement or reduction effected by such proceedings
shall accrue to the benefit of Tenant and Landlord and such other parties as
their interests may appear according to their respective contributions to the
taxes involved in any such proceedings. Nothing contained in this Lease shall,
however, require Tenant to pay any franchise, corporate, estate, inheritance,
succession, capital levy or transfer tax of Landlord, or any income, profits or
revenue tax or charge upon the rent payable by Tenant under this Lease;
provided, however, that if, at any time during the term hereof, the present
system of ad valorem taxation of real property shall be changed so that in lieu
of the whole or any part thereof there shall be assessed on Landlord a capital
levy
-11-
or other tax on the Fixed Rent, Additional Rentals or other charges payable by
Tenant hereunder, or if there shall be assessed on Landlord a federal, state,
county, municipal, or other local income, franchise, excise or similar tax,
assessment, levy or charge measured by or based, in whole or in part, upon the
Fixed Rentals, Additional Rents or other charges payable by Tenant hereunder,
then any and all of such taxes, assessments, levies or charges, to the extent
that the same would be payable if the Premises were the only property of
Landlord subject to same, and if the income from the Premises were the only
taxable income of Landlord during the year in question, shall be deemed to be
included in the taxes to be paid by Tenant pursuant to this subsection 4.2.1.
4.2.2 Betterment Assessments. Tenant shall pay to Landlord each
installment of all public, special or betterment assessments Levied or assessed
by or becoming payable to any municipality or other governmental authority
having jurisdiction of the Premises, for or in respect of the Premises for each
installment period partially or wholly included in the term, such payments to be
made to Landlord in the manner provided in Subsection 4.2.3 of this Section 4.2.
For any fraction of an installment period included in the term at the beginning
or end thereof, Tenant shall pay to Landlord the fraction of such installment
allocable to such included period. Tenant may prosecute appropriate proceedings
to contest the validity or
-12-
amount of any assessment with respect to which Tenant is required to make
payments as herein before provided, such proceedings to be conducted jointly
with any other parties, including Landlord, who have contributed to the payment
of such assessments, and Tenant agrees to save Landlord harmless from all costs
and expenses incurred on account of Tenant's participation in such proceedings.
Landlord, without obligating itself to incur any costs on expenses in connection
with such proceedings, shall cooperate with Tenant with respect to such
proceedings so far as reasonably necessary. Landlord shall promptly furnish to
Tenant a copy of any notice of public, special or betterment assessment received
by Landlord concerning the Premises.
4.2.3 Tax Fund Payments. Tenant shall, as Additional Rent, on
the first day of each month of the term, make tax fund payments to Landlord.
Interest, if any, earned on such tax fund payments shall be paid to Tenant at
the time such interest is received by Landlord. "Tax fund payments" refer to
such payments as Landlord shall reasonably determine to be sufficient to provide
in the aggregate a fund adequate to pay all taxes and assessments referred to in
sub-section 4.2.1 and 4.2.2 of this Section 4.2 when they become due and payable
and all such payments shall, to the extent thereof, relieve Tenant of its
obligations under said subsections. If the aggregate of said tax fund payments
is not adequate to pay all said taxes and assessments, Tenant shall pay to
Landlord the amount by which
-13-
such aggregate is less than the amount equal to all said taxes and assessments,
such payment to be made within twenty (20) days after receipt by Tenant of
notice from Landlord of such amount. If Tenant shall have made the aforesaid
payments, Landlord shall on or before the last day on which the same may be paid
without interest or penalty, pay to the proper authority charged with the
collection thereof all taxes and assessments referred to in said subsections
4.2.1 and 4.2.2 and furnish Tenant, upon request, reasonable evidence of such
payment. Any balance remaining after such payment by Landlord shall be credited
against future payments to be made by Tenant pursuant to this subsection 4.2.3.
4.2.4 Insurance. Tenant shall, at its expense, as Additional
Rent, take out and maintain throughout the term the following insurance
protecting Landlord:
4.2.4.1 All risk casualty insurance, with endorsement for
difference in conditions coverage, debris removal and demolition, in an amount
at least equal to the replacement cost of the Building and other improvements
on the Premises, as such replacement cost may from time to time be determined by
agreement or by appraisal made at Tenant's expense by an accredited insurance
appraiser approved by Landlord which may be required by either party whenever
three (3) years have elapsed since the last such agreement or appraisal, or
alteration or additions have been made.
-14-
4.2.4.2 Insurance protecting Landlord against abatement or loss
of rent in an amount equal to at least all the Fixed Rent and Additional Rent
payable for one year under this Article IV.
4.2.4.3 Comprehensive liability insurance indemnifying Landlord
and Tenant against all claims and demands for death or any injury to person or
damage to property which may be claimed to have occurred on the Premises or on
any property, streets or ways adjoining the Premises, in amounts which shall, at
the beginning of the term, be at least equal to the limits set forth in Section
l.l, and, which, from time to time during the term, shall be to such higher
limits, if any, as are customarily carried in the area in which the Premises are
located on property similar to the Premises and used for similar purposes; and
workmen's compensation insurance with statutory limits covering all of Tenant's
employees working on the Premises.
4.2.4.4 Insurance against loss or damage from sprinklers and
from leakage or explosion or cracking of boilers, pipes carrying steam or water,
or both, pressure vessels or similar apparatus, in the so-called "broad form"
and in such amounts as Landlord may reasonably require.
-15-
4.2.4.5 Insurance against such other hazards, and in such
amounts, as may from time to time be required by any mortgagee of the Premises,
provided that such insurance is customarily carried in the area in which the
Premises are located on property similar to the Premises and used for similar
purposes.
4.2.4.6 Fire insurance with the usual extended coverage
endorsements covering all Tenant's furniture, furnishings, fixtures and
equipment, and any other contents or improvements not covered by the insurance
to be maintained under subsection 4.2.4.1.
4.2.4.7 Policies for insurance required under the provisions of
subsections 4.2.4.1, 4.2.4.4 and 4.2.4.5 shall, in case of loss, be first
payable to the holders of any mortgages on the Premises under a standard
mortgagee's clause, and shall be deposited with the holder of any mortgage or
with Landlord, as Landlord or any such mortgagee may elect. All such policies
shall be obtained from responsible companies qualified to do business and in
good standing in Massachusetts, which companies and the amount of insurance
allocated thereto shall be subject to Landlord's approval. Tenant agrees to
furnish Landlord with certificates evidencing all such insurance prior to the
beginning of the term hereof and evidencing renewal thereof at least thirty (30)
days prior to the expiration of any such policy. Each such
-16-
policy shall be non-cancellable with respect to the interest of Landlord and
such mortgagees without at least ten (10) days' prior written notice thereto. In
the event provision for any such insurance is to be by a blanket insurance
policy, the policy shall allocate a specific and sufficient amount of coverage
to the Premises.
4.2.4.8 All insurance which is carried by either party with
respect to the Building: Premises or to furniture, furnishings, fixtures or
equipment therein or alterations or improvements thereto, whether or not
required, shall include provisions which either designate the other party as one
of the insured or deny to the insurer acquisition by subrogation of rights of
recovery against the other party to the extent such rights have been waived by
the insured party prior to occurrence of loss or injury, insofar as, and to the
extent that, such provisions may be effective without making it impossible to
obtain insurance coverage from responsible companies qualified to do business in
the state in which the Premises are located (even though extra premium may
result therefrom). In the event that extra premium is payable by either party as
a result of this provision, the other party shall reimburse the party paying
such premium the amount of such extra premium. If at the request of one party,
this non-subrogation provision is waived, then the obligation of reimbursement
shall cease for such period of time as such waiver shall be effective, but
nothing contained in this
-17-
subsection shall derogate from or otherwise affect releases elsewhere herein
contained of either party for claims. Each party shall be entitled to have
certificates of any policies containing such provisions. Each party hereby
waives all rights of recovery against the other for loss or injury against which
the waiving party is protected by insurance containing said provisions,
reserving, however, any rights with respect to any excess of loss or injury over
the amount recovered by such insurance. Tenant shall not acquire as insured
under any insurance carried on the Premises any right to participate in the
adjustment of loss or to receive insurance proceeds and agrees upon request
promptly to endorse and deliver to Landlord any checks or other instruments in
payment of loss in which Tenant is named as payee.
4.2.5 Utilities. Tenant shall pay directly to the proper
authorities charged with the collection thereof all charges for water, sewer,
gas, oil, electricity, telephone and other utilities or services used or
consumed on the Premises, whether designated as a charge, tax, assessment, fee
or otherwise, including, without limitation, water and sewer use charges and
taxes, if any, all such charges to be paid as the same from time to time become
due. Except as otherwise provided in Exhibit B, it is understood and agreed that
Tenant shall make its own arrangements for the installation or provision of all
such utilities and that Landlord shall be under no obligation
-18-
to furnish any utilities to the Premises and shall not be liable for any
interruption or failure in the supply of any such utilities to the Premises.
4.3 Late Payment of Rent. If any installment of rent is paid
more than fifteen (15) days after the date the same was due, it shall bear
interest (as Additional Rent) from the date due at the lesser of the prime rate,
so-called, of The First National Bank of Boston as it may be adjusted from time
to time, plus two percent per annum, or the maximum rate allowed by law.
4.4 Security Deposit. On or before the Commencement Date,
Tenant shall deposit with Landlord the sum of Twenty-Four Thousand Dollars
($24,000.00) which Landlord shall deposit in its name in a money market fund
mutually agreed upon by Landlord and Tenant. Provided Tenant is not in default
under this Lease, the interest earned on said deposit shall be paid by Landlord
to Tenant. Said deposit shall be held by Landlord as security for the faithful
performance by Tenant of all the terms of this Lease by said Tenant to be
observed and performed. The security deposit shall not be mortgaged, assigned,
transferred or encumbered by Tenant without the written consent of Landlord and
any such act on the part of Tenant shall be without force and effect and shall
not be binding upon Landlord.
If the Fixed Rent or Additional Rent payable hereunder shall be
overdue and unpaid or should Landlord make payments on behalf
-19-
of the Tenant, or Tenant shall fail to perform any of the terms of this Lease,
then Landlord may, at its option and without prejudice to any other remedy which
Landlord may have on account thereof, appropriate and apply said entire deposit
or so much thereof as may be necessary to compensate Landlord toward the payment
of Fixed Rent, Additional Rent or other sums or loss or damage sustained by
Landlord due to such breach on the part of Tenant; and Tenant shall forthwith
upon demand restore said security to the original sum deposited. Should Tenant
comply with all of said terms and promptly pay all of the rentals as they fall
due and all other sums payable by Tenant to Landlord, said deposit shall be
returned in full to Tenant at the end of the term.
In the event of bankruptcy or other creditor-debtor proceedings
against Tenant, all securities shall be deemed to be applied first to the
payment of rent and other charges due Landlord for all periods prior to the
filing of such proceedings.
ARTICLE V
---------
Tenant's Additional Covenants
-----------------------------
5.1 Affirmative Covenants. Tenant covenants at all times during
the term and for such further time as Tenant occupies the Premises or any part
thereof:
-20-
5.1.1 Perform Obligations. To perform promptly all of the
obligations of Tenant set forth in this Lease; and to pay when due the Fixed
Rent and Additional Rent and all charges, rates and other sums which by the
terms of this Lease are to be paid by Tenant.
5.1.2 Use. To use the Premises only for the Permitted Uses, and
from time to time to procure all licenses and permits necessary therefor, at
Tenant's sole expense.
5.1.3 Repair and Maintenance. Except as otherwise provided in
Section 3.2 and Article VI, to keep the Premises (including, without limitation,
the exterior and structure of the Building, all improvements thereon and all
heating, plumbing, electrical, air-conditioning, mechanical and other fixtures
and equipment now or hereafter on the Premises) in good order, condition and
repair and at least as good order, condition and repair as they are in on the
Commencement Date or may be put in during the term, reasonable use and wear only
excepted; to maintain in good condition all lawns and planted areas and to keep
in good repair and clean and neat and free of snow and ice all surfaced
roadways, walks, and parking and loading areas; and to make all repairs and
replacements and to do all other work necessary for the foregoing purposes
whether the same may be ordinary or extraordinary, foreseen or unforeseen.
Tenant shall secure, pay for and keep in force contracts with appropriate and
-21-
reputable service companies providing for the regular maintenance of the heating
and air-conditioning systems and copies of such contracts shall be furnished to
Landlord. It is further agreed that the exception of reasonable use and wear
shall not apply so as to permit Tenant to keep the Premises in anything less
than suitable, tenantlike, and efficient and usable condition, or in less thin
good and tenantlike repair.
Notwithstanding the foregoing, with respect to any replacement
of heating or air conditioning equipment that costs more than $2500, and which
is not required because of damage caused by any act or negligence of Tenant, its
employees, customers supplies, contractors, and the like, Landlord shall make
such replacement and pay the costs incurred in connection with such replacement.
5.1.4 Compliance with Law. To make all repairs, alterations,
additions or replacements to the Premises required by any Law or ordinance or
any order or regulation of any public authority; to keep the Premises equipped
with all safety appliances so required; and to comply with the orders and
regulations of all governmental authorities with respect to zoning, building,
fire, health and other codes, regulations, ordinances or laws applicable to the
Premises, except that Tenant may defer compliance so long as the validity of any
such law, ordinance, order or regulation shall be contested by Tenant in
-22-
good faith and by appropriate legal proceedings, if Tenant first gives Landlord
appropriate assurance or security against any loss, cost or expense on account
thereof.
5.1.5 Indemnification. To save Landlord harmless, and to
exonerate and indemnify Landlord from and against any and all claims,
liabilities or penalties asserted by or on behalf of any person, firm,
corporation or public authority on account of injury, death, damage or loss to
person or property in or upon the Premises arising out of the use or occupancy
of the Premises by Tenant or by any person claiming by, through or under Tenant
(including, without limitation, all patrons, employees and customers of Tenant),
or arising out of any delivery to or service supplied to the Premises, or on
account of or based upon anything whatsoever done on the Premises, except if the
same was caused by the willful negligence, fault or misconduct of Landlord, its
agents, servants or employees. In respect of all of the foregoing, Tenant shall
indemnify Landlord from and against all costs, expenses (including reasonable
attorneys' fees), and liabilities incurred in or in connection with any such
claim, action or proceeding brought thereon; and, in case of any action or
proceeding brought against Landlord by reason of any such claim, Tenant, upon
notice from Landlord and at Tenant's expense, shall resist or defend such action
or proceeding and employ counsel therefor reasonably satisfactory to Landlord.
-23-
5.1.6 Landlord's Right to Enter. To permit Landlord and its
agents to enter into and examine the Premises at reasons times and to show the
Premises, and to make repairs to the Premises, and, during the last six (6)
months prior to the expiration of this Lease, to keep affixed in suitable places
notices of availability of the Premises.
5.1.7 Personal Property at Tenant's Risk. All of the
furnishings, fixtures, equipment, effects and property of every kind, nature and
description of Tenant and of all persons claiming by, through or under Tenant
which, during the continuance of this Lease or any occupancy of the Premises by
Tenant or anyone claiming under Tenant, may be on the Premises, shall be at the
sole risk and hazard of Tenant and if the whole or any part thereof shall be
destroyed or damaged by fire, water or otherwise, or by the leakage or bursting
of water pipes, steam pipes, or other pipes, by theft or from any other cause,
no part of said loss or damage is to be charged to or to be borne by Landlord,
except that Landlord shall in no event be indemnified or held harmless or
exonerated from any liability to Tenant or to any other person, for any injury,
loss, damage or liability to the extent prohibited by law.
5.1.8 Payment of Landlord's Cost of Enforcement. To pay on
demand Landlord's expenses, including reasonable attorneys' fees, incurred in
enforcing any obligation of Tenant
-24-
under this Lease or incurring any default by Tenant under this Lease as provided
in Section 7.4.
5.1.9 Yield Up. At the expiration of the term or earlier
termination of this Lease: to surrender all keys to the Premises; to remove all
of its trade fixtures and personal property in the Premises; to remove such
installations made by it as Landlord may request and all Tenant's signs wherever
located) to repair all damage caused by such removal and to yield up the
Premises (including all installations and improvements made by Tenant except for
trade fixtures and such of said installations or improvements as Landlord shall
request Tenant to remove), broom-clean and in the same good order and repair in
which Tenant is obliged to keep and maintain the Premises by the provisions of
this Lease. Any property not so removed shall be deemed abandoned and may be
removed and disposed of by Landlord in such manner as Landlord shall determine
and Tenant shall pay Landlord the entire cost and expense incurred by it in
effecting such removal and disposition and in making any incidental repairs and
replacements to the Premises and for use and occupancy during the period after
the expiration of the term and prior to its performance of its obligations under
this subsection 5.1.9. Tenant shall further indemnify Landlord against all loss,
cost and damage resulting from Tenant's failure and delay in surrendering the
Premises as above provided.
-25-
5.1.10 Estoppel Certificate. Upon not less than fifteen (15)
days' prior written request by Landlord, to execute, acknowledge and deliver to
Landlord a statement in writing certifying that this Lease is unmodified and in
full force and effect and that Tenant has no defenses, offsets or counterclaims
against its obligations to pay the Fixed Rent and Additional Rent and any other
charges and to perform its other covenants under this Lease (or, if there have
been any modifications, that the Lease is in full force and effect as modified
and stating the modifications and, if there are any defenses, offsets or
counterclaims, setting them forth in reasonable detail), and the dates to which
the Fixed Rent and Additional Rent and other charges have been paid. Any such
statement delivered pursuant to this subsection 5.1.10 may be relied upon by any
prospective purchaser or mortgagee of the Premises, or any prospective assignee
of such mortgage.
5.1.11 Landlord's Expenses Re Consents. To reimburse Landlord
promptly on demand for all reasonable legal expenses incurred by Landlord in
connection with all requests by Tenant for consent or approval hereunder.
5. 2 Negative Covenants. Tenant covenants at all times during
the term and such further time as Tenant occupies the Premises or any part
thereof:
-26-
5.2.1 Assignment and Subletting. Not to assign, transfer,
mortgage or pledge this Lease or to sublease (which term shall be deemed to
include the granting of concessions and licenses and the like) all or any part
of the Premises or suffer or permit this Lease or the leasehold estate hereby
created or any other rights arising under this Lease to be assigned, transferred
or encumbered, in whole or in part, whether voluntarily, involuntarily or by
operation of law, or permit the occupancy of the Premises by anyone other than
Tenant without the prior written consent of Landlord. In the event Tenant
desires to assign this Lease or sublet any portion or all of the Premises,
Tenant shall notify Landlord in writing of Tenant's intent to so assign this
Lease or sublet the Premises and the proposed effective date of such subletting
or assignment, and shall request in such notification that Landlord consent
thereto. Landlord may terminate this Lease in the case of a proposed assignment,
or, except for a subletting of 10,000 square feet or less during the original
term of this Lease, suspend this Lease pro tanto for the period and with respect
to the space involved in the case of a proposed subletting, by giving written
notice of termination or suspension to Tenant, with such termination or
suspension to be effective as of the effective date of such assignment or
subletting. If Landlord does not so terminate or suspend, Landlord's consent
shall not be unreasonably withheld to an assignment during the original term
-27-
of this Lease, or to a subletting during the term of this Lease (and shall not
be unreasonably withheld in the case of the aforesaid subletting of lO,OOO
square feet or less during the original term), provided that the assignee or
subtenant shall use the Premises only for the Permitted Uses, and further
provided, with respect to a subletting during an extended term of this Lease,
that after such subletting the initial Tenant named herein occupies at least 50%
of the floor area of the Building. Tenant shall, as Additional Rent, reimburse
Landlord promptly for Landlord's reasonable legal expenses incurred in
connection with any request by Tenant for such consent. No such subletting or
assignment shall in any way impair the continuing primary liability of Tenant
hereunder, and no consent to any subletting or assignment in a particular
instance shall be deemed to be a waiver of the obligation to obtain the
Landlord's written approval in the case of any other subletting or assignment.
With respect to any assignment or sublease during the original term of this
Lease, such assignment shall not include the right granted to Tenant under
Section 2.3 hereinabove to extend the term, and such sublease shall be for a
term expiring no later than the expiration of the original term of this Lease.
If for any assignment or sublease consented to by Landlord
hereunder Tenant receives rent or other consideration, either initially or over
the term of the assignment or sublease, in excess of the rent called for
hereunder, or in case of sublease
-28-
of part , in excess of such rent fairly allocable to the part, after appropriate
adjustments to assure that all other payments called for hereunder are
appropriately taken into account, to pay to Landlord as additional rent fifty
percent (50%) of the excess of each such payment of rent or other consideration
received by Tenant promptly after its receipt.
Notwithstanding the foregoing, Tenant shall have the right,
without Landlord's consent, to assign this Lease or sublet the Premises, or any
part thereof, to any parent, subsidiary or affiliated corporation, provided that
any such assignee or sublessee shall deliver to Tenant a counterpart original of
a document in recordable form satisfactory to landlord whereby such assignee or
sublessee agrees to assume and perform all of the terms and conditions of this
Lease on Tenant's part from and after the effective date of such assignment or
subletting.
Whenever Tenant lists with a broker or brokers or otherwise
advertises, holds out or markets the Premises or any part thereof for sublease
or assignment, Tenant shall give Nordblom Company, as brokers, a non-exclusive
listing with respect to such sublease or assignment.
If, at any time during the term of this Lease, Kobe Development
Corporation shall own less than fifty-one (51%) percent of the shares of Tenant
or any person or entity other than Kobe Development Corporation shall acquire,
directly or
-29-
indirectly, effective control of Tenant, Tenant shall so notify Landlord and
(whether or not Tenant so notifies Landlord) Landlord may terminate this Lease
by notice to Tenant given within ninety (90) days thereafter. This paragraph
shall not apply if the initial Tenant named herein is a corporation and the
outstanding voting stock thereof is listed on a recognized securities exchange.
5.2.2 Overloading and Nuisance. Not to injure, overload, deface
or otherwise harm the Premises; nor commit any nuisance; nor permit the emission
of any objectionable noise or odor; nor make, allow or suffer any waste; nor
make any use of the Premises which is improper, offensive or contrary to any law
or ordinance or which will invalidate any of Landlord's insurance; nor conduct
any auction, fire, "going out of business" or bankruptcy sales.
5.2.3 Hazardous Wastes and Materials. Not to dispose of any
hazardous wastes, hazardous materials or oil on the Premises, or into any of the
plumbing, sewage, or drainage systems thereon, and to indemnify and save
Landlord harmless from all claims, liability, loss or damage arising on account
of the use or disposal of hazardous wastes, hazardous materials or oil
including, without limitation, liability under any federal, state, or local
laws, requirements and regulations, or damage to any of the aforesaid systems.
Tenant shall comply with all
-30-
governmental reporting requirements with respect to hazardous wastes, hazardous
materials and oil, and shall deliver to Landlord copies of all reports filed
with governmental authorities.
5.2.4 Installation, Alterations or Additions. Not to make any
installations, alterations or additions in, to or on the Premises (including,
without limitation, buildings, lawns, planted areas, walks, roadways, parking
and loading areas) nor to permit the making of any holes in the walls,
partitions, ceilings or floors without on each occasion obtaining the prior
written consent of Landlord, and then only pursuant to plans and specifications
approved by Landlord in advance in each instance; Tenant shall pay promptly when
due the entire cost of any work to the Premises undertaken by Tenant so that the
Premises shall at all times be free of liens for labor and materials, and at
Landlord's request Tenant shall furnish to Landlord a bond or other security
acceptable to Landlord assuring that any work commenced by Tenant will be
completed in accordance with the plans and specifications theretofore approved
by Landlord and assuring that the Premises will remain free of any mechanics'
lien or other encumbrance arising out of such work. In any event, Tenant shall
forthwith bond against or discharge any mechanics' liens or other encumbrances
that may arise out of such work. Tenant shall procure all necessary licenses and
permits at Tenant's sole expense before undertaking such work. All such
-31-
work shall be done in a good and workmanlike manner employing materials of good
quality and so as to conform with all applicable zoning, building, fire, health
and other codes, regulations, ordinances and laws. Tenant shall save Landlord
harmless and indemnified from all injury, loss, claims or damage to any person
or property occasioned by or growing out of such work.
5.2.5 Abandonment. Not to abandon or vacate the Premises during
the term.
5.2.6 Signs. Not to place any signs on the Building or
elsewhere on the Premises without Landlord's prior written approval, which shall
not be unreasonably withheld. Such signs shall be maintained in good repair by
Tenant and shall conform to applicable requirements of public authorities.
5.2.7 Parking and Storage. Not to permit any storage of
materials outside of the Building; to use reasonable diligence to prevent
Tenant's employees and customers and other persons visiting the Premises from
using any street abutting the Premises for parking; and, not to permit the use
of the Premises for either temporary or permanent storage of trucks, or for any
use for which heavy trucking to or from the site would be customary.
-32-
ARTICLE VI
----------
Casualty or Taking
------------------
6. 1 Termination. In the event that the Premises, or any
materia1 part thereof, shall be taken by any public authority or for any public
use, or shall be destroyed or damaged by fire or casualty or by the action of
any public authority, then this Lease may be terminated at the election of
Landlord. Such election, which may be made notwithstanding the fact that
Landlord's entire interest may have been divested, shall be made by the giving
of notice by Landlord to Tenant within sixty (60) days after the date of the
taking or casualty.
6. 2 Restoration. If Landlord does not elect to so terminate,
this Lease shall continue in force and a just proportion of the rent reserved,
according to the nature and extent of the damages sustained by the Premises, but
not in excess of the net proceeds of insurance recovered by Landlord under the
rent form No. 1 endorsement of the fire insurance carried by Tenant pursuant to
subsection 4.2.4.2, shall be suspended or abated until the Premises, or what may
remain thereof , shall be put by Landlord in proper condition for use, which
Landlord covenants to do with reasonable diligence to the extent permitted by
the net proceeds of insurance recovered or damages awarded for such taking,
destruction or damage and subject to zoning and building laws or ordinances then
in
-33-
existence. "Net proceeds of insurance recovered or damages awarded" refers to
the gross amount of such insurance or damages less the reasonable expenses of
Landlord incurred in connection with the collection of the same, including
without limitation, fees and expenses for legal and appraisal services.
6.3 Award. Irrespective of the form in which recovery may be
had by law, all rights to damages or compensation, exclusive of awards relating
to Tenant's property, shall belong to Landlord in all cases. Tenant hereby
grants to Landlord all of Tenant's rights to such damages and covenants to
deliver such further assignments thereof as Landlord may from time to time
request.
ARTICLE VII
-----------
Defaults
--------
7. 1 Events of Default. (a) If Tenant shall default in the
performance of any of its obligations to pay the Fixed Rent or Additional Rent
hereunder and if such default shall continue for ten (10) days after written
notice from Landlord designating such default or if within thirty (30) days
after written notice from Landlord to Tenant specifying any other default or
defaults Tenant has not commenced diligently to correct the default or defaults
so specified or has not thereafter diligently pursued such correction to
completion, or (b) if any assignment shall be made by Tenant or any guarantor of
Tenant for the benefit of creditors, or (c) if Tenant's leasehold interest shall
be taken
-34-
on execution, or (d) if a lien or other involuntary encumbrance is filed against
Tenant's leasehold interest or Tenant's other property, including said leasehold
interest, and is not discharged within ten (10) days thereafter, or (e) if a
petition is filed by Tenant or any guarantor of Tenant for liquidation, or for
reorganization or an arrangement under any provision of any bankruptcy law or
code as then in force and effect, or (f) if an voluntary petition under any of
the provisions of any bankruptcy law or code is filed against Tenant or any
guarantor of Tenant and such involuntary petition is not dismissed within thirty
(30) days thereafter, then, and in any of such cases, Landlord and the agents
and servants of Landlord lawfully may, in addition to and not in derogation of
any remedies for any preceding breach of covenant, immediately or at any time
thereafter without demand or notice and with or without process of law
(forcibly, if necessary) enter into and upon the Premises or any part thereof
in the name of the whole or mail a notice of termination addressed to Tenant,
and repossess the same as of Landlord's former estate and expel Tenant and those
claiming through or under Tenant and remove its and their effects (forcibly, if
necessary) without being deemed guilty of any manner of trespass and without
prejudice to any remedies which might otherwise be used for arrears of rent or
prior breach of covenant, and upon such entry or mailing as aforesaid this Lease
shall terminate, Tenant hereby waiving all statutory rights to
-35-
the Premises (including without limitation rights of redemption, if any, to the
extent such rights may be lawfully waived) and Landlord, without notice to
Tenant, may store Tenant's effects, and those of any person claiming through or
under Tenant, at the expense and risk of Tenant, and, if Landlord so elects, may
sell such effects at public auction or private sale and apply the net proceeds
to the payment of all sums due to Landlord from Tenant, if any, and pay over the
balance, if any, to Tenant.
7.2 Remedies. In the event that this Lease is terminated under
any of the provisions contained in Section 7.1 or shall be otherwise terminated
for breach of any obligation of Tenant, Tenant covenants to pay forthwith to
Landlord, as compensation, the excess of the total rent reserved for the residue
of the term over the rental value of the Premises for said residue of the term.
In calculating the rent reserved there shall be included, in addition to the
Fixed Rent and Additional Rent, the value of all other considerations agreed to
be paid or performed by Tenant for said residue. Tenant further covenants as
additional and cumulative obligations after any such termination, to pay
punctually to Landlord all the sums and to perform all the obligations which
Tenant covenants in this Lease to pay and to perform in the same manner and to
the same extent and at the same time as if this Lease had not been terminated.
In calculating the amounts to be paid by Tenant pursuant to the next preceding
sentence Tenant shall be credited with any amount paid to
-36-
Landlord as compensation as in this Section 7.2 provided and also with the net
proceeds of any rent obtained by Landlord by reletting the Premises, after
deducting all Landlord's expense in connection with such reletting, including,
without limitation, all repossession costs, brokerage commissions, fees for
legal services and expenses of preparing the Premises for such reletting, it
being agreed by Tenant that Landlord may (i) relet the Premises or any part or
parts thereof, for a term or terms which may at Landlord's option be equal to or
less than or exceed the period which would otherwise have constituted the
balance of the term and may grant such concessions and free rent as Landlord in
its sole judgment considers advisable or necessary to relet the same and (ii)
make such alterations, repairs and decorations in the Premises as Landlord in
its sole judgment considers advisable or necessary to relet the same, and no
action of Landlord in accordance with the foregoing or failure to relet or to
collect rent under reletting shall operate or be construed to release or reduce
Tenant's liability as aforesaid.
In lieu of any other damages or indemnity and in lieu of full
recovery by Landlord of all sums payable under all the foregoing provisions of
this Section 7.2, Landlord may by written notice to Tenant, at any time after
this Lease is terminated under any of the provisions contained in Section 7.1 or
is otherwise terminated for breach of any obligation of Tenant and before such
full recovery, elect to recover, and Tenant shall
-37-
thereupon pay, as liquidated damages, an amount equal to the aggregate of the
Fixed Rent and Additional Rent accrued in the twelve (12) months ended next
prior to such termination plus the amount of rent of any kind accrued and unpaid
at the time of termination and less the amount of any recovery by Landlord under
the foregoing provisions of this Section 7.2 up to the time of payment of such
liquidated damages. Nothing contained in this Lease shall, however, limit or
prejudice the right of Landlord to prove for and obtain in proceedings for
bankruptcy or insolvency by reason of the termination of this Lease, an amount
equal to the maximum allowed by any statute or rule of law in effect at the time
when, and governing the proceedings in which, the damages are to be proved,
whether or not the amount be greater than, equal to, or less than the amount of
the loss or damages referred to above.
7.3 Remedies Cumulative. Any and all rights and remedies which
Landlord may have under this Lease, and at law and equity, shall be cumulative
and shall not be deemed inconsistent with each other, and any two or more of all
such rights and remedies may be exercised at the same time insofar as permitted
by law.
7.4 Landlord's Right to Cure Defaults. Landlord may, but shall
not be obligated to, cure, at any time, without notice, any default by Tenant
under this Lease; and whenever Landlord so elects, all costs and expenses
incurred by Landlord, including
-38-
reasonable attorneys' fees, in curing a default shall be paid, as Additional
Rent, by Tenant to Landlord on demand, together with lawful interest thereon
from the date of payment by Landlord to the date of payment by Tenant.
7.5 Effect of Waivers of Default. Any consent or permission by
Landlord to any act or omission which otherwise would be a breach of any
covenant or condition herein, shall not in any way be held or construed (unless
expressly so declared) to operate so as to impair the continuing obligation of
any covenant or condition herein, or otherwise, except as to the specific
instance, operate to permit similar acts or omissions.
7.6 No Waiver, etc. The failure of Landlord to seek redress for
violation of, or to insist upon the strict performance of, any covenant or
condition of this Lease shall not be deemed a waiver of such violation nor
prevent a subsequent act, which would have originally constituted a violation,
from having all the force and effect of an original violation. The receipt by
Landlord of rent with knowledge of the breach of any covenant of this Lease
shall not be deemed to have been a waiver of such breach by Landlord. No consent
or waiver, express or implied, by Landlord to or of any breach of any agreement
or duty shall be construed as a waiver or consent to or of any other breach of
the same or any other agreement or duty.
-39-
7. 7 No Accord and Satisfaction. No acceptance by Landlord of a
lesser sum than the Fixed Rent, Additional Rent or any other charge then due
shall be deemed to be other than on account of the earliest installment of such
rent or charge due, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent or other charge be deemed an
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such installment or
pursue any other remedy in this Lease provided.
ARTICLE VIII
------------
Rights of Mortgage Holders
--------------------------
8.1 Rights of Mortgage Holders. The word "mortgage" as used
herein includes mortgages, deeds of trust or other similar instruments
evidencing other voluntary liens or encumbrances, and modifications,
consolidations, extensions, renewals, replacements and substitutes thereof. The
word "holder" shall mean a mortgagee, and any subsequent holder or holders of a
mortgage. Until the holder of a mortgage shall enter and take possession of the
Premises for the purpose of foreclosure, such holder shall have only such rights
of Landlord as are necessary to preserve the integrity of this Lease as
security. Upon entry and taking possession of the Premises for the purpose of
foreclosure, such holder shall have all the rights of Landlord.
-40-
No such holder of a mortgage shall be liable either as mortgagee or as assignee,
to perform, or be liable in damages for failure to perform, any of the
obligations of Landlord unless and until such holder shall enter and take
possession of the Premises for the purpose of foreclosure. Upon entry for the
purpose of foreclosure, such holder shall be liable to perform all of the
obligations of Landlord, subject to and with the benefit of the provisions of
Section 9.4, provided that a discontinuance of any foreclosure proceeding shall
be deemed a conveyance under said provisions to the owner of the equity of the
Premises.
The covenants and agreements contained in this Lease with
respect to the rights, powers and benefits of a holder of a mortgage
(particularly, without limitation thereby, the covenants and agreements
contained in this Section 8.1) constitute a continuing offer to any person,
corporation or other entity, which by accepting a mortgage subject to this
Lease, assumes the obligations herein set forth with respect to such holder;
such holder is hereby constituted a party of this Lease as an obligee hereunder
to the same extent as though its name were written hereon as such; and such
holder shall be entitled to enforce such provisions in its own name. Tenant
agrees on request of Landlord to execute and deliver from time to time any
agreement which may be necessary to implement the provisions of this Section
8.1.
-41-
8.2 Lease Superior or Subordinate to Mortgages. It is agreed
that the rights and interest of Tenant under this Lease shall be (i) subject or
subordinate to any present or future mortgage or mortgages and to any and all
advances to be made thereunder, and to the interest of the holder thereof in the
Premises or any property of which the Premises are a part if Landlord shall
elect by notice to Tenant to subject or subordinate the rights and interest of
Tenant under this Lease to such mortgage or (ii) prior to any present or future
mortgage or mortgages, if Landlord shall elect, by notice to Tenant, to give the
rights and interest of Tenant under this Lease priority to such mortgage; in the
event of either of such elections and upon notification by Landlord to that
effect, the rights and interest of Tenant under this Lease should be deemed to
be subordinate to, or have priority over, as the case may be, said mortgage or
mortgages, irrespective of the time of execution or time of recording of any
such mortgage or mortgages (provided that, in the case of subordination of this
Lease to any future mortgages, the holder thereof agrees not to disturb the
possession of Tenant so long as Tenant is not in default hereunder). Tenant
agrees it will, upon request of Landlord, execute, acknowledge and deliver any
and all instruments deemed by Landlord necessary or desirable to give effect to
or notice of such subordination or priority. Tenant also agrees that if it shall
fail at any time to execute, acknowledge and deliver
-42-
any such instrument requested by Landlord, Landlord may, in addition to any
other remedies available to it, execute, acknowledge and deliver such instrument
as the attorney-in-fact of Tenant and in Tenant's name; and Tenant does hereby
make, constitute and irrevocably appoint Landlord as its attorney-in-fact,
coupled with an interest with full power of substitution, and in its name, place
and stead so to do. Any mortgage to which this Lease shall be subordinated may
contain such terms, provisions and conditions as the holder deems usual or
customary.
ARTICLE IX
----------
Miscellaneous Provisions
------------------------
9.1 Notices from One Party to the Other. All notices required
or permitted hereunder shall be in writing and addressed, if to the Tenant, at
the Original Address of the Tenant or such other address as Tenant shall have
last designated by notice in writing to Landlord and, if to Landlord, at the
Original Address of Landlord or such other address as Landlord shall have last
designated by notice in writing to Tenant. Any notice shall be deemed duly given
when mailed to such address postage prepaid, by registered or certified mail,
return receipt requested, or when delivered to such address by hand.
9.2 Quiet Enjoyment. Landlord agrees that upon Tenant's paying
the rent and performing and observing the agreements, conditions and other
provisions on its part to be performed and
-43-
observed, Tenant shall and may peaceably and quietly have, hold and enjoy the
Premises during the term hereof without any manner of hindrance or molestation
from Landlord or anyone claiming under Landlord, subject, however, to the terms
of this Lease; provided, however, Landlord reserves the right, without the same
constituting a breach of Landlord's covenant of quiet enjoyment, to make such
changes, alterations, additions, improvements, repairs or replacements in or to
the Premises as Landlord may deem necessary or desirable, provided further,
however, that there be no unreasonable interference with Tenant's use of the
premises.
9.3 Lease not to be Recorded. Tenant agrees that it will not
record this Lease. Both parties shall, upon the request of either, execute and
deliver a notice or short form of this Lease in such form, if any, as may be
permitted by applicable statute.
9.4 Limitation of Landlord's Liabiliy. The term "Landlord" as
used in this Lease, so far as covenants or obligations to be performed by
Landlord are concerned, shall be limited to mean and include only the owner or
owners at the time in question of the Premises, and in the event of any transfer
or transfers of title to said property, the Landlord (and in case of any
subsequent transfers or conveyances, the then grantor) shall be concurrently
freed and relieved from and after the date of such transfer or conveyance,
without any further instrument
-44-
or agreement, of all liability as respects the performance of any covenants or
obligations on the part of the Landlord contained in this Lease thereafter to be
performed, it being intended hereby that the covenants and obligations contained
in this Lease on the part of Landlord, shall, subject as aforesaid, be binding
on the Landlord, its successors and assigns, only during and in respect of their
respective successive periods of ownership of said leasehold interest or fee, as
the case may be. Tenant, its successors and assigns, shall not assert nor seek
to enforce any claim for breach of this Lease against any of Landlord's assets
other than Landlord's interest in the Premises and in the rents, issues and
profits thereof, and Tenant agrees to look solely to such interest for the
satisfaction of any liability or claim against Landlord under this Lease, it
being specifically agreed that in no event whatsoever shall Landlord (which term
shall include, without limitation, any general or limited partner, trustees,
beneficiaries, officers, directors, or stockholders of Landlord) ever be
personally liable for any such liability.
9.5 Acts of God. In any case where either party hereto is
required to do any act, delays caused by or resulting from Acts of God, war,
civil commotion, fire, flood or other casualty, labor difficulties, shortages of
labor, materials or equipment, government regulations, unusually severe weather,
or other causes beyond such party's reasonable control shall not be counted in
-45-
determining the time during which work shall be completed, whether such time be
designated by a fixed date, a fixed time or a "reasonable time", and such time
shall be deemed to be extended by the period of such delay.
9.6 Landlord's Default. Landlord shall not be deemed to be in
default in the performance of any of its obligations hereunder unless it shall
fail to perform such obligations and such failure shall continue for a period of
thirty (30) days or such additional time as is reasonably required to correct
any such default after written notice has been given by Tenant to Landlord
specifying the nature of Landlord's alleged default. Tenant shall have no right
to terminate this Lease for any default by Landlord hereunder and no right, for
any such default, to offset any rent due hereunder.
9.7 Brokerage. Tenant warrants and represents that it has dealt
with no broker other than Hunneman & Company in connection with the consummation
of this Lease, and in the event of any brokerage claims against Landlord, other
than by Hunneman & Company, predicated upon prior dealings with Tenant, Tenant
agrees to defend the same and indemnify and hold Landlord harmless against any
such claim.
9.8 Applicable Law and Construction. This Lease shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts and, if any provisions of this
-46-
Lease shall to any extent be invalid, the remainder of this Lease shall not be
affected thereby. There are no oral or written agreements between Landlord and
Tenant affecting this Lease. This Lease may be amended, and the provisions
hereof may be waived for modified, only by instruments in writing executed by
Landlord and Tenant. The titles of the several Articles and Sections contained
herein are for convenience only and shall not be considered in construing this
Lease. Unless repugnant to the context, the words "Landlord" and "Tenant"
appearing in this Lease shall be construed to mean those named above and their
respective heirs, executors, administrators, successors and assigns, and those
claiming through or under them respectively. If there be more than one tenant
the obligations imposed by this Lease upon Tenant shall be joint and several.
WITNESS the execution hereof under seal on the day and year
first above written.
Landlord:
/s/ Rodger P. Nordbloom
---------------------------
/s/ George Macomber
---------------------------
as Trustee of N.W. Building
24 Trust
Tenant:
Q.C. Optics, Inc.
By /s/ George S. Quackenbos
--------------------------
Its President
Exhibit A
---------
A certain parcel of land situate in Burlington in the County of
Middlesex and said Commonwealth, bounded and described as follows:
Northeasterly by Middlesex Turnpike, two hundred fifty-one and 52/100
feet;
Southeasterly by lot 74 as shown on plan hereinafter mentioned, three
hundred twenty-one and 17/100 feet;
Southwesterly by lots 58 and 59 on said plan, two hundred sixty-three
and 66/100 feet;
Northwesterly, fifteen feet and
Southwesterly, fifty-two and 35/100 feet by lot 71 on said plan;
Northwesterly by lot 73 on said plan, two hundred seventy-six and
67/100 feet: and
Northeasterly by lot 75 on said plan, eighty-two and 19/100 feet.
Said parcel is shown as lot 72 on said plan.
Also another certain parcel of land situate in said Burlington bounded
and described as follows:
Northeasterly by Middlesex Turnpike, sixty-five and 53/100 feet;
Southwesterly by lot 72 as shown on said plan hereinafter mentioned,
eighty-two and 19/100 feet; and
Northwesterly by lot 76 on said plan, fifty-five and 20/100 feet.
Said parcel is shown as lot 75 on said plan.
All of said boundaries are determined by the Court to be located as
shown on a subdivision plan, as approved by the Court, filed in the Land
Registration Office, a copy of which is filed in the Registry of Deeds for
the South Registry District of Middlesex County in Registration Book 746,
Page 181, with Certificate 123331.
Also another certain parcel situate in Burlington, Middlesex County,
Massachusetts, bounded and described as follows:
Northwesterly by Lot 99 as shown on plan hereinafter mentioned, 140.00
feet;
Northeasterly by Lot 100 on said plan, 7.00 feet;
Southeasterly by Lot 100 shown on said plan, 30.00 feet;
Southeasterly by Lot 100 and Lot 72 shown on said plan, 81.00 feet;
Southeasterly by Lot 72 and Lot 59 on said plan; 110.00 feet; and
Page 2
Southwesterly by lot 59 and Lot 60 on said plan, 88.00 feet.
Said parcel is shown on Lot 98 on a plan entitled "Land in Burlington,
Mass. Surveyed for Middlesex Turnpike Industrial Trust dated October, 1978
by Charles A. Perkins Co., Inc., filed in the Land Court Engineer's Office
as Plan No. 6728-15.
Exhibit B
---------
Description of Landlord's Work
1. Replacement of Carpeting.
2. Repair of Ceiling Tiles.
3. Repair of Floor Tiles.
4. Repair of Lighting.
5. Installation of a stall shower in the men's and ladies' restrooms.
6. Placement of HVAC system in good operating condition.
7. Painting, as necessary, throughout the Premises.
8. Installation of twenty (20) 3-phase electrical drops at locations
to be agreed upon.
STOCK REPURCHASE AND LOAN REPAYMENT AGREEMENT
BY AND AMONG
QC OPTICS, INC.,
KOBE STEEL USA HOLDINGS, INC.,
AND
ERIC T. CHASE, AS TRUSTEE OF
THE QC OPTICS VOTING TRUST
Dated as of October 27, 1995
STOCK REPURCHASE AND LOAN REPAYMENT AGREEMENT
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Initial Repurchase of Shares................................................................ 1
2. Right to Repurchase Option Shares........................................................... 2
3. Conditions Precedent........................................................................ 4
4. Closing..................................................................................... 4
5. Dividends................................................................................... 5
6. Recapitalization............................................................................ 5
7. Election of Directors....................................................................... 6
8. Covenants of QC and the Voting Trust........................................................ 6
8.1 Right of Participation in Sales by the Voting Trust................................ 6
(a) Co-Sale Right............................................................. 6
(b) Notice of Intent to Participate........................................... 6
(c) Sale to Transferee........................................................ 6
8.2 Piggyback Registration Rights...................................................... 6
(a) Piggyback Registration Rights............................................. 6
(b) Additional Covenants Concerning Sale of Common Stock...................... 7
(c) Maintaining Current Information........................................... 7
(d) Kobe Information.......................................................... 8
(e) Additional Conditions to Registration..................................... 8
(f) Blue Sky Provisions....................................................... 8
(g) Advising Kobe............................................................. 8
(h) Indemnification........................................................... 8
(i) Restrictions on Resale of Shares.......................................... 9
8.3 Pre-emptive Rights................................................................. 10
(a) Right of First Refusal.................................................... 10
(b) Definition of New Securities.............................................. 10
(c) Notice.................................................................... 11
(d) Failure to Exercise Right of First Refusal................................ 11
(e) Termination of Right of First Refusal..................................... 11
TABLE OF CONTENTS (CONT.)
-------------------------
PAGE
----
8.4 No Impairment...................................................................... 11
(a) Asset Conveyance.......................................................... 11
(b) Good Faith................................................................ 12
(c) Fair Market Value......................................................... 12
(d) Kobe Consent Requirement.................................................. 12
(e) The Voting Trust.......................................................... 12
8.5 Reporting Requirements............................................................. 12
(a) Monthly Reports........................................................... 12
(b) Annual Reports............................................................ 13
8.6 The Voting Trust................................................................... 13
9. Representations............................................................................. 13
9.1 Representations by Kobe............................................................ 13
(a) Organization.............................................................. 13
(b) Authorization............................................................. 13
(c) Options and Rights........................................................ 13
(d) No Violation.............................................................. 14
(e) Full Disclosure........................................................... 14
(f) Payment of Taxes; Pension Plan............................................ 14
9.2 Representations by the Company and the Voting Trust................................ 14
(a) Organization.............................................................. 14
(b) Ownership Interest........................................................ 15
(c) Corporate Books........................................................... 15
(d) Title to Stock............................................................ 16
(e) Authorization............................................................. 16
(f) Options and Rights........................................................ 16
(g) No Violation.............................................................. 16
(h) Financial Statements...................................................... 16
9.3 Representations of the Company..................................................... 17
(a) Contracts................................................................. 17
(b) Management Reports........................................................ 17
(c) True and Complete Copies.................................................. 17
(d) Disclosure................................................................ 17
<PAGE>
TABLE OF CONTENTS (CONT.)
-------------------------
PAGE
----
10. Successors and Assigns...................................................................... 18
11. Entire Agreement; Amendment................................................................. 18
12. Governing Law; Counterparts................................................................. 18
13. Unenforceability............................................................................ 18
14. Notices..................................................................................... 18
15. Arbitration................................................................................. 19
16. Headings.................................................................................... 19
17. Construction................................................................................ 19
18. Representation by Legal Counsel and Other Advisors.......................................... 19
19. Further Assurances.......................................................................... 19
20. Default..................................................................................... 19
21. Stock Legend................................................................................ 20
22. Remedies.................................................................................... 20
23. Waiver...................................................................................... 20
</TABLE>
STOCK REPURCHASE AND LOAN REPAYMENT AGREEMENT
---------------------------------------------
THIS STOCK REPURCHASE AND LOAN REPAYMENT AGREEMENT is entered into as
of the 27th day of October, 1995 by and among QC OPTICS, INC., a Delaware
corporation with its principal offices at 154 Middlesex Turnpike, Burlington,
Massachusetts 01803 ("QC" or the "COMPANY"), KOBE STEEL USA HOLDINGS, INC., a
Delaware corporation with its principal offices at 535 Madison Avenue, 34th
Floor, New York, New York 10022 ("KOBE"), and ERIC T. CHASE, AS TRUSTEE FOR AND
ON BEHALF OF THE QC OPTICS VOTING TRUST, u/d/t dated August 31, 1995 of 19
Craigie Circle, Carlisle, Massachusetts 01741 (the "VOTING TRUST").
WHEREAS Kobe currently owns fifty thousand (50,000) shares of Class A
Voting Common Stock of QC and one million one hundred ninety-six thousand four
hundred (1,196,400) shares of the Class B Non-Voting Common Stock of QC,
respectively; and
WHEREAS Kobe Steel USA International, Inc., a Delaware corporation and
an affiliate of Kobe ("KOBE INTERNATIONAL"), has previously loaned to QC the
principal amount with interest of approximately Four Million Two Hundred Fifty
Thousand Dollars ($4,250,000), which sum is outstanding as of the date of this
Agreement; and
WHEREAS Kobe has offered to the Company the opportunity to repurchase
62.5% of Kobe's equity interest in QC at this time as well as certain rights to
repurchase up to an additional 27.5% of Kobe's current equity interest in QC
upon the terms and conditions set forth herein; and
WHEREAS QC desires to repurchase these shares and to repay these loans
upon the terms and conditions set forth herein; and
WHEREAS the Voting Trust has been established to control the voting of
shares of QC held by the management team of QC, and all stockholders of QC,
other than Kobe, as listed on the list of current stockholders of QC attached as
Schedule 9.2(b)(i) have agreed to have their shares of QC included in such
Voting Trust; and
WHEREAS Kobe and the Voting Trust wish to establish certain rights with
regard to the election of directors to QC's Board of Directors and certain other
matters, all upon the terms and conditions set forth herein;
NOW THEREFORE, for good and valuable consideration, the sufficiency and
receipt whereof are hereby acknowledged, the parties hereto agree as follows:
1. INITIAL REPURCHASE OF SHARES. QC will repurchase from Kobe an
aggregate of seven hundred seventy-nine thousand (779,000) shares of Common
Stock of QC (62.5% of all Common Stock of QC currently owned by Kobe) as
indicated in Schedule 9.2(b)(i) (the
"REPURCHASE SHARES") for an aggregate purchase price of Five Million Dollars
($5,000,000). Payment for and delivery of the Repurchase Shares shall occur at
the Closing (as hereinafter defined) as described in Section 4 herein.
Simultaneously with the Closing, the Voting Trust shall exchange its interest in
Sally, Inc. a Delaware corporation, for shares of Common Stock of QC in a
tax-free reorganization under Section 368(a)(1)(A) of the Internal Revenue Code
of 1986, as amended, pursuant to an agreement substantially in the form of the
Agreement of Merger attached hereto as Exhibit "A" (the "MERGER AGREEMENT"). At
the Closing, the shares of Common Stock of QC held by the Voting Trust, together
with any shares of Common Stock of QC issued to third party investors (the
"INVESTORS"), each pursuant to agreements satisfactory in form and content to
Kobe (the "SUBSCRIPTION AGREEMENTS"), required to complete the acquisition of
the Repurchase Shares at the Closing shall equal, but not exceed, the Repurchase
Shares.
In order to effectuate the financing for QC to reacquire the Repurchase
Shares and for the Voting Trust and, if applicable, the Investors, to acquire
the Repurchase Shares, the parties agree and acknowledge that: (i) QC will
continue to operate its business in the ordinary course between the date of this
Agreement and the Closing Date (as hereinafter defined); (ii) Kobe will not
withdraw cash from the Company's accounts except for transactions in the normal
course of business with the prior approval and consent of QC's management team;
and (iii) QC will be free to grant a comprehensive security interest in all or
part of its assets to a bank or other secured lender (the "LENDER") providing
financing for QC to reacquire the Repurchase Shares pursuant to an agreement
satisfactory in form and content to Kobe (the "LOAN FINANCING DOCUMENTS").
2. RIGHT TO PURCHASE OPTION SHARES. The Voting Trust will have a right
to purchase the Option Shares (as defined herein) held by Kobe as follows:
(a) Kobe will continue to have the absolute right to hold
one hundred twenty-four thousand six hundred and
forty (124,640) shares of Common Stock of QC (10% of
its current interest in Common Stock of QC). Such
shares shall not be subject to the rights referenced
in this Section 2.
(b) The remaining three hundred forty-two thousand seven
hundred and sixty (342,760) shares of Common Stock of
QC held by Kobe, representing 27.5% of its current
interest in Common Stock of QC (hereinafter referred
to as the "OPTION SHARES"), shall be subject to the
Right of First Refusal and Option set forth in the
following provisions of this Section 2(b).
(I) Should Kobe desire to sell all or any
portion of such Option Shares, the Voting
Trust will have a right of first refusal
(the "RIGHT OF FIRST REFUSAL") to purchase
such shares at the price proposed to be paid
by a third party purchaser or at the price
referenced below in this Section 2(b)(I), if
lower. Kobe will notify the Voting Trust in
the event of such an offer, indicating the
name and address of the third party
purchaser and all terms of such offer,
including a copy of such
-2-
offer if presented in writing. The Voting
Trust will have the right (i) within twenty
(20) days of receipt of such notice or (ii)
within thirty (30) days of receipt of such
notice, if such offer is made at any time
during the first year from the date of this
Agreement (collectively, (i) and (ii) are
hereinafter referenced as the "OPTION
PERIOD") to match such offer and to purchase
all (but not less than all) of such tendered
shares proposed to be purchased by the third
party purchaser within (a) twenty (20) days
after notice of its agreement to match the
offer, or (b) sixty (60) days after notice
of its agreement to match the offer, if such
offer is made at any time during the first
year from the date of this Agreement, except
that the Voting Trust may purchase all (but
not less than all) of such tendered shares
at the lesser of a price of $6.418 per share
(such that if all 342,760 shares are
proposed to be purchased, the aggregate
purchase price to be paid by the Voting
Trust for such shares shall equal Two
Million Two Hundred Thousand Dollars
($2,200,000)) or the price proposed to be
paid by the third party purchaser, in each
case, in cash;
(II) If the Voting Trust does not give Kobe
notice of its intent to effect such purchase
of the Option Shares within the Option
Period, or if the Voting Trust fails to
effect the purchase of the Option Shares
within twenty (20) days after the expiration
of the Option Period, then Kobe will be free
to sell such shares to the third party
purchaser named in the offer letter for a
period of time not to exceed sixty (60) days
after the expiration of the Option Period,
provided that such sale occurs upon terms
and conditions no more favorable to the
third party purchaser than those set forth
in the original notice to the Voting Trust.
If such sale does not occur upon such terms
and conditions within such sixty (60) day
period, then such sale shall be deemed not
to have occurred and the Option Shares shall
once again be subject to all of the terms
and conditions of this Section 2(b).
(III) In addition, the Voting Trust, at its
option on five (5) days' notice to Kobe, may
elect to acquire all or any portion of such
Option Shares (the "OPTION") not previously
sold at a fixed price of $6.418 per share
(or $2,200,000 in the aggregate for all
342,760 Option Shares) in cash, provided
that the closing for such sale occurs on or
before two years from the Closing Date;
provided, that, such Option may not be
exercised during the pendency of any
operative period referenced in Sections
2(b)(I), 2(b)(II), 8.1 or 8.3 hereof;
provided, further, that, in no event shall
the Option be exercised more than three
times during this period.
(IV) In order to determine compliance with
the provisions of this Section 2(b), the
Option Shares shall have endorsed on the
back of such shares the legend set forth in
Section 21 of this Agreement.
-3-
(V) Each of the Right of First Refusal and
the Option set forth in this Section 2(b)
shall terminate on the earlier of (i) the
sale by Kobe of 100% of the Option Shares to
a third party purchaser (not affiliated with
Kobe) which acquires the Option Shares in
accordance with the provisions of the Right
of First Refusal described in this Section
2(b), (ii) two (2) years from the Closing
Date, or (iii) upon the closing of an
underwritten public offering pursuant to a
registration statement declared effective
under the Securities Act of 1933, as amended
(the "1933 ACT").
(VI) Any and all references to per share and
dollar amounts in this Section 2 shall be
appropriately adjusted in the event of a
stock split, reverse stock split, stock
dividend, or other corporate reorganization.
3. CONDITIONS PRECEDENT. It is a condition precedent to the
effectiveness of this Agreement and the consummation of the Closing that each of
the following events occurs:
(a) On the Closing Date, Kobe shall make a capital
contribution of the amount of principal and interest outstanding on the Kobe
International Loan as indicated in EXHIBIT "B" attached hereto (the "KOBE
INTERNATIONAL LOAN") on the Closing Date.
(b) On the Closing Date, QC shall repay all principal and
interest on the loans from Kobe International Loan to QC. The Kobe International
Loan will be repaid at face value with all accrued interest, which sum currently
equals approximately Four Million Two Hundred Fifty Thousand Dollars
($4,250,000) in the aggregate.
(c) Kobe shall determine that each of the Merger Agreement,
the Subscription Agreements, the Loan Financing Documents, the Company Documents
(as hereinafter defined), the Sally Documents (as hereinafter defined), and the
Voting Trust Documents (as hereinafter defined) are satisfactory. For purposes
of this Agreement, Kobe is hereby deemed to provide its consent to (i) any
Subscription Agreements which provide for the sale of Common Stock of QC or
subordinated term debt convertible into QC Common Stock, substantially upon the
terms set forth in EXHIBIT C attached hereto; and (ii) any Loan Financing
Documents providing for the loan to QC by a Lender of term debt secured by all
assets of QC with both affirmative and negative financial covenants typical for
acquisition financing or otherwise reasonably requested by such Lender,
substantially upon the terms set forth in EXHIBIT D attached hereto; provided,
however, that, in the event of any material deviation from the terms set forth
in such EXHIBIT C or EXHIBIT D, Kobe shall not be deemed to have provided its
consent.
4. CLOSING. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall occur on March 31, 1996 or such earlier date as
indicated by QC upon five (5) days' notice to Kobe (the "Closing Date") in
accordance with the provisions of Section 3 of this Agreement. Simultaneously
with the Closing, the Voting Trust and the Investors, if any, will acquire
-4-
no more in the aggregate than an equity interest equivalent to the Repurchase
Shares in the form of Common Stock of QC issued to the Voting Trust in exchange
for its interest in Sally, Inc. pursuant to the Merger Agreement and to the
Investors pursuant to the Subscription Agreements (if applicable). This equity
interest of the management team, together with the equity interest of any
Investors, will equal the number of Repurchase Shares. The management team will
effect this equity interest through a share-for-share exchange of their interest
in Sally, Inc. for shares of Common Stock of QC as well as the issuance of new
shares of Common Stock of QC to the Investors, if any, who provide additional
funding at the Closing necessary to pay Kobe for the purchase price of the
Repurchase Shares at the Closing. Should the Closing not occur by March 31,
1996, then this Agreement shall be null and void and without further recourse to
the parties hereto.
5. DIVIDENDS. Dividends shall accrue in each year commencing with the
first fiscal year following the fiscal year in which QC realizes POSITIVE
RETAINED EARNINGS (as defined below) and shall accrue thereafter for each fiscal
year in which QC realizes POSITIVE NET INCOME (as defined below), unless Kobe
shall request in writing no less than sixty (60) days prior to the end of each
such fiscal year that such dividend not accrue. Such dividend shall equal twenty
percent (20%) of the Positive Net Income for such fiscal year. "Positive Net
Income" and "Positive Retained Earnings" shall be determined by QC's independent
auditors in accordance with generally accepted accounting principles ("GAAP")
based on net income after taxes and excluding any items of extraordinary income
or loss. Any dividend shall be distributed pro rata among the equity holders of
QC. Any obligation to accrue a dividend for any fiscal year shall immediately
cease in the event that shares of Common Stock of QC are listed for trading on
the New York Stock Exchange, the American Stock Exchange or the NASDAQ National
Market System (each of which is hereinafter referred to as a "QUALIFIED
MARKET"), Kobe sells or otherwise transfers its Option Shares to the Voting
Trust or any third party, or Kobe agrees with QC to suspend or terminate the
requirement to accrue or pay any dividends. Payment for any dividend shall occur
one hundred and fifty (150) days after the end of the fiscal year which such
dividend accrues, except that QC shall be obligated to pay any dividend only if:
(i) funds are legally available for payment of such dividend under Delaware law
without constraint, (ii) the payment of such dividend shall be allowed by QC's
senior lenders at their sole discretion at such time, unless Kobe shall request
in writing non-payment of such dividend no less than sixty (60) days prior to
the end of the fiscal year in which such dividend accrues.
6. RECAPITALIZATION. Simultaneously with the Closing, QC will file a
Restated Certificate of Incorporation with the Delaware Secretary of State
providing for the recapitalization of QC such that all shares of Class A Voting
Common Stock and Class B Non-Voting Common Stock shall become Common Stock with
the recapitalization set forth in the Restated Certificate of Incorporation set
forth in EXHIBIT "E" attached hereto. Notwithstanding any other provision in the
Certificate of Incorporation and By-Laws of QC, as each may be amended from time
to time, to the contrary, the Voting Trust shall not vote to alter the
capitalization or the designations and powers of the capital stock of QC in a
manner which may materially adversely affect the rights of Kobe hereunder or as
a stockholder of QC without the prior written consent of Kobe, unless such
change shall also materially adversely affect the rights of the Voting Trust in
a similar fashion.
-5-
7. ELECTION OF DIRECTORS. For such period of time as Kobe continues to
hold any Option Shares and until such time, if ever, as shares of Common Stock
of QC are listed for trading on a Qualified Market, the Voting Trust shall agree
to elect to QC's Board of Directors a nominee of Kobe in the form of Irrevocable
Proxy set forth in EXHIBIT "F" attached hereto. For such time as Kobe owns any
equity interest in QC, it will agree to vote for the election to the Board of
Directors of the nominees of the Voting Trust for the Board of Directors.
8. COVENANTS OF QC AND THE VOTING TRUST.
Section 8.1. Right of Participation in Sales by the Voting
Trust.
(a) Co-Sale Right. If, at any time prior to the date that
shares of Common Stock of QC are listed for trading on a Qualified Market, the
Voting Trust or any beneficial owners or successors in interest thereof desire
to sell all or any part of the shares owned by it or such interest to any
proposed transferee (hereinafter the "OFFER"), Kobe shall have the right to sell
to the proposed transferee, as a condition to such sale by the Voting Trust or
by the beneficial owners of the Voting Trust at the same price per share and on
the same terms and conditions as involved in such sale by the Voting Trust or
similar terms if beneficial interests in the Voting Trust are being sold, a
number of shares of Common Stock equal to the total number of shares of Common
Stock of QC owned by Kobe multiplied by a fraction, the numerator of which is
the aggregate number of shares to be sold and the denominator of which is the
sum of all shares of Common Stock of QC outstanding.
(b) Notice of Intent to Participate. The Voting Trust shall
notify Kobe within ten days of receipt of the Offer of all relevant terms and
conditions, including all appropriate financial information, of the Offer. Kobe
shall notify the Voting Trust in writing of its intention to exercise its
co-sale rights with regard to its shares of Common Stock as soon as practicable
after the Voting Trust notifies Kobe of such Offer, and in any event within
twenty (20) days after receipt of such notice by Kobe. All notifications
required by this Section 8.1(b) shall be delivered in person or mailed in
accordance with the provisions of Section 15 below. Failure by Kobe to notify
the Voting Trust within the time period referenced above shall be conclusive
proof of Kobe's election not to exercise its co-sale rights.
(c) Sale to Transferee. The Voting Trust and Kobe shall sell
to the proposed transferee all, or at the option of the proposed transferee, any
part of the Voting Trust's and Kobe's shares proposed to be sold at not less
than the price and upon other terms and conditions, if any, not less favorable
to Kobe than those in the Offer provided by the Voting Trust under Section
8.1(a) above; provided, however, that any purchase of less than all of the
Voting Trust's shares by the proposed transferee shall be made from the Voting
Trust and Kobe pro rata based upon the relative amount of the Voting Trust's
shares and Kobe's shares of Common Stock of QC that the Voting Trust and Kobe
are otherwise entitled to sell pursuant to Section 8.1(a).
8.2 Piggyback Registration Rights.
(a) Piggyback Registration Rights. QC shall notify Kobe in
writing at least 30 days prior to the filing of a registration statement with
the Securities and Exchange Commission (the
-6-
"SEC") in respect of its intention to register shares of its Common Stock under
the 1933 Act (on any registration form other than Form S-4 or S-8 or similar
form). Kobe must give written notice to QC, within 15 days of receipt of such
notice from QC, of its desire to have any of its Common Stock of QC included in
such registration statement (hereinafter the "KOBE REGISTERED SHARES"), and may,
subject to the provisions of this Section 8.2(a), have said Common Stock
included in such registration statement. QC shall file any required amendments
of or supplements to any registration statement filed pursuant to this Section
8.2(a) and otherwise use its best efforts to insure that such registration
statement remains in effect under the 1933 Act until the earlier of the sale of
all of the Common Stock included in the registration or the expiration of 270
days from the effective date of the registration statement, subject to Section
8.2(b). QC shall bear all expenses in connection with the registration and sale
of any such Common Stock, with the exception of any portion of the underwriter's
commission and discounts attributable to the Common Stock being offered and sold
by Kobe. QC shall have the right to designate the managing underwriter in
respect of a public offering pursuant to this Section 8.2(a). Notwithstanding
the foregoing, such registration rights shall be limited if, in connection with
any offering involving solely an underwriting of Common Stock to be issued by
QC, the managing underwriter shall impose a limitation on the number of shares
of such Common Stock which may be included in any such registration statement
because, in its sole judgment, such limitation is necessary to effect an orderly
public distribution, and such limitation is imposed pro rata with respect to all
securities holders which have a contractual, incidental (so-called "piggy back")
right to include such securities in the registration statement and as to which
inclusion has been requested pursuant to such right; provided that,
notwithstanding any provision herein to the contrary, securities holders who do
not have piggyback rights shall be restricted from registration prior to
restricting any securities holder who does have piggyback rights. The rights
granted by QC under this Section 8.2 shall terminate upon the earlier of (i) any
time after QC has effected an incidental registration of all of Kobe's
Registered Shares, or (ii) the date when all of Kobe's Option Shares are
eligible for resale in accordance with the provisions of Rule 144(k) under the
1933 Act.
(b) Additional Covenants Concerning Sale of Common Stock. If
permitted by applicable law and regulations, QC on its own initiative, at the
request of Kobe, shall file such amendments and/or supplements to such
registration statement, and, subject to Section 8.2(a), take such other steps as
may be required to maintain such registration statement in effect, and to keep
the information therein current, so long as any of the Kobe Registered Shares
included therein remain unsold. In connection with any registration statement
referred to in this Section 8.2(a) of this Agreement, QC shall furnish to Kobe
(or to any broker or other person at its request) a reasonable number of copies
of such registration statement, each amendment and supplement thereto and each
document included therein, and such number of copies of the then current
prospectus included therein as either Kobe or its brokers may from time to time
reasonably request.
(c) Maintaining Current Information. If QC shall at any time
have completed an underwritten primary public offering of shares of its Common
Stock, it shall thereafter take such steps as may be necessary to register its
Common Stock under Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "1934 ACT"), to maintain such status, and to file with the SEC all
-7-
current reports and other information as may be necessary to enable Kobe to
effect the sale of its Common Stock in reliance upon Rule 144 promulgated by the
SEC under the 1933 Act.
(d) Kobe Information. In connection with any registration
statement referred to in Section 8.2(a) of this Agreement, Kobe will furnish to
QC such information as QC may reasonably require from Kobe for inclusion in the
registration statement (and the prospectus included therein).
(e) Additional Conditions to Registration. The obligations of
QC under this Section 8.2 shall be conditioned upon each shareholder (including
Kobe) whose shares are being registered and any underwriter participating in
such public offering executing and delivering to QC an appropriate agreement, if
necessary in the reasonable opinion of counsel to QC, in form satisfactory to
counsel for QC, that he or it will comply with all anti-stabilization,
manipulation, and similar provisions of Section 10 of the 1934 Act, and any rule
promulgated thereunder and will furnish to QC information about such person
necessary to be included in such public offering.
(f) Blue Sky Provisions. QC, at its expense, shall cause all
of the Kobe Registered Shares included in a registration statement referred to
in Section 8.2(a) hereof to be qualified under the laws of such reasonable
number of jurisdictions as Kobe, or the managing underwriter named therein, may
designate, and QC will continue such qualification in effect so long as may be
necessary to comply with all applicable laws regulating the sale of its Common
Stock.
(g) Advising Kobe. In connection with any registration
statement referred to in Section 8.2(a) hereof, QC will promptly advise Kobe and
confirm such advice in writing (a) when the registration statement has become
effective, (b) when any post-effective amendment to the registration statement
becomes effective, and (c) of any request by the SEC for any amendment or
supplement to the registration statement or prospectus or for additional
information.
If at any time the SEC should institute or threaten to institute any
proceeding for the purposes of issuing, or should issue, a stop order suspending
the effectiveness of the registration statement, QC will promptly notify Kobe,
and will use its best efforts to prevent the issuance of any such stop order or
to obtain the withdrawal thereof as soon as possible; and QC will advise Kobe
promptly of any order or communication of any public board or body addressed to
QC suspending or threatening to suspend the qualification of any shares of the
Common Stock of QC for sale in any jurisdiction.
(h) Indemnification.
(i) With respect to the registration rights described in this
Section 8.2, QC hereby agrees to indemnify, hold harmless and defend Kobe, its
officers and directors and each person, if any, who is deemed a controlling
person of Kobe within the meaning of the 1933 Act, against any and all losses,
claims, damages or liabilities (including legal and other expenses incurred in
investigating and defending against the same), to which they, or any of them,
may become subject under the 1933 Act or other statute or common law, arising
out of or based upon:
-8-
(A) any alleged untrue statement of a
material fact contained in any registration statement, preliminary prospectus or
prospectus included therein, any amendment thereof of supplement thereto; or
(B) the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
contained therein not misleading; provided, however, that the indemnity
contained in this Section 8.2(h) shall not apply to any such alleged untrue
statement or omission made in reliance upon and in strict conformity with
information furnished in writing to QC by or on behalf of Kobe. Kobe agrees
that as soon as practicable, but in any event within forty-five (45) days, after
the receipt of notice of any claim or action against it in respect of which
indemnity may be sought from QC hereunder, to notify QC thereof in writing
(provided that the failure to so notify QC of the assertion of such claim within
such period shall not affect QC's indemnity obligation hereunder except as and
to the extent that such failure shall adversely affect the defense of such
claim), and QC shall assume the defense of such claim or action (and the cost
thereof) by counsel of its own choosing, who shall be reasonably satisfactory to
Kobe.
(ii) With respect to the registration rights
described in this Section 8.2, Kobe hereby agrees to indemnify, hold harmless QC
and defend QC, its directors and officers, and each person, if any, who is
deemed a controlling person of QC within the meaning of the 1933 Act, against
any and all losses, claims, damages or liabilities, including legal and other
expenses incurred in investigating and defending against the same, to which they
or any of them may become subject under the 1933 Act or other statute or common
law, arising solely out of or based solely upon any misrepresentation included
in information provided in writing by Kobe to QC for purposes of the
registration statement disclosure and included in the registration statement in
strict conformity with the information so provided by Kobe (the "KOBE
INFORMATION") with regard to:
(A) any alleged untrue statement of a
material fact relating to the Kobe Information contained in any such
registration statement, or prospectus or preliminary prospectus included
therein, or any amendment thereof or supplement thereto, or
(B) the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
contained therein not misleading. QC, and any other person or entity in respect
of which indemnity may be sought from Kobe hereunder, agree, that as soon as
practicable, but in any event within forty-five (45) days, after receipt of
notice of any claim or action against QC or such other person or entity in
respect of which indemnity may be sought from Kobe hereunder, to notify Kobe
thereof in writing (provided that the failure to so notify QC of the assertion
of such claim within such period shall not affect QC's indemnity obligation
hereunder except as and to the extent that such failure shall adversely affect
the defense of such claim), and Kobe shall assume the defense of any such claim
or action (and the cost thereof) by counsel of their own choosing, who shall be
reasonably satisfactory to QC.
(i) Restrictions on Resale of Shares. Each of the Voting Trust
and Kobe agree, if requested by an underwriter of the Common Stock of QC, or
other securities of QC, not to sell,
-9-
assign, donate, pledge, encumber (other than to the Lender), hypothecate, grant
an option to, or otherwise transfer or dispose of, whether in privately
negotiated or open market transactions, any Common Stock or other securities of
QC held by it during a period of time requested by the managing underwriter of
such offering and agreed to by all of the officers and directors of QC for
themselves, but in any event not to exceed the 180 day period following the
effective date of a registration statement filed pursuant to an initial public
offering of the Company's securities under the 1933 Act and 90 days following
the effective date of a registration statement on Form S-1 under the 1933 Act
filed subsequent to such initial public offering. Such agreement shall be in
writing in form and substance satisfactory to such underwriter and QC may impose
stop transfer instructions with respect to the shares subject to the foregoing
restrictions until the end of such "lock-up" period.
8.3 Pre-emptive Rights.
(a) Right of First Refusal. The Company hereby grants to Kobe
a right of first refusal to purchase, on a pro rata basis, all or any part of
New Securities (as defined below) which the Company may, from time to time,
propose to sell and issue, subject to the terms and conditions set forth below.
Kobe's pro rata share, for purposes of this Section 8.3, shall equal a fraction,
the numerator of which is the number of shares of Common Stock then held by Kobe
and the denominator of which is (i) the total number of shares of Common Stock
of QC then outstanding plus (ii) the number of shares of Common Stock of QC
issuable upon conversion or exercise of then outstanding shares of convertible
securities, options, rights or warrants of QC if:
(A) Kobe has had an option to exercise its
right of first refusal as described in this
Section 8.3, with regard to such convertible
securities, options or warrants, or
(B) Kobe has not had an option to exercise
its right of first refusal as described in
this Section 8.3, the exercise price of such
options or warrants or the conversion price
of such convertible securities is less than
or equal to one hundred and fifteen percent
(115%) of the price at which such New
Securities are exercisable into Common Stock
of QC.
(b) Definition of New Securities. "NEW SECURITIES" shall mean
any capital stock of the Company whether now authorized or not, and rights,
options or warrants to purchase capital stock, and securities of any type
whatsoever which are, or may become, convertible into capital stock; provided,
however, that the term "New Securities" does not include (i) securities offered
to the public pursuant to a firm commitment public offering under the 1933 Act
resulting in the listing of the Company's Common Stock on a Qualified Market
(hereinafter a "QUALIFIED IPO"); (ii) securities issued for the acquisition of
another corporation by the Company by merger, purchase of substantially all the
assets of such corporation or other reorganization resulting in the ownership by
the Company of not less than 51% of the voting power of such corporation; (iii)
Common Stock to be issued to employees, directors or consultants of the Company
pursuant to a stock option plan, employee stock
-10-
purchase plan, restricted stock plan or other employee stock plan or agreement
approved by the Board of Directors; or (iv) securities issued as a result of a
stock split, stock dividend or reclassification of Common Stock, distributable
on a pro rata basis to all holders of Common Stock.
(c) Notice. In the event the Company intends to issue New
Securities, it shall give Kobe written notice of such intention, describing the
type of New Securities to be issued, the price thereof and the general terms
upon which the Company proposes to effect such issuance. Kobe shall have twenty
(20) days from the date of any such notice to agree to purchase its pro rata
share of such New Securities for the price and upon the general terms and
conditions specified in the Company's notice by giving written notice to the
Company stating the quantity of New Securities to be so purchased.
(d) Failure to Exercise Right of First Refusal. In the event
Kobe fails to exercise the foregoing right of first refusal with respect to any
New Securities within such 20-day period, the Company may within sixty (60) days
thereafter sell any or all of such New Securities not agreed to be purchased by
Kobe, at a price and upon general terms no more favorable to the purchasers
thereof than those specified in the notice given to Kobe pursuant to paragraph
(c) above. In the event the Company has not sold such New Securities within such
sixty (60) day period, the Company shall not thereafter issue or sell any New
Securities without first offering such New Securities to Kobe in the manner
provided above.
(e) Termination of Right of First Refusal. The right of first
refusal described in this Section 8.3 shall terminate upon the earliest of (i)
the completion of a Qualified IPO; (ii) the transfer of the Option Shares by
Kobe to the Voting Trust or any third party; or (iii) the determination by QC
that Kobe's interest in the issued and outstanding equity securities of QC is a
fraction equal or less than five percent (5%) of the outstanding securities of
QC, calculated as follows: the numerator of which is the number of shares of
Common Stock of QC then held by Kobe and the denominator of which is the total
number of shares of Common Stock of QC then outstanding plus the number of
shares of Common Stock of QC issuable upon conversion of other securities of the
Company which have a "strike price" or conversion price at or below the price at
which the securities are to be sold and which Kobe has previously had the option
to purchase pursuant to this Section 8.3.
8.4 No Impairment. The terms and conditions of this Section 8.4 shall
be effective until the earlier of the date Kobe no longer holds the Option
Shares or the completion of a Qualified IPO.
(a) Asset Conveyance. In the event of a conveyance of greater
than fifty percent (50%) of the assets of the Company or the Voting Trust to a
third party, QC or the Voting Trust, as the case may be, shall make a
distribution to Kobe of a pro rata share of the net proceeds, after expenses, of
such sale, to the extent distributions would be legally permissible under
applicable law. In the event of any buy-out, merger, sale of stock or similar
transaction, Kobe shall receive per share consideration for its shares at least
equal to the highest per share consideration received by any other stockholder
for its shares of QC Common Stock (which will include any compensation otherwise
paid
-11-
to such stockholder for services above the value of such services, or for
non-compete, consulting or other similar arrangements).
(b) Good Faith. QC will not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of any securities or any other
voluntary action, avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company. Each of QC, Kobe and the Voting
Trust will at all times in good faith assist in the carrying out of all the
provisions of this Section 8 and in the taking of all such action as may be
necessary or appropriate in order to protect the stockholders and QC against
impairment of these provisions.
(c) Fair Market Value. Notwithstanding any contrary provision
herein, QC shall not issue any securities of the Company for below fair market
value without the prior written consent of Kobe. For purposes of this Section
8.4, "FAIR MARKET VALUE" shall mean the fair market value as determined in the
good faith judgment of the board of directors of the Company.
(d) Kobe Consent Requirement. Notwithstanding any other
provision herein to the contrary, in the event that the Company proposes to
issue any securities of the Company to management of the Company (other than in
connection with a stock option plan, employee stock purchase plan, restricted
stock plan or other employee stock plan, in each case to the extent that
management ownership or potential ownership from such plans shall not exceed 10%
of the then current authorized and issued securities of QC determined on a fully
converted basis), then QC shall obtain the consent of Kobe.
(e) The Voting Trust. Each of QC and the Voting Trust covenant
and agree that any securities of the Company issued for the benefit of the
employees, directors or officers of the Company shall be subject to each of the
restrictions, covenants and agreements set forth in this Agreement to which the
Voting Trust is subject; provided, that, notwithstanding any provision herein to
the contrary, each of QC and the Voting Trust covenant and agree that every
future management holder of securities of either QC or the Voting Trust will be
bound by the provisions of Section 8.1. In addition, for as long as Kobe owns
the Option Shares, QC and the Voting Trust will require non-employee
stockholders to enter into an agreement in form acceptable to Kobe requiring
each such stockholder to vote for Kobe's representative to serve as a Director
of the QC Board of Directors.
8.5 Reporting Requirements.
(a) Monthly Reports. The Company shall provide to Kobe within
forty-five (45) days after the end of each fiscal month or as soon as provided
to the Lender or other senior Lender to QC, financial statements consisting of a
balance sheet of the Company as of the end of such fiscal month and statements
of income, shareholders' equity and cash flows for such fiscal month and for the
portion of the Company's fiscal year ending with the last day of such fiscal
month, which shall set forth in comparative form the figures for such
-12-
fiscal month and figures for the corresponding fiscal month of the prior fiscal
year, all in reasonable detail prepared and certified by a financial officer of
the Company or its chief financial officer.
(b) Annual Reports. The Company shall provide to Kobe within
one hundred and twenty (120) days after the end of each fiscal year or as soon
as required by the Lender or other senior lender to QC, financial statements
consisting of a balance sheet of the Company as of the end of such fiscal year
and statements of income, shareholders' equity and cash flows for such fiscal
year which shall set forth in comparative form the figures for such fiscal year
and figures for the prior fiscal year, all in reasonable detail and audited
pursuant to GAAP, by the Company's auditors, along with an appropriate report of
such auditors regarding such financial statements.
8.6 The Voting Trust. Each of QC and the Voting Trust covenant and
agree that all stockholders of QC other than Kobe as listed on the list of
current stockholders of QC attached as Schedule 9.2(b)(i) have agreed to have
their shares of Common Stock of QC included in such Voting Trust.
9. REPRESENTATIONS. Each of the parties hereto represents and warrants
as follows:
9.1 Representations by Kobe. Kobe represents and warrants to each of
the Company and the Voting Trust as of the date of this Agreement and as of the
Closing Date as follows:
(a) Organization. Kobe is a corporation duly organized,
validly existing and in corporate and tax good standing under the laws of its
jurisdiction of incorporation with full corporate power and authority to carry
on its business as it is now being conducted and to own, operate and lease its
properties and assets. Kobe is duly qualified or licensed to do business and is
in corporate and tax good standing in every jurisdiction in which the conduct of
its business, the ownership or lease of its properties, or the execution of, and
performance of the transactions contemplated by this Agreement, requires it to
be so qualified or licensed, except as would not materially or adversely affect
Kobe's ability to observe and perform the obligations hereunder to be observed
and performed by it.
(b) Authorization. Kobe has full power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. If
required, the Board of Directors, or as appropriate, the stockholders or owners,
of Kobe have duly authorized the execution, delivery and performance of this
Agreement and no other proceedings on its part are necessary to authorize this
Agreement and the transactions contemplated thereby. This Agreement constitutes
a legal, valid and binding obligation of Kobe enforceable against Kobe in
accordance with its terms.
(c) Options and Rights. There are no outstanding
subscriptions, options, warrants, rights, securities or other contracts by which
Kobe is bound to transfer any shares of its ownership interest in the Company or
rights pursuant to which any person has a right to purchase any of Kobe's
ownership interest in the Company.
-13-
(d) No Violation. The execution, delivery and performance by
Kobe of this Agreement and any related agreements to which Kobe is a party and
the fulfillment of and compliance with the respective terms hereof and thereof
by Kobe, does not and will not (i) conflict with or result in a breach of the
terms, conditions or provisions of, (ii) constitute a default or event of
default under (with due notice, lapse of time or both), (iii) result in the
creation of any lien upon Kobe or of any of Kobe's capital stock or ownership
interest, as the case may be, or assets pursuant to, (iv) give any third party
the right to accelerate any obligation under, (v) result in a violation of or
(vi) require any authorization, consent, approval, exemption or other action by,
notice to, or filing with any person pursuant to, the charter or by-laws or
other organizational documents of Kobe or any applicable regulation (including,
without limitation, approvals pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976), or order to which either Kobe or its affiliates is
subject or any contract to which Kobe or any of their respective properties are
subject, except as would not materially or adversely affect Kobe's ability to
observe and perform the obligations hereunder to be observed and performed by
it. Kobe has complied in all material respects with all applicable regulations
and orders in connection with the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, subject to the exceptions
set forth in the preceding sentence.
(e) Full Disclosure. Prior to entering into this Agreement,
Kobe acknowledges that it has had adequate time to review the books and record
of QC and to fully acquaint itself with QC's current and future business
prospects. Kobe has had the opportunity to review all such information with its
own business and financial advisors. Kobe acknowledges that QC may sell shares
at the Closing and/or in the future at a price higher than the price paid to
Kobe for the Repurchase Shares or which may be paid for the Option Shares.
(f) Payment of Taxes; Pension Plan. Prior to the Closing Date,
Kobe has caused to be paid all income taxes required to be paid by QC to any
government agency and has promptly and timely filed all informational and other
returns required to be filed with any such agency. Prior to the Closing Date,
Kobe has promptly paid to any trustee of any retirement plan any and all
payments required to be paid to QC's 401(k) retirement plan and has promptly
filed with the Department of Labor, the Internal Revenue Service and any other
governmental agency any reports required to be filed in connection with such
401(k) plan.
9.2 Representations by the Company and the Voting Trust.
Each of the Company, Sally, Inc., and the Voting Trust represent and
warrant to Kobe as of the date hereof and as of the date of the Closing as
follows:
(a) Organization.
(i) The Company and Sally, Inc. Each of the Company
and Sally, Inc. are corporations duly organized, validly existing and in
corporate and tax good standing under the laws of the State of Delaware with
full corporate power and authority to carry on their business as it is now being
conducted and to own, operate and lease their properties and assets. Each of the
-14-
Company and Sally, Inc. are duly qualified or licensed to do business and are in
corporate and tax good standing in every jurisdiction in which the conduct of
their business, the ownership or lease of their properties, or the execution of,
and performance of the transactions contemplated by this Agreement, require them
to be so qualified or licensed. True, complete and correct copies of the charter
and by-laws as presently in effect of each of the Company and Sally, Inc. (the
"COMPANY DOCUMENTS" and the "SALLY DOCUMENTS", respectively) as presently in
effect are attached hereto as EXHIBITS "G1" and "G2", respectively.
(ii) The Voting Trust. The Voting Trust is a trust
duly organized, validly existing and in good standing under the laws of its
jurisdiction of formation with full power and authority to carry on its business
as it is now being conducted and to own, operate and lease its properties and
assets. The Voting Trust is duly qualified or licensed to do business and is in
good standing in every jurisdiction in which the conduct of its business, the
ownership or lease of its properties, or the execution of, and performance of
the transactions contemplated by this Agreement, requires it to be so qualified
or licensed. True, complete and correct copies of the Voting Trust's
organizational documents (the "VOTING TRUST DOCUMENTS") as presently in effect
are attached hereto as EXHIBIT "G3".
(b) Ownership Interest.
(i) The Company and Sally, Inc. The stock record
books of each of the Company and Sally, Inc. are complete and correct in all
material respects and all requisite documentary stamps have been affixed thereon
and cancelled in all material respects. All of the outstanding shares of Common
Stock of the Company and any other outstanding securities of the Company and the
legal and beneficial owners thereof are as set forth in Schedule 9.2(b)(i)
hereto. All of the outstanding shares of Sally, Inc. and any other outstanding
securities of Sally, Inc. and the legal and beneficial owners thereof are as set
forth in Schedule 9.2(b)(i) hereto. There are no shares of capital stock of
either the Company or Sally, Inc. held in the treasury of the Company or Sally,
Inc., respectively, and no shares of capital stock of the Company or Sally, Inc.
are currently reserved for issuance for any purpose or upon the occurrence of
any event or condition.
(ii) The Voting Trust. The ownership record books of
the Voting Trust are complete and correct in all material respects and all
requisite documentary stamps have been affixed thereon and cancelled in all
material respects. The legal and beneficial owners of the Voting Trust are as
set forth in Schedule 9.2(b)(ii) hereto. No interests in the Voting Trust are
currently reserved for issuance for any purpose or upon the occurrence of any
event or condition.
(c) Corporate Books. The minute books of each of the Company,
Sally, Inc., and the Voting Trust, as examined by counsel to Kobe, are complete
and correct in all respects and contain all of the proceedings of the
shareholders, directors and owners, as the case may be, of each of the Company,
Sally, Inc., and the Voting Trust, respectively. A true and complete list of the
incumbent directors and executive officers of each of the Company and Sally,
Inc. are set forth in Schedule 9.2(c) hereto.
-15-
(d) Title to Stock. All of the issues and outstanding shares
of each of the Company and Sally, Inc. are duly authorized, validly issued and
fully paid and nonassessable. All of the issues and outstanding shares of the
Company have been issued in compliance with all applicable securities laws.
(e) Authorization. Each of the Company, Sally, Inc. and the
Voting Trust has full power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The Board of Directors, or as
appropriate, the stockholders or owners, of each of the Company, Sally, Inc.,
and the Voting Trust have duly authorized the execution, delivery and
performance of this Agreement and no other proceedings on their part are
necessary to authorize this Agreement and the transactions contemplated thereby.
This Agreement constitutes a legal, valid and binding obligation of each of the
Company, Sally, Inc., and the Voting Trust enforceable against each such party
in accordance with its terms.
(f) Options and Rights. There are no outstanding
subscriptions, options, warrants, rights, securities or other contracts by which
any of the Company, Sally, Inc., or the Voting Trust is bound to issue any
additional shares of its capital stock or ownership interest, as the case may
be, or rights pursuant to which any person has a right to purchase shares or
ownership interest, as the case may be, of any of the Company, Sally, Inc. or
the Voting Trust.
(g) No Violation. The execution, delivery and performance by
each of the Company, Sally, Inc., and the Voting Trust of this Agreement and any
related agreements to which either is a party and the fulfillment of and
compliance with the respective terms hereof and thereof by the parties hereto
and thereto, do not and will not (i) conflict with or result in a breach of the
terms, conditions or provisions of, (ii) constitute a default or event of
default under (with due notice, lapse of time or both), (iii) result in the
creation of any lien upon any of the Company, Sally, Inc., or the Voting Trust
or any such party's capital stock or ownership interest, as the case may be, or
assets pursuant to, (iv) give any third party the right to accelerate any
obligation under, (v) result in a violation of or (vi) require any
authorization, consent, approval, exemption or other action by, notice to, or
filing with any person pursuant to, the charter or by-laws or other
organizational documents, as the case may be, of any of the Company, Sally,
Inc., or the Voting Trust or any applicable regulation (including, without
limitation, approvals pursuant to the Hart-Scott-Rodino Antitrust Improvements
Act of 1976), or order to which any of the Company, Sally, Inc. or the Voting
Trust are subject or any contract to which any of the Company, Sally, Inc., the
Voting Trust or any of their respective properties are subject. Each of the
Company, Sally, Inc., and the Voting Trust has complied in all material respects
with all applicable regulations and orders in connection with the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby.
(h) Financial Statements. Schedule 9.2(h) hereto contains true
and complete copies of (i) the unaudited balance sheet of the Company at
December 31, 1991, 1992 and 1993 and the related unaudited statements of income,
stockholders' equity and cash flows for each of the years then ended and (ii)
the unaudited balance sheets of the Company as of December 31, 1994 and June 30,
1995 and the related unaudited statements of income, stockholders' equity and
cash flow for the
16
year ended December 31, 1994 and the six months ended June 30, 1995 (all of such
unaudited financial statements are collectively referred to as the "FINANCIAL
STATEMENTS"). Such Financial Statements have been prepared at the request of
Kobe by auditors of its own selection. To the knowledge of the management of QC,
such Financial Statements fairly present the financial condition and results of
operations as of the dates therein indicated and for the period therein
indicated of the Company and were prepared in accordance with GAAP.
9.3 Representations of the Company.
(a) Contracts. Except as listed in Schedule 9.3(a) hereto,
neither the Company nor the Voting Trust is a party to any material, written or
oral:
(i) Contracts under which it has granted any person
any registration rights (including piggyback rights) or preemptive rights with
respect to any securities or other ownership interest of the Company.
(ii) Contracts with an annual value (in terms of
payments to be made or services or products to be delivered) in excess of One
Hundred Thousand Dollars ($100,000).
(b) Management Reports. The Company has heretofore furnished
to Kobe a Management's Meeting Report dated December 1, 1994 (which has been
amended by a regular report from the Company to Kobe dated June 29, 1995) (which
reports are referred to herein as the "REPORTS"), copies of which have been
initialed by the Company and a representative of Kobe for purposes of
identification and which reports are attached hereto as "EXHIBIT H". Company
management believes the basis for such Reports to be reasonable and has
disclosed in such EXHIBIT H a listing of all potential customers which QC has
provided a quotation to during calendar year 1995 (although QC may be unaware of
quotations provided by its foreign sales representatives of which it has no
knowledge) as well as a list of potential customers (to the reasonable
investigation of QC) contacted by QC in calendar year 1995. The Company does not
warrant that it will achieve the financial projections appearing in the Reports,
or that it may not exceed the projections contained in such Reports. Kobe
further acknowledges that it has had adequate opportunity to meet with Company
management to discuss the Reports and the material assumptions used in the
preparation of these projections contained in the Reports and that there is no
guarantee that such assumptions are correct in calculating such projections.
(c) True and Complete Copies. Other than as referenced in this
Agreement, the Company has delivered to Kobe copies which are true and complete
in all material respects of all contracts and documents listed in the schedules
to this Agreement.
(d) Disclosure. Each of QC and the Voting Trust have made
available to Kobe true and correct copies of all documents requested by Kobe and
to the knowledge of Company management, neither QC nor the Voting Trust have
made any untrue statement of a material fact necessary for Kobe to evaluate the
Company. To the knowledge of the Company management,
-17-
neither this Agreement, nor any of the attachments, written statement,
documents, certificates or other items prepared for or supplied to Kobe by or on
behalf of the Company or the Voting Trust with respect to the transactions
contemplated hereby, contains any untrue statement of a material fact.
10. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of, and be binding upon, the parties hereto and their respective legal
representatives and successors.
11. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the agreements
referenced herein and/or attached hereto constitute the entire agreement between
the parties with regard to the subject matter hereof and supersedes any prior
oral or written communications, understandings or agreements concerning the
subject matter hereof, including, without limitation, that certain Shareholders'
Agreement dated July 30, 1986, among QC, Kobe, Eric T. Chase and Jay L. Ormsby.
Neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated, except by written instrument signed by the parties or as otherwise
provided herein.
12. GOVERNING LAW; COUNTERPARTS. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York,
excluding its conflict of laws principles. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original.
13. UNENFORCEABILITY. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and the enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby. If any provision of this Agreement is or becomes or is deemed invalid,
illegal or unenforceable in any jurisdiction, such provision shall be deemed
amended to conform to applicable laws so as to be valid and enforceable or, if
it cannot be so amended without materially altering the intention of the
parties, it shall be stricken and the remainder of this Agreement shall remain
in full force and effect.
14. NOTICES. Any notice of written communications required or permitted
to be given by this Agreement shall be deemed given when personally delivered or
sent by United States registered or certified mail, or by overnight courier
requiring a signature for delivery, postage prepaid, properly addressed to the
other parties to receive the notice at the addresses as first set forth or at
any other address given to the other parties in the manner provided by this
Section.
With copies to: O'Connor, Broude & Aronson
950 Winter Street, Suite 2300
Waltham, Massachusetts 02154
Attn: Neil H. Aronson, Esquire
Paul, Hastings, Janofsky & Walker
399 Park Avenue, 31st Floor
New York, New York 10022-4697
Attn: Barry A. Brooks, Esquire
-18-
15. ARBITRATION. Any dispute concerning this Agreement including, but
not limited to, its existence, validity, interpretation, performance or
non-performance, arising before or after termination or expiration of this
Agreement, shall be settled by a single arbitrator in the District of Columbia,
in accordance with the rules then in effect of the American Arbitration
Association. Judgment upon any award may be entered into any court of competent
jurisdiction. The cost of such arbitration and attorneys fees shall be borne by
the party found by the arbitrator to be in default of its obligations under this
Agreement.
16. HEADINGS. Section headings in this Agreement are inserted only as a
matter of convenience and for reference and in no way define, limit, extend or
describe the scope of this Agreement or the intent of any provisions hereof.
17. CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "INCLUDING" shall mean including without limitation.
18. REPRESENTATION BY LEGAL COUNSEL AND OTHER ADVISORS. Each of the
parties acknowledges that it has had adequate opportunity to seek the advice of,
and fully review this Agreement and the transactions contemplated thereby with,
legal counsel, financial advisors and other individuals of his or its own
choosing.
19. FURTHER ASSURANCES. Each of the parties agree to take such other
actions and execute such additional documents as may be reasonably required to
further the intent of the foregoing provisions. Whenever the consent of any
party to this Agreement is required in connection with the transactions
contemplated hereby, such consent shall not be unreasonably withheld or delayed.
For purposes of this Agreement, any consent required shall be deemed granted
unless the party required to grant such consent gives written notice of its
objection to the requesting party within thirty (30) days of the original notice
by the requesting party, unless a different notice period is specifically
referenced herein.
20. DEFAULT. If any party or its or his personal representatives should
fail, neglect or refuse to offer or to sell any Common Stock of QC to Kobe, QC
or the Voting Trust or to deliver any certificate, stock transfer power, or
other document as required herein, then so long as such default continues, such
stockholder shall not have any voting power or be entitled to any dividends or
other distributions.
21. STOCK LEGEND. Each party agrees that the Company may endorse or
cause to be endorsed upon the face of each and every certificate representing
Common Stock of the Company
-19-
presently or hereafter held of record by the parties hereto, as well as its or
his personal representatives, or transferees from him, the following legend:
"This certificate and the stock represented thereby are
subject to an Agreement by the Company and all of the stockholders
thereof dated as of October 27, 1995, and to the restrictions upon
transfer, the right of purchase, and the possible loss of voting power
and rights to dividends and distributions, as provided therein. The
Company will furnish a copy of the foregoing to the holder hereof upon
written request and without charge."
22. REMEDIES. Each representation, covenant and agreement contained
herein shall be deemed special, unique and extraordinary and any breach of any
thereof by any party hereto shall be deemed to cause all other parties
irreparable injury not properly compensable by damages in an action at law, and
the rights and remedies of the parties hereunder may, therefore, be enforced
both at law and in equity, by injunction or otherwise. All rights and remedies
of the parties shall be cumulative and not alternative. The rights and remedies
of all parties shall be continuing and not exhausted by any one or more uses
thereof, and may be exercised at any time or from time to time and as often as
may be expedient; and any option or election to enforce any such right or remedy
may be exercised or changed at any time or from time to time. No custom, act,
forbearance, or words or silence at any time, gratuitous or otherwise, shall
impose any additional obligation or liability upon any party or waive or release
any party from any default or the performance or fulfillment of any obligation
or liability or operate as against any party as a supplement, alteration,
amendment or change of any term or provision set forth herein, including this
sentence, unless set forth in a written instrument duly executed by such party.
23. WAIVER. No waiver of any right under this Agreement shall be deemed
effective unless contained in a writing signed by the party charged with such
waiver, and no waiver of any right arising from any breach or failure to perform
shall be deemed to be a waiver of any future such right or of any other right
arising under this Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-20-
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
as of the date first written above.
Attest: KOBE STEEL USA HOLDINGS, INC.
/s/ By:/s/ Masumi Sato
- ------------------------------- ---------------------------
Attest: QC OPTICS, INC.
/s/ By:/s/ Eric T. Chase, President
- ------------------------------- ---------------------------
QC OPTICS VOTING TRUST
BY: /s/ Eric T. Chase
--------------------------
Eric T. Chase, as Trustee and not
individually
-21-
Exhibits
- --------
A Form of Agreement of Merger
B Kobe International Loan
C Terms of Subscription Agreement
D Terms of Loan Financing Documents
E Certificate of Amendment
F Irrevocable Proxy
G1 Sally, Inc. Charter Documents
G2 QC Charter Documents
G3 Voting Trust Organizational Documents
H Management Reports (as updated) and Quotation and Potential
Customer Contact List
Schedules
- ---------
9.2(b)(i) QC Stockholders and Sally, Inc. Stockholders
9.2(b)(ii) Voting Trust Owners
9.2(c)(i) Sally, Inc. Directors and Officers
9.2(c)(ii) QC Directors and Officers
9.2(h)(i) 1991, 1992, 1993 and 1994 Unaudited Financial Statements
9.2(h)(ii) 1995 Unaudited Interim Financial Statements
9.3(a) Material Contracts
o Lease Agreement, as extended, for premises at 154
Middlesex Turnpike, Burlington, Massachusetts
o Open Sales Orders in Excess of $100,000
o Pilgrim Health Care
- Employer Health Insurance
o Blue Cross/Blue Shield of Massachusetts
- Employee Dental Insurance
- Employee Health Insurance
o Bank of Tokyo Trust Company
- 401(k) Plan
o Employment Agreements
- Eric T. Chase
- Jay L. Ormsby
-22-
EXHIBIT C
---------
TERMS OF SUBSCRIPTION AGREEMENTS
--------------------------------
1. No securities other than Common Stock or subordinated debt convertible into
Common Stock.
2. Registration Rights: These rights will not have any priority over Kobe's
registration rights in terms of "cutbacks" of shares in an underwriting
except the right to participate on a pro rate basis with Kobe's stock in
any such offering.
3. No preference senior to Kobe with respect to dividends.
4. No other contractual right which would provide an investor with voting
rights which would override or materially restrict the voting rights of
Kobe or which would provide other holders of the Common Stock with a
liquidation preference over Kobe.
EXHIBIT D
---------
TERMS OF LOAN FINANCING DOCUMENTS
---------------------------------
1. Term Loan.
2. Personally guaranteed by Eric Chase and Karl Andrew Bernal if requested by
Lender.
3. No restriction of accrual of dividends.
4. No other contractual right which would provide a Lender with voting rights
which override or materially restrict the voting rights of Kobe other than
rights the Lender might receive as holder of QC shares pledged by
beneficial holders of the Voting Trust or other rights as a secured party
to all or any part of QC's assets or stock pledged by the Voting Trust.
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
QC OPTICS, INC.,
SALLY, INC.
AND
THE STOCKHOLDERS OF SALLY, INC.
OCTOBER 30, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Reference
Page #
------
<S> <C> <C>
1. Approvals .................................................................... 1
2. The Merger ................................................................... 1
3. Surviving Corporation......................................................... 2
4. Conversion of Shares......................................................... 2
5. Closing....................................................................... 3
6. Representations and Warranties of Sally and Stockholders...................... 3
7. Representations and Warranties of QCO........................................ 6
8. Conditions to Obligations of and QCO......................................... 7
9. Conditions to Obligations of Sally........................................... 7
10. Provisions for Indemnification ............................................... 8
11. Investment Representation..................................................... 9
12. Survival of Representations and Warranties.................................... 10
13. Further Assurances............................................................ 10
14. Notices....................................................................... 10
15. Broker........................................................................ 11
16. Expenses ..................................................................... 11
17. Entire Agreement............................................................. 11
18. Binding Effect............................................................... 11
19. Headings..................................................................... 11
20. Law Governing ................................................................ 12
21. Unenforceability.............................................................. 12
22. Representation by Legal Counsel and Other Advisors............................ 12
23. Waiver........................................................................ 12
24. Arbitration................................................................... 12
25. Counterparts................................................................. 13
</TABLE>
-i-
TABLE OF SCHEDULES
No. Title
- --- -----
I Sally, Inc. Stockholders
A Merger Price
-ii-
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of the 30th day of October 1995,
by and among QC OPTICS, INC. ("QCO"), a Delaware corporation with its principal
offices at 154 Middlesex Turnpike, Burlington, Massachusetts 01803, SALLY, INC.
("Sally"), a Delaware corporation, and the stockholders of Sally as set forth in
Schedule I attached hereto (the "Sally Stockholders" or the "Stockholders").
WHEREAS, the Board of Directors of QCO and Sally have approved the
merger of Sally with and into QCO (the "Merger") upon the terms and subject to
the conditions set forth herein;
WHEREAS, the parties intend that this transaction constitute a tax-free
exchange of Sally's stock solely in exchange for the common stock of QCO, in
accordance with the provisions of Section 368(a)(1)(a) of the Internal Revenue
Code, and all terms contained herein shall be interpreted to effectuate such
intent.
NOW, THEREFORE, intending to be legally bound hereby, and in
consideration of the mutual covenants herein contained and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. APPROVALS
QCO and Sally hereby represent and warrant that the Board of Directors
and shareholders of QCO and Sally have approved the Plan of Merger (the "Plan")
contained in this Agreement and Plan of Merger.
2. THE MERGER
(a) On the Effective Date (as defined in Section 2(b), Sally shall be
merged with and into QCO in accordance with the applicable provisions of the
General Corporation Law of the State of Delaware, and the separate existence of
Sally shall thereupon cease, and QCO as the surviving corporation in the Merger
(the "Surviving Corporation"), shall continue its corporate existence under the
laws of the State of Delaware under the name of QC Optics, Inc. Upon the
consummation of the Merger, the franchises and all the property, real, personal
and mixed, including subscriptions to shares, causes of action and every other
asset of each of Sally and QCO, shall vest in the Surviving Corporation without
further act or deed. The Surviving Corporation shall assume and be liable for
all the liabilities and obligations of each of QCO and Sally in accordance with
the General Corporation Law of the State of Delaware.
-1-
(b) Subject to the terms and conditions hereof, on the date of the
Closing described in Section 5 hereof there shall be duly delivered to the
Secretary of the State of Delaware, in accordance with the General Corporation
Law of the State of Delaware, a Certificate of Merger, duly executed by Sally
and QCO. The Merger shall become effective upon the date specified in the
Certificate of Merger filed with the Secretary of State (the "Effective Date").
(c) The parties intend that this transaction constitute a tax-free
exchange of the 10,000 shares of common stock of Sally (the "Sally Shares")
solely in exchange for 779,000 shares of the Common Stock (as hereinafter
defined) of QCO, in accordance with the provisions of Section 368(a)(1)(A) of
the Internal Revenue Code, and all terms contained herein shall be interpreted
to effectuate such intent.
3. SURVIVING CORPORATION
(a) The name of the Surviving Corporation shall be QC Optics, Inc.
(b) The Certificate of Incorporation of QCO as in effect on the
Effective Date shall be the Certificate of Incorporation of the Surviving
Corporation, and the purposes as set forth in QCO's Certificate of Incorporation
shall be the purposes of the Surviving Corporation.
(c) The authorized capital stock of the Surviving Corporation shall be
7,000,000 shares of common stock, $.01 par value per share (the "Common Stock").
(d) The Bylaws of QCO as in effect on the Effective Date shall be the
Bylaws of the Surviving Corporation.
(e) The directors and officers of QCO as on the Effective Date shall be
the directors and officers of the Surviving Corporation, and such directors and
officers shall serve in accordance with the Bylaws of the Surviving Corporation.
4. CONVERSION OF SHARES
(a) As of the Effective Date, by virtue of the Merger and without any
action on the part of the holders thereof:
(i) All shares of Sally common stock which are held by Sally
as treasury shares, and any Sally Shares owned by QCO or any other company
controlling, controlled by or under common control with QCO shall be cancelled.
(ii) Each outstanding Sally Share held by the Stockholders,
shall be converted into a pro-rata portion (the "Exchange Amount") of the
aggregate consideration to be received by all of the Sally Stockholders as set
forth in Section 4(b) hereof (the "Merger Price"). Each Sally Share shall be
exchanged for approximately 77.9 shares of the Common Stock of QCO.
-2-
(b) The Merger Price shall be the shares of QCO Common Stock as
reflected in Schedule A.
(c) On the Effective Date, the stock transfer books of Sally shall be
closed and no transfer of the Sally Shares shall thereafter be made. If, after
the Effective Date, certificates representing the Sally Shares are presented to
the Surviving Corporation, they shall be cancelled and exchanged for a pro-rata
portion of the Merger Price in accordance with this Agreement.
(d) Upon the Effective Date, each holder of record of the Sally Shares,
upon surrender of his certificate or certificates therefor, properly endorsed,
to the Surviving Corporation, shall be entitled to receive the Exchange Amount
for each Sally Share held by such holder in accordance with the provisions of
this Agreement; provided, that, under no circumstances shall QCO be obligated to
transfer greater than 779,000 shares of QCO Common Stock pursuant to this
Agreement and Plan of Merger.
5. CLOSING
The Closing shall take place at the offices of O'Connor, Broude &
Aronson, 950 Winter Street, Waltham, Massachusetts 02154, on or before the 1st
day of April, 1996, or such other date and place as shall be agreed upon in
writing by Sally and QCO, at 10:00 o'clock a.m., and shall be deemed to be
effective as of the filing of the Certificate of Merger with the Secretary of
State of Delaware. All proceedings to be taken and all documents to be executed
and delivered by all parties at the Closing shall be deemed to have taken and
executed simultaneously, and no proceedings shall be deemed to have been taken
nor any documents executed or delivered until all have been taken, executed and
delivered. At Closing:
(a) The Stockholders shall deliver to QCO certificates representing the
Sally Shares, together with duly endorsed stock assignments, and QCO shall
deliver to such stockholders the Exchange Amounts therefore as set forth in
Section 4 hereof.
(b) Sally shall deliver to QCO all of the minute books, stock
certificate books, documents and seals of Sally not previously delivered to QCO.
The originals of such books and records shall be made available to the
Stockholders for inspection during regular business hours after the Closing
Date, and the Stockholders may at their own expense make such copies of and
excerpts from such books and records as they may deem desirable.
6. REPRESENTATIONS AND WARRANTIES OF SALLY AND STOCKHOLDERS
Sally and the Stockholders represent and warrant jointly and severally,
to QCO, upon which representations and warranties QCO relies, and which
representations and warranties shall survive the Closing, notwithstanding any
investigation of the affairs of Sally or the Stockholders by QCO, as follows:
-3-
(a) Sally is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has full power and
authority to own its properties and carry on its business, if any, as it is now
being conducted. Sally is not qualified to do business in any other state, nor
is it required to be so qualified. Its Certificate of Incorporation and all
amendments thereto to date, its Bylaws as amended to date, and its Minutes and
Stock Book, all of which have been delivered to QCO, are full, complete and
correct.
(b) Sally and the Stockholders have full power and authority (corporate
and other) to execute and deliver this Agreement and consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors and Stockholders of Sally and, no other
corporate action or proceedings on the part of Sally or the Stockholders are
necessary to consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by Sally and the Stockholders and
constitutes the valid and legally binding obligation of Sally and the
Stockholders, enforceable against them in accordance with its terms. The
execution and delivery of this Agreement by Sally and the Stockholders, the
consummation by Sally and the Stockholders of the transactions contemplated
hereby, and compliance by Sally and the Stockholders with the terms and
provisions hereof will not violate any provision of the Certificate of
Incorporation or Bylaws of Sally in existence as of the Closing Date, will not
conflict with or result in a breach, default, or violation of any term of any
indebtedness, mortgage, indenture, contract, agreement, lease, license, permit,
judgment, decree, order, or injunction by which it or any of its properties are
or may be bound, or of any applicable statute, ordinance or regulation, and will
not result in the creation or imposition of any lien upon any of the properties
of Sally or the Stockholders. Except for such consents as are obtained prior to
the Closing Date, no consent, approval, order, or authorization of, or
registration, declaration, or filing with, any governmental authority is
required in connection with the execution and delivery of this Agreement by
Sally or the Stockholders or the consummation by Sally and the Stockholders of
the transactions contemplated hereby.
(c) Sally presently has no existing leases, contracts, franchises or
commitments, or agreements to enter into any of the same, written or oral.
(d) There is attached to this Agreement, made part hereof and marked
Schedule I, true and complete lists, as of the date of this Agreement, setting
forth:
(i) The names and residence addresses of all directors,
officers and Stockholders of Sally, and the number of Sally Shares owned by such
Stockholders; and
(ii) The names of all persons, if any, holding powers of
attorney from Sally, and a summary statement of the terms thereof;
-4-
At the request of QCO, Sally shall furnish to QCO further information
relating to the matters set forth in the above described lists, and copies of
any items included therein, as well as any and all other matters relating to the
operations of Sally.
(e) There is no action, suit, litigation, claim, administrative or
governmental or quasigovernmental investigation or proceeding pending or, to the
knowledge of Sally, threatened against Sally, or its business or properties;
nor, to the knowledge of Sally, does there exist any basis for any of the same.
(f) None of the representations and warranties made by Sally contained
in this Agreement, including all Schedules, nor in any statement, document,
certificate or memorandum furnished or to be furnished by Sally pursuant hereto,
or in connection with the transactions contemplated hereby, contains or will
contain any untrue statement of material fact; and none of such representations,
warranties, statements, documents, certificates or memoranda omits or will omit
to state a material fact necessary in order to make the statements contained
herein or therein not misleading.
(g) There is a total of 10,000 Sally Shares issued and outstanding of a
total of 500,000 such shares authorized. All issued and outstanding Sally Shares
have been duly authorized and validly issued and are fully paid and
nonassessable, with no personal liability attaching to the ownership thereof,
and no Sally Shares were issued in violation of any preemptive rights or Federal
or state securities laws. Except for 100,000 shares of Preferred Stock, $.01 par
value, none of which are issued or outstanding, there are no other shares of
capital stock of Sally of any class authorized, issued or outstanding. There are
no outstanding stock options, warrants, calls, agreements, or statutory or
nonstatutory preemptive rights, or any other rights whatsoever, to purchase or
otherwise obtain or demand the issuance of any shares of common stock of Sally,
in favor of or held by any persons or entities whatsoever.
(h) Sally has or will have duly filed all federal, state, local,
foreign and other tax returns, reports and declarations of estimated tax
required to be filed by it for all periods up to and including the Effective
Date (all such returns, reports and declarations being accurate and complete in
all respects) and has paid or established adequate reserves for the payments of
all federal, state, local or foreign taxes, assessments, deficiencies, levies,
imports, duties, license fees, registration fees, withholdings, or other similar
governmental charges, and any interest, penalties or additions to tax imposed
thereon (collectively, the "Taxes") due or claimed to be due by any taxing
authority. All amounts required to be withheld or collected by Sally for income
taxes, social security taxes, unemployment insurance and other employee
withholding taxes, if applicable, have been so withheld or collected, and either
paid to the respective governmental authority or set aside for such purpose or
accrued and reserved against and entered upon the books of Sally.
-5-
(i) Each Stockholder listed on Schedule I, attached hereto and made a
part hereof, is the record owner of all of the issued and outstanding Sally
Shares set forth opposite his name on Schedule I. There are no restrictions on
transfer on any of the Sally Shares which would prevent such Sally Shares from
being transferred to QCO pursuant to the Merger.
(j) No restrictions on transfer on any of the Sally Shares exist that
would prevent such Shares from being transferred to QCO by the Sally
Stockholders pursuant to this Agreement. Each of the Sally Stockholders has
good, valid and marketable title to the Sally Shares owned by such Stockholder
free and clear of any agreements, security interests, liens, encumbrances or
claims of or by others; and such Sally Shares will at Closing be free of any
restriction on their transfer pursuant to the provisions of this Agreement.
(k) Sally has no subsidiaries, nor any investments in, nor ownership of
securities of, any business, enterprise, entity or organization, public or
private, except certificates of deposit, commercial paper and similar money
equivalents.
(l) Wherever used in this Agreement with respect to any representation,
warranty, covenant or agreement of Sally or QCO, the terms "knowledge", "known"
or any similar variation thereof shall be deemed to include:
(i) all matters actually known to such party with respect to
the subject matter of such representation, warranty, covenant or agreement; and
(ii) all matters which should have been known to such party
with respect to the subject matter of such representation, warranty, covenant or
agreement if such party was acting in a manner in which a reasonably prudent
person would act in similar circumstances with respect to the subject matter of
such representation, warranty, covenant or agreement.
7. REPRESENTATIONS AND WARRANTIES OF QCO
QCO represents and warrants to Sally, upon which representations and
warranties Sally relies, and which representations and warranties shall survive
Closing, as follows:
(a) QCO is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has full corporate power
to enter into this Agreement and to consummate the transactions contemplated
hereby.
(b) The execution and delivery of this Agreement and the consummation
of the transactions contemplated and performance of its obligations hereunder
have been duly authorized by QCO. This Agreement has been duly executed and
delivered by QCO and constitutes the valid, legally binding and enforceable
obligation of each of them in accordance with its terms, subject as
-6-
to enforceability to general equitable principles and to bankruptcy, insolvency,
reorganization, moratorium or similar laws of general application affecting the
rights and remedies of creditors.
8. CONDITIONS TO OBLIGATIONS OF QCO
The obligations of QCO hereunder are subject to the fulfillment on or
prior to the Closing Date of each of the following conditions, performance of
any or all of which may be waived in writing by QCO:
(a) Sally shall have performed and complied with all agreements,
covenants and conditions required by this Agreement to be performed and complied
with by it prior to or at the Closing Date. Sally shall have delivered a
Certificate of Legal Existence issued by the Secretary of the State of Delaware
dated as of a recent date; and shall have delivered a Certificate of Sally's
President on behalf of Sally certifying to the truth of Sally's representations
and warranties in all respects and such performance or compliance.
(b) No action or proceeding shall have been instituted or threatened,
or claim or demand made, against Sally or QCO before any court or other
governmental body, seeking to restrain or prohibit, or to obtain damages with
respect to, the consummation of the transactions contemplated hereby, or which
might materially affect the business of Sally, which in the reasonable opinion
of QCO makes it inadvisable to consummate such transactions.
(c) All proceedings to be taken and all documents to be executed and
delivered by Sally in connection with the consummation of the transactions
contemplated hereby shall be reasonably satisfactory in form and substance to
QCO and its counsel.
(d) A closing shall have occurred on the Stock Repurchase and Loan
Repayment Agreement dated October 27, 1995 by and among QCO, Kobe Steel USA
Holdings, Inc. and Eric T. Chase as trustee for and on behalf of the QC Optics
Voting Trust
9. CONDITIONS TO OBLIGATIONS OF SALLY
The obligations of Sally hereunder are subject to the fulfillment on or
prior to the Closing Date of each of the following conditions, performance of
any or all of which may be waived in writing by Sally:
(a) QCO shall have performed or complied with all agreements, covenants
and conditions required by this Agreement to be performed or complied with by
QCO prior to or at Closing. QCO shall have delivered a Certificate of President
or Vice President, certifying to the truth of QCO's representations and such
performance or compliance.
-7-
(b) No action or proceeding shall have been instituted or threatened or
claim or demand made against QCO or Sally before any court or other governmental
body, seeking to restrain or prohibit or to obtain damages with respect to the
consummation of the transactions contemplated hereby, or which might materially
and adversely affect the business of QCO, which in the reasonable opinion of
Sally makes it inadvisable to consummate such transactions.
(c) All proceedings to be taken and all documents to be executed and
delivered by QCO in connection with the consummation of the transactions
contemplated hereby shall be reasonably satisfactory in form and substance to
Sally and its counsel.
(d) A closing shall have occurred on the Stock Repurchase and Loan
Repayment Agreement dated October 27, 1995 by and among QCO, Kobe Steel USA
Holdings, Inc. and Eric T. Chase as trustee for and on behalf of the QC Optics
Voting Trust
10. PROVISIONS FOR INDEMNIFICATION
(a) Sally agrees to indemnify QCO and save and hold it and its
officers, directors, employees, agents, successors and assigns harmless from,
against, for and in respect of any and all damages, losses, obligations,
liabilities, claims, costs and expenses (collectively, "Liabilities") incident
to any suit, action, investigation, claim or proceeding, suffered, sustained,
incurred or required to be paid by QCO by reason of:
(i) Any misrepresentation or breach of warranty made by Sally
in or pursuant to this Agreement or any Schedule hereto or in any certificate or
document delivered pursuant to this Agreement; or
(ii) Any failure by Sally to observe or perform its covenants
and agreements set forth herein, which are to be performed on or prior to the
Closing Date; or
(iii) Any claim, debt, liability or obligation or any alleged
claim, debt, liability or obligation of Sally to any party, incurred before the
Closing Date hereunder or arising from any matter or thing occurring before the
Closing Date hereunder, except for liabilities expressly disclosed in this
Agreement or any Schedule hereto (unless otherwise indicated herein or therein).
(b) QCO, if claiming a right to indemnification under the provisions of
this Section 11 (hereinafter, the "Indemnitee"), shall give prompt written
notice to Sally of each claim for indemnification hereunder, specifying the
amount and nature of the claim, and of any matter which, in the opinion of QCO,
is likely to give rise to an indemnification claim. Sally (hereinafter, the
"Indemnitor") shall have the right to undertake the defense of any such matter
at Indemnitor's sole expense and through legal counsel acceptable to Indemnitee,
provided that Indemnitor proceeds in good faith, expeditiously and diligently.
Indemnitee shall, at its option and expense, have the right to participate in
any defense undertaken by Indemnitor, with legal counsel of its own selection.
No settlement or compromise may be made by Indemnitor without the prior written
consent of
-8-
Indemnitee unless (y) prior to such settlement or compromise Indemnitor
acknowledges in writing Indemnitor's obligation to pay in full the amount of the
settlement or compromise and all associated expenses and (z) Indemnitee is
furnished with security reasonably satisfactory to Indemnitee that Indemnitor
will in fact pay such amount and expenses.
(c) Indemnitor shall pay to Indemnitee the amount of established claims
for indemnification within fifteen (15) days after the establishment thereof
(the "due date") in cash or by certified check. Any amounts not paid by any
Indemnitor when due under this Section 9(c) shall bear interest from the due
date thereof until the date paid at the lower of eighteen percent (18%) per
annum or the highest rate allowed by law.
(d) The indemnification provided in this Section 10 shall survive the
Closing.
(e) The parties hereto intend for the indemnification provisions of
this Section 10 to be construed as a full indemnification in accordance with its
terms, notwithstanding the use of any "substantial" or "material" standard
contained elsewhere in this Agreement.
(f) Any remedies of QCO shall be cumulative and not exclusive.
Specifically, but not by way of limitation, the parties make no attempt to limit
any claims based on common law fraud or other similar remedies.
11. INVESTMENT REPRESENTATION
In connection with the receipt by each of the Sally Stockholders of any
and all shares of the QCO Common Stock which such Sally Stockholder may receive
pursuant to this Agreement, each Sally Stockholder hereby acknowledges that the
shares of QCO Common Stock are not being registered under the Securities Act of
1933, as amended (the "Securities Act"), on the basis of a statutory exemption
which is based in part on the representations made by the Sally Stockholders in
connection with this Agreement.
Each Sally Stockholder warrants and represents that (a) he or it is
acquiring such shares of QCO Common Stock for his or its own account and not
with a view to reselling or otherwise distributing such shares in violation of
any relevant federal or state securities laws; (b) he or it does not intend to
resell or otherwise dispose of such shares unless and until a registration
statement under the Securities Act is then in effect with respect to such shares
or an exemption from the registration requirements of the Securities Act is then
in fact applicable to such transfer; and (c) any and all stock certificates
evidencing ownership of any shares of QCO Common Stock shall bear the following
legend (in addition to any legends that counsel for QCO deem, in their sole
opinion, to be required by state law):
"The Shares represented by this certificate have not been
registered under the Securities Act of 1933 or under any state law and,
except pursuant to an effective registration statement under such Act
and other laws, may not be offered, sold,
-9-
transferred, or otherwise disposed of without an opinion of counsel,
reasonably satisfactory to the Company, that such disposition may be
made without such registration."
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The parties hereto agree that the representations and warranties
contained in this Agreement and the Schedules hereto, and in each certificate,
document or instrument delivered in connection herewith, shall survive the
execution and delivery of this Agreement and the Closing hereunder, regardless
of any investigation made by any of the parties hereto.
13. FURTHER ASSURANCES
Subsequent to the Closing, QCO and Sally shall each, at the request of
any of the others, furnish, execute and deliver such documents, instruments,
opinions of counsel, certificates, notices and other such instruments and
further assurances as counsel for the requesting party shall reasonably require
as necessary or desirable to effect complete consummation of this Agreement, or
in connection with the preparation and filing of reports required or requested
by governmental agencies, stock exchanges or other regulatory bodies.
14. NOTICES
All notices which are or may be required to be given by any party to
any other party in connection with this Agreement and the transactions
contemplated hereby shall be in writing, and shall be deemed to have been
properly given if and when delivered personally or sent by certified mail,
return receipt requested, postage prepaid, addressed as follows:
To QCO: QC Optics, Inc.
154 Middlesex Turnpike
Burlington, Massachusetts 01803
Attention: Eric T. Chase, President
To Sally: Sally, Inc.
c/o Eric T. Chase
19 Craigie Circle
Carlisle, Massachusetts 01741
In each case, with O'Connor, Broude & Aronson
copies to each of 950 Winter Street
the other parties Suite 2300
to this Agreement Waltham, Massachusetts 02154
and to: Attention: Neil H. Aronson, Esquire
-10-
or to such place or places or persons as any party may from time to time
designate by written notice to the other parties, given in the manner aforesaid.
15. BROKER
Sally and QCO warrant and represent that no broker's or finder's fee,
commission or other payment is due or payable from or by QCO or Sally or any of
them; nor has any such other fee or commission been earned by any third party on
behalf of any of the foregoing in connection with the negotiation and execution
of this Agreement or the consummation of any transaction contemplated hereby.
Each party agrees to indemnify and save the others harmless from and against any
and all claims or demands for broker's or finder's fees or commissions from any
person or persons whatsoever based on any arrangement made by such party.
16. EXPENSES
Whether or not the transactions contemplated hereby are consummated,
QCO shall pay its own expenses, and Sally shall pay its expenses, in connection
with the negotiation, authorization, preparation, execution and performance of
this Agreement, including, without limitation, all fees and expenses of
investment banking firms, agents, representatives, counsel and accountants.
17. ENTIRE AGREEMENT
This Agreement and the Schedules hereto set forth the entire Agreement
and understanding of the parties, and there are no other prior or
contemporaneous written or oral agreements, undertakings, promises, warranties
or covenants not specifically referred to or contained herein or attached
hereto. This Agreement may be amended, modified or terminated only by a written
instrument signed by the parties hereto.
18. BINDING EFFECT
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto, their and each of their respective heirs, executors,
administrators, successors and permitted assigns, but may not be assigned by any
party without the prior written consent of the other parties; except that QCO
may assign its rights hereunder to any wholly owned subsidiary of QCO.
19. HEADINGS
The headings of the various paragraphs of this Agreement are inserted
merely for the purpose of convenience and do not expressly or by implication
limit, define or extend the specific terms or text of the paragraph so
designated.
-11-
20. LAW GOVERNING
This Agreement shall be governed in all respects, whether as to
validity, construction, capacity, performance or otherwise, by the laws of the
Commonwealth of Massachusetts in which it has been executed and in which it has
a situs.
21. UNENFORCEABILITY
In case any provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and the enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. If any
provision of this Agreement is or becomes or is deemed invalid, illegal or
unenforceable in any jurisdiction, such provision shall be deemed amended to
conform to applicable laws so as to be valid and enforceable or, if it cannot be
so amended without materially altering the intention of the parties, it shall be
stricken and the remainder of this Agreement shall remain in full force and
effect.
22. REPRESENTATION BY LEGAL COUNSEL AND OTHER ADVISORS
The parties have requested that the law firm of O'Connor, Broude &
Aronson prepare this document on behalf of QCO. Sally and the Stockholders
acknowledge that they have been advised to review this Agreement with their own
legal counsel and other advisors of their choosing, and that prior to entering
into this Agreement, Sally and the Stockholders have had adequate opportunity to
seek the advice of, and fully review this Agreement and the transactions
contemplated thereby with, legal counsel, financial advisors and other
individuals of their own choosing and have not asked (or relied upon) O'Connor,
Broude & Aronson to represent them in this matter.
23. WAIVER
No waiver of any right under this Agreement shall be deemed effective
unless contained in a writing signed by the party charged with such waiver, and
no waiver of any right arising from any breach or failure to perform shall be
deemed to be a waiver of any future such right or of any other right arising
under this Agreement.
24. ARBITRATION
Any dispute concerning this Agreement including but not limited to, its
existence, validity, interpretation, performance or non-performance, arising
before or after termination or expiration of this Agreement, shall be settled by
a single arbitrator in Boston, Massachusetts, in accordance with the rules then
in effect of the American Arbitration Association. Judgment upon any award may
be entered in any court of competent jurisdiction. The cost of such arbitration
shall be borne equally between the parties thereto unless otherwise determined
by such arbitrator.
-12-
25. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-13-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers and have affixed their
respective corporate seals, all on the day and year first above written.
Corporate Seal QC OPTICS, INC.
Attest: /s/ Neil H. Aronson By:/s/Eric T. Chase
--------------------------------- -------------------------------
Eric T. Chase, President
Corporate Seal SALLY, INC.
Attest: /s/ Neil H. Aronson By:/s/ Eric T. Chase
--------------------------------- -------------------------------
SALLY, INC. STOCKHOLDERS
/s/ Eric T. Chase
----------------------------------
Eric T. Chase
/s/ Karl Andrew Bernal
----------------------------------
Karl Andrew Bernal
/s/ John R. Freeman
----------------------------------
John R. Freeman
/s/ Jay L. Ormsby
----------------------------------
Jay L. Ormsby
Albert E. Tobey
----------------------------------
Albert E. Tobey
/s/ Abdu Boudour
----------------------------------
Abdu Boudour
-14-
SCHEDULE I
Stockholder Name, Address
and Social Security Number Number of Sally Shares
- -------------------------- ----------------------
Eric T. Chase 4,705
19 Craigie Circle
Carlisle, Massachusetts 01741
SSN ###-##-####
Karl Andrew Bernal 2,354
666 Main Street, Apt. 205
Winchester, Massachusetts 01890
SSN ###-##-####
Jay L. Ormsby 1,177
38 Crestwood Circle
Salem, New Hampshire 03079
SSN ###-##-####
John R. Freeman 588
300 Kent Street
Brookline, Massachusetts 02146
SSN ###-##-####
Albert E. Tobey 588
12 Auburn Avenue
Wilmington, Massachusetts 01887
SSN ###-##-####
Abdu Boudour 588
25 Star Road
West Newton, Massachusetts 02165
SSN ###-##-####
Total issued and outstanding . . . . . . . . . . 10,000
Director and Officers
- ---------------------
Eric T. Chase President and Sole Director
Karl Andrew Bernal Treasurer and Secretary
Neil H. Aronson Assistant Secretary
Voting Trust
In March 1995, the Stockholders entered into a Voting Trust Agreement
with the Company and Eric T. Chase as trustee.
-15-
SCHEDULE A
Stockholder Name, Address Number of QCO Shares
and Social Security Number Issued Upon Exchange
- -------------------------- --------------------
Eric T. Chase 366,614
19 Craigie Circle
Carlisle, Massachusetts 01741
SSN ###-##-####
Karl Andrew Bernal 183,348
666 Main Street, Apt. 205
Winchester, Massachusetts 01890
SSN ###-##-####
Jay L. Ormsby 91,716
38 Crestwood Circle
Salem, New Hampshire 03079
SSN ###-##-####
John R. Freeman 45,774
300 Kent Street
Brookline, Massachusetts 02146
SSN ###-##-####
Albert E. Tobey 45,774
12 Auburn Avenue
Wilmington, Massachusetts 01887
SSN ###-##-####
Abdu Boudour 45,774
25 Star Road
West Newton, Massachusetts 02165
SSN ###-##-####
Total . . . . . . . . . . . . . . . . . . . . . . 779,000
-16-
FIRST AMENDMENT
TO THE STOCK REPURCHASE AND LOAN REPAYMENT AGREEMENT
THIS FIRST AMENDMENT TO THE STOCK REPURCHASE AND LOAN
REPAYMENT AGREEMENT (this "FIRST AMENDMENT"), is made as of the 29th day of
March, 1996, among Kobe Steel USA Holdings, Inc., a Delaware corporation
("KOBE"), QC Optics, Inc., a Delaware corporation (the "QCO"), and Eric T.
Chase, as trustee for and on behalf of the QC Optics Voting Trust, u/d/t (the
"TRUST") in reference to that certain Stock Repurchase and Loan Repayment
Agreement, among Kobe, QCO and the Trust, dated as of the 27th day of October,
1995 (the "AGREEMENT").
RECITALS
WHEREAS, pursuant to SECTION 11 of the Agreement, each of
the parties hereto desire to amend the Agreement upon the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of these premises, the
covenants and agreements hereinafter set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
each of the Company and the Optionee agree as follows:
TERMS OF FIRST AMENDMENT
1. Amendment to Section 1. The penultimate sentence of the
first paragraph of SECTION 1 of the Agreement is hereby amended by deleting the
term "Simultaneously with the Closing" and inserting the term "Subject to the
provisions of Section 4 hereof."
2. Amendment to Section 4.
(a) The second sentence of SECTION 4 of the
Agreement is hereby amended by deleting the term "Simultaneously with the
Closing" and inserting the term "Subject to the provisions of Section 4 hereof."
(b) SECTION 4 of the Agreement is hereby amended
by inserting the following provision at the end of such SECTION 4:
"(a) Promissory Note. In the event that any portion of the
aggregate purchase price of $5,000,000 referenced in SECTION 1
hereof is to be represented by a promissory note from QCO to Kobe,
then (a) QCO will execute, deliver and perform a promissory note
in a form to be approved by Kobe in its sole discretion, (b) QCO
will execute, deliver and
Stock Repurchase and Loan Repayment Agreement -- First Amendment --
NY:151627.4 -- Page 1
perform a security and pledge agreement in a form to be approved
by Kobe in its sole discretion and (c) the Trust will execute,
deliver and perform a guarantee in a form to be approved by Kobe
in its sole discretion; provided, that, the Promissory Note shall
not be for an aggregate value in excess of $750,000; provided,
further, that, the aggregate indebtedness represented by the
Promissory Note shall be repaid by QCO to Kobe no later than the
31st day of December, 1996; provided, further, that, during the
period in which any indebtedness is evidenced by a promissory
note, the Voting Trust may not exercise the Option set forth in
SECTION 2(B)(III) hereof.
(b) Promissory Note Default. In the event of a failure by
QCO to pay any indebtedness when due under the promissory note,
Kobe shall have the option, to be exercised or waived in its sole
discretion, to repurchase from QCO the Repurchase Shares for an
aggregate payment of $4,250,000.00; provided, that, any such
payment by Kobe to QCO shall be applied first to payment of any
indebtedness senior to QCO's indebtedness to Kobe; provided,
further, that, the aggregate principal amount of any indebtedness
senior to QCO's indebtedness to Kobe will not exceed $4,000,000
without the prior written consent of Kobe. Kobe's option to
repurchase the Repurchase Shares may be exercised at any time
during the pendency of a default under the terms and conditions of
such promissory note."
3. Rules of Convention.
(a) Effectiveness. The failure of any party to
insist, in any one or more instances, on performance of any of the terms and
conditions of this First Amendment shall not be construed as a waiver or
relinquishment of any rights granted hereunder or of the future performance of
any such term, covenant or condition but the obligation of any party with
respect thereto shall continue in full force and effect.
(b) No Other Amendment. Except for the amendments
set forth in this First Amendment, the text of the Agreement and all documents
related thereto shall remain unchanged and in full force and effect.
(c) Counterparts. This First Amendment may be
executed in any number of counterparts, each of which shall be deemed to be an
original and all of which, taken together, shall constitute one and the same
instrument.
(d) Applicable Law. This First Amendment shall be
interpreted, administered and otherwise subject to the laws of the State of New
York, without giving effect to principles of conflicts of law.
Stock Repurchase and Loan Repayment Agreement -- First Amendment --
NY:151627.4 -- Page 2
IN WITNESS WHEREOF, the parties hereto have executed this
First Amendment as of the day and year first written above.
KOBE STEEL USA HOLDINGS, INC.
By: /s/ Masanobu Iwata
--------------------------------
Name: Masanobu Iwata
--------------------------------
Title: Secretary
--------------------------------
QC OPTICS, INC.
By: /s/ Eric T. Chase
--------------------------------
Name: Eric T. Chase
--------------------------------
Title: President
--------------------------------
QC OPTICS VOTING TRUST
By: /s/ Eric T. Chase
--------------------------------
Name: Eric T. Chase
--------------------------------
Title: President
--------------------------------
Stock Repurchase and Loan Repayment Agreement -- First Amendment --
NY:151627.4 -- Page 3
THIS PAGE MUST BE KEPT AS THE LAST PAGE OF THE DOCUMENT.
SoftSolution Network ID: NY-151627.4 Type: AMD
SECURED SUBORDINATED PROMISSORY NOTE
$750,000 Dated as of: March 29, 1996
FOR VALUE RECEIVED, the undersigned, QC OPTICS, INC., a Delaware
corporation (hereinafter, together with its successors in title and assigns,
called the "BORROWER"), by this promissory note (hereinafter called the "NOTE"),
absolutely and unconditionally promises to pay to KOBE STEEL USA HOLDINGS, INC.,
a Delaware corporation (hereinafter, together with its successors in title and
assigns, called the "LENDER"), or its assigns, on December 31, 1996, the
principal sum of SEVEN HUNDRED FIFTY THOUSAND and 00/XX DOLLARS ($750,000.00),
pursuant to the terms and conditions of that certain Stock Repurchase and Loan
Repayment Agreement among the Borrower, the Lender and Eric T. Chase, as trustee
for and on behalf of the QC Optics Voting Trust (the "GUARANTOR") u/d/t dated as
of the 27th day of October, 1995, as amended on the 29th day of March, 1996 (as
so amended, the "STOCK PURCHASE AGREEMENT") and that certain Subordinated
Security Agreement among the Borrower, the Lender and the Guarantor dated as of
the date hereof (the "SUBORDINATED SECURITY AGREEMENT"), the terms and
conditions of each of which are incorporated herein by reference. The Borrower
further agrees to pay interest in like money and funds at the office set forth
below on the unpaid principal amount hereof outstanding. The unpaid principal of
this Note shall bear interest at a rate of eight percent (8.0%) per annum
beginning on the date hereof and ending on the earlier to occur of (i) the date
such principal is paid or (ii) the date such principal becomes due and payable
pursuant to the provisions of this Note (by reason of acceleration or
otherwise). All accrued unpaid principal and interest shall be due and payable
at maturity, which date shall be December 31, 1996. Principal and interest shall
be payable in full at the offices of the Lender at 535 Madison Avenue, New York,
New York.
The terms and conditions of this Secured Subordinated Promissory Note
are expressly subject to the terms and conditions of a certain Intercreditor
Agreement by and among the Borrower, the Lender and State Street Bank and Trust
Company with its principal offices at 225 Franklin Street, Boston, Massachusetts
02110 (hereinafter "STATE STREET") and that certain Credit Agreement of even
date, including the provisions of Section 6.11 thereof, between the Borrower and
State Street.
The Borrower, for itself, its successors and assigns, covenants and
agrees, and each holder hereof, by his or its acceptance of this Note, likewise
covenants and agrees, that the payment of the principal of and interest on this
Note and any obligations of the Borrower under the Subordinated Security
Agreement are hereby expressly subordinated upon the conditions and to the
extent set forth herein in right of payment only, to the prior payment in full
of all Senior Debt. "SENIOR DEBT" means the principal of, premium, if any, and
interest on all of the following indebtedness of the Borrower: (i) all
indebtedness of the Borrower to State Street or its successors and assigns,
including but not limited to any sums payable to State Street pursuant to that
certain Credit Agreement between the Borrower and State Street of even date; and
(ii) any and all deferrals, renewals, extensions and refundings of any such
indebtedness or obligations described in (i) above,
subject to the terms and conditions of the Stock Purchase Agreement; provided,
that, the aggregate principal indebtedness under the Senior Debt may not exceed
$4,000,000, without the prior written consent of Kobe, which shall not be
unreasonably withheld.
No payment on account of principal of or interest on this Note shall be
made, and this Note shall not be redeemed or purchased directly or indirectly by
the Borrower (or any of its subsidiaries), if at the time of such payment or
purchase or immediately after giving effect thereto, (i) there shall exist a
default in any payment with respect to any Senior Debt, (ii) there shall be
demand for payment of any Senior Debt payable on demand (unless such Senior Debt
has been paid in full); or (iii) there shall have occurred an event of default
(other than a default in the payment of amounts due thereon) with respect to any
Senior Debt, as defined in the instrument under which the same is outstanding,
permitting the holders thereof to accelerate the maturity thereof, and such
event of default shall have not been cured or waived or shall not have ceased to
exist. In addition, the holder of this Note shall not be entitled to receive
payment on account of principal of or interest on this note (except on maturity,
with respect to the principal, and except on regularly scheduled interest
payment dates as provided herein) unless the holder of this Note or the Borrower
shall have provided twenty (20) days prior written notice of such payment to the
holders of Senior Debt. The Borrower hereby covenants and agrees to provide the
notice referred to in the immediately preceding sentence to the holders of
Senior Debt and the Lender shall not accept payment from the Borrower of sums
due hereunder without first having received a written certification from a duly
authorized officer of the holder of Senior Debt certifying that such notice has
been received or the holder of such Senior Debt has failed to respond to a
request therefor for a period of thirty (30) days.
The holder of this Note will not transfer this Note or grant any
interest herein without first having obtained the written undertaking of the
holder's transferee or grantee to be bound by the terms of this Note and having
provided written notice of same to the holders of Senior Debt.
The Borrower shall not issue any further instrument or other written
evidence with respect to this Note except the Subordinated Security Agreement
and the Stock Purchase Agreement.
Should any payment or collateral for any part of this Note be received
by the holder hereof in violation of the terms hereof, such payment or
collateral shall be delivered forthwith to the holders of Senior Debt for
application to such Senior Debt; provided, that, such payment shall not
constitute a payment by Borrower of this Note to Lender, and this Note shall
remain an outstanding obligation of Borrower. The holders of Senior Debt are
irrevocably authorized to supply any required endorsement or assignment. Until
so delivered, any such payment or collateral shall be held by the recipient in
trust for the holders of Senior Debt and shall not be commingled with other
funds or property of the recipient, subject to payment by the holder of Senior
Debt to the Lender of actual costs and reasonable expenses incurred therefor by
Lender.
-2-
The rights granted to the holders of Senior Debt hereunder are solely
for their protection and nothing herein contained shall impose on the holders of
Senior Debt any duties with respect to this Note or any property of the Borrower
beyond reasonable care while in the custody of the holders of Senior Debt and
redelivery upon cancellation of this Note.
The holder of this Note shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which dissolution, winding
up, liquidation or reorganization proceedings are pending with respect to the
Borrower or upon a certificate of the liquidating trustee or agent or other
person making any distribution to the holder of this Note in connection with any
dissolution, winding up, liquidation or reorganization of the Borrower for the
purpose of ascertaining the amount of the Senior Debt, the holders thereof, the
amount paid or distributed thereon and all other facts pertinent thereto or to
this Section.
The Borrower shall execute and deliver to the holders of Senior Debt
such further instruments and shall take such further action as such holders of
Senior Debt may at any time or times reasonably request in order to carry out
the provisions and intent of the subordination provisions of this Note.
Each overdue amount (whether of principal, interest or otherwise)
payable on or in respect to this Note or the indebtedness evidenced hereby
shall, to the permitted by applicable law, bear interest at the rate described
above, from the date the same becomes due and payable (by reason of acceleration
or otherwise) until paid.
For all purposes of this Note, the term "HOLDER" shall mean the Lender
in possession of this Note or any other person who is at the time the lawful
holder in possession of this Note.
The Borrower will have the right to prepay the unpaid principal of this
Note in full or in part. Any partial payment of the indebtedness evidenced by
this Note shall be applied by the holder hereof, first, to any costs incurred by
Lender in enforcing the terms of this Note, second, to the payment of any
amounts (other than principal and interest), if any, that may become due and
payable on or in respect of this Note or the indebtedness evidenced hereby,
third, to the payment of any accrued but unpaid interest, and, fourth, to the
payment of principal.
All computations of interest payable as provided in this Note shall be
made by the holder hereof on the basis of the actual number of days elapsed
divided by 360.
Should all or any part of the indebtedness represented by this Note be
collected by action at law, or in bankruptcy, insolvency, receivership, or other
court proceedings, or should this Note be placed in the hands of attorneys for
collection after default, the Borrower hereby promises to pay to the holder of
this Note, upon demand by the holder hereof at any time(subject to the
subordination provisions contained herein), in addition to the principal,
interest, and all other amounts payable on or in respect of this Note or the
indebtedness evidenced hereby, if any, all court costs and reasonable
-3-
attorneys' fees and all other reasonable collection charges and expenses
incurred or sustained by the holder of this Note.
The Borrower hereby irrevocably waives notice of acceptance,
presentment, notice of nonpayment, protest, notice of protest, suit and all
other conditions precedent in connection with the delivery, acceptance,
collection, and/or enforcement of this Note.
If any one or more Events of Default (as defined in the Subordinated
Security Agreement) shall occur and be continuing, then, unless such Event of
Default shall theretofore have been remedied or waived, the Lender may at any
time at the option of the Lender, subject to the provisions of this Note
regarding subordination of payment of this Note to Senior Debt, by written
notice given to the Borrower, declare the entire unpaid principal of this Note,
and all other amounts payable on or in respect of this Note or the indebtedness
evidenced thereby to be, and all such amounts shall (if not already due and
payable) thereupon become, forthwith immediately due and payable to the Lender,
without presentment, demand, protest, notice of protest, or any other
formalities of any kind, all of which have been expressly and irrevocably waived
by the Borrower, and the Borrower will forthwith and immediately pay to the
holder of this Note the entire principal of and interest accrued on this Note,
and any and all other amounts that may become due and payable on or in respect
of this Note or the indebtedness evidenced hereby.
In case any one or more Events of Default (as defined in the
Subordinated Security Agreement) shall occur, the holder of this Note, subject
to the provisions of this Note regarding subordination of payment of this Note
to Senior Debt, may proceed to protect and enforce the rights of such holder by
an action at law, suit in equity, or other appropriate proceeding, whether for
the specific performance of any agreement contained herein, for an injunction
against a violation of any of the terms hereof, in course of dealing and (to the
extent permitted by applicable law) no delay on the part of the holder of this
Note in exercising any right shall operate as a waiver thereof or otherwise
prejudice such holder's rights, powers, or remedies. No right, power, or remedy
conferred by this Note upon the holder hereof shall be exclusive of any other
right, power, or remedy referred to herein or now or hereafter available at law,
in equity, by statute, or otherwise. The Borrower hereby waives presentment,
demand, notice of dishonor, and protest, and agrees to pay all costs of
collection, before and after judgment, including reasonable attorneys' fees and
legal expenses.
The Borrower hereby absolutely and irrevocably consents and submits to
the jurisdiction of, and waives and all objections with regard to venue,
inconvenient forum, or otherwise with respect to, the Courts of the State of New
York, and of any Federal Court located in such State, in connection with any
actions or proceedings brought against the Borrower by the holder hereof arising
out of or relating to this Note.
This Note is intended to take effect as a sealed instrument. This Note
and the obligations of the Borrower hereunder shall be governed by and
interpreted and determined in accordance with the laws of the State of New York.
-4-
IN WITNESS WHEREOF, this PROMISSORY NOTE has been duly executed by the
undersigned, QC OPTICS, INC. on the day and in the year first above written in
Boston, Massachusetts.
The Borrower:
ATTEST QC OPTICS, INC.
/s/ Neil H. Aronson By: /s/ Eric T. Chase
- -------------------------------- ---------------------------------
Eric T. Chase, President
Limited Guaranty
THE UNDERSIGNED, in consideration of this Subordinated Promissory Note,
hereby absolutely, irrevocably and unconditionally guarantees, to the holder of
this Promissory Note and its permitted successors and assigns, the full and
timely payment of this Promissory Note. This guarantee is secured solely by the
shares of stock of QC Optics, Inc., and any proceeds from the sale of such
shares, and is not otherwise intended to be construed as a personal guaranty of
the undersigned in other than his capacity as Trustee of the QC Optics, Inc.
Voting Trust.
QC Optics, Inc. Voting Trust
By:/s/ Eric T. Chase
---------------------------------
Eric T. Chase, Trustee and
not individually
-5-
SUBORDINATED SECURITY AGREEMENT
THIS SUBORDINATED SECURITY AGREEMENT (this "AGREEMENT") is
entered into as of the 29th day of March, 1996, between QC Optics, Inc., a
Delaware corporation (the "BORROWER"), and Kobe Steel USA Holdings, Inc., a
Delaware corporation (the "LENDER").
RECITALS
WHEREAS, pursuant to that certain Stock Repurchase and
Loan Repayment Agreement dated as of the 27th day of October, 1995, among the
Borrower, the Lender and Eric T. Chase, as Trustee for and on behalf of The QC
Optics Voting Trust, u/d/t, as amended on the 29th day of March, 1996 (the
"PURCHASE AGREEMENT"), the Borrower repurchased Seven Hundred Seventy-Nine
Thousand (779,000) shares of common stock of the Borrower from the Lender;
WHEREAS, in consideration for the Shares (as defined in
SECTION 2 hereof), the Borrower has delivered to the Lender $4,250,000 in cash
and issued a promissory note, dated as of the date hereof, in the principal
amount of $750,000 (the "PROMISSORY NOTE") in favor of the Lender;
WHEREAS, in connection with the acceptance of the
Promissory Note, the Lender has required the Borrower to execute and deliver
this Agreement to secure the obligations of the Borrower under the Promissory
Note.
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
TERMS OF AGREEMENT
1. Definitions. Capitalized terms used in this Agreement,
unless otherwise defined herein, shall have the meanings assigned to such terms
in the Purchase Agreement. The following additional terms, as used herein, shall
have the following meanings:
(a) "COLLATERAL" shall have the meaning ascribed to such
term in SECTION 2 hereof.
(b) "EQUIPMENT" shall mean and include all the Borrower's
machinery, equipment, furniture, trade fixtures, and motor vehicles (if any),
including, without limitation, all tangible personal property utilized in the
conduct of the Borrower's business, and all replacements or substitutions
therefor and all accessories thereto.
Subordinated Security Agreement -- NY:151602.3 -- Page 1
(c) "EVENT OF DEFAULT" shall mean any of the following
events:
(i) default shall be made in the due and punctual payment
of all or any part of the principal of the Promissory Note,
whether at stated maturity, by acceleration, by notice of
prepayment or otherwise;
(ii) default shall be made in the due and punctual payment
of any interest on the Promissory Note and such default shall have
continued for a period of 10 days;
(iii) default shall be made in the performance or
observance of any covenant, agreement or condition contained in
this Agreement or the Purchase Agreement and such default shall
have continued for a period of 30 days after the Borrower has
become aware thereof;
(iv) any event shall occur or any condition shall exist in
respect of any indebtedness of the Borrower (other than the
Promissory Note) or under any agreement securing or relating to
any of such indebtedness, the effect of which is to cause the
acceleration of the maturity of such indebtedness or to require
the repayment or repurchase of such indebtedness, or any such
indebtedness shall not have been paid at the final maturity date
thereof;
(v) the Borrower shall (A) apply for or consent to the
appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (B) be generally unable to pay
its debts as such debts become due, (C) make a general assignment
for the benefit of its creditors, (D) commence a voluntary case
under applicable bankruptcy or insolvency law (as now or hereafter
in effect), (E) file a petition seeking to take advantage of any
other law providing for the relief of debtors, (F) fail to
controvert in a timely or appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case
under such bankruptcy or insolvency law, (G) take any action under
the laws of its jurisdiction of incorporation analogous to any of
the foregoing or (H) take any corporate action for the purpose of
effecting any of the foregoing;
(vi) proceeding or case shall be commenced, without the
application or consent of the Borrower in any court of competent
jurisdiction, seeking (A) the liquidation, reorganization,
dissolution, winding up, or composition or readjustment of its
debts, (B) the appointment of a trustee, receiver, custodian,
liquidator or the like of it or of all or any substantial part of
its assets or (C) similar relief in respect of it, under any law
providing for the relief of debtors, and such proceeding or case
shall continue undismissed, or unstayed and in effect, for a
period of 60 days; or an order for relief shall be entered in an
involuntary case under such bankruptcy or insolvency law, against
the Borrower; or action under the laws of the jurisdiction of
incorporation of the Borrower analogous to any of the foregoing
shall be taken with respect to the
Subordinated Security Agreement -- NY:151602.3 -- Page 2
Borrower and shall continue unstayed and in effect for any period
of 60 consecutive days;
(vii) final judgment for the payment of money rendered by
a court of competent jurisdiction against the Borrower and the
Borrower shall not discharge the same or provide for its discharge
in accordance with its terms, or procure a stay of execution
thereof within 60 days from the date of entry thereof and within
said period of 60 days, or such longer period during which
execution of such judgment shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such
appeal, and such judgment together with all other such unsatisfied
or unstayed judgments shall exceed in the aggregate $50,000; or
(viii) the Borrower ceases or threatens to cease to carry
on its business or a substantial part of its business.
(d) "INVENTORY" shall mean, without limitation, any and
all goods, wares, merchandise and other tangible personal property, including
raw materials, whether held by the Borrower for sale or other disposition, and
also including any returned or repossessed Inventory detained from or rejected
for entry into the United States by the appropriate governmental authorities,
all products of and accessions to Inventory and including documents of title,
whether negotiable or nonnegotiable, representing any of the foregoing.
(e) "LOAN DOCUMENTS" shall have the meaning ascribed to
such term in SECTION 2(B)(I) hereof.
(f) "OBLIGATIONS" shall have the meaning ascribed to such
term in SECTION 2(B) hereof.
(g) "SECURITY INTERESTS" shall mean the security interests
in the Collateral granted hereunder securing the Obligations.
(h) "SHARES" shall have the meaning ascribed to such term
in SECTION 2(A)(XIV) hereof.
(i) "SSB" shall have the meaning ascribed to such term in
SECTION 6(D) hereof.
(j) "SSB SECURITY INTEREST" shall have the meaning
ascribed to such term in SECTION 6(D) hereof.
2. Pledge and Grant of Security Interest.
(a) In order to secure the full payment when due and the
performance of any and all Obligations (as defined in SECTION 2(B) hereof), the
Borrower hereby grants, assigns, transfers, pledges, hypothecates, and sets over
to the Lender, and grants to the Lender a continuing security interest in and
lien on, all of the following property of the Borrower, whether now owned or
hereafter acquired or arising and regardless of where located (all being
collectively referred to as the "COLLATERAL"):
Subordinated Security Agreement -- NY:151602.3 -- Page 3
(i) All Inventory;
(ii) All accounts receivable, contract rights, and chattel
paper, regardless of whether or not they constitute proceeds of
other Collateral;
(iii) All general intangibles, regardless of whether or
not they constitute proceeds of other Collateral, including,
without limitation, all the Borrower's rights (which the Lender
may exercise or not as it in its sole discretion may determine) to
acquire or obtain goods and/or services with respect to the
manufacture, processing, storage, sale, shipment, delivery or
installation of any of the Borrower's Inventory or other
Collateral;
(iv) All products and accessions to any of the Collateral;
(v) All liens, guaranties, securities, rights, remedies
and privileges pertaining to any of the Collateral, including the
right of stoppage in transit;
(vi) All tax refunds of every kind and nature to which the
Borrower is now or hereafter may become entitled no matter however
arising, including, without limitation, loss carryback refunds;
(vii) All obligations owing to the Borrower of every kind
and nature, and all choses in action;
(viii) All goodwill, trade secrets, computer programs,
customer lists, trade names, trademarks and patents;
(ix) All documents and instruments (whether negotiable or
nonnegotiable, and regardless of their being attached to chattel
paper);
(x) All Equipment, including, without limitation,
machinery, furniture, trade fixtures and all other goods used in
the conduct of the Borrower's business;
(xi) All proceeds of Collateral of every kind and nature
and in whatever form, including, without limitation, both cash and
noncash proceeds resulting or arising from the rendering of
services by the Borrower or the sale or other disposition by the
Borrower of the Inventory or other Collateral and all insurance
proceeds payable under insurance proceeds relating to any items of
Collateral;
(xii) All books and records relating to the conduct of the
Borrower's business including, without in any way limiting the
generality of the foregoing, those relating to its accounts; and
(xiii) All deposit accounts maintained by the Borrower
with any bank, trust company, investment firm or fund, or any
similar institution or organization;
Subordinated Security Agreement -- NY:151602.3 -- Page 4
(xiv) All of the issued and outstanding shares of common
stock of the Borrower (collectively, the "SHARES");
(xv) all cash, securities, dividends, distributions and
other property at any time and from time to time received,
receivable or otherwise distributed in connection with, in respect
of, or in exchange for, any or all of the Shares and all proceeds
of the Collateral.
(b) As used in this Agreement, the term "OBLIGATIONS"
shall mean:
(i) All principal, interest, reasonable attorneys' fees,
loan fees, liabilities for costs and expenses and all other
indebtedness, obligations and liabilities of the Borrower to the
Lender at any time created or arising under or in connection with
the Promissory Note or any other document executed pursuant
thereto, in connection therewith or as security therefor or any
amendment, extension, renewal, or modification thereto or
substitution for any of the foregoing. The Promissory Note and all
such other documents are sometimes collectively called the "LOAN
DOCUMENTS";
(ii) All agreements, covenants, indemnities, terms,
conditions, and other obligations to be performed by, or on behalf
of, the Borrower under the Purchase Agreement, the Promissory Note
and other Loan Documents or any amendment, extension, renewal, or
modification thereto or substitution therefor; and
(iii) All reasonable costs, expenses and fees, including
but not limited to court costs and reasonable attorneys' fees,
arising in connection with, or as a consequence of the
non-payment, non-performance or non- observance of all amounts,
indebtedness, obligations and liabilities to the Lender described
in SECTION 2(B)(I) and SECTION 2(B)(II) hereof.
(c) The Security Interests are granted as security only
and shall not subject the Lender to, or transfer or in any way affect or modify,
any obligation or liability of the Borrower with respect to any of the
Collateral or any transaction related thereto.
3. Subordination. Notwithstanding any provision herein to
the contrary, the Security Interest granted in this Agreement shall be
subordinated to the SSB Security Interest (as defined in SECTION 6(D) hereof);
provided, that, such subordination shall be as limited in the Promissory Note.
4. Voting Rights. Upon the occurrence and continuance of
any Event of Default, the Lender or its nominees shall have the sole right to
vote or give consents, waivers and ratifications with respect to the Shares.
5. Release of Security Interests in Cash Dividends. The
Security Interests with respect to cash dividends on the Shares shall be
released by the Lender contemporaneously with the payment thereof, if (a) the
Lender shall not have notified the Borrower of the occurrence of an Event of
Default prior to the payment of such dividend and (b) upon the payment of such
dividend, the Borrower shall have no knowledge of a
Subordinated Security Agreement -- NY:151602.3 -- Page 5
Default or an Event of Default. Any cash dividends not so released from the
Security Interests shall be deposited by the Lender into a cash collateral
account and pledged to the Lender as security for the Obligations.
6. Representations, Warranties and Agreements. The
Borrower represents and warrants to the Lender as follows:
(a) The Borrower is a corporation duly organized, validly
existing and in good standing under the laws of Delaware.
(b) The Shares are validly issued, fully paid and
non-assessable.
(c) The Borrower (i) is the legal and beneficial owner of
the Collateral free and clear of any lien, except for the Security Interests
created by this Agreement, and (ii) will own each item of Collateral hereafter
acquired in addition to any then existing Collateral free and clear of all such
liens, except as set forth in that certain Security Agreement, dated as of the
date hereof, between the Borrower and State Street Bank and Trust Company, a
Massachusetts trust company ("SSB"), representing certain security interests in
favor of SSB (the "SSB SECURITY INTEREST").
(d) The pledge and assignment to the Lender of the
Collateral pursuant to this Agreement creates a valid and perfected second
priority security interest in the Collateral securing the performance of the
Obligations. The Borrower has not performed any acts which might prevent the
Lender from enforcing any of the terms and conditions of this Agreement or which
would limit the Lender in any such enforcement.
(e) No authorization, approval, or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required to be obtained or made by the Borrower either (i) for the pledge or
assignment by the Borrower of the Collateral pursuant to this Agreement or for
the execution, delivery or performance of this Agreement by the Borrower or (ii)
for the exercise by the Lender of any rights provided for in this Agreement or
the remedies in respect of the Collateral pursuant to this Agreement.
(f) The Borrower shall preserve and maintain its corporate
existence, material rights, franchises and privileges in the jurisdiction of its
incorporation and comply in all material respects with all the material
requirements of applicable laws, rules, regulations and orders of any
governmental authority, the noncompliance with which would materially and
adversely affect its properties, business or credit.
(g) The Borrower shall not sell, assign, encumber,
transfer, dispose of, alter, dilute (other than the Shares), or restrict any of
the Collateral, nor permit any such result to occur by operation of law or
otherwise, without the prior written consent of the Lender, other than in the
ordinary course of business or as otherwise requested in writing by SSB, with
notice to Kobe.
Subordinated Security Agreement -- NY:151602.3 -- Page 6
7. Further Assurances; Covenants.
(a) The Borrower shall, from time to time, at its expense,
execute, deliver, file and record any instrument, document, agreement and other
paper and take any other action that the Lender may reasonably request from time
to time, as the Lender may reasonably deem necessary or desirable, in order to
create, preserve, perfect, confirm or validate the Security Interests or to
enable the Lender to obtain the full benefits of this Agreement, or to enable
the Lender to exercise and enforce any of its rights, powers and remedies
hereunder with respect to any of the Collateral. The Borrower shall pay the
costs of, or incidental to, any recording or filing of any instrument, document,
agreement or other paper concerning the Collateral.
(b) The Borrower shall keep full and accurate books and
records relating to the Collateral and stamp or otherwise mark such books and
records in such manner as the Lender may reasonably require in order to reflect
the Security Interests.
(c) The Borrower shall, promptly upon request, provide to
the Lender all information and evidence it may reasonably request concerning the
Collateral to enable the Lender to enforce the provisions of this Agreement.
(d) From time to time upon request by the Lender the
Borrower shall, at its cost and expense, cause to be delivered to the Lender an
opinion of counsel reasonably satisfactory to the Lender as to such matters
relating to the transactions contemplated hereby as the Lender may reasonably
request.
8. Rights and Remedies Upon Event of Default.
(a) Upon the occurrence and continuance of any Event of
Default, the Lender shall have all rights and remedies afforded to a secured
party under the Uniform Commercial Code as adopted and in force in the State of
New York, and under any other applicable law. In addition to, and without
limiting the generality of the foregoing, to the extent permitted by law, the
Lender shall have the following rights and remedies:
(i) The right at any time or times, without public
advertisement or publication (unless required by law), to sell or
otherwise dispose of any or all of the Collateral at public or
private sale, for cash, upon credit or upon such other
commercially reasonable terms as the Lender deems advisable in its
sole discretion, or otherwise to realize upon the whole or from
time to time any part of the Collateral;
(ii) At any sale or sales of the Collateral, the Lender or
any person acting on its behalf or behalf of its successors or
assigns may bid for and purchase the whole or any part of the
Collateral and, upon compliance with the terms of such sale, may
hold, exploit and dispose of the Collateral without further
accountability to the Borrower (except the Lender or its
successors or assigns must account for the proceeds of any such
sale or sales);
Subordinated Security Agreement -- NY:151602.3 -- Page 7
(iii) Any purchaser at such sale shall be entitled to
fully vote the shares of stock comprising the Shares acquired, to
elect directors, and in all respects to become the owners of the
shares of stock so acquired;
(iv) The right to incur reasonable attorney's fees and
expenses in exercising any of the rights, remedies, powers or
privileges provided hereunder, and the right (but not the
obligation) to pay, satisfy and discharge, or to bond, deposit or
indemnify against, any tax or other lien which in the opinion of
the Lender or its counsel may in any manner or to any extent be a
lien upon any of the Collateral, all of which fees, payments and
expenses shall become part of the Lender's expenses of retaking,
holding, preparing for sale and the like, and shall be added to
and become a part of the Obligations secured hereby; and
(v) The right to apply the proceeds realized from any
sale, or other disposition of the Collateral first to the costs,
expenses and reasonable attorney's fees incurred by the Lender for
collection and for acquisition, protection, sale and delivery of
the Collateral and thereafter to the principal, interest and other
liabilities comprising the Obligations in such commercially
reasonable manner as the Lender shall elect. If any deficiency
shall remain, the Borrower shall remain bound and liable to the
Lender therefor.
(b) All rights, remedies, powers and privileges of the
Lender hereunder are cumulative and not alternative, any may be exercised
concurrently or seriatim, and are in addition to and not in lieu of any other
rights of the Lender at law, in equity, under statute.
9. Waivers by and Consents of the Borrower.
(a) In addition to the other waivers contained herein and
in any other agreement between the Borrower and the Lender, the Borrower hereby
expressly waives, to the extent permitted by law: demand, protest, notice of
protest, notice of default or dishonor, notice of payments and nonpayments, or
of any default, release, compromise, settlement, extension or renewal of all
commercial paper, instruments or guaranties at any time held by the Lender on
which the Borrower or any other person may in any way be liable; and notice of
any action taken by the Lender unless expressly required by this Agreement or by
law.
(b) The Borrower hereby agrees that the Lender may, from
time to time, before or after any default by the Borrower, with or without
further notice to or assent from the Borrower, without in any manner affecting
the liability of the Borrower under this Agreement, and upon such terms and
conditions as it may deem advisable: (i) extend in whole or in part (by renewal
or otherwise), modify, accelerate, change or release any indebtedness, liability
or obligation of the Borrower or of any other person liable for any of the
Obligations, or waive any default with respect thereto; (ii) sell, release,
surrender, modify, impair, exchange, substitute or (if a chose or choses in
action) extend the duration or the time for performance or payment of any and
all property, of any nature and from whomsoever received, held by the Lender as
security for the payment or performance of any of the Obligations; and (iii)
settle, adjust or compromise any claim
Subordinated Security Agreement -- NY:151602.3 -- Page 8
of the Lender against the Borrower or any other person liable for any of the
Obligations. The Borrower hereby ratifies and confirms any such extension,
renewal, change, release, waiver, surrender, exchange, modification, impairment,
substitution, settlement, adjustment or compromise and agrees that the same
shall be binding upon the Borrower, and the Borrower hereby expressly waives any
and all defenses, counterclaims or offsets which the Borrower might or could
have by reason thereof, it being understood that the Borrower shall at all times
be bound by this Agreement and remain fully liable to the Lender hereunder.
10. Appointment of Agents. At any time or times, in order
to comply with any legal requirement in any jurisdiction, the Lender may appoint
a bank or trust company or one or more other persons, to act as agent, jointly
with the Lender, or to act as separate agent or agents on behalf of the Lender
with such power and authority as may be necessary for the effectual operation of
the provisions hereof and as may be specified in the instrument of appointment
(which may, in the discretion of the Lender, include provisions for the
protection of such agent or agents).
11. Waivers. Neither the failure nor any delay on the part
of the Lender to exercise any right, remedy, power or privilege hereunder shall
operate as a waiver thereof or give rise to any estoppel, nor be construed as an
agreement to modify the terms of this Agreement, nor shall any single or partial
exercise by the Lender of any right, power or privilege preclude any other
right, remedy, power or privilege nor shall any waiver by the Lender of any
right, remedy, power or privilege with respect to any occurrence be construed as
a waiver or such right, remedy, power or privilege with respect to any other
occurrence. No waiver by a party hereunder shall be effective unless it is in
writing and signed by the party making such waiver, and then only to the extent
specifically stated in such writing.
12. Notices. All notices, requests and other
communications hereunder shall be in writing (which shall include facsimile
transmissions) and made in accordance with the terms of the Purchase Agreement.
13. Miscellaneous. This Agreement constitutes the entire
agreement understanding and agreement between the parties hereto with respect to
the subject matter hereof and supersedes all prior understanding and agreements.
Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. The terms of this Agreement shall be binding upon, and inure
to the benefit of, the Borrower and the Lender and their respective successors
and assigns. No term or provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the Borrower and the Lender. The section and paragraph headings in this
Agreement are for convenience or reference only and shall not modify, define,
expand or limit any of the terms or provisions hereof, and all references herein
to numbered sections, unless otherwise indicated, are to sections in this
Agreement. The use of the words "HEREIN", "HEREOF", "HEREUNDER" and any other
words of similar import refer to this Agreement as a whole and not to any
particular paragraph, subparagraph or other subdivision of this Agreement unless
specifically noted otherwise in this Agreement. In this Agreement, wherever the
context so requires, the neuter gender
Subordinated Security Agreement -- NY:151602.3 -- Page 9
includes the masculine an/or feminine gender, the singular numbers include the
plural, and the plural numbers include the singular. The word "PERSON", as used
herein, shall mean a corporation, association, a partnership, an organization, a
business, an individual, a government or political subdivision thereto or any
governmental agency.
14. Taxes; Expenses.
(a) The Borrower agrees to pay, and to hold the Lender
harmless from and against, any and all taxes, charges or levies (including,
without limitation, all documentary stamp taxes and intangible taxes) which
arise as a result of the execution, delivery or existence of this Agreement, or
the performance by the Borrower of any obligations hereunder.
(b) In the event that the Borrower fails to comply with
the provisions of this Agreement, the Lender may, to the fullest extent
permitted by applicable law, effect such compliance on behalf of the Borrower
and the Borrower shall reimburse the Lender for the costs thereof on demand. All
reasonable expenses of protecting the Collateral and Security Interests and any
and all excise, property, sales and use taxes imposed by any state, federal or
local authority on any of the Collateral or this Agreement or in respect of the
sale or other disposition thereof, shall be borne and paid by the Borrower; and
if the Borrower fails to pay promptly any portion thereof when due, the Lender
may at its option, to the fullest extent permitted by applicable law, pay the
same and charge the Borrower's account therefor, and the Borrower agrees to
reimburse the Lender therefor on demand. All sums so paid or incurred by the
Lender for any of the foregoing and any and all other sums for which the
Borrower may become liable hereunder and all costs and expenses (including
attorneys's fees, legal expenses and court costs) reasonably incurred by the
Lender in enforcing or protecting the Security Interests or any of its rights or
remedies under this Agreement, shall together with interest thereon until paid
at the rate applicable under the Promissory Note, be additional obligations and
liabilities of the Borrower and secured hereby.
15. Termination of Security Interests; Release of
Collateral. The Lender agrees to terminate the Security Interests upon the
repayment in full of all the Obligations and satisfaction of all obligations of
the Borrower hereunder. At any time and from time to time prior to such
termination of the Security Interests, the Lender may release any of the
Collateral without affecting in any way the Security Interests in the Collateral
not expressly released by the Lender.
16. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the conflict of law
provisions) of the State of New York.
Subordinated Security Agreement -- NY:151602.3 -- Page 10
IN WITNESS WHEREOF, the parties have signed and delivered
this Subordinated Security Agreement as of the day and year first written above.
QC OPTICS, INC.
By: /s/ Eric T. Chase
--------------------------------
Name: Eric T. Chase
--------------------------------
Title: President
--------------------------------
KOBE STEEL USA HOLDINGS, INC.
By: /s/ Masanobu Iwata
--------------------------------
Name: Masanobu Iwata
--------------------------------
Title: Secretary
--------------------------------
Subordinated Security Agreement -- NY:151602.3 -- Page 11
THIS PAGE MUST BE KEPT AS THE LAST PAGE OF THE DOCUMENT.
SoftSolution Network ID: NY-151602.3 Type: AGR
INTERCREDITOR AGREEMENT
This Intercreditor Agreement (as from time to time amended and in
effect, this "Agreement") is made as of March 29, 1996, by an among STATE STREET
BANK AND TRUST COMPANY, a Massachusetts trust company with a place of business
at 225 Franklin Street, Boston, Massachusetts 02110 ("SSB"), KOBE STEEL USA
HOLDINGS, INC., a Delaware corporation, with a place of business at 535 Madison
Avenue, New York, New York ("KOBE"), KOBE and SSB are hereinafter sometimes
referred to as a "CREDITOR" and, collectively, as "CREDITORS"), and QC OPTICS,
INC., a Delaware corporation with its principal place of business at 154
Middlesex Turnpike, Burlington, Massachusetts 01803 (the "BORROWER"). Certain
terms are used herein as specifically defined herein. These definitions are set
forth or referred to in Section 4 hereof.
Reference is made to the following documents:
(i) The Demand Promissory Note, of the Borrower issued on the date
hereof in the original principal amount of $4,000,000.00 as the same may be
amended, restated, extended, or revised (the "SSB NOTE");
(ii) The Credit Agreement dated as the date hereof by and between the
Borrower and SSB as the same may be amended, restated, extended or revised (the
"SSB LOAN AGREEMENT");
(iii) The Security Agreement dated as of the date hereof made by the
Borrower in favor of SSB, encumbering the collateral described therein (the
"COLLATERAL"), as the same may be further amended, restated, extended or revised
(the "SSB SECURITY AGREEMENT");
(iv) The financing statements on Form UCC-1 related to the foregoing
naming SSB as secured party and the Borrower as debtor, as the same may from
time to time be amended and in effect (the "SSB FINANCING STATEMENTS");
(v) The Note (as defined in the KOBE Loan Agreement), as the same may
be amended, restated, extended or revised (the "KOBE NOTE");
(vi) The Security Agreement dated of even date therewith made by the
Borrower in favor of KOBE, encumbering the Collateral, as the same may be
amended, restated, extended, or revised (the "KOBE SECURITY AGREEMENT");
(vii) The First Amendment to the Stock Repurchase and Loan Repayment
Agreement dated as of March 29, 1996 (the "PURCHASE AGREEMENT") by and between
KOBE and the Borrower (the "KOBE LOAN AGREEMENT"), together with the Purchase
Agreement; and
(viii) The financing statements on Form UCC-1 related to the foregoing
naming KOBE as secured party and the Borrower as debtor, as the same may from
time to time be amended and in effect (the "KOBE FINANCING STATEMENTS").
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency whereof is hereby acknowledged, the parties hereto hereby agree as
follows:
1. PAYMENT SUBORDINATION. Subject to the terms and conditions hereof,
KOBE hereby subordinates all of its right, title and interest in, to and under
the KOBE Indebtedness and the KOBE Loan Documents, to the right, title and
interest of SSB in, to and under the SSB Indebtedness and the SSB Loan
Documents, and all extensions, consolidations, modifications, and supplements
thereof; provided, that, the aggregate amount of principal due under the SSB
Loan Documents will not exceed $4,000,000 without the prior written consent of
Kobe, which shall not be unreasonably withheld, all in accordance with the SSB
Loan Agreement, specifically including, without limitation, Section 6.11
thereof. In furtherance of the foregoing, all payments including, without
limitation, the payment of the principal of and premium, if any, and interest on
the KOBE Indebtedness are and shall be expressly subordinate and junior, except
as herein otherwise provided, in right of payment to the prior payment in full
of all SSB Indebtedness, to the extent and in the manner provided herein, and
the KOBE Indebtedness is hereby subordinated as a claim against the Borrower or
any of its assets, whether such claim be (i) in the ordinary course of business,
or (ii) in the event of any distribution of the assets of the Borrower upon any
voluntary or involuntary dissolution, winding-up, total or partial liquidation
or reorganization, or bankruptcy, insolvency, receivership or other statutory or
common law proceedings or arrangements, including any proceeding under the
Bankruptcy Code, involving the Borrower or the readjustment of the Borrower's
liabilities or any assignment for the benefit or creditors or any marshalling of
the assets or liabilities of the Borrower (collectively call a
"REORGANIZATION"), in that the Borrower will not make, and KOBE will not accept
or receive from the Borrower, any payment of KOBE Indebtedness, whether in cash,
securities or other property or by way of setoff or otherwise, until all of the
SSB Indebtedness has been paid in full or provision shall have been made for the
full payment thereof, provided, however, so long as (i) no monetary Event of
Default exists under any of the SSB Loan Documents, or, if such monetary Event
of Default does exists, more than 120 days have passed since the date of such
monetary Event of Default (or a shorter prior if payment shall be made), or (ii)
SSB shall not have accelerated the SSB Indebtedness pursuant to any Event of
Default (monetary or otherwise), or, having so accelerated, shall fail to
initiate judicial proceedings against the Borrower to collect such SSB
Indebtedness within 120 days or (ii) KOBE shall not have received written notice
from the Borrower or SSB with respect to a default under clauses (i) or (ii)
above, then, in any such event, the Borrower may make and may accept and receive
scheduled payments (but not prepayments) of KOBE Indebtedness.
1.1 DIVIDENDS AND DISTRIBUTIONS IN REORGANIZATION. In the
event of any reorganization relative to Borrower or its property, then all SSB
Indebtedness shall first be paid in full before any payment is made on account
of the KOBE Indebtedness, and in any such proceedings any payment, dividend or
distribution of any kind or character, whether in cash or property or
securities, which may be payable or deliverable in respect of the KOBE
Indebtedness, except securities or other interests which are subordinated and
junior in right of payment of the payment of all SSB Indebtedness then
outstanding on terms substantially similar to the terms contained herein and
without giving effect to any proceedings in reorganization or rights of a debtor
in possession, trustee or otherwise to alter the rights of a senior creditor by
cram down or otherwise, shall be paid
-2-
or delivered directly to SSB for application to payment of the SSB Indebtedness,
unless and until all such SSB Indebtedness shall have been paid and satisfied in
full, and KOBE authorizes SSB to prove any claim in such proceedings on the KOBE
Indebtedness to such extent, to accept any payment, dividend or distribution, to
apply such payment or distribution to the payment of the SSB Indebtedness and to
do any and all things and to execute all instruments necessary to effectuate the
foregoing; provided, that, any such payment to SSB shall not constitute payment
by Borrower of the KOBE Indebtedness, which KOBE Indebtedness shall remain an
outstanding obligation of Borrower.
1.2 AGREEMENT TO HOLD IN TRUST. If, notwithstanding the
foregoing, any payment or distribution of the assets of Borrower of any kind or
character, other than distributions expressly permitted herein, shall be
received, by set-off or otherwise, by KOBE before the SSB Indebtedness is paid
in full, KOBE shall promptly notify SSB of any such payment or distribution and
shall hold such payment, distribution or amount of set-off in trust for the
benefit of SSB and such payment or distribution and the amount of any such
set-off shall be paid over to SSB for application to the SSB Indebtedness
remaining unpaid until all such SSB Indebtedness shall have been paid in full,
after giving effect to any concurrent payment or distribution to the holders of
such SSB Indebtedness, subject to the payment by SSB to KOBE of reasonable costs
and expenses incurred therefor by KOBE; provided, that, any such payment to SSB
shall not constitute payment by Borrower of the KOBE Indebtedness, which KOBE
Indebtedness shall remain an outstanding obligation of Borrower.
1.3 ACCELERATION; REMEDIES. If any SSB Indebtedness shall have
become or be declared to be immediately due and payable, all KOBE Indebtedness
shall become immediately due and payable, notwithstanding any inconsistent terms
thereof. KOBE shall not, without SSB's prior written consent, institute
proceedings to enforce any KOBE Indebtedness at any time, provided, however that
if (i) a monetary Event of Default (whether as a result of acceleration or
otherwise) shall occur under the SSB Loan Documents, or (ii) SSB shall have
accelerated its Indebtedness pursuant to any Event of Default, and if, within
120 days following the date from which KOBE shall have received notice of either
such event, and so long as such event shall be continuing and shall not have
been cured, waived or satisfied, SSB shall not have initiated judicial
proceedings against the Borrower to collect the SSB Indebtedness, or (iii) an
Event of Default shall occur under the KOBE Loan Documents and 120 days shall
pass after KOBE has given notice of such Event of Default to SSB, KOBE may so
accelerate the maturity of any KOBE Indebtedness and pursue judicial proceedings
to collect all amounts owed under the KOBE Indebtedness (including upon
acceleration thereof); provided that all amounts recovered by KOBE in such
action (exclusive of costs and expenses of collection, including reasonable
attorneys fees, all of which may be retained by KOBE) shall be forthwith
delivered to SSB to the extent the SSB Indebtedness remains due outstanding and
SSB shall apply such amounts to the SSB Indebtedness; provided, that, any such
payment to SSB shall not constitute payment by Borrower of the KOBE
Indebtedness, which indebtedness shall remain an outstanding obligation of
Borrower. The phrase "INSTITUTE PROCEEDINGS TO ENFORCE" as used herein shall not
be deemed to include the initiation and prosecution by KOBE of any proceedings
to obtain a judgment against the Borrower for the KOBE Indebtedness then
outstanding.
2. LIEN SUBORDINATION AND RIGHT TO REPURCHASE.
-3-
2.1 LIEN SUBORDINATION. Notwithstanding anything to the
contrary contained in the respective Loan Documents of each Creditor and
notwithstanding the time or order of attachment or perfection of any security
interest, including the time or order of filing of any financing statements on
Form UCC-1 filed by either of the Creditors, or the order in which any
Indebtedness of the Borrower to either of the Creditors in incurred, or the
giving or failure to give any notice of the acquisition or expected acquisition
of purchase money security interests by either of the Creditors, each of the
Creditors agrees that all with respect to the other, of their respective rights,
title and interests in and to the Collateral, including without limitation the
proceeds thereof, shall have the order of priority as set forth below:
Priority Entity Satisfaction of Obligations with Respect to:
- -------- ------ --------------------------------------------
First SSB all of the obligations of the Borrower under the SSB
Indebtedness and the SSB Loan Documents
Second KOBE all of the obligations of the Borrower under the
KOBE Indebtedness and the KOBE Loan Documents
Accordingly, if and to the extent that any Creditor forecloses upon or realizes
any proceed from the Collateral (whether or not permitted by the terms hereof),
then such proceeds shall be applied in the order of priority as set forth above.
Each of the Creditors agrees, however, that it shall not take any action to
enforce or otherwise exercise any right or remedy relating to any security
interest, lien, mortgage or other encumbrance, including the initiation of suits
or other proceedings, under its respective Loan Documents unless and until the
Creditor having priority (the "SENIOR CREDITOR") to the Creditor (the
"SUBORDINATED CREDITOR") as set forth in this Section 2 has been paid or
satisfied in full or unless the Senior Creditor has unanimously consented
thereto in writing, provided, however that KOBE shall have the right to exercise
the rights set forth in Section 1.3 above upon the conditions set forth therein
and shall have the right to exercise any and all of its rights and remedies
relating to its security at any time after the Standstill Period shall expire,
unless the event giving rise to such rights shall no longer exist (by reason of
waiver, satisfaction, cure or otherwise); provided that any and all amounts
recovered by KOBE in any such action (exclusive of costs and expenses of
collection, including reasonable attorneys fees, all of which may be retained by
KOBE) shall be forthwith delivered to the Senior Creditor in the order of
priority set forth above; provided, that, any such payment to SSB shall not
constitute payment by Borrower of the KOBE Indebtedness, which indebtedness
shall remain an outstanding obligation of Borrower.
2.2 KOBE'S RIGHT TO REPURCHASE. SSB acknowledges and agrees
that, notwithstanding any provision herein to the contrary, KOBE shall have the
right to repurchase the Repurchase Shares (such term as defined in the Purchase
Agreement), free and clear of all encumbrances, on December 31, 1996, upon the
payment of $4,250,000 to Borrower, in the event of a default on the KOBE
Documents.
3. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS.
-4-
3.1 Each of the Creditors represents and warrants to other
Creditor that its respective Loan Documents specifically described herein are
all of the material documents and instruments securing the Indebtedness of the
Borrower to such Creditor and that there are no other material documents or
instruments held by such Creditor which create or evidence a lien or security
interest granted by the Borrower in favor of each such Creditor with respect to
such Indebtedness.
3.2 Each Creditor hereby agrees to give prompt written notice
to each other Creditor in the event that the Borrower and such Creditor amends
or modifies their respective Loan Documents or in the event that the Borrower
defaults in any payment of principal or interest or other obligations under its
respective Loan Documents.
3.3 The Subordinated Creditor agrees that so long as any
Indebtedness is and remains outstanding to the Senior Creditor, the Subordinated
Creditor will not commence or join with any other creditor or creditors of the
Borrower in commencing, or cause the Borrower to commence, any bankruptcy,
reorganization or insolvency proceedings against or with respect to the
Borrower.
3.4 Each Creditor acknowledges and agrees that notwithstanding
any differences in the characterization and description of the collateral in
which security interests is purportedly granted by the Borrower to such Creditor
in the respective Loan Documents of each such Creditor, it is the intent of each
creditor that such Creditor obtain a security interest in all of the assets of
the Borrower and that for all purposes in this Agreement, each Creditor shall be
treated as if such Creditor has in fact obtained such security interest.
3.5 The Borrower hereby agrees that in the event of a monetary
Event of Default under the SSB Loan Documents or in the event that SSB shall
accelerate its Indebtedness, the Borrower shall not make any further payments to
the Subordinated Creditor until the amounts then due under the SSB Loan
Documents are paid in full; provided, that, this Section 3.5 shall and be
construed to be a waiver of any of KOBE's rights under the KOBE Loan Documents.
4. DEFINITIONS. For purposes of this Agreement, the following terms
defined elsewhere in this Agreement and as set forth below shall have the
respective meanings therein and herein defined:
"Agreement" Preamble
"Borrower" Preamble
"Creditors" Preamble
"KOBE" Preamble
"KOBE Note" Preamble
"KOBE Financing Statements" Preamble
"KOBE Security Agreement" Preamble
"Senior Creditor" Section 2
"Subordinated Creditor" Section 2
"SSB" Preamble
-5-
"SSB Loan Agreement" Preamble
"SSB Note" Preamble
"SSB Financing Statements" Preamble
"SSB Security Agreement" Preamble
In addition, for purposes of this Agreement, the following terms shall
have the respective meanings set forth below:
"SSB INDEBTEDNESS" means: (i) all obligations of the Borrower to SSB
under the SSB Loan Documents, including, without limitation, all commitment fees
and other fees owing under the SSB Loan Documents, the principal of the SSB Note
and all interest owing on the loans evidenced thereby, in all cases whether such
interest accrued or accrues before or after the institution by or against the
Borrower or proceedings under the Bankruptcy Code or any other law of any
jurisdiction relating to the liquidation or reorganization of debtors or to the
modification or alteration of the rights of creditors or before or after any
declaration or determination of the insolvency or bankruptcy of the Borrower and
(ii) all renewals, extensions and refundings of SSB Indebtedness as defined in
clause (i) above.
"SSB LIEN" means any mortgage, pledge, hypothecation, claim,
encumbrance, lien (statutory or other), preference, priority or other security
agreement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement and any lease having
substantially the same effect as any of the foregoing and any assignment or
deposit arrangement in the nature of a security device) in favor of SSB under
SSB Loan Documents.
"SSB LOAN DOCUMENTS" means the SSB Note, the SSB Loan Agreement, the
SSB Security Agreement, the SSB Financing Statements, and any and all other
documents and instruments at any time evidencing the SSB Indebtedness.
"BANKRUPTCY CODE" means title 11 of the United States Code as from time
to time amended and in effect.
"EVENT OF DEFAULT" shall mean an event which constitutes a default or
an event of default under the applicable loan documents beyond the applicable
grace period therein specified, if any.
"INDEBTEDNESS" means, as the context may require, the SSB Indebtedness
or the KOBE Indebtedness.
"KOBE INDEBTEDNESS" means: (i) all obligations of the Borrower to KOBE
under the KOBE Loan Documents, including, without limitation, all commitment
fees and other fees owing under the KOBE Loan Documents, the principal of the
KOBE Note and all interest owing on the loans evidenced thereby, whether such
interest accrued or accrues before or after the institution by or against the
Borrower of proceedings under the Bankruptcy Code or any other law of any
jurisdiction relating to the liquidation or reorganization of debtors or to the
modification or alteration
-6-
of the rights of creditors or before or after any declaration or determination
of the insolvency or bankruptcy of the Borrower and (ii) all renewals,
extensions and refundings of KOBE Indebtedness as defined in clause (i) above.
"KOBE LIEN" means any mortgage, pledge, hypothecation, claim,
encumbrance, lien (statutory or other), preference, priority or other security
agreement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement and any lease having
substantially the same effect as any of the foregoing and any assignment or
deposit arrangement in the nature of a security device) in favor of KOBE under
KOBE Loan Documents.
"KOBE LOAN DOCUMENTS" means the KOBE Note, the KOBE Security Agreement,
the KOBE Loan Agreement, the KOBE Financing Statements and any and all other
documents and instruments at any time evidencing the KOBE Indebtedness and the
KOBE Lien.
"LOAN DOCUMENTS" means, as the context may require, the SSB Loan
Documents or the KOBE Loan Documents.
"STANDSTILL PERIOD" means the period from the date of this Agreement to
April 30, 1997.
5. MISCELLANEOUS PROVISIONS.
5.1 CONTINUING AGREEMENT. This Agreement shall be a continuing
agreement and shall be irrevocable and shall remain in full force and effect
until the payment in full of all Indebtedness owed to all Creditors except any
one Creditor, and no action which any Creditor, the Borrower may take or refrain
from taking with respect to any such Indebtedness, including any amendments to
any instruments or agreement evidencing such Indebtedness, shall affect the
provisions of this Agreement. No right of any Creditor or any present or future
holder of any Indebtedness owed to the Creditor to enforce the provisions of
this Agreement shall at any time in any way be prejudiced or impaired by any act
or failure to act on the part of the Borrower of by any act or failure to act,
in good faith, by any Creditor, or by any noncompliance by the Borrower with the
terms, provisions and covenants of this Agreement regardless of any knowledge
thereof which any Creditor may have or otherwise be charged with.
5.2 SPECIFIC PERFORMANCE. Any Creditor is hereby authorized to
demand specific performance of this Agreement at any time.
5.3 EFFECT OF PROVISIONS. This Agreement is solely for the
benefit of the Creditors and nothing herein contained shall affect or enlarge or
diminish the rights, duties or obligations of the Borrower under the Loan
Documents of each Creditor. The Borrower shall not be entitled to assert the
provisions of this Agreement as a defense to the acceleration or demand of
Indebtedness relating to, evidenced by or incurred pursuant to the Loan
Documents of any Creditor, or to the commencement of any proceedings whereby any
party hereto seeks to exercise any other rights or remedies under their
respective Loan Documents.
-7-
5.4 WAIVERS. Without notice to the Subordinated Creditor,
without regard to any demand or request by the Subordinated Creditor and without
in any way impairing or affecting this Agreement, any Creditor may from time to
time in its respective absolute discretion, for value or without value, renew or
extend the time of payment of, or grant any other indulgence with respect to,
its Indebtedness, waive compliance with and any Default or Event of Default
under its Loan Documents, modify in any manner or release in whole or in part
any security therefor or any obligations of endorses, sureties or guarantors
thereof, or take any other action with respect to its rights, title or interest
as against the Borrower or any of its claims against any of the foregoing or in
connection therewith, including any release, compromise or settlement with
respect to any of the foregoing. Borrower shall provide the Subordinated
Creditor with three (3) days' prior written notice of any material modification
to the SSB Loan Agreement.
5.5 FURTHER ASSURANCES. The Subordinated Creditor may, at its
reasonable discretion from time to time, upon request of the Senior Creditor,
make, execute and deliver any endorsements, assignments, proofs of claim,
pleadings, verifications, affidavits, consents, agreements or other instruments
or take any other action which the Senior Creditor in its absolute discretion
may deem necessary or desirable in order to effectuate the purposes of this
Agreement, subject to the payment by the Senior Creditor to the Subordinated
Creditor of reasonable costs and expenses incurred therefor by KOBE.
5.6 SUCCESSORS. The provisions of this Agreement shall inure
to the benefit of, and be binding upon, each of the parties hereto and their
respective successors and assigns.
5.7 NOTICES. All notices and other communications required or
permitted to be given hereunder shall be in writing and shall be effective when
mailed, postage prepaid, by registered or certified mail (return receipt
requested), or when delivered to Federal Express or other overnight courier,
delivery charges prepaid, or when transmitted by facsimile machine to a
facsimile machine owned or used by the addressee and the telephonic link has
been verified by such machine or machine operator, addressed in the case of each
of the parties hereto to the address of the party as set forth below:
the Borrower: QC Optics, Inc.
154 Middlesex Turnpike
Burlington, Massachusetts 01803
Attention: President
with a copy to the
Borrower's counsel: O'Connor, Broude & Aronson
Bay Colony Corporate Center
950 Winter Street, Suite 2300
Waltham, Massachusetts 02154
Attention: Neil H. Aronson, Esq.
KOBE: Kobe Steel USA Holdings, Inc.
-8-
535 Madison Avenue
New York, New York
Attention: President
with a copy to
KOBE's counsel: Paul, Hastings, Janofsky & Walker
399 Park Avenue
New York, New York 10022
Attention: Barry Brooks, Esquire
SSB: State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attention: Mr. Bruce Daniels, Vice President
with a copy to
SSB's counsel: Looney & Grossman
101 Arch Street
Boston, Massachusetts 02110
Attention: Bradley W. Snyder, Esq.
to such other address as any of the foregoing parties may from time to time
specify by like notice.
5.8 AMENDMENTS. This Agreement may not be waived, changed
discharged orally, but only by an agreement in writing and signed discharge of
any provision this Agreement shall be without authority and of no force and
effect.
5.9 GOVERNING LAW. This Agreement shall be interpreted in
accordance with and governed by the laws of The Commonwealth of Massachusetts
without regard to choice of laws.
5.10 LITIGATION. Any action or suit in connection with this
Agreement shall be brought in a court of record in Boston, Massachusetts, the
parties hereby irrevocably submitting and consenting to the exclusive
jurisdiction of such courts, and each party irrevocably waives, to the fullest
extent it may effectively do so under applicable law, any objection it may have
or hereafter have to the laying of the venue of any such suit, action or
proceeding brought in any such court and claim that the same has been brought in
an inconvenience forum. Service of process may be made on the other party by
mailing a copy of the summons to such party, by registered mail, at its address
to be used for the giving of notices under this Agreement.
5.11 ENTIRE AGREEMENT; SEVERABILITY. This Agreement, any
Schedules or Exhibits hereto, the other agreements referenced herein, and any
riders or other attachments constitutes the entire agreement between the parties
with respect to the subject matter hereof. No course of dealing, course of
performance or trade usage, and no parol evidence of any nature shall be used to
-9-
supplement or modify the terms of the foregoing documents. If at any time one or
more provisions of this Agreement, any amendment or supplement thereto or any
related writing is or becomes invalid, illegal or unenforceable in whole or in
part in any jurisdiction, the validity, legality and enforceability of such
provision in any other jurisdiction or of the remaining provisions shall not in
any way be affected or impaired thereby.
5.12 COUNTERPARTS. This Agreement may be executed in as many
counterparts as may be deemed necessary and convenient, and by the different
parties hereto on separate counterparts, each of which when so executed shall be
deemed an original, but all such counterparts shall constitute one and the same
instrument.
5.13 HEADINGS. The headings to Sections appearing in this
Agreement have been inserted for the purpose of convenience and ready reference.
They do not purport to, and shall not be deemed to, define, limit or extend the
scope or intent of the Sections to which they appertain.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-10-
IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be duly executed in its name and on its behalf by a duly authorized
officer and its corporate seal to be hereunto affixed and attested, all of the
date first above written.
ATTEST: STATE STREET BANK AND
TRUST COMPANY
/s/ Bradley Snyder By:/s/ Bruce S. Daniels
- ---------------------------------- -----------------------------
Bruce S. Daniels
Vice President
ATTEST: KOBE STEEL USA HOLDINGS, INC.
/s/ By:/s/ Masanobu Iwata
- ---------------------------------- -----------------------------
Its: Secretary
-----------------------------
ATTEST: QC OPTICS, INC.
/s/ Neil H. Aronson By:/s/ Eric T. Chase
- ---------------------------------- -----------------------------
Eric T. Chase,
President
-11-
PROMISSORY NOTE
$4,000,000.00 March 29, 1996
Principal Sum Boston, Massachusetts
FOR VALUE RECEIVED, QC OPTICS, INC., a Delaware corporation
(hereinafter called the "BORROWER"), promises to pay to the order of STATE
STREET BANK AND TRUST COMPANY (hereinafter called the "BANK") at the office of
the Bank located at 225 Franklin Street, Boston, Massachusetts 02110, or such
other places as the holder hereof shall designate, FOUR MILLION ($4,000,000.00)
DOLLARS, or, if less, the aggregate unpaid principal amount of all loans made by
the Bank to the Borrower, together with interest on unpaid balances payable
monthly in arrears on the first day of each calendar month or earlier on demand
at a fluctuating interest rate per annum all as set forth in that certain Credit
Agreement by and between the Borrower and the Bank of even date herewith (the
"Credit Agreement"). The initial rate of interest is equal to one (1%) Percent
above Bank's Prime Rate in effect from time to time. Each change in such
interest rate shall take effect simultaneously with the corresponding change in
such Prime Rate. "Prime Rate" shall mean the rate of interest announced by Bank
in Boston from time to time as its "Prime Rate". Interest shall be calculated on
the basis of actual days elapsed and a 360-day year.
All loans hereunder and all payments on account of principal and
interest hereof shall be recorded by the Bank and, prior to any transfer hereof,
endorsed on the last page of this note. The entries on the records of the Bank
(including any appearing on this note) shall be prima facie evidence of amounts
outstanding hereunder.
Any deposits or other sums at any time credited by or due from the
holder to the Borrower, or to any endorser or guarantor hereof, and any
securities or other property of the Borrower or any such endorser or guarantor
at any time in the possession of the holder may at all times be held and treated
as collateral for the payment of this note and any and all other liabilities
(direct or indirect, absolute or contingent, sole, joint or several, secured or
unsecured, due or to become due, now existing or hereafter arising) of the
Borrower to the holder. Regardless of the adequacy of collateral, the holder may
apply or set off such deposits or other sums against such liabilities at any
time in the case of the Borrower, but only with respect to matured liabilities
in the case of endorsers and guarantors.
The Borrower and every endorser and guarantor of this note hereby waive
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement
hereof and consent that no indulgence, and no substitution, release or surrender
of collateral, and no discharge or release of any other party primarily or
secondarily liable hereon, shall discharge or otherwise affect the liability of
the Borrower or any such endorser or guarantor. No delay or omission on the part
of the holder in
- 1 -
exercising any right hereunder shall operate as a waiver of such right or of any
other right hereunder, and a waiver of any such right on any one occasion shall
not be construed as a bar to or waiver of any such right on any future occasion.
The Borrower represents to the Bank that the proceeds of this Note will
not be used for personal, family, or household purposes.
The Borrower will, pay on demand all reasonable attorney's fees and
out-of-pocket expenses incurred by the Bank in the administration of all
liabilities, obligations, and indebtedness, of the Borrower to the Bank. The
Borrower will also pay on demand, all reasonable attorneys' fees, out-of-pocket
expenses incurred by the Bank's attorneys and all costs incurred by the Bank,
which costs and expenses are directly or indirectly related to the preservation,
protection, collection, or enforcement of any of the Bank's rights against the
Borrower and against any collateral given the Bank to secure this Note or any
extension or other indulgence, as described above, with respect to any other
liability or any collateral given to secure any other liability of the Borrower
to the Bank (whether or not suit is instituted by or against the Bank).
Notwithstanding the foregoing, the Borrower shall only be required to pay
reasonable costs and expenses associated with travel on behalf of the Bank if
the Borrower is then in default under the terms of the Credit Agreement and
after written notice has been given and the applicable cure periods have passed.
BORROWER AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES ANY RIGHT THEY MAY HAVE OR HEREAFTER HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE.
Borrower hereby certifies that neither Bank nor any of its representatives,
agents or counsel has represented, expressly or otherwise, that Bank would not,
in the event of any such suit, action or proceeding, seek to enforce this waiver
of right to trial by jury. Borrower acknowledges that Bank has been induced to
accept this Note and make the loan represented by this Note by, among other
things, this waiver. Borrower acknowledges that it has read the provisions of
this Note and in particular, this Paragraph; has consulted legal counsel;
understands the right it is granting in this Note and is waiving in this
Paragraph in particular; and makes the above waiver knowingly, voluntarily and
intentionally.
This Note shall be binding upon the Borrower and upon its heirs,
successors, assigns, and representatives, and shall inure to the benefit of the
Bank and its successors, endorsees, and assigns.
The Borrower authorizes the Bank to complete this Note in a reasonable
fashion, if delivered incomplete in any respect.
The Borrower has read all of the terms and conditions of this Note and
acknowledges receipt of an exact copy of it.
This Note is delivered to the Bank at one of its offices in
Massachusetts, shall be governed by the laws of The Commonwealth of
Massachusetts, and shall take effect as a sealed instrument. The
-2-
Borrower, submits to the jurisdiction of the courts of The Commonwealth of
Massachusetts for all purposes with respect to this Note, any collateral given
to secure its liabilities, obligations, and indebtedness to the Bank, and its
respective relationships with the Bank.
This Note is secured pursuant to the terms of the Credit Agreement, and
by the Loan Documents thereunder.
It is not the intention of any party to this Note to make an agreement
violative of the laws of any applicable jurisdiction relating to usury.
Regardless of any provision in this Note, the Bank shall never be entitled to
receive, collect or apply, as interest on the Obligations hereunder, any amount
which would cause the interest rate thereon to exceed the maximum rate of
interest permitted by applicable laws (the "Maximum Lawful Rate"). If the Bank
ever receives, collects or applies, as interest, any such excess, such amount
which would be excessive interest shall be deemed a partial repayment of
principal and treated hereunder as such; and if principal is paid in full, any
remaining excess shall be paid to the undersigned. In determining whether or not
the interest paid or payable, under any specific contingency, would cause the
interest rate to exceed the Maximum Lawful Rate, the undersigned and the Bank
shall, to the maximum extent permitted under applicable laws (i) characterize
any nonprincipal payment as an expense, fee or premium rather than as interest,
(ii) exclude voluntary prepayments and the effect thereof, and (iii) amortize,
prorate, allocate and spread in equal parts, the total amount of interest among
all loans through the entire contemplated term of the loans so that the interest
rate is uniform through the entire term of the loans; provided that if the
Obligations hereunder are paid and performed in full prior to the end of the
full contemplated term thereof, and if the interest received for the actual
period of existence thereof would cause the interest rate to exceed the Maximum
Lawful Rate, the Bank shall refund to the undersigned the amount of such excess
or credit the amount of such excess against the total principal amount owing,
and, in such event, the Bank shall not be subject to any penalties provided by
any laws for contracting for, charging or receiving interest in excess of the
Maximum Lawful Rate.
All rights and obligations hereunder shall be governed by the law of
The Commonwealth of Massachusetts and this Note shall be deemed to be under
seal.
QC OPTICS, INC.
Witness:
/s/ Neil H. Aronson By: /s/ Eric T. Chase
- ----------------------------- -------------------------------
Eric T. Chase
President and Treasurer
-3-
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. March 29, 1996
Then personally appeared the above named Eric T. Chase, President and
Treasurer of QC Optics, Inc. and acknowledged the foregoing instrument to be his
free act and deed and the free act and deed of said corporation, before me
/s/ Neil H. Aronson
--------------------------------
Notary Public
My commission expires: Nov. 28, 1997
FOR VALUE RECEIVED, the undersigned and, if more than one, each and all
of them jointly and severally regardless of time or order of signing, hereby
guarantee(s) the prompt payment of this Note in full when due as therein
provided and hereby adopt(s) and assent(s) to the terms and conditions of this
Note, all as provided in the respective guaranty executed by each of the
undersigned and subject to the terms and conditions therein provided.
/s/ Eric T. Chase
--------------------------------
Eric T. Chase, Individually
/s/ K. Andrew Bernal
--------------------------------
K. Andrew Bernal, Individually
QC OPTICS VOTING TRUST
By:/s/ Eric T. Chase
-----------------------------
Eric T. Chase, as Trustee and
not Individually
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. March 29, 1996
Then personally appeared the above named Eric T. Chase, and
acknowledged the foregoing instrument to be his free act and deed, before me
/s/ Neil H. Aronson
-----------------------------------
Notary Public
My commission expires: Nov 28, 1997
------------
-4-
-5-
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. March 29, 1996
Then personally appeared the above named K. Andrew Bernal, and
acknowledged the foregoing instrument to be his free act and deed, before me
/s/ Neil H. Aronson
--------------------------------
Notary Public
My commission expires: Nov 28, 1997
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. March 29, 1996
Then personally appeared the above named Eric T. Chase, Trustee of the
QC Optics Voting Trust, and acknowledged the foregoing instrument to be his free
act and deed, on behalf of the QC Optics Voting Trust before me
/s/ Neil H. Aronson
--------------------------------
Notary Public
My commission expires: Nov 28, 1997
-6-
SECURITY AGREEMENT
(ALL ASSETS)
SECURITY AGREEMENT (ALL ASSETS) (this "AGREEMENT") entered into at
Boston, Massachusetts, as of the 29th day of March, 1996, by and between QC
OPTICS, INC. duly existing under the laws of the State of Delaware and having a
principal place of business at 154 Middlesex Turnpike, Burlington, MA 01803
(hereinafter called the "BORROWER") and STATE STREET BANK AND TRUST COMPANY
organized and existing under the laws of the Commonwealth of Massachusetts
(hereinafter called the "BANK"). The Inventory and Equipment which is the
subject matter of this Agreement is and will be kept at the location or
locations, if more than one, set forth on the attached Exhibit A.
1. In consideration of the Bank's extending credit and other financial
accommodations to the Borrower in accordance with that certain Commitment
Letter, dated March 25, 1996 (the "COMMITMENT LETTER") and the loan documents
hereunder including but not limited to the Borrower's Note of even date (the
"NOTE"), the Borrower hereby grants to the Bank a security interest in
(including, without limitation, a lien on and pledge of) all of the Borrower's
Collateral (as hereinafter defined).
The security interest granted by this Agreement is given to and shall
be held by the Bank as security for the payment and performance of all
Obligations (as hereinafter defined). Following the occurrence of an Event of
Default, not cured within any applicable cure period, the Bank shall have the
unrestricted right from time to time to apply the proceeds of any of the
Collateral to any of the Obligations, as the Bank in its sole discretion may
determine.
During the continuance of this Agreement the Borrower will, at such
intervals as the Bank may request (but not more frequently than monthly), notify
the Bank, upon a form satisfactory to the Bank, of all Collateral which has come
into existence since the date hereof or the date of the last such notification,
including, without limitation, the delivery of schedules of the Collateral
and/or proceeds resulting from the sale or other disposition thereof.
2. The following definitions shall apply:
(a) "COLLATERAL" shall mean all the Borrower's present and
future right, title and interest in and to any and all of the following
property, whether such property be now existing or hereafter created:
(i) All Inventory;
(ii) All accounts receivable, contract rights, and
chattel paper, regardless of whether or not they constitute
proceeds of other Collateral;
- 1 -
(iii) All general intangibles, regardless of whether
or not they constitute proceeds of other Collateral,
including, without limitation, all the Borrower's rights
(which the Bank may exercise or not as it in its sole
discretion may determine) to acquire or obtain goods and/or
services with respect to the manufacture, processing, storage,
sale, shipment, delivery or installation of any of the
Borrower's Inventory or other Collateral;
(iv) All products and accessions to any of the
Collateral;
(v) All liens, guaranties, securities, rights,
remedies and privileges pertaining to any of the Collateral,
including the right of stoppage in transit;
(vi) All tax refunds of every kind and nature to
which the Borrower is now or hereafter may become entitled no
matter however arising, including, without limitation, loss
carry back refunds;
(vii) All obligations owing to the Borrower of every
kind and nature, and all choses in action;
(viii) All goodwill, trade secrets, computer
programs, customer lists, trade names, trademarks and patents;
(ix) All documents and instruments (whether
negotiable or nonnegotiable, and regardless of their being
attached to chattel paper);
(x) All Equipment, including without limitation
machinery, furniture, trade fixtures and all other goods used
in the conduct of the Borrower's business;
(xi) All proceeds of Collateral of every kind and
nature and in whatever form, including, without limitation,
both cash and noncash proceeds resulting or arising from the
rendering of services by the Borrower or the sale or other
disposition by the Borrower of the Inventory or other
Collateral and all insurance proceeds payable under insurance
proceeds relating to any items of Collateral;
(xii) All books and records relating to the conduct
of the Borrower's business including, without in any way
limiting the generality of the foregoing, those relating to
its accounts; and
(xiii) All deposit accounts maintained by the
Borrower with any bank, trust company, investment firm or
fund, or any similar institution or organization.
- 2 -
(b) "CONTRACT RIGHTS" or "CONTRACT RIGHTS" means the rights of
the Borrower to payment under contracts not yet earned by performance
and not evidenced by instruments or chattel paper.
(c) "INVENTORY" shall include, without limitation, any and all
goods, wares, merchandise and other tangible personal property,
including raw materials, whether held by the Borrower for sale or other
disposition, and also including any returned or repossessed Inventory
detained from or rejected for entry into the United States by the
appropriate governmental authorities, all products of and accessions to
Inventory and including documents of title, whether negotiable or
nonnegotiable, representing any of the foregoing.
(d) "DEBTOR(S)" shall mean the Borrower's customers who
are indebted to the Borrower.
(e) "OBLIGATION(S)" shall include, without limitation, all
loans, advances, indebtedness, notes, liabilities and amounts,
liquidated or unliquidated, owing by the Borrower to the Bank at any
time, each of every kind, nature and description, whether arising under
this Agreement or otherwise, and whether secured or unsecured, direct
or indirect (that is, whether the same are due directly by the Borrower
to the Bank; or are due indirectly by the Borrower to the Bank as
endorser or guarantor; absolute or continent, due or to become due, now
existing or hereafter contracted. Said term shall also include all
interest and other charges chargeable to the Borrower or due from the
Borrower to the Bank from time to time and all costs and expenses
referred to in Paragraph 4 of this Agreement.
(f) "EQUIPMENT" shall mean and include all the Borrower's
machinery, equipment, furniture, trade fixtures, and motor vehicles (if
any), including, without limitation, the goods described on Exhibit "B"
annexed hereto, and intending to include all tangible personal property
utilized in the conduct of the Borrower's business (but excluding
therefrom leased and equipment Inventory, as that term is defined in
the Code), as defined below, and all replacements or substitutions
therefor and all accessions thereto.
(g) "PERSON" or "PARTY" shall include individuals, firms,
corporations and all other entities.
(h) "EVENT OF DEFAULT" shall mean the occurrence of any
one or more of the following events:
(i) The occurrence of the Maturity Date (as said term is
defined in the Credit Agreement by and between the
parties hereto of even date) (the "Credit Agreement")
but only if the sums due the Bank thereunder have not
been paid in full;
-3-
(ii) The Borrower shall fail to pay on the due date
thereof any installment of interest due under the
Note; or
(iii) The occurrence of an Event of Default under the
Credit Agreement.
All words and terms used in this Agreement other than those
specifically defined in Paragraph 2, and except as specifically otherwise
provided elsewhere in this Agreement, shall be deemed to have the meanings
accorded to them in the Massachusetts Uniform Commercial Code (General Laws,
Chapter 106) as amended from time to time (herein the "CODE").
3. The Bank hereby authorizes and permits the Borrower to hold, sell,
or use in the processing of finished goods, or otherwise dispose of the
Inventory for fair consideration, all in the ordinary course of the Borrower's
business, excluding, however (but without limiting the generality of the
foregoing), sales to creditors in bulk or sales or other dispositions occurring
under circumstances which would or could create any lien or interest adverse to
the Bank's security interest or other rights hereunder in the proceeds resulting
therefrom. The Bank also hereby authorizes and permits the Borrower to receive
from the Debtors all amounts due as proceeds of the Collateral at the Borrower's
own cost and expense, and also liability, if any, subject to the reasonable
direction and control of the Bank at all times; and the Bank may at any time,
after a default under Paragraph 12 has occurred, terminate all or any part of
the authority and permission herein or elsewhere in this Agreement granted to
the Borrower with reference to the Collateral. Upon an Event of Default, all
proceeds of and collections of the Collateral shall be held in trust by the
Borrower for the Bank and shall not be commingled with the Borrower's other
funds or deposited in any bank account of the Borrower; and the Borrower agrees
to deliver to the Bank on the dates of receipt thereof by the Borrower, duly
endorsed to the Bank or to the bearer, or assigned to the Bank, as may be
appropriate, all proceeds of the Collateral in the identical form received by
the Borrower.
4. The Borrower shall pay to the Bank any and all reasonable costs and
expenses (including, without limitation, reasonable attorney's fees, court
costs, litigation and other expenses) incurred or paid by the Bank in
establishing, maintaining, protecting or enforcing any of the Bank's rights or
the Obligations, including, without limitation, any and all such costs and
expenses incurred or paid by the Bank in defending the Bank's security interest
in, title or right to the Collateral or in collecting or attempting to collect
or enforcing or attempting to enforce payment of the Collateral.
5. From and after notice to the Borrower pursuant to Paragraph 3, at
the expiration of such period of time after receipt by the Bank as the Bank
determines is reasonably sufficient to allow for clearance or payment of any
items, the cash proceeds of the Collateral shall be credited to the Obligations,
it being
-4-
specifically understood and agreed, however, that an account receivable,
contract right, general intangible, negotiable or nonnegotiable instrument
(other than a check), or other non-cash proceeds shall not be so credited until
actual payment thereof. All such credits shall, however, be conditional upon
final payment to the Bank of the items giving rise to them and if any item is
not so paid, the amount of any credit given for it shall be charged as a debit
in said Borrower's loan account, if any, or against any deposit account of the
Borrower with the Bank, whether or not the item is returned.
6. The Borrower shall keep its books and records relating to the
Collateral in a manner reasonably satisfactory to the Bank; and shall deliver to
the Bank from time to time promptly at its request, all invoices, original
documents of title, contracts, chattel paper, instruments and any other writings
relating thereto, and other evidence of performance of contracts, or evidence of
shipment or delivery of the merchandise or of the rendering of services; and the
Borrower will deliver to the Bank promptly at the Bank's reasonable request from
time to time additional copies of any or all such papers or writings, and such
other information with respect to any of the Collateral and such schedules of
Inventory, schedules of accounts and such other writings as the Bank may in its
sole discretion deem to be necessary or effectual to evidence any loan hereunder
or the Bank's security interest in the Collateral.
7. The Borrower shall promptly make, stamp or record such entries or
legends on the Borrower's books and records or on any of the Collateral as the
Bank shall request from time to time to indicate and disclose that the Bank has
a security interest in such Collateral.
8. The Bank, or its representatives, at any time and from time to time
during the Borrower's normal business hours and after twenty-four (24) hours
prior telephone notice, except in the case of an emergency, shall have the
right, and the Borrower will permit them:
(a) to examine, check, make copies of or extracts from any of
the Borrower's books, records and files (including, without limitation,
orders, and original correspondence); and
(b) to inspect and examine the Borrower's Inventory or other
Collateral and to check and test the same as to quality, quantity,
value and condition; and upon Event of Default, the Borrower agrees to
reimburse the Bank for its reasonable costs and expenses in so doing;
and
(c) to verify the Collateral or any portion or portions
thereof or the Borrower's compliance with the provisions of this
Agreement.
-5-
9. The Borrower will execute and deliver to the Bank any writings and
do all things reasonably necessary, effectual or requested by the Bank to carry
into effect the provisions and intent of this Agreement, or to vest more fully
in or assure to the Bank (including, without limitation, all steps to create and
perfect) the security interest in the Collateral granted to the Bank by this
Agreement or to comply with applicable statute or law and to facilitate the
collection of the Collateral, including the furnishing at the Borrower's own
cost and expense, at such intervals as the Bank may establish from time to time,
of reports, financial data and analyses satisfactory to the Bank. A carbon,
photographic or other reproduction of this Agreement or any financing statements
executed pursuant to the terms hereof shall be sufficient as a financing
statement for the purpose of filing with the appropriate authorities.
10. The Borrower covenants with and warrants to the Bank:
(a) That all Inventory and Equipment in which the Bank is now
or hereafter given a security interest pursuant to this Agreement will
at all times be kept and maintained in good order and condition,
ordinary wear and tear and damage by casualty excepted, at the sole
cost and expense of the Borrower.
(b) That the Borrower will maintain in force one or more
policies of insurance on all Inventory and Equipment against risks of
fire (with customary extended coverage), sprinkler leakage, theft, loss
or damage and other risks customarily insured against by companies
engaged in businesses similar to that of the Borrower in such amounts,
containing such terms, in such form, for such periods, covering such
hazards and written by such companies as may be reasonably satisfactory
to the Bank, such insurance to be payable to the Borrower and the Bank
as their interest may appear in the event of loss; the policies for the
same shall be deposited with the Bank; no loss shall be adjusted
thereunder without the Bank's approval, which approval shall not be
unreasonably withheld; and all such policies shall provide that they
may not be cancelled without first giving at least ten (10) days'
written notice of cancellation to the Bank. In the event that the
Borrower fails to provide evidence of the maintenance of such insurance
satisfactory to the Bank, the Bank may, at its option, secure such
insurance and charge the cost thereof to the Borrower and as a debit
charge in the Borrower's account(s) with the Bank. At the option of the
Bank, all insurance proceeds received from any loss or damage to any of
the Collateral shall be applied either to the replacement or repair
thereof or as a payment on account of the Obligations; provided,
however, that prior to the occurrence of an Event of Default, the Bank
hereby agrees that all insurance proceeds received from any loss or
damages to any of the Collateral shall be applied to the replacement or
repair thereof and provided that notwithstanding the foregoing, nothing
contained herein shall
-6-
be construed as limiting in any way the Bank's right to demand payment
of the Obligations. From and after the occurrence of an Event of
Default and after the completion of the liquidation of the Collateral,
the Bank is authorized to cancel any insurance maintained hereunder and
apply any returned or unearned premiums, all of which are hereby
assigned to the Bank, as a payment on account of the Obligations.
(c) That at the date hereof, the Borrower is (and as to
Collateral that the Borrower may acquire after the date hereof, will
be) the lawful owner of the Collateral, and that the Collateral, and
each item thereof, is, will be, and shall continue to be free of all
material restrictions, liens, encumbrances, or other right, title or
interest, credits, defenses, recoupments, set-offs, or counterclaims
whatsoever; that the Borrower has and will have full power and
authority to grant to the Bank a security interest in, and will not
transfer, assign, sell (except sales or other dispositions in the
ordinary course of business in respect to Inventory as expressly
permitted in Paragraph 3 of this Agreement), pledge, encumber, subject
to lien or grant any security interest in any of the Collateral
(without the Bank's prior written consent) (or any of the Borrower's
right, title or interest therein) to any person other than the Bank;
that, to the best knowledge of the Borrower after due inquiry, the
Collateral is and will be valid and genuine in all respects; and that
all accounts receivable are valid and have arisen in the ordinary
course of the Borrower's business; and that upon the Borrower's
acquisition of any interest in contract rights, it shall in writing
immediately notify the Bank thereof, specifically identifying the same
as contract rights, and, except for such contract rights, no part of
the Collateral (or the validity or enforceability by the Bank thereof)
is or shall be contingent upon the fulfillment of any agreement or
condition whatsoever and that the Collateral, other than Inventory and
Equipment, shall represent unconditional and undisputed bona fide
indebtedness by the Debtor for sales or leases of Inventory shipped and
delivered or services rendered by the Borrower to Debtor, and is not
and will not be subject to any discount (except such cash or trade
discounts as may be granted in the ordinary course of business and
shown on any invoice, contract or other writing); and that the Borrower
will warrant and defend the Bank's right to and interest in the
Collateral against all claims and demands of all persons whatsoever.
(d) That no contract right, account, general intangible or
chattel paper is or will be represented by any note or other instrument
(negotiable or otherwise), and that no contract right, account or
general intangible is, or will be represented by any conditional or
installment sales obligation or other chattel paper, except such
instruments or chattel paper as have been or forthwith upon receipt by
the Borrower
-7-
will be delivered to the Bank (duly endorsed or assigned, as may be
appropriate), such delivery, in the case of chattel paper, to include
all executed copies except those in the possession of the installment
buyer (provided, that if the Bank elects to leave chattel paper in the
possession of the Borrower, such procedure shall be subject to the
Borrower's compliance with the provisions of Paragraph 10 hereof and to
the Bank's right to require delivery and endorsement or assignment of
such chattel paper by the Borrower to the Bank whenever the Bank shall
so request); and that any security for or guaranty of any of the
Collateral shall be delivered to the Bank immediately upon receipt
thereof by the Borrower, with such assignments and endorsements thereof
as the Bank may reasonably request.
(e) (i) That, except as the Bank may otherwise approve in
writing, and except for sale, processing, use, consumption or
other disposition in the ordinary course of business pursuant
to Paragraph 3 of this Agreement, the Borrower will keep all
Inventory and Equipment only at one or more of the locations
specified on EXHIBIT A hereto.
(ii) That the Borrower shall, during the term of this
Agreement, keep the Bank currently and accurately informed in
writing of each location where the Borrower's records relating
to its accounts and contract rights, respectively, are kept,
and shall not remove such records, or any of them, to another
state without giving the Bank at least thirty (30) days' prior
written notice thereof.
(iii) That the Borrower's chief executive office is
correctly stated in the preamble to this Agreement, that the
Borrower shall, during the term of this Agreement, keep the
Bank currently and accurately informed in writing of each of
its other places of business, and that the Borrower shall not
change the location of such chief office or open any new, or
close, move or change any existing or new place of business
without giving the Bank at least thirty (30) days' prior
written notice thereof.
(f) That the Bank shall not be deemed to have assumed any
liability or responsibility to the Borrower or any third person for the
correctness, validity or genuineness of any instruments or documents
that may be released or endorsed to the Borrower by the Bank (which
shall automatically be deemed to be without recourse to the Bank in any
event), or for the existence, character, quantity, quality, condition,
value or delivery of any goods purporting to be represented by any such
documents; and that the Bank, by accepting such security interest in
the Collateral, or by releasing any Collateral to the Borrower, shall
not be deemed to have assumed any obligation or liability to any
supplier or Debtor or to any
-8-
other third party, and the Borrower agrees to indemnify and defend the
Bank and hold it harmless in respect to any claim or proceeding arising
out of any matter referred to in this Paragraph 10(f), except for
claims arising out of or related to the Bank's gross negligence or
wilful misconduct.
(g) That if any account receivable or other item of
Collateral, other than Inventory and Equipment, is not paid in full on
or before the date shown as its due date in the schedule of Collateral,
in the copy of the invoice(s) relating to the account or other
Collateral or in contracts relating thereto, the Borrower will notify
the Bank thereof in the next aging report delivered to the Bank, and,
if the Bank so requests, it will pay the Bank within such period as the
Bank shall specify any amounts represented to be owing thereon (any
such payment, however, not to affect the Bank's security interest in
such Collateral); that upon any suspension of business, assignment or
trust mortgage for the benefit of creditors, dissolution, petition in
receivership or under any chapter of the Bankruptcy Code as amended
from time to time by or against any Debtor, any Debtor becoming
insolvent or unable to pay its debts as they mature, or any other act
of the same or different nature amounting to a business failure, the
Borrower will forthwith notify the Bank thereof, and, if the Bank so
requests, will pay to the Bank within such period as the Bank shall
specify, the amount represented to be owing by said Debtor on any
Collateral (any such payment, however, not to affect the Bank's
security interest in such Collateral). Notwithstanding the foregoing if
any of the above actions or proceedings whatsoever, are commenced by or
against Borrower or any Guarantor and any such proceeding not
instituted by Borrower or any Guarantor shall be dismissed or stayed
within forty-five (45) days of same, there shall be no Event of Default
hereunder.
(h) That the Borrower will promptly notify the Bank of any
material loss or damage to, or material diminution in or any occurrence
which would materially adversely affect the value of, the Inventory,
the Equipment or other Collateral. In the event that the Bank, in its
sole discretion, shall determine that there has been any such material
loss, damage or material diminution in value, the Borrower will,
whenever the Bank so requests, pay to the Bank within such period as
the Bank shall specify such amount as the Bank, in its sole discretion,
shall have determined represents such material loss, damage or material
diminution in value (any such payment, however, not to affect the
Bank's security interest in such Inventory, Equipment or other
Collateral).
(i) That the Bank may from time to time in the Bank's
discretion hold and treat any deposits or other sums at any time
credited by or due from the Bank to the Borrower and any securities or
other property of the Borrower in the possession of the Bank, whether
for safekeeping or otherwise, as
-9-
collateral security for and apply or set the same off against any
Obligations whether or not an Event of Default has occurred.
(j) That if any of the Collateral includes a charge for, or if
any loan by the Bank to the Borrower shall be subject to any tax
payable to any governmental taxing authority, the Borrower shall pay
such tax independently when due. The Bank may retain the full proceeds
of the Collateral and the Borrower will indemnify and save the Bank
harmless from any loss, cost, liability or expense (including, without
limitation, reasonable attorney's fees), in connection therewith.
(k) That at any time after an Event of Default has occurred
(unless required pursuant to the Bank's audit process with regards to
the Borrower), the Bank may notify any Debtor or Debtors of its
security interest in the Collateral and collect all amounts due
thereon; and after such an Event of Default has occurred or as required
pursuant to the audit process, the Borrower agrees, at the request of
the Bank, to notify all or any of the Debtors in writing of the Bank's
security interest in the Collateral in whatever manner the Bank
requests, and if the Bank so requests, to permit the Bank to mail such
notices at the Borrower's expense.
(l) That the Bank may, at its option, from time to time,
discharge any taxes, liens or encumbrances on any of the Collateral, or
take any other action that the Bank may deem proper to repair, maintain
or preserve any of the Collateral, and the Borrower will pay to the
Bank on demand or the Bank in its sole discretion may charge to the
Borrower all amounts so paid or incurred by it or as a debit charge
against the Borrower's account(s) with the Bank.
(m) That the Bank in its sole discretion from time to time
shall have the right to receive from Borrower additional property of
nature and types not included in Paragraph 2(a) of this Agreement, and
thereupon the words "COLLATERAL" and "SECURITY INTEREST" (in expansion
of the definitions contained in Paragraph 2) shall be deemed to
include, respectively, any and all such additional property and the
Bank's interests therein. The Borrower shall promptly, upon request of
the Bank, deliver, transfer, assign and make over to the Bank all the
Borrower's right, title and interest in any such additional property;
and shall execute and deliver to the Bank any writings and do all
things necessary, effectual or requested by the Bank to vest fully in
or assure to the Bank (including, without limitation all the rights,
powers, privileges, discretions and immunities granted to it under this
Agreement with the same force and effect as if said additional property
had been listed in Paragraph 2(a) hereof, including, without
limitation, the right to apply such property, or any part thereof, and
any proceeds thereof to any
-10-
Obligations.
(n) That all representations now or hereafter made by the
Borrower to the Bank, whether in this Agreement or in any supporting or
supplemental reports, statements or documentation, including, without
limitation, statements relating to the Collateral and financial
statements, are, will be, and shall continue to fairly represent the
Borrower's financial statements (in the case of financial statements,
as of the respective dates thereof but, in the case of interim
statements, subject to normal year end adjustments), in all respects.
11. After an Event of Default, the Borrower hereby irrevocably
constitutes and appoints the Bank as the Borrower's true and lawful attorney,
with full power of substitution, at the sole cost and expense of the Borrower
but for the sole benefit of the Bank, to convert the Collateral into cash,
including without limitation, completing the processing of work in process, and
the sale (either public or private) of all or any portion or portions of the
Inventory and other Collateral; to enforce collection of the Collateral, either
in its own name or in the name of the Borrower, including, without limitation,
executing releases, compromising or settling with any Debtors and prosecuting,
defending, compromising or releasing any action relating to the Collateral; to
receive, open and dispose of all mail addressed to the Borrower and to take
therefrom any remittances or proceeds of Collateral in which the Bank has a
security interest; to notify Post Office authorities to change the address for
delivery of mail addressed to the Borrower to such address as the Bank shall
designate; to endorse the name of the Borrower in favor of the Bank upon any and
all checks, drafts, money orders, notes, acceptances or other instruments of the
same or different nature; to sign and endorse the name of the Borrower on and to
receive as secured party any of the Collateral, any invoices, schedules of
Collateral, freight or express receipts, or bills of lading, storage receipts,
warehouse receipts, or other documents of title of the same or different nature
relating to the Collateral; to sign the name of the Borrower or any notice to
the Debtors or on verification of the Collateral; and to sign and file or record
on behalf of the Borrower any financing or other statement in order to perfect
or protect the Bank's security interest. The Bank shall not be obliged to do any
of the acts or exercise any of the powers hereinabove authorized, but if the
Bank elects to do any such act or exercise any such power, it shall not be
accountable for more than it actually receives as a result of such exercise of
power, and it shall not be responsible to the Borrower except for gross
negligence or wilful misconduct. All powers conferred upon the Bank by this
Agreement, being coupled with an interest, shall be irrevocable so long as any
Obligation of the Borrower to the Bank shall remain unpaid.
Whenever the Bank deems it desirable that any legal action be
instituted with respect to any Collateral or that any other action be taken in
an attempt to effectuate collection of any Collateral,
-11-
the Bank may reassign the item in question to the Borrower (and if the Bank
shall execute any such reassignment, it shall automatically be deemed to be
without recourse to the Bank in any event) and require the Borrower to proceed
with such legal or other action at the Borrower's sole liability, cost and
expense, in which event all amounts collected by the Borrower on such item shall
nevertheless be subject to the provisions of the last sentence of Paragraph 3 of
this Agreement.
12. If an Event of Default shall occur, at the election of the Bank,
all Obligations shall become immediately due and payable without notice or
demand.
The Bank is hereby authorized, at its election, at any time or times
after any Event of Default shall have occurred, or without any further demand or
notice except to such extent as notice may be required by applicable law, to
sell or otherwise dispose of all or any of the Collateral at public or private
sale; and the Bank may also exercise any and all other rights and remedies of a
secured party under the Code or which are otherwise accorded to it by applicable
law, all as the Bank may determine. If notice of a sale or other action by the
Bank is required by applicable law, the Borrower agrees that ten (10) days'
written notice to the Borrower, or the shortest period of written notice
permitted by such law, whichever is larger, shall be sufficient; and that to the
extent permitted by such law, the Bank, its officers, attorneys and agents may
bid and become purchasers at any such sale, if public, and may purchase at any
private sale any of the Collateral that is of a type customarily sold on a
recognized market or which is the subject of widely distributed standard price
quotations, and any sale (public or private) conducted in accordance with
applicable law shall be free from any right of redemption, which the Borrower
hereby waives and releases. No purchaser at any sale (public or private) shall
be responsible for the application of the purchase money. Any balance of the net
proceeds of sale remaining after paying all direct Obligations of the Borrower
to the Bank, and all costs and expenses of manufacturer, processing, completion
or installation of the Inventory; collection, storage, custody, sale and
delivery of the Inventory, the Equipment, and/or the Collateral, including,
without limitation, reasonable attorneys' fees, and after retaining as
collateral security or applying as the Bank may elect (in whole or in part at
any time and from time to time) amounts equal to the aggregate of all other
Obligations shall be returned to the Borrower or to such other party as may be
legally entitled thereto; and if there is a deficiency, the Borrower shall be
responsible for the same, with interest. Upon demand by the Bank, the Borrower
shall assemble the Collateral and make it available to the Bank at a place
designated by the Bank which is reasonably convenient to the Bank and the
Borrower.
13. The Borrower waives notice of nonpayment, presentment, protest or
notice of protest of the Collateral, and all other notices, consents to any
renewals or extensions of time of payment thereof, and generally waives any and
all suretyship defenses and
-12-
defenses in the nature thereof. No delay or omission of the Bank in exercising
or enforcing any of its rights, powers, privileges, remedies, immunities or
discretions (all of which are hereinafter collectively referred to as "THE
BANK'S RIGHTS AND REMEDIES") hereunder shall constitute a waiver thereof; and no
waiver by the Bank of any default of the Borrower hereunder shall operate as a
waiver of any of any other default hereunder. No term or provision hereof shall
be waived, altered or modified except with the prior written consent of the
Bank, which consent makes explicit reference to this Agreement. Except as
provided in the preceding sentence, no other agreement or transaction, of
whatsoever nature, entered into between the Bank and the Borrower at any time
(whether before, during or after the effective date or term of this Agreement),
shall be construed in any particular as a waiver, modification or limitation of
any of the Bank's rights and remedies under this Agreement (nor shall anything
in this Agreement be construed as a waiver, modification or limitation of any of
the Bank's rights and remedies under any such other agreement or transaction)
but all the Bank's rights and remedies not only under the provisions of this
Agreement but also under any such other agreement or transaction shall be
cumulative and not alternative or exclusive, and may be exercised by the Bank at
such time or times and in such order of preference as the Bank in its sole
discretion may determine.
14. If any provision of this Agreement or portion of such provision or
the application thereof to any person or circumstance shall to any extent be
held invalid or unenforceable, the remainder of this Agreement (or the remainder
of such provision) and the application thereof to other persons or circumstances
shall not be affected thereby.
15. This Agreement shall be binding upon and inure to the benefit of
the respective executors, administrators, legal representatives, successors and
assigns of the parties hereto, and shall remain in full force and effect (and
the Bank shall be entitled to rely thereon, notwithstanding payment of all
Obligations of the Borrower to the Bank at any time or times) until terminated
as to future transactions by written notice from either party to the other party
of the termination hereof; provided that any such termination shall not release
or affect any Collateral in which the Bank already has a security interest or
any Obligations incurred or rights accrued hereunder prior to the effective date
of such notice (as hereinafter defined) of such termination. Notwithstanding any
such termination, the Bank shall have a security interest in all Collateral to
secure the payment and performance of Obligations arising after such termination
as a result of commitments or undertakings made or entered into by the Bank
prior to such termination. The Bank may transfer and assign this Agreement and
deliver the Collateral to the assignee, who shall thereupon have all of the
rights of the Bank; and the Bank shall then be relieved and discharged of any
responsibility or liability with respect to this Agreement and the Collateral.
-13-
16. This Agreement is intended to take effect as a sealed instrument
and has been executed or completed and is to be performed in the Commonwealth of
Massachusetts, and it and all transactions thereunder or pursuant thereto shall
be governed as to interpretation, validity, effect, rights, duties and remedies
of the parties thereunder and in all other respects by the domestic laws of
Massachusetts.
17. Any notices under or pursuant to this Agreement shall be deemed
duly received by the Borrower and effective if delivered in hand to any officer
or agent of the Borrower, or, if mailed by registered or certified mail, return
receipt requested, addressed to the Borrower at the Borrower's last address on
the Bank's records, five (5) days after any such notice is mailed with a copy to
Neil H. Aronson, Esq., O'Connor Broude & Aronson, 950 Winter Street, Waltham, MA
02154.
Any notices to the Bank under or pursuant to this Agreement shall be
deemed effective, five (5) days after any such notice is mailed, if mailed to
the Bank by registered, certified, or express mail, return receipt requested,
addressed to the Bank as follows:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110-2804
ATTN: Bruce S. Daniels, Vice President.
with a copy to:
Bradley W. Snyder, Esq.
Looney & Grossman
101 Arch Street
Boston, MA 02110.
IN WITNESS WHEREOF, the parties have set their hands as of the day and
year first written, intending that said Agreement is signed as a sealed
instrument.
STATE STREET BANK AND QC OPTICS, INC.
TRUST COMPANY
BY: /s/ Bruce S. Daniels BY: /s/ Eric T. Chase
---------------------------- ---------------------------
Bruce S. Daniels, Eric T. Chase, President
Vice President and Treasurer
-14-
EXHIBIT A
LOCATIONS OF INVENTORY AND EQUIPMENT
Name of Owner General Description
of Facility Location Of Items
- ----------- -------- --------
N.W. Building 24 Trust 154 Middlesex Turnpike Collateral (as
50 Congress Street Burlington, MA 01803 defined herein)
Koll/Intereal Bay Area 2000 Wyatt Drive Collateral (as
500 Hopyard Road Suite 15 defined herein)
Suite 330 Santa Clara, CA 95054
Pleasanton, CA 94588
-15-
EXHIBIT B
SCHEDULE OF EQUIPMENT
(PER MOST RECENT APPRAISAL OR DEPRECIATION SCHEDULE)
-16-
CREDIT AGREEMENT
----------------
This CREDIT AGREEMENT (this "AGREEMENT") is entered into as of this
29th day of March, 1996, by and between STATE STREET BANK AND TRUST COMPANY (the
"BANK") and QC OPTICS, INC. (the "BORROWER").
BACKGROUND
WHEREAS, the Borrower has requested that the Bank establish a Revolving
Line of Credit in favor of the Borrower in the principal amount of
$4,000,000.00; and
WHEREAS, the Bank has agreed to establish such a Line of
Credit subject to the terms and conditions hereof;
IN CONSIDERATION THEREOF, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
--------------------------------
SECTION 1.01. DEFINED TERMS. As used in this Agreement, the following
terms have the following meanings (terms defined in the singular to have the
same meaning when used in the plural and vice versa):
"AFFILIATE" means a person or entity which is a parent, subsidiary or
brother/sister corporation of or a person or entity who or which owns or holds a
significant ownership interest in or in which a significant ownership interest
is owned or held by, the Borrower, including, without limitation, the
Guarantors.
"AGREEMENT" means this Credit Agreement, as amended, supplemented, or
modified from time to time.
"BANK'S PRIME RATE" shall mean the rate of interest announced by the
Bank in Boston from time to time as its "PRIME RATE".
"BANKING DAY" shall mean a day on which commercial banks are open for
business in Boston, Massachusetts.
"BORROWING BASE" shall mean as of any time, a sum equal to the total of
the percentages set forth below:
a) 80% of all Eligible Receivables; plus
- 1 -
b) 10% of all Qualified Inventory (but not to exceed the sum
of $350,000.00).
In no event shall the Borrowing Base exceed the sum of Four Million
($4,000,000.00) Dollars.
"COLLATERAL" means all property which is subject or is to be subject to
the Lien granted by the Loan Documents.
"COMMITMENT" means the Bank's agreement as set forth in the Bank's
Commitment Letter dated March 25, 1996, to make Loans to the Borrower.
"DEBT" means (1) indebtedness or liability for borrowed money or for
the deferred purchase price of property or services (including trade
obligations); (2) obligations as lessee under capital leases; (3) current
liabilities in respect to unfunded vested benefits under any plan; (4)
obligations under letters of credit issued for the account of any Person; (5)
all guaranties, endorsements (other than for collection or deposit in the
ordinary course of business), and other contingent obligations to purchase, to
provide funds for payment, to supply funds to invest in any Person, or otherwise
to assure a creditor against loss; and (6) obligations secured by any Lien on
property owned by the Borrower, whether or not the obligations have been
assumed.
"ELIGIBLE ACCOUNTS RECEIVABLE" shall have the meaning set forth in
Paragraph 2.07 herein.
"EVENT OF DEFAULT" means any of the events specified in Section 7.01.
"GUARANTORS" shall mean Eric T. Chase, K. Andrew Bernal, and The QC
Optics Voting Trust, jointly and severally.
"GUARANTY" shall mean the Unlimited Guaranties dated the date hereof
issued by the Guarantors to the Bank and guarantying to the Bank the
Obligations.
"HEAD OFFICE" means the principal office of the Bank at 225 Franklin
Street, Boston, Massachusetts 02110.
"INVENTORY" means all goods now owned or hereafter acquired by the
Borrower and intended for sale, all raw materials, parts, work-in-process,
finished goods, and all materials and supplies which are used or which may be
used in manufacturing, selling,
- 2 -
packing, shipping, advertising or furnishing of goods, whether now owned or
hereafter acquired or created and wherever located as well as all proceeds
(including without limitation, insurance proceeds) and products of the
foregoing.
"LIEN" means any mortgage, deed of trust, pledge, security interest,
hypothecation, deposit arrangement, encumbrance, lien (statutory or other), pre
or post-judgment attachment or preference, or other security agreement or
encumbrance of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction to evidence any of the foregoing).
"LOANS" shall have the meaning assigned to such term in Section 2.01.
"LOAN DOCUMENTS" means this Agreement, the Note, the Security Agreement
(All Assets) from the Borrower and all other related documents and instruments
executed and delivered by Borrower to the Bank, all of even date herewith, and
all extensions, ratifications and modifications thereof, and supplements
thereto.
"MAXIMUM ADVANCE LEVEL" shall have the meaning set forth in Paragraph
2.07 herein.
"NOTE" shall have the meaning assigned to such term in Section 2.04
herein.
"OBLIGATIONS" means of all the Borrower's Debt to Bank and all of
Borrower's other liabilities to Bank of every kind, nature and description,
direct or indirect, secured or unsecured, joint, several, joint and several,
absolute or contingent, due or to become due, now existing or hereafter arising
regardless of how such Debt liability arises or by what agreement or instrument
it may be evidenced, or whether evidenced by any agreement or instrument,
including, but not limited, to the Loan, any other Debt or liability of Borrower
under this Agreement or any other Loan Document or under any other financing
agreement between Bank and Borrower and all obligations of Borrower to Bank to
perform acts or refrain from taking any action.
- 3 -
"OPERATING ACCOUNTS" means all of the Borrower's operating accounts,
including, without limitation, all of the Borrower's deposit and disbursement
accounts.
"PERMITTED ENCUMBRANCES" means Prior Liens and other Liens, which the
Borrower is permitted to grant, either by the provisions of this Agreement or
any other Loan Document, or as described on Schedule 3.01(2) hereto.
"PERSON" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority, or other entity of whatever nature.
"QUALIFIED CERTIFIED ACCOUNT" means a Certified Account not considered
a Disqualified Account (as defined herein) and not excluded pursuant to Section
2.08 below.
"QUALIFIED INVENTORY" means all Inventory owned by Borrower, valued at
the lower of market or cost on a first in first out basis, but excluding (i)
Inventory located outside the United States; (ii) any Inventory in which the
Bank does not have a fully perfected security interest, (iii) any used items of
Inventory and (iv) samples, returnables, damaged items, overstock items, or any
other items of Inventory designated by the Bank in its sole discretion from time
to time. In no event shall the Qualified Inventory exceed the sum of
$3,500,000.00 resulting in Borrowing Base eligibility of $350,000.00.
"SUBSIDIARY OR "SUBSIDIARIES" means, as to any Person, a corporation of
which shares of stock having ordinary voting power (other than stock having such
power only by reason of the happening of a contingency) to elect a majority of
the board of directors or other managers of such corporation are at the time
owned, or the management of which is otherwise controlled, directly, or
indirectly through one or more intermediaries, or both, by such Person.
SECTION 1.02. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with Generally Accepted
Accounting Principles (GAAP) consistent with that applied in the preparation of
the financial statements referred to in Section 4.01, and all financial data
submitted pursuant to this Agreement shall be prepared in accordance with such
principles, except interim financial data may be subject to year-end
adjustments.
- 4 -
SECTION 1.03. CAPITAL ADEQUACY. If after the date of this Agreement,
the Bank shall have determined that the adoption or implementation of any
applicable law, rule or regulation regarding capital requirements for banks or
bank holding companies, or any change therein (including, without limitation,
any change according to a prescribed schedule of increasing requirements,
whether or not known on the date of this Agreement), or any change in the
interpretation or administration thereof by any governmental authority central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by the Bank with any request or directive of such entity
regarding capital adequacy (whether or not having the force of law) has the
effect of reducing the return on the Bank's capital to a level below that which
the Bank could have achieved (taking into consideration the Bank's policies with
respect to capital adequacy immediately before such adoption, implementation,
change or compliance and assuming that the Bank's capital was fully utilized
prior to such adoption, implementation, change or compliance) but for such
adoption, implementation, change or compliance as a consequence of its
commitment to make Loans hereunder by any amount deemed by the Bank to be
material, the Borrowers shall pay to the Bank as an additional fee from time to
time on demand such amount as the Bank shall have determined to be necessary to
compensate it for such reduction. The determination by the Bank of such amount,
if done on the basis of any reasonable averaging and attribution methods,shall
in the absence of manifest error be conclusive. The Bank agrees to promptly
notify the Borrowers in writing of any such determination and not to require
payment of such amount unless and until such reduction shall have been effected.
At the Borrower's request, the Bank shall demonstrate the basis of such
determination.
ARTICLE II
AMOUNT AND TERMS OF THE LOANS
-----------------------------
SECTION 2.01. LINE OF CREDIT. The Bank shall from time to time make
loans to the Borrower under and pursuant to the terms of this Agreement and the
obligations to repay as evidenced under the Note (the "NOTE") of even date, in
the form annexed hereto as Exhibit 2.04, in an aggregate amount not to exceed
Four Million ($4,000,000.00) Dollars and as further limited as provided in
Sections 2.07 and 2.08 below (the "LINE OF CREDIT"). This Agreement is, and is
intended to be a, continuing agreement and shall remain in full force and effect
for a term ending on June 30, 1998 (the "MATURITY DATE") whereupon all
Obligations shall be due and payable in full without presentation, demand, or
further notice
-5-
of any kind, whether or not all or any part of the Obligations is otherwise due
and payable pursuant to the agreement or instrument evidencing same. The Bank
may terminate this Agreement immediately and without notice upon the occurrence
of an Event of Default. Notwithstanding the foregoing or anything in this
Agreement or elsewhere to the contrary, the Bank's security interest, the Bank's
rights and remedies and the Borrower's Obligations and liabilities hereunder
shall survive any termination of this Agreement and shall remain in full force
and effect until all of the Obligations outstanding before the receipt of such
notice by Bank, and any extensions or renewals thereof (whether made before or
after receipt of such notice) together with interest accruing thereon after such
notice, shall be finally and irrevocably paid in full. No collateral shall be
released or financing statement terminated until such final and irrevocable
payment in full of the Obligations, as described in the preceding sentence. The
loans made pursuant to this section, shall be known as the "LOAN" or "LOANS" as
the context requires or permits.
SECTION 2.02. NOTICE AND MANNER OF BORROWING. The Borrower shall give
the Bank a request for Borrowing (effective upon receipt) of any Loans under the
Line of Credit, specifying the date and amount thereof, which shall be in
increments of not less than $10,000.00. Not later than 2:00 P.M. on the date of
such request and upon fulfillment of the applicable conditions set forth in
Article III, the Bank will make such Loan available to Borrower in immediately
available funds by crediting the amount thereof to Borrower's primary Operating
Account with the Bank. In the alternative, the Borrower may utilize the Bank's
Liquidity Management Control System ("LMCS").
SECTION 2.03. INTEREST. The Borrower shall pay interest to the Bank on
the outstanding and unpaid principal amount of the Loans, at a fluctuating
interest rate per annum equal to the Bank's Prime Rate in effect from time to
time plus one (1%) percent. Each change in such interest rate shall take effect
simultaneously with the corresponding change in such Prime Rate. Interest shall
be calculated on the basis of actual days elapsed and a 360-day year. Interest
on the Line of Credit shall be paid by debiting the Borrower's primary Operating
Account on the first business day of each month. Notwithstanding the foregoing,
upon the elimination of the over-advance (as said term is defined in Section
2.07 hereunder) the Borrower shall pay interest to the Bank on the outstanding
and unpaid amount of the Loans, at a fluctuating interest rate per annum equal
to the Bank's Prime Rate in effect from time to time plus one-half of one (1/2%)
percent.
-6-
SECTION 2.04. NOTE. All Loans relative to the Line of Credit made by
the Bank under this Agreement shall be evidenced by, and repaid with interest in
accordance with a promissory note of the Borrower in the form of Exhibit 2.04
duly completed and fully executed in the principal amount of Four Million
($4,000,000.00) Dollars, dated the date of this Agreement, payable to the Bank,
(the "NOTE"). The Bank is hereby authorized by the Borrower to endorse on any
schedule attached to the Note the amount of each Loan and of each payment of
principal received by the Bank on account of the Line of Credit or on any other
schedule or record of the Bank, which endorsement shall, in the absence of
manifest error, be prima facie as to the outstanding balance of the Loans under
the Line of Credit made by the Bank; provided, however, that the failure to make
such notation with respect to any Loan or payment shall not limit or otherwise
affect the obligations of the Borrower under this Agreement or the Note.
SECTION 2.05. PREPAYMENTS. The Borrower may at any time prepay the Note
in whole or in part without penalty with accrued interest to the date of such
repayment on the amount prepaid. Notwithstanding that the Borrower has made any
prepayments under the Line of Credit, Borrower may reborrow any such funds at
any time subject to the Bank's discretion as set forth herein.
Notwithstanding the foregoing, if the outstanding Obligations hereunder
are repaid within two (2) years of the date hereof with the proceeds of a
refinancing or recapitalization of the Borrower (including but not limited to a
public offering or private placement), a minimum prepayment fee would be due,
calculated as a percentage of the repayment amount, as follows (the "PREPAYMENT
FEE"):
Months From Closing Percent
------------------- -------
0 - 6 8%
6 - 12 6%
12 - 18 4%
SECTION 2.051. REPAYMENT UPON DEMAND. The Borrower shall repay in full
the Loans evidenced by the Note and Line of Credit upon the first to occur of:
(i) the Maturity Date or (ii) an acceleration under Article 7 following an Event
of Default as defined in Section 7.01 subsections (2) - (8).
-7-
SECTION 2.06. UNUSED FEE. In addition to the principal and interest
payments required under the Loan the Borrower agrees to pay an ongoing
Commitment Fee on the daily unused portion of the facility at the rate of
one-quarter of one (1/4%) percent per annum, payable monthly in arrears on the
first day of each month. The Unused Fee shall be calculated on the basis of a
year of 360 days and paid for the actual number of days elapsed.
SECTION 2.07. LIMITATIONS ON LINE OF CREDIT. The aggregate of the Loans
outstanding to the Borrower under the Note shall at no time exceed the sum of
(a) Eighty (80%) percent of Eligible Receivables, as defined herein, and Ten
(10%) percent of the Qualified Inventory, as defined herein (the "MAXIMUM
ADVANCE LEVEL"). Notwithstanding the foregoing, the aggregate of the Loans
outstanding may exceed the Maximum Advance Level by the sum of $500,000.00 for
the period from the date hereof through October 31, 1996 (the "OVER-ADVANCE").
If, at any time, the aggregate Loans outstanding exceed the Maximum Advance
Level (except for the Over- Advance), the Borrower shall immediately pay to the
Bank such sums as to bring the balance down to the Maximum Advance Level.
For purposes of this Agreement, the term "ELIGIBLE RECEIVABLES" shall
mean accounts (as defined in the Massachusetts UCC) owing to the Borrower which
meet the following specifications:
(i) The Account is not more than ninety (90) days from the date of the
Invoice, except to the extent of any final acceptance payments on
equipment sales in accordance with the Borrower's standard sales
agreement (not to exceed twenty (20%) percent of the total Invoice
amount) which shall not be more than one hundred-fifty (150) days from
the Invoice date;
(ii) The Account arises from the performance of services or a bona fide
sale or lease of goods except that service contracts are specifically
excluded herefrom;
(iii) The Account is not subject to a prior assignment, claim, lien or
security interest except to subordinated lenders who have entered into
a Subordination Agreement with the Bank;
(iv) The Account is not subject to set-off, credit, allowances or
adjustments, except discounts for prompt payment and allowances or
adjustments set forth on the original invoice;
-8-
(v) The Account is owned by an account debtor whose place of business
is not outside of the United States, unless said account debtor with a
foreign place of business has been approved prior thereto by the Bank.
The initial list of acceptable account debtors with foreign places of
business is attached hereto as Schedule 2.07(v).
(vi) The Account is not owed by an Affiliate of the Borrower
or the Guarantors.
(vii) The Account is not owed from an entity which is owed monies (or
other indebtedness) from the Borrower (the "Contra Amount") except that
only the Contra Amount portion shall be eliminated from the Qualified
Account.
SECTION 2.08. EXCLUSION OF CERTAIN ELIGIBLE ACCOUNTS AND/OR QUALIFIED
INVENTORY FROM THE BORROWING BASE. The Bank shall have the right in its sole
discretion at any time and for any reason to exclude any Eligible Account and/or
Qualified Inventory from the Borrowing Base except that the Bank shall be
obligated to act in a reasonable manner in making any such exclusion.
SECTION 2.09. CERTIFICATION OF COLLATERAL. Prior to the making of the
first loan relative to the Line of Credit hereunder the Borrower will deliver to
the Bank a Certificate, in a form approved by the Bank: (a) listing the
Borrower's then existing Accounts Receivable having been earned by performance;
(b) containing such information in respect to such Accounts Receivable,
Inventory and any other Collateral as the Bank may request; and (c) containing a
calculation of the Borrowing Base as of the date of the Certificate. Thereafter,
at predetermined times agreed to by the Bank and the Borrower, the Borrower will
deliver to the Bank similar Certificates in respect to all Accounts Receivable
of the Borrower as to which rights have been earned by performance not
previously certified to the Bank and a Schedule of Inventory owned by such
Borrower and in such Borrower's possession, and other information requested by
the Bank. With each such Certificate, the Borrower will upon request by the
Bank, furnish to the Bank such information as to each Account Receivable
identified on the Certificate as the Bank may request, together with a duplicate
of the invoice, copies of the shipping documents or other evidence of delivery,
if any, and all contracts, guaranties, orders and other documents requested by
the Bank, or, if the Bank at any time shall relieve the Borrower of the
obligation to furnish such documents with such Certificates, the Borrower will
keep all such documents
-9-
segregated and available for inspection by the Bank and will furnish same to the
Bank upon request.
SECTION 2.10. OVER-ADVANCE PAYMENT. Upon the elimination of both the
Over-Advance and the inclusion of the Qualified Inventory in the Borrowing Base
or if the Borrower has completed an Initial Public Offering (or other capital
infusion in form and substance reasonably satisfactory to the Bank) with
aggregate net proceeds of at least Five Million ($5,000,000.00) Dollars into the
Borrower and concurrently in either case, there is no Event of Default (or
Suspension Event) under this Credit Agreement and all Loan Documents hereunder,
then the Guaranties and the Collateral Pledge Agreement will be released by the
Bank. "Net Proceeds" shall be defined for the purposes of this subsection as
gross proceeds less underwriting discounts and commissions.
ARTICLE III
CONDITIONS PRECEDENT
--------------------
SECTION 3.01. CONDITIONS PRECEDENT TO INITIAL LOAN AND SUBSEQUENT
LOANS. The agreement of the Bank to make any Loan to the Borrower is subject to
the condition precedent that the Bank shall have received on or before the day
of such Loan each of the following in form and substance satisfactory to the
Bank and its counsel:
(1) NOTE. The Note executed by the Borrower;
(2) SECURITY AGREEMENT (ALL ASSETS). The Security Agreement and any
amendments thereto or acknowledgement thereof duly executed by Borrower together
with (a) acknowledgment copies of the Financing Statements (UCC-1) duly filed
under the Uniform Commercial Code in all jurisdictions necessary or, in the
opinion of the Bank, desirable to perfect the security interests created by the
Security Agreement, or other evidence satisfactory to the Bank indicating that
no party claims an interest in any of the Collateral except as set forth in the
Schedule of Permitted Encumbrances attached hereto as Schedule 3.01(2);
(3) EVIDENCE OF ALL CORPORATE ACTION BY THE BORROWER. Certified (as of
the date of this Agreement) copies of all corporate action taken by the
Borrower, including resolutions of its Board of Directors, authorizing the
execution, delivery, and performance of the Loan Documents to which such
Borrower is a party and each other document to be delivered pursuant to this
Agreement;
-10-
(4) INCUMBENCY AND SIGNATURE CERTIFICATE OF THE BORROWER. Certificates
(dated as of the date of this Agreement) of the Secretary of the Borrower
certifying the names and true signatures of the officers of such Borrower
authorized to sign the Loan Documents to which it is a party and the other
documents to be delivered by the Borrower under this Agreement;
(5) OPINION(S) OF COUNSEL FOR THE BORROWER. An opinion of Borrower's
counsel, dated as of the date hereof in a form and of such substance as the Bank
may reasonably request.
(6) INTENTIONALLY OMITTED.
(7) GUARANTIES. The Guaranties issued and executed by the Guarantors.
(8) COLLATERAL PLEDGE AGREEMENTS. A Collateral Pledge Agreement duly
executed by QC Optics Voting Trust relative to ________ shares of the common,
$.01 par value stock of QC Optics, Inc. (the "Collateral Pledge Agreements").
(9) COLLATERAL ASSIGNMENT OF TRADEMARKS AND PATENTS. Collateral
Assignment of Trademarks and Patents duly executed by the Borrower.
(10) LANDLORD-MORTGAGEE WAIVER AND ASSIGNMENT OF LEASE WITH LANDLORD'S
CONSENT. A Landlord-Mortgagee Waiver of lien, together with a conformed copy of
the Lease relative to the premises located at 154 Middlesex Turnpike,
Burlington, MA as well as an Assignment of Lease with Landlord's Consent.
(11) KOBE STEEL AGREEMENT. A fully executed Stock Repurchase and Loan
Repayment Agreement, dated as of October 27, 1995 and all amendments thereto in
form and substance satisfactory to the Bank (the "Kobe Agreement").
(12) OTHER DOCUMENTS. Such other documents or certificate as may be
reasonably requested by the Bank, or its counsel and/or as are required under
the terms of this Agreement or any Loan Document.
ARTICLE IV
REPRESENTATION AND WARRANTIES
-----------------------------
The Borrower represents and warrants to the Bank that:
-11-
SECTION 4.01. FINANCIAL STATEMENTS. The financial statements of the
Borrower for the fiscal year then ended, and the accompanying footnotes, as
described in Schedule 4.01, fairly present the financial condition of Borrower
as at such dates and the results of the operations of Borrower for the periods
covered by such statements, all in accordance with GAAP consistently applied
(subject to year-end adjustments in the case of the interim financial
statements), and since the date through which the financial statements cover,
there has been (a) no material adverse change in the condition (financial or
otherwise), business, or operations of Borrower (b) any damage, destruction or
loss materially adversely affecting Borrower's business; (c) any declaration or
making of any dividend or other distribution to the stockholders of the Borrower
with respect to Borrower's capital stock or any direct or indirect redemption,
purchase or other acquisition of any such stock; (d) any increase in
compensation payable or to become payable by Borrower to any of its executive
officers or any general wage increase; or (e) any materially adverse controversy
with employees, labor unions or governmental agency. There are no liabilities of
Borrower, fixed or contingent, which are material but are not reflected in the
financial statements or in the notes thereto, other than liabilities arising in
the ordinary course of business. No information, schedule, exhibit, or report
furnished by the Borrower to the Bank in connection with the negotiation of this
Agreement contained any material misstatement of fact or omitted to state a
material fact or any fact necessary to make the statement contained therein not
materially misleading.
SECTION 4.02. LITIGATION. Except as set forth on Schedule 4.02, there
is no pending or, to the Borrower's knowledge, threatened action or proceeding
against or affecting the Borrower before any court, governmental agency, or
arbitrator which may, in any one case or in the aggregate, materially adversely
affect the financial condition, operations, properties, or business of the
Borrower or the ability of the Borrower to perform its Obligations under the
Loan Documents to which it is a party.
SECTION 4.03. TAXES. The Borrower has filed all income tax returns,
excise tax returns and other tax returns (federal, state, and local) required to
be filed and has paid all taxes, assessments, and governmental charges and
levies thereon to be due, including interest and penalties. To the Borrower's
knowledge, no audit or investigation is presently being conducted with regard to
any tax return or tax obligation of Borrower.
-12-
SECTION 4.04. PATENTS/LICENSES/TRADEMARKS. Schedule 4.04 annexed hereto
is a listing of all patents and/or patents pending, trademarks, copyrights,
licenses and similar agreements in which the Borrower has an interest.
SECTION 4.05. INCORPORATION, GOOD STANDING, AND DUE QUALIFICATION. The
Borrower is a corporation duly incorporated, validly existing, and in corporate
good standing under the laws of the state of its incorporation; has the
corporate power and authority to own its assets and to transact the business in
which it is now engaged or proposed to be engaged in; and is duly qualified as a
foreign corporation and in good standing under the laws of each other
jurisdiction in which such qualification is required and in which the failure to
be so qualified would have a material adverse effect on the Borrower's business,
operations or financial statements.
SECTION 4.06. CORPORATE POWER AND AUTHORITY. The execution, delivery,
and performance by the Borrower of the Loan Documents to which each is a party
have been duly authorized by all necessary corporate action and do not and will
not (1) require any consent or approval of the stockholders of such corporation;
(2) contravene such corporation's charter or bylaws; (3) violate any provision
of any law, rule, regulation (including, without limitation, Regulation U of the
Board of Governors of the Federal Reserve System), the violation of which would
have a material adverse effect on the business or operations of the Borrower or
the Guarantors or any order, writ, judgment, injunction, decree, determination,
or award presently in effect having applicability to such corporation; (4)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other agreement, lease, or instrument to which such
corporation is a party or by which it or its properties may be bound or
affected; (5) result in, or require, the creation or imposition of any Lien upon
or with respect to any of the properties now owned or hereafter acquired by such
corporation; and (6) cause such corporation to be in violation of or default
under any such law, rule, regulation, or any such indenture, agreement, lease,
or instrument which default would have a material and adverse effect on the
business or operation of such corporation or under any order, writ, judgment,
injunction, decree, determination or award.
SECTION 4.07. LEGALLY ENFORCEABLE AGREEMENT. This Agreement is, and
each of the other Loan Documents when delivered under this Agreement will be,
legal, valid, and binding obligations of the Borrower and/or the Guarantors,
enforceable against the Borrower,
-13-
and/or the Guarantors, as the case may be, in accordance with their respective
terms, except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency, and other similar laws affecting creditors' rights
generally subject in all instances to general equitable principles.
SECTION 4.08. LABOR DISPUTES AND ACTS OF GOD. Neither the business nor
the properties of the Borrower are affected by any fire, explosion, accident,
strike, lockout or other labor dispute, drought, storm, hail, earthquake,
embargo, act of God or of the public enemy, or other casualty (whether or not
covered by insurance) materially and adversely affecting such business or
properties or the operation of the Borrower.
SECTION 4.09. COMPLIANCE. Neither the Borrower nor the Guarantors have
materially violated, nor is the Borrower or the Guarantors in material violation
of, any applicable law or regulation, which violation would have a material and
adverse effect on the business or operations of the Borrower or Guarantors, as
the case may be, or any order, judgment, or decree. The Borrower nor the
Guarantors are a party to any contract or other agreement, or subject to any
restrictions under its charter documents, bylaws or other corporate instrument,
or subject to any order, judgment, rule, regulation, or decree of any court or
governmental authority, which materially and adversely affects its business,
properties, assets or financial condition or which restricts or otherwise limits
its incurring of the Loan or its performance and observance of its Obligations.
Neither the execution and delivery by Borrower or the Guarantors, nor the
compliance by Borrower or the Guarantors with the terms and conditions, of this
Agreement, or any Loan Document to which Borrower or the Guarantors are a party,
conflicts or will conflict with, constitutes or will constitute a default under,
or results or will result in any violation of, the charter documents or By-laws
of Borrower or the Guarantors, any award of any arbitrator, to the Borrower's
and Guarantors' respective knowledge, any law, any order, judgment, rule,
regulation or decree of any court or governmental authority, or any agreement or
instrument to which Borrower or Guarantors are a party or any of its property is
subject; nor does the same result nor will it result in the creation or
imposition of any Lien upon any of its property except the Liens created by this
Agreement or any other Loan Document.
SECTION 4.10. NO DEFAULTS ON OUTSTANDING JUDGMENTS OR ORDERS. The
Borrower and the Guarantors have satisfied all judgments and the Borrower and
the Guarantors are not in default with respect to
-14-
any judgment, writ, injunction, or decree of any court, arbitrator, or federal,
state, municipal, or other governmental authority, commission, board, bureau,
agency, or instrumentality, domestic or foreign except as set forth in Schedule
4.10.
SECTION 4.11. OWNERSHIP AND LIENS. The Borrower has good and clear
record and marketable title to all properties and assets which it purports to
own, free and clear of all mortgages, liens, pledges, charges, security
interests and encumbrances, other than: those being granted to the Bank,
pursuant hereto, if any and those reflected on Schedule 3.01(2).
SECTION 4.12. SUBSIDIARIES AND OWNERSHIP OF STOCK. There are currently
no subsidiaries of Borrower and except as set forth on Schedule 4.12 Borrower
has no investments in the stock or securities of any other corporation, firm,
trust or other entity.
SECTION 4.13. OPERATION OF BUSINESS. The Borrower possesses, to the
knowledge of the Borrower, all licenses, permits, franchises, patents,
copyrights, trademarks, and trade names, or rights thereto, to conduct its
business substantially now as conducted and as presently proposed to be
conducted, and the Borrower is not in any material violation of any rights of
others with respect to any of the foregoing.
SECTION 4.14. NO CHANGE OF NAME. The Borrower has not in the past five
(5) years changed its name.
SECTION 4.15. HAZARDOUS MATERIAL. Neither the Borrower nor the
Guarantors nor to their knowledge any individual for whose conduct the Borrower
or the Guarantors are responsible has ever:
(a) owned, occupied, or operated a site or vessel on which any
hazardous material or oil was or is stored, transported, or
disposed of (the terms site, vessel, and hazardous material
respectively being used in this Agreement with the meaning given
those terms in M.G.L. C. 21E); or
(b) directly or indirectly transported, or arranged for the
transport of any hazardous material or oil; or
(c) caused or been legally responsible for any release or threat of
release of any hazardous material or oil; or
(d) received notification from any federal, state, or other
governmental authority of any potential or known release
-15-
or threat of release of any hazardous material or oil from any
site or vessel owned, occupied, or operated by the Borrower or
the Guarantors or any person for whose conduct the Borrower or
the Guarantors are responsible, and/or of the incurrence of any
expense or loss by such governmental entity.
SECTION 4.16. FEDERAL CONTRACTS. The Borrower has no contracts or
orders to provide goods or services to, and there are no account receivables due
to Borrower from the United States government or any subdivision or agency
thereof except as set forth in Schedule 4.16 hereto.
SECTION 4.17. DEBT. Schedule 4.17 is a complete and correct list of all
credit agreements, indentures, purchase agreements (other than for materials,
supplies and services entered into in the ordinary course of business),
guaranties, leases (requiring lease payments in the aggregate of $50,000.00
annually), and other investments, agreements, and arrangements presently in
effect providing for or relating to extensions of credit (including agreements
and arrangements for the issuance of letters of credit or for acceptance
financing) in respect of which the Borrower or any subsidiary is in any manner
directly or contingently obligated; and the maximum principal or face amounts of
credit in question, which are outstanding and which can be outstanding, are
correctly stated, and all Liens of any nature given or agreed to be given as
security therefor are correctly described or indicated in such Schedule.
SECTION 4.18. OFFICERS AND SHAREHOLDERS. The officers, directors and
stockholders of the Borrower are as set forth on Schedule 4.18 annexed hereto
and upon any changes or additions, the Borrower will promptly notify the Bank in
writing.
- 16 -
ARTICLE V
AFFIRMATIVE COVENANTS
---------------------
So long as the Note shall remain unpaid or the Bank shall have any
Commitment under this Agreement, the Borrower will:
SECTION 5.01. MAINTENANCE OF RECORDS. Keep adequate records and books
of account, in which complete entries will be made in accordance with GAAP
consistently applied, subject to year end adjustments, reflecting all financial
transactions of the Borrower, including complete records of all accounts of
Borrower, as defined in the Massachusetts Uniform Commercial Code.
SECTION 5.02. MAINTENANCE OF PROPERTIES. Maintain, keep, and preserve
all of its properties (tangible and intangible) necessary or useful in the
proper conduct of its business in good working order and condition, ordinary
wear and tear excepted. Borrower shall maintain in full force and effect all
rights, patents, licenses, permits and privileges necessary for the proper
conduct of its business.
SECTION 5.03. CONDUCT OF BUSINESS. Continue to engage in the same
general type of business as conducted by it on the date of this Agreement.
SECTION 5.04. MAINTENANCE OF INSURANCE. Maintain insurance with
financially sound and reputable insurance companies or associations in such
amounts and covering such risks as the Bank shall reasonably require and as are
usually carried by companies engaged in the same or a similar business and
similarly situated, which insurance may provide for reasonable deductibility
from coverage thereof.
SECTION 5.05. COMPLIANCE WITH LAWS. Comply in all material respects
with applicable laws, rules, regulations, and orders, such compliance to
include, without limitation, paying before the same become delinquent all taxes,
assessments, and governmental charges imposed upon it or upon its property,
noncompliance with which would have a material and adverse effect on the
business and operations of the Borrower.
SECTION 5.06. RIGHT OF INSPECTION. At any reasonable time and from time
to time, permit the Bank or any agent or representative thereof to examine and
make copies of and abstracts from the records and books of account of, and visit
the properties of the Borrower and to discuss the affairs, finances, and
accounts
-17-
of the Borrower with any of their respective officers and directors and the
Borrower's independent accountants so long as said activities do not
unreasonably disrupt the business of the Borrower. In addition to the foregoing,
audits by the Bank's auditors shall be conducted on an ongoing basis.
SECTION 5.07. REPORTING REQUIREMENTS. Furnish to the Bank:
(1) QUARTERLY FINANCIAL STATEMENTS. As soon as available and in any
event within forty-five (45) days after the end of each quarter of the Borrower,
balance sheets of the Borrower and its Subsidiaries, if at any time applicable
as of the end of such quarter, statements of income and retained earnings of the
Borrower and any Subsidiaries for the period commencing at the end of the same
quarter in the prior year and ending with the end of each such quarter, and a
statement of change in financial position of the Borrower and its Subsidiaries
for the quarter ended with the last day of such quarter, and a consolidated
statement, all in reasonable detail and stating in comparative form the
respective figures for the corresponding date and period in the same quarter in
the prior year and all prepared in accordance with GAAP consistently applied,
subject to year end adjustments, and certified by an officer of the Borrower;
(2) ANNUAL FINANCIAL STATEMENTS. As soon as available and in any event
within one hundred twenty (120) days after the end of each fiscal year of the
Borrower, a copy of the audited annual financial report for such fiscal year,
including a balance sheet of the Borrower as of the end of such fiscal year and
a statement of income and retained earnings of the Borrower for such fiscal
year, and a statement of cash flow of the Borrower for such fiscal year, all in
reasonable detail and stating in comparative form the respective figures for the
corresponding date and period in the prior fiscal year and all prepared in
accordance with GAAP consistently applied and certified by independent
accountants selected by the Borrower reasonably satisfactory to Bank; Each
annual report shall be accompanied by a statement of the independent certified
public accountant stating whether in the course of their examination (which
shall include a review of this Agreement) they became aware of any event of
default hereunder or other state of affairs which would contravene or violate
any of the covenants and agreements contained in this Agreement;
(3) NOTICE OF LITIGATION. Promptly after the commencement thereof,
notice of all actions, suits, and proceedings before any court or governmental
department, commission, board, bureau,
-18-
agency, or instrumentality, domestic or foreign, affecting the Borrower, which,
if determined adversely to the Borrower, could have a material adverse effect on
the financial condition, properties, or operations of the Borrower;
(4) NOTICE OF EVENTS OF DEFAULT. As soon as possible and in any event
within ten (10) days after the occurrence of each Event of Default, a written
notice setting forth the details of such Event of Default and the action which
is proposed to be taken by the Borrower with respect thereto;
(5) GENERAL INFORMATION. Such other information respecting the
condition or operations, financial or otherwise, receivables, inventory,
machinery or equipment of the Borrower as the Bank may from time to time
reasonably request.
(6) MONTHLY AGING OF RECEIVABLES. Within fifteen (15) days of the close
of each month, the Borrower shall furnish the Bank such reports as are required
pursuant to Section 2.09 herein.
(7) BORROWING BASE CERTIFICATE. Within fifteen (15) days of the close
of each month, the Borrower shall furnish the Bank with a Borrower Base
Certificate executed by one of the President or Treasurer of the Borrower,
certifying to the Bank as to Eligible Receivables and Qualified Inventory and
setting forth information with respect to any Eligible Receivable and Qualified
Inventory such information as the Bank may reasonably request.
(8) OFFICER CERTIFICATION. The Borrower will, at the time of delivery
to the Bank of the reports referred to in Sections 5.07(1), (2), (6) and (7),
deliver to the Bank certificates signed by any individual duly authorized by the
Borrower certifying that such individual has reviewed the provisions of this
Agreement and stating in his opinion, if such be the fact, that the Borrower has
not been and is not in default as to any of the covenants and agreements of the
Borrower contained in this Agreement.
SECTION 5.08. ADDITIONAL DOCUMENTS. From time to time, execute and
deliver to the Bank all such other and further instruments or documents and take
or cause to be taken all such other and further action as the Bank may
reasonably request in order to effect and confirm or vest more securely in the
Bank all rights contemplated in this Agreement.
SECTION 5.09. PAYMENT OF TAXES AND CLAIMS. Pay when due all taxes,
assessments, governmental charges or levies imposed upon it
-19-
or its income for services, labor, materials and supplies, in each of such cases
which, if unpaid, might become a Lien or charge upon any of its properties or
assets; but Borrower shall not be required to pay any such tax, assessment,
charge, levy or claim so long as (1) the validity thereof shall be contested in
good faith by appropriate proceedings, (2) no proceedings in foreclosure or for
the sale of any property of Borrower on account of any such tax, assessment,
charge, levy of claim shall have been commenced (or such proceedings shall have
been stayed pending the disposition of such contest of validity) (3) Borrower
shall have set aside on its books adequate reserves with respect thereto and (4)
such tax, assessment, charge, levy or claim shall not have caused a material,
adverse effect on the Borrower's financial condition.
SECTION 5.10. RIGHT TO NEGOTIATE. Upon an Event of Default, the
Borrower hereby designates and appoints the Bank or its designee as Borrower's
attorney with power, (A) to receive, endorse, assign and deliver in the name of
the Bank or such Borrower all checks, drafts and other instruments for payment
of money relating to the Collateral, and the Borrower hereby waives notice of
presentment, protest and nonpayment of any instrument so endorsed; to endorse
Borrower's name upon any notes, acceptances, checks, drafts, money orders or
other evidences of payment of Collateral that may come into Bank's possession;
and (B) to sign Borrower's name on all financing statements or any other
documents or instruments deemed necessary or appropriate by Bank to preserve,
protect or perfect Bank's security interest in the Collateral and to file same;
and to do any and all other acts and things necessary to carry out this
Agreement. All acts of Bank or its designee as said attorney are hereby ratified
and approved, and said attorney shall not be liable for any acts of omission or
commission, nor for any error of judgment or mistake of fact of law, unless done
maliciously or with gross negligence. The power granted herein is coupled with
an interest and is irrevocable so long as the Loan remains unpaid.
SECTION 5.11. BANK ACCOUNTS. Maintain all of its Operating and Deposit
Accounts with the Bank.
SECTION 5.12. COMPLY WITH OTHER COVENANTS AND WARRANTIES. Conform,
adhere to, and observe all covenants and warranties contained in any other
agreement between the Bank and the Borrower, or instrument furnished by the
Borrower to the Bank.
SECTION 5.13. MAINTENANCE OF EXISTENCE. Preserve and maintain their
corporate existence and good corporate standing in
-20-
the jurisdiction of their incorporation, and qualify and remain qualified as a
foreign corporation in each jurisdiction in which such qualification is required
and in which the failure to be so qualified would have a material adverse effect
on the Borrower's business, operations or financial statements.
SECTION 5.14. USE OF PROCEEDS. Use the proceeds of the Line of Credit
only for funding for the management buyout from Kobe Steel and working capital
needs of the Borrower.
SECTION 5.15. PAYMENT OF OTHER OBLIGATIONS. The Borrower will
punctually and promptly make all payments and perform all other obligations
which may be required of it with respect to any indebtedness (whether for money
borrowed, goods purchased, services rendered or however such indebtedness may
otherwise arise) owing to persons, firms or corporations other than the Bank,
including, without limitation, indebtedness which may be secured by a security
interest in assets of the Borrower or property of the Borrower, and all
obligations under the terms of any lease in which the Borrower is the lessee.
The provisions of this section shall not preclude the Borrower from contesting
in good faith and diligently defending against any such indebtedness or
obligation.
ARTICLE VI
NEGATIVE COVENANTS
------------------
So long as the Note shall remain unpaid or the Bank shall have any
Commitment under this Agreement, the Borrower will not:
SECTION 6.01. LIENS. Create, incur, assume, or suffer to exist, or
permit any Subsidiary (if any exist) to create, incur, assume, or suffer to
exist, any Lien upon or with respect to any of its properties, now owned or
hereafter acquired, except:
(1) Liens in favor of the Bank;
(2) Liens for taxes or assessments or other government charges or
levies if not yet due and payable or, if due and payable, if they are being
contested in good faith by appropriate proceedings and for which appropriate
reserves are maintained;
(3) Judgment and other similar Liens arising in connection with court
proceedings, provided the execution or other enforcement of such Liens is
effectively stayed and the claims secured thereby are being actively contested
in good faith and by appropriate
-21-
proceedings, provided they do not adversely affect the final outcome of the
Borrower in a material way;
(4) Purchase-money Liens on any property hereafter acquired or the
assumption of any Lien on property existing at the time of such acquisition, or
a Lien incurred in connection with any conditional sale or other title retention
agreement of a capital lease;
(5) Permitted Encumbrances, as identified on Schedule 3.01(2).
SECTION 6.02. MERGERS OR DISPOSITION OF ASSETS. Without the prior
written consent of the Bank which shall not be unreasonably withheld or delayed,
alter the Borrower's capital structure, including, without limitation, sell,
transfer or redeem any shares of the Borrower, merge or consolidate with (unless
it is the survivor corporation) or sell, assign, lease, or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially
all of its assets (whether now owned or hereafter acquired) to any Person, or
acquire all or substantially all of the assets or the business of any Person, or
permit any Subsidiary (if at any time existing) to do so. Notwithstanding the
foregoing, the sale of stock as set forth in Section 2(b) of the First Amendment
to the Stock Repurchase and Loan Repayment Agreement by and among Kobe Steel USA
Holdings, Inc., the Borrower and QC Optics Voting Trust dated as of March 29,
1996 (the "Kobe Agreement") shall be expressly allowed.
SECTION 6.03. LEASES. Without the prior written consent of the Bank
which shall not be unreasonably withheld or delayed, create, incur, assume, or
suffer to exist, or permit any Subsidiary (if at any time existing) to create,
incur, assume or suffer to exist, any obligation as lessee for the rental or
hire of any real or personal property, except: (1) leases existing on the date
of this Agreement and any extensions or renewals thereof; (2) leases, of which
the total annual obligation under any such lease is not more than $25,000.00,
with the aggregate of all such new leases (i.e., leases not in effect at the
time of this Agreement) not to exceed $100,000.00.
SECTION 6.04. SALE OF ASSETS. Sell, lease, assign, transfer, or
otherwise dispose of, any of its now owned or hereafter acquired assets
(including, without limitation, shares of stock and indebtedness of
Subsidiaries, receivables, and leasehold interests), except: (1) for inventory
disposed of in the ordinary course of business; (2) the sale or other
disposition of assets no longer used or useful in the conduct of its business;
or (3) any
-22-
sale of other assets, provided any such single sale does not exceed $50,000 and
the aggregate proceeds of all such sales in any one fiscal year do not exceed
$150,000.00.
SECTION 6.05. GUARANTIES, ETC. Assume, guarantee, endorse, or otherwise
be or become directly or contingently responsible or liable, or permit any
Subsidiary (if at any time existing) to assume, guarantee, endorse, or otherwise
be or become directly or contingently responsible or liable (including, but not
limited to, an agreement to purchase any obligation, stock, assets, goods, or
services, or to supply or advance any funds, assets, goods, or services, or to
maintain or cause such Person to maintain a minimum working capital or net
worth, or otherwise to assure the creditors of any Person against loss) for
obligations of any Person, except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business.
SECTION 6.06. ADDITIONAL DEBT. Except as otherwise provided above,
issue evidence of indebtedness or create, assume, become contingently liable
for, or suffer to exist bank debt in addition to Debt to the Bank; provided,
however, that the Borrower may incur liabilities which are incurred or arise in
the ordinary course of Borrower's business other than Debt arising with respect
to money borrowed or the issuance of letters of credit for the account of the
Borrower both of which shall be prohibited.
SECTION 6.07. NAME. Change its name without prior written notification
to the Bank.
SECTION 6.08. PLACES OF BUSINESS. Without prior written notice to the
Bank, open or operate any place of business other than those places listed on
Schedule 6.08, attached hereto and made a part hereof.
SECTION 6.09. TRANSACTIONS WITH AFFILIATES. Enter into any transaction,
including, without limitation, the purchase, sale, or exchange of property or
the rendering of any service, with any affiliate, or permit any subsidiary to
enter into any transaction, including, without limitation, the purchase, sale,
or exchange of property or the rendering of any service, with any affiliate, or
the making of advances to any affiliates except in the ordinary course of
business and pursuant to the reasonable requirements of the Borrower's or such
subsidiary's business and upon fair and reasonable terms no less favorable to
the Borrower or such subsidiary than would obtain in a comparable arm's-length
-23-
transaction with a Person not an affiliate.
SECTION 6.10. FINANCIAL COVENANTS. So long as the Note shall remain
unpaid or the Bank shall have any commitment under this Agreement:
(1) QUICK RATIO. The Borrower will maintain a ratio of Quick Assets to
current liabilities (excluding Bank Debt and all Subordinated Debt) of not less
than 1.75 to 1 and this ratio shall be tested at the end of each calendar
quarter. "QUICK ASSETS" shall mean the sum of (a) cash on hand or on deposit in
banks, (b) readily marketable securities issued by the United States, (c)
readily marketable commercial paper rated "A-1" by Standard & Poor's Corporation
or "P-1" by Moodey's Inventor's Service (or a similar organization which rates
commercial paper), (d) certificates of deposit or banker's acceptances issued by
commercial banks of recognized surplus in excess of one hundred million
($100,000,000.00) Dollars and (e) net receivables as reported in accordance with
GAAP on monthly balance sheets.
(2) The Borrower will maintain a MINIMUM CAPITAL FUNDS level which will
be tested at the end of each quarter as follows:
(a) $2,100,000.00 from the date hereof to December 30, 1996;
and
(b) $3,350,000.00 from December 31, 1996 to December 30, 1997;
and
(c) $4,600,000.00 from December 31, 1997 to the Maturity Date.
"MINIMUM CAPITAL FUNDS" shall mean Stockholders Equity plus
Subordinated Debt less Intangible Assets, all in accordance with GAAP.
(3) MAXIMUM DEBT/CAPITAL FUNDS RATIO. The Borrower will maintain a
ratio of Maximum Debt (which shall be defined as Total Liabilities exclusive of
any subordinated Debt) to Capital Funds which will be tested at the end of each
quarter of not less than the following ratios:
(a) 2.5 to 1 from the date hereof to December 30, 1996; and
(b) 1.5 to 1 from December 31, 1996 to December 30, 1997; and
-24-
(c) 1.0 to 1 from December 31, 1997 to the Maturity Date.
(4) MINIMUM EARNINGS TEST. The Borrower will earn (after taxes) a
minimum level of Net Income of $900,000.00, which will be tested on a rolling
four (4) quarter basis on each of March 31, 1996, June 30, 1996, and September
30, 1996 and a minimum level of Net Income of $1,250,000.00 to be tested on a
rolling four (4) quarter basis, commencing as of December 31, 1996 and each
quarter end thereafter.
(5) LOSSES. The Borrower will not suffer a loss during any two (2)
consecutive quarters.
(6) DIVIDENDS. The Borrower will not pay any dividends to its
stockholders without the prior written consent of the Bank.
SECTION 6.11. KOBE SUBORDINATED PROMISSORY NOTE. Make a principal or
interest payment on that certain Subordinated Promissory Note, dated as of March
29, 1996 in the principal sum of $750,000.00 (the "Kobe Note") from the Borrower
to Kobe Steel USA Holdings, Inc., without the prior written consent of the Bank.
Notwithstanding the foregoing no consent of the Bank shall be required if each
one of the following conditions has been satisfied prior thereto:
a) The Borrower has raised at least $750,000.00 of new capital on
terms and conditions reasonably acceptable to the Bank; and
b) The Over-Advance has been eliminated; and
c) There is no Event of Default (or Suspension Event) under this
Agreement and all Loan Documents hereunder.
ARTICLE VII
EVENTS OF DEFAULT
-----------------
SECTION 7.01. EVENTS OF DEFAULT. If any of the following events
("EVENTS OF DEFAULT") shall occur:
(1) The Borrower should fail to pay the principal of, or interest on,
the Note as and when due and payable; or
(2) Any material representation or warranty made or deemed made by the
Borrower in this Agreement, or the Borrower in any of
-25-
the Loan Documents, or which is contained in any certificate, document, opinion,
or financial or other statement furnished at any time under or in connection
with any Loan Document shall prove to have been incorrect in any material
respect on or as of the date made or deemed made which cannot be cured within
thirty (30) days or as reasonably practicable thereafter after receipt of notice
from the Bank; or
(3) The Borrower shall fail to perform or observe any material term,
covenant, or agreement contained in any Loan Document (other than the Note) on
its part to be performed or observed specifically included without limitation,
the Borrower's failure to pay down the Over-Advance on or before October 31,
1996; or
(4) The Borrower shall (a) fail to pay any indebtedness for borrowed
money (other than the Note) of the Borrower which is evidenced by a Note or
other debt instrument as the case may be, or any interest or premium thereon,
when due (whether by scheduled maturity, required prepayment, acceleration,
demand, or otherwise), (whether or not related to this transaction or owed to
the Bank or another Person to the Bank) or (b) fail to perform or observe any
material term, covenant, or condition (subject to any applicable grace period
contained therein) on their part to be performed or observed under any agreement
or instrument relating to any such indebtedness, when required to be performed
or observed, if the effect of such failure to perform or observe is to
accelerate, or to permit the acceleration after the giving of notice or passage
of time, or both, of the maturity of such indebtedness, unless such failure to
perform or observe shall be waived by the holder of such indebtedness; or any
such indebtedness shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment), prior to the
stated maturity thereof; or
(5) The Borrower (a) shall generally not, or shall be unable to, or
shall admit in writing its inability to pay its debts as such debts become due;
or (b) shall make an assignment for the benefits of creditors, petition or apply
to any tribunal for the appointment of a custodian, receiver, or trustee for it
or a substantial part of its assets; or (c) shall commence any proceeding under
any bankruptcy, reorganization, arrangements, readjustment of debt, dissolution,
or liquidation law or statute of any jurisdiction, whether now or hereafter in
effect; or (d) shall have any such petition or application filed or any such
proceeding commenced against it in which an order for relief is entered or
adjudication or appointment is made; or (e) by any act or omission
-26-
shall indicate its consent to, approval of, or acquiescence in any such
petition, application, or proceeding, or order for relief, or the appointment of
a custodian, receiver, or trustee for all or any substantial part of its
properties; or (f) shall suffer any custodianship, receivership, or trusteeship.
Notwithstanding the foregoing if any of the above actions or proceedings
whatsoever, are commenced by or against Borrower or any Guarantor and any such
proceeding not instituted by Borrower or any Guarantor shall be dismissed or
stayed within forty-five (45) days of same, there shall be no Event of Default
hereunder; or
(6) One or more judgments, decrees, or orders for the payment of money
in excess of an aggregate of Twenty-Five Thousand ($25,000.00) Dollars in the
aggregate shall be rendered against the Borrower or any of their Subsidiaries
and such judgments, decrees, or orders shall continue unsatisfied and in effect
for a period of thirty (30) consecutive days without being vacated, discharged,
satisfied, or stayed or bonded pending appeal; or
(7) The Security Agreement of the Borrower shall at any time after its
execution and delivery and for any reason cease (a) to create a valid and
perfected first priority security interests in and to the property purported to
be subject to such Security Agreement or (b) to be in full force and effect or
shall be declared null and void, or the validity or enforceability thereof shall
be contested by the Borrower, or the Borrower shall deny it has any further
liability or obligation under such Security Agreement, or the Borrower shall
fail to perform any of its material obligations under such Security Agreement;
or
(8) The service of any process on the Bank attaching by trustee process
any assets of the Borrower held by the Bank; or
(9) THIS SECTION INTENTIONALLY DELETED.
(10) The death of any Guarantor who is a natural person but only for
any such period that a Guaranty of said Guarantor is outstanding; or
(11) The occurrence of any of the foregoing events with respect to the
Guarantors to the Bank of the liability of the Borrower to the Bank, as if such
Guarantors were the Borrower described herein but only for any such period that
a Guaranty of said Guarantor is outstanding; or
- 27 -
(12) The occurrence of any change in ownership or management of the
Borrower whereby any and all of the individuals who are beneficiaries under the
QC Optics Voting Trust, own in the aggregate less than fifty-one (51%) percent
of all outstanding stock of the Borrower unless there has been an issuance of
equity by the Borrower for value to unrelated third parties or Eric T. Chase
ceases to serve as President, K. Andrew Bernal ceases to serve as Vice-President
of Sales or Jay L. Ormsby ceases to serve as Vice-President of Engineering;
then, in any such event, the Obligations of the Borrower to the Bank under this
Agreement and the other Loan Documents and the Commitment of the Bank hereunder
shall, at the Bank's option, and subject to any grace periods provided herein,
become immediately due and payable without notice or demand at any time except
that upon the occurrence of an event described in 7.01 Subsections (5)(b),
(5)(c) or 8 in which event the Obligation shall automatically become due and
payable.
SECTION 7.02. SUSPENSION EVENTS. (a) Upon the occurrence, from time to
time, of any Suspension Event (as defined herein) the Bank may suspend the Line
of Credit immediately and shall not be obligated, during such suspension, to
make any Loans or advances hereunder until the matter giving rise to such
Suspension Event has been cured.
(b) As used herein, the term "SUSPENSION EVENT" means and refers to any
occurrence (i) which is an Event of Default or (ii) which would become an Event
of Default if the notice and/or the running of the period of time specified for
that occurrence were to be given and/or were to run and such occurrence were not
cured within any applicable grace period.
ARTICLE VIII
MISCELLANEOUS
-------------
SECTION 8.01. AMENDMENTS, ETC. No amendment, modification, termination,
or waiver of any provision of any Loan Document to which the Borrower is a
party, nor consent to any departure by the Borrower from any Loan Document to
which it is a party, shall in any event be effective unless the same shall be in
writing and signed by the party to be charged, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
given.
-28-
SECTION 8.02. NOTICES, ETC. All notices and other communications
provided for under this Agreement and under the other Loan Documents to which
the Borrower is a party shall be in writing and mailed or hand delivered:
If to the Borrower: QC OPTICS, INC.
154 Middlesex Turnpike
Burlington, MA 01803
ATTN: Eric T. Chase, President
- 29 -
With a copy to: O'Connor Broude & Aronson
950 Winter Street, Suite 2300
Waltham, MA 02154
ATTN: Neil H. Aronson, Esq.
If to the Bank: State Street Bank and Trust
225 Franklin Street
Boston, Massachusetts 02110
Attention: Mr. Bruce Daniels
Vice-President;
With a copy to: Bradley W. Snyder, Esquire
Looney & Grossman
101 Arch Street
Boston, MA 02110;
or such other address as shall be designated by such party in a written notice
to the other party complying as to delivery with the terms of this Section 8.02.
All such notices and communication shall be effective when deposited in the
mail, addressed as aforesaid, overnight mail, registered or certified mail,
return receipt requested, or on the day of actual receipt, whichever is the
first to occur.
SECTION 8.03. NO WAIVER; REMEDIES. No failure on the part of the Bank
to exercise, and no delay in exercising, any right, power, or remedy under any
Loan Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under any Loan Document preclude any other or further
exercise thereof or the exercise of any other right. The remedies provided in
the Loan Documents are cumulative and not exclusive of any remedies provided by
law. The Bank shall not be required to have recourse to any collateral before
enforcing its rights or remedies against the Borrower. The Borrower hereby
waives presentment and protest of any instrument and any notice thereof.
SECTION 8.04. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the Borrower and the Bank and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of their rights under any Loan Document to which the Borrower is a party without
the prior written consent of the Bank.
SECTION 8.05. COSTS, EXPENSES, AND TAXES. The Borrower will pay or
reimburse the Bank, on demand, for all reasonable expenses
-30-
(including, without limitation, reasonable counsel fees and expenses) incurred
or paid by the Bank in connection with: the enforcement by the Bank of its
rights as against the Borrower or any other person primarily or secondarily
liable to the Bank hereunder or thereunder; and after an Event of Default or
demand, for the administration, supervision, protection or realization on any
collateral held by the Bank as security for any obligation of the Borrower or
any other person primarily or secondarily liable with respect thereto; and in
the defense of any action against the Bank with respect to its rights or
liabilities hereunder or thereunder. In addition, the Borrower shall pay any and
all stamp and other taxes and fees payable or determined to be payable in
connection with the execution, delivery, filing and recording of any of the Loan
Documents and the other documents to be delivered under any such Loan Documents.
SECTION 8.06. THIS SECTION INTENTIONALLY DELETED.
SECTION 8.07. GOVERNING LAW. This Agreement the Note and all other
documents hereunder have been made and delivered in the Commonwealth of
Massachusetts and shall be governed by, and construed in accordance with, the
laws of the Commonwealth of Massachusetts and the Borrower submits to the
jurisdiction of Massachusetts for all purposes with respect to this Agreement
and all other documents hereunder and its relationship with the Bank.
THE BORROWER WAIVES ANY RIGHT TO TRIAL BY JURY IT MAY HAVE IN ANY
ACTION OR PROCEEDING, IN LAW OR EQUITY, IN CONNECTION WITH THIS AGREEMENT. THE
PARTIES HERETO KNOWINGLY AND VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER, OR IN
CONNECTION WITH THIS AGREEMENT. THE BORROWER HEREBY CERTIFIES THAT NO
REPRESENTATIVE OR AGENT OF THE BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT BANK WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THIS WAIVER OF
RIGHT TO A JURY TRIAL PROVISION. THE BORROWER ACKNOWLEDGES THAT BANK HAS BEEN
INDUCED TO ENTER INTO BANK'S LENDING RELATIONSHIP WITH THE BORROWER BY, AMONG
OTHER THINGS, THE PROVISIONS OF THIS PARAGRAPH.
SECTION 8.08. SEVERABILITY OF PROVISIONS. Any provision of any Loan
Document which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of such Loan
Documents or affecting the validity or enforceability of such provision in any
other jurisdiction.
-31-
SECTION 8.09. HEADINGS. Article and Section headings in the Loan
Documents are included in such Loan Documents for the convenience of reference
only and shall not constitute a part of the applicable Loan Documents for any
other purpose.
SECTION 8.10. TERMINATION. This Agreement shall continue to be fully
operative until all transactions entered into, rights or interest created or
Obligations incurred have been fully disposed of, concluded or liquidated. The
security interest, Lien and rights granted to Bank hereunder shall continue in
full force and effect until all Obligations have been satisfied.
SECTION 8.11 SURVIVAL. Further, the terms of the Commitment Letter dated
March 25, 1996, as modified by the Loan Documents, shall survive the Closing.
SECTION 8.12 Any matter disclosed by Borrower in this Agreement or any
Schedule hereto, or excepted from any representation, warranty or covenant of
Borrower herein, shall be deemed disclosed for all purposes of this Agreement
and to be an exception from all such representations, warranties and covenants.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written and shall take effect as a sealed instrument.
QC OPTICS, INC.
By:
/s/ Eric T. Chase
---------------------------------
Eric T. Chase, President
and Treasurer
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Bruce S. Daniels
---------------------------------
Bruce S. Daniels, Vice President
The undersigned, has executed a Guaranty of the liabilities and
obligations of the Borrower to the Bank, hereby acknowledges that the
undersigned has read the foregoing Credit Agreement, understands all of the
provisions thereof and assents to such provisions, further agrees with the Bank
that, so long as any Loans remain unpaid or the Bank has any commitments under
the Agreement, the undersigned will upon request furnish to the Bank, a
financial statement in such form and detail as the Bank may request.
WITNESS, the execution hereof under seal as of this 29th day of March,
1996.
/s/ Eric T. Chase
-----------------------------------
Eric T. Chase, Individually
/s/ K. Andrew Bernal
-----------------------------------
K. Andrew Bernal, Individually
QC OPTICS VOTING TRUST
By:
/s/ Eric T. Chase
---------------------------------
Eric T. Chase, as Trustee and not
Individually
EXHIBITS AND SCHEDULES
----------------------
2.04 Form of Promissory Note
2.07(v) Acceptable Account Debtors with foreign place of
business
3.01(2) Permitted Encumbrances
4.01 Financial Statements
4.02 Litigation
4.04 Patents/Licenses/Trademarks
4.12 Subsidiaries
4.17 Debt
4.18 Officers, Directors and Stockholders
6.08 Places of Business
- 27 -
COLLATERAL ASSIGNMENT OF TRADEMARKS AND PATENTS
THIS COLLATERAL ASSIGNMENT OF TRADEMARKS AND PATENTS ("Assignment")
made as of the day of March, 1996 by QC OPTICS, INC., a Delaware corporation
having its chief executive office at 154 Middlesex Turnpike, Burlington,
Massachusetts 01803 ("Assignor"), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts Trust Company having its offices at 225 Franklin Street, Boston,
Massachusetts 02110 (collectively the "Bank" or "Assignee"):
W I T N E S S E T H
WHEREAS, Assignor and Assignee are parties to a certain Credit
Agreement of even date herewith (the "Credit Agreement"), which Credit Agreement
provides (i) for Assignee, to extend credit to or for the account of Assignor
and (ii) for the grant by Assignor to Assignee of a security interest in
substantially all of the Assignor's assets, including, without limitation, its
patents, if any, patent applications, if any, trademarks, trademark
applications, trade names and goodwill;
NOW, THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, receipt and sufficiency of which are
hereby acknowledged, Assignor agrees as follows:
1. Incorporation of Credit Agreement. The Credit Agreement and the
terms and provisions thereof are hereby incorporated herein in their entirety by
this reference thereto.
2. Collateral Assignment of Patents and Trademarks. To secure the
complete and timely satisfaction of all of Assignor's "Obligations" (as defined
in the Credit Agreement) to Assignee, Assignor hereby grants to Assignee a
security interest (having priority over all other security interests, with power
of sale, to the extent permitted by law,) in, and upon the occurrence of an
Event of Default (as that term is defined in the Credit Agreement), all of
Assignor's right, title and interest in and to all of its now owned or existing
and filed and hereafter acquired or arising and filed (subject to all existing
licenses and to all licenses entered into by Assignor in the ordinary course of
Assignor's
-1-
business and entered into by any party from which obtained any applicable
rights):
(i) patents and patent applications, if any, including, without
limitation, the inventions and improvements described and claimed therein, and
those patents and patent applications listed on Schedule A, attached hereto and
made a part hereof, and (a) the reissues, divisions, continuations, renewals,
extensions and continuations-in-part thereof, (b) all income, royalties, damages
and payments now and hereafter due or payable under and with respect thereto,
including, without limitation, damages and payments for past or future
infringements thereof, (c) the right to sue for past, present and future
infringements thereof, and (d) all rights corresponding thereto throughout the
world (all of the foregoing patents and patent applications, together with the
items described in clauses (a) - (d), are sometimes hereinafter, individually or
collectively, referred to as the "Patents");
(ii) trademarks, trademark registrations, trademark applications and
trade names, including, without limitation, the trademarks, trademark
applications and trade names listed on Schedule B, attached hereto and made a
part hereof, and (a) any renewals thereof, (b) all income, royalties, damages
and payments now and hereafter due or payable with respect thereto, including,
without limitation, damages and payments for past or future infringements
thereof, (c) the right to sue for past, present and future infringements
thereof, and (d) all rights corresponding thereto throughout the world (all of
the foregoing trademarks, trademark registrations, trademark applications and
trade names, together with the items described in clauses (a) - (d), are
sometimes hereinafter, individually or collectively, referred to as the
"Trademarks"); and
(iii) the goodwill of Assignor's business connected with, and
symbolized by, the Trademarks.
Notwithstanding anything contained in this Assignment to the contrary,
Assignee agrees that there shall be no assignment of the Patents, Trademarks or
goodwill described in clauses (i) -(iii), other than the collateral assignment
described in the first sentence of this paragraph 2, unless and until there
shall occur an Event of Default.
-2-
Upon the occurrence of the assignment to Assignee of all of Assignor's
right, title and interest in and to the Patents, Trademarks and goodwill,
Assignee shall grant to Assignor a royalty-free, worldwide, nonexclusive license
to use the Patents and Trademarks (along with goodwill associated therewith),
with the right to sublicense, subject to prior sublicenses, as necessary for the
conduct of Assignor's business until such time as Assignee disposes of
Assignor's assets pursuant to the Credit Agreement.
3. Restrictions on Future Agreements. Assignor agrees that until
Assignor's Obligations shall have been satisfied in full and all financing
arrangements between Assignor and Assignee shall have been terminated, Assignor
will not, without Assignee's prior written consent, not to be unreasonably
withheld or delayed, enter into any agreement (for example, a license
agreement), other than agreements entered into in the ordinary course of
Assignor's business, which is inconsistent with Assignor's obligations under
this Assignment and Assignor further agrees that, subject to its reasonable
business judgment, it will not take any action, or permit any action to be taken
by others subject to its control, including licensees, or fail to take any
action, which would materially affect the validity or enforcement of the rights
transferred to Assignee under this Assignment.
4. New Patents and Trademarks. Assignor represents and warrants that,
to the best of its knowledge and belief, the Patents and Trademarks listed on
Schedules A and B, respectively, constitute all of the material patents and
trademarks and applications therefor now owned by Assignor. If, before
Assignor's Obligations shall have been satisfied in full, Assignor shall (i)
obtain ownership rights to any new patentable inventions, trademarks, trademark
registrations or trade names, or (ii) become entitled to the benefit of any
trademark, trademark registration or trademark application, or any patent,
patent application, or patent for any reissue, division, continuation, renewal,
extension, or continuation-in-part of any Patent or any improvement on any
Patent, the provisions of paragraph 2 above shall automatically apply thereto.
Assignor hereby authorizes Assignee to modify this Assignment by amending
Schedule A or B as applicable, to include any future patents, patent
applications, trademarks, trademark registrations, trademark applications and
trade names which are Patents or Trademarks, as applicable, under paragraph 2
above or under this paragraph 4.
-3-
5. Royalties, Terms. Assignor hereby agrees that the use by Assignee of
all Patents and Trademarks after the occurrence of an Event of Default shall be
without any liability for royalties or other related charges from Assignee to
the Assignor. The term of the assignments granted herein shall extend until the
earlier of (i) the expiration of each of the respective Patents and Trademarks
assigned hereunder, or (ii) Assignor's Obligations shall have been satisfied in
full.
6. Termination of Assignee's Security Interest. This Assignment is made
for collateral purposes only. Upon satisfaction in full of Assignor's
Obligations Assignee shall execute and deliver to Assignor all termination
statements, assignments and other instruments as Assignor deems may be
reasonably necessary or proper to terminate Assignee's security interest in the
Patents and Trademarks, subject to any disposition thereof which may have been
made by Assignee pursuant hereto or pursuant to the Credit Agreement.
7. Duties of Assignor. Assignor shall, in the exercise of its
reasonable business judgement, use reasonable efforts (i) to prosecute
diligently any patent application of the Patents and any trademark application
of the Trademarks pending as of the date hereof or thereafter until Assignor's
Obligations shall have been satisfied in full, (ii) to make application on
unpatented but patentable inventions and on trademarks, as appropriate, and
(iii) to preserve and maintain all rights in patent applications and patents of
the Patents and in trademark applications, trademarks, and trademark
registrations of the Trademarks. Any expenses incurred in connection with such
applications shall be borne by Assignor. Assignor shall not abandon, except in
the exercise of its reasonable business judgement, any right to file a patent
application or trademark application, or any pending patent application,
trademark application, patent, or trademark without the consent of Assignee,
which consent shall not be unreasonably withheld or delayed.
8. Assignee's Right to Sue. From and after the occurrence of an Event
of Default and the provision by Assignee of not less than three (3) days prior
written notice to Assignor of Assignee's intention to enforce its rights and
claims against any of the Patents and Trademarks, Assignee shall have the right,
but shall in no way be obligated, to bring suit in its own name to enforce the
-4-
Patents and Trademarks, and any licenses thereunder, and, if Assignee shall
commence any such suit, Assignor shall, at the request of Assignee, do any and
all lawful acts and execute any and all proper documents required by Assignee in
aid of such enforcement. If Assignor does not bring such suit and Assignor
continues to use the Patents and Trademarks pursuant to paragraph 2 hereof,
Assignee shall permit Assignor to bring suit and to that end shall, at the
request of Assignor, do any and all lawful acts and execute any and all proper
documents required by Assignor in aid of such enforcement.
9. Waivers. No course of dealing between Assignor and Assignee, nor any
failure to exercise, nor any delay in exercising, on the part of Assignee, any
right, power or privilege hereunder or under the Credit Agreement shall operate
as a waiver thereof; nor shall any single or partial exercise of any right,
power or privilege hereunder or thereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
10. Severability. The provisions of this Assignment are severable, and
if any clause or provision shall be held invalid and unenforceable in whole or
in party in any jurisdiction, then such invalidity or unenforceability shall
affect only such clause or provision, or part thereof, in such jurisdiction, and
shall not in any manner affect such clause or provision in any other
jurisdiction, or any other clause or provision of this Assignment in any
jurisdiction.
11. Modification. This Assignment cannot be altered, amended or
modified in any way, except as specifically provided in paragraph 4 hereof or by
a writing signed by the parties hereto.
12. Cumulative Remedies; Power of Attorney; Effect on Credit Agreement.
All of Assignee's rights and remedies with respect to the Patents and
Trademarks, whether established hereby or by the Credit Agreement, any
"Financing Agreement" (as defined in the Credit Agreement) or by any other
agreements or by law shall be cumulative and may be exercised singularly or
concurrently. From and after the occurrence of an Event of Default, Assignor
shall authorize Assignee to make, constitute and appoint any officer or agent of
Assignee as Assignee may select, in its sole discretion, as Assignor's true and
lawful attorney-in-fact, with power (i) at
-5-
any time, to endorse Assignor's name on all applications, documents, papers and
instruments necessary or desirable for the Assignee in the use of the Patents
and Trademarks, and (ii) (a) to grant or to issue any nonexclusive license under
the Patents and Trademarks to anyone, (b) to assign, pledge, convey or otherwise
transfer title in or dispose of the Patents or Trademarks to anyone, or (c) to
take any other actions with respect to the Patents and Trademarks as the
Assignee deems in the best interest of the Assignee. This power of attorney
shall be irrevocable from such time until Assignor's Obligations shall have been
satisfied in full. Assignor acknowledges and agrees that this Assignment is not
intended to limit or restrict in any way the rights and remedies of Assignee
under the Credit Agreement or any Financing Agreement but rather is intended to
facilitate the exercise of such rights and remedies. Assignee shall have, in
addition to all other rights and remedies given it by the terms of this
Assignment, all rights and remedies allowed by law and the rights and remedies
of a secured party under the Uniform Commercial Code as enacted in any
jurisdiction in which the Patents or Trademarks may be located.
13. Binding Effect; Benefits. This Assignment shall be binding upon the
Assignor and its respective successors and assigns, and shall inure to the
benefit of Assignee, its nominees and assigns.
14. Governing Law. This Agreement has been made and delivered in the
Commonwealth of Massachusetts and shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Massachusetts and the Assignor
submits to the jurisdiction of Massachusetts for all purposes with respect to
this Agreement and its relationship with the Assignee.
- 6 -
IN WITNESS WHEREOF, the parties hereto have caused this Assignment to
be executed by their duly authorized officers as of the day and year first
written above.
QC OPTICS, INC.
BY: /s/ Eric T. Chase
-----------------------------------
NAME: Eric T. Chase
ITS: President
ATTEST:
/s/ Neil H. Aronson
- --------------------------------
Corporate Seal
Commonwealth of Massachusetts
County of Suffolk
On this day 29th of March, 1996, before me appeared Eric T. Chase to me
personally known, who, being by me duly sworn, did say that he is the President
of QC Optics, Inc., a Delaware corporation and that the seal affixed to the
foregoing instrument is the corporate seal of said corporation, and that said
instrument was signed and sealed on behalf of said corporation by authority of
its Board of Directors; and said Eric T. Chase acknowledged said instrument to
be the free act and deed of said corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal in the County and State aforesaid, the day and year first above
written.
/s/ Neil H. Aronson
----------------------------------
Notary Public
-7-
My term expires: Nov. 28, 1997
-----------------
-8-
ACCEPTANCE
The undersigned, State Street Bank and Trust Company accepts the
foregoing Collateral Patent and Trademark Assignment by QC Optics, Inc. a
Delaware corporation.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Bruce S. Daniels
---------------------------------
Bruce S. Daniels
Vice President
-9-
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, Massachusetts 02110
(the "Bank")
COLLATERAL PLEDGE AGREEMENT
by
PLEDGOR: ERIC T. CHASE, as Trustee of that certain QC Optics Voting
Trust u/d/t dated as of October ____, 1995
of
PROPERTY: shares of the Common Stock, $.01 par value
-------------
per share of QC OPTICS, INC., a Delaware corporation
to secure
all obligations under that certain Credit Agreement (the "Credit
Agreement"), that certain Security Agreement and that certain Promissory Note by
and between the State Street Bank and Trust Company and QC Optics, Inc. dated as
of March 29, 1996 (collectively the "Loan Agreements") and all Loan Documents
thereunder.
Dated: As of March 29, 1996
- 1 -
In consideration of loans heretofore, now, or hereafter made to QC OPTICS, INC.,
a Delaware corporation (the "OBLIGOR") by STATE STREET BANK AND TRUST COMPANY
(the "BANK"), and to secure the obligations arising from and/or relating to that
certain Promissory Note of the Obligor issued in the original principal amount
of $4,000,000.00 to the Bank; and all replacements, renewals, extensions and
substitutions thereof; (said liabilities and obligations hereby secured being
hereinafter called "OBLIGATIONS"), the undersigned assigns, transfers and
delivers to the Bank the property listed on the cover sheet hereof attached
hereto, together with any additions to or substitutions for said property and
any and all proceeds of the same, all of which shall hereinafter be referred to
as the "PLEDGED SHARES" or the "COLLATERAL".
Notwithstanding any other provision herein contained, specific reference is
hereby made to Section 2.10 of the Credit Agreement. Upon the full and complete
satisfaction of the conditions established therein, this Collateral Pledge
Agreement shall be released by the Bank.
1. The Pledgor warrants and represents
a) that there are no restrictions upon the transfer of any of the
Pledged Shares except as imposed by applicable securities
laws; and
b) that the Pledgor has the right to transfer such shares free of
any encumbrances and without obtaining the consent of the
other shareholders; and
c) that the Pledged Shares are fully paid for and are not subject
to assessment, redemption or call by the company which has
issued the Pledged Shares; and
d) that QC OPTICS, INC. is duly organized, validly existing and
in good standing under the laws of the State of Delaware; and
e) that QC OPTICS, INC. has all requisite corporate power and
authority to own, operate and lease its properties
-2-
and to carry on its business as now conducted or as will be
conducted; and
f) that neither the Pledgor, nor QC OPTICS, INC. is a party to
any lawsuit, claim, administrative proceeding or other action
which, if adversely determined would in any case or in the
aggregate, materially and adversely affect their respective
properties, assets, financial condition or business or
materially affect their respective abilities to carry on their
business substantially as now conducted or as will be
conducted; and
g) that the Pledgor is not, nor will be by execution of this
Pledge Agreement or the other Loan Documents under the Loan
Agreements which have been executed simultaneously herewith,
or by the performance of the Obligations thereunder, be in
violation of any material term or provision of any other
agreement or instrument to which Pledgor is a party or of any
order, writ, judgment, injunction, decree, statute, rule or
regulation.
NOTWITHSTANDING THE FOREGOING, THE SALE OF STOCK AS SET FORTH
IN SECTION 2(B) OF THE FIRST AMENDMENT TO THE STOCK REPURCHASE
AND LOAN REPAYMENT AGREEMENT BY AND AMONG KOBE STEEL USA
HOLDINGS, INC., THE BORROWER AND QC OPTICS VOTING TRUST DATED
AS OF MARCH 29, 1996 (THE "KOBE AGREEMENT") SHALL BE EXPRESSLY
ALLOWED.
2. In the event that, during the term of this pledge, any share dividend,
reclassification, readjustment, or other change is declared or made in
the capital structure of the company which has issued the Pledged
Shares, all new, substituted, and additional shares, or other
securities, issued by reason of any such change shall be held by the
Bank under the terms of this Agreement in the same manner as the
Pledged Shares originally pledged hereunder. Moreover, all sums paid
upon or with respect to any of the Pledged Shares upon the liquidation,
dissolution or sale of the Company which has issued the Pledged Shares
shall be paid over by the Pledgor to the Bank to be applied to the
satisfaction of the Obligations.
3. In the event that during the term of this pledge, subscription warrants
or any other rights or options shall be issued in
-3-
connection with the Pledged Shares, all new shares or other securities
resulting from the exercise therefrom shall be immediately assigned to
the Bank to be held under the terms of this Agreement in the same
manner as the Pledged Shares originally pledged hereunder.
4. Immediately upon an Event of Default under the Loan Agreements or the
Loan Documents thereunder the Pledgor hereby appoints the Bank, as its
attorney to arrange for the transfer of the Pledged Shares on the books
of the company which has issued the Pledged Shares, to the name of the
Bank and, to take such further action with regard to the Pledged Shares
as the Bank shall deem necessary so as to protect the value of the
Collateral, including the right to exercise warrants, rights or options
pertaining to the Pledged Stock, as well as demanding, suing for,
collecting or making any compromise or settlement the Bank deems
suitable in respect of the Pledged Shares held by it.
5. The insolvency, or business failure of the undersigned, appointment of
a receiver or similar official of the property of the undersigned,
execution of a trust mortgage by, or any assignment for the benefit of
creditors by or commencement of any proceedings under any bankruptcy or
insolvency laws by or against the undersigned, shall constitute an
event of default hereunder. Upon any event of default hereunder, or
upon default in the payment or performance of any of the Obligations,
or upon the occurrence of any event which would entitle the Bank to
accelerate the maturity of any of the Obligations, and at any time or
times thereafter, upon twenty (20) days written notice of said default,
the Bank may sell or otherwise dispose of any or all of the Collateral
and may exercise any and all rights and remedies accorded to them by
Article 9 of the Massachusetts Uniform Commercial Code, as amended from
time to time, or otherwise accorded by law, all as the Agent on behalf
of the Bank or any authorized person acting for them may determine,
including, without limitation of the foregoing, bidding and/or becoming
purchaser at any public sale, free from any right of redemption, which
the undersigned hereby waives and releases, and no purchaser shall be
responsible for the application of the purchase money. The undersigned
agrees that ten (10) days notice will be deemed reasonable, if any is
required, except as otherwise provided.
-4-
6. In the event of a default hereunder or upon default in the payment or
performance of any of the Obligations, the Bank in its uncontrolled
discretion may apply any and all proceeds of the Collateral, however
arising, and other amounts collected or received in the exercise of the
Bank's rights hereunder to the Obligations, whether or not then due,
and may exercise said rights, without regard to the existence of any
other security for any Obligation.
7. The undersigned hereby waives notice of any and all advances,
extensions or renewals, and of any default hereunder or as to any
Obligation, as well as presentment, demand, notice, and protest as to
any and all Obligations and also all Obligations of the undersigned
hereunder; and the undersigned agrees that any Collateral may be
exchanged or surrendered from time to time without notice to or further
assent from the undersigned and without in any manner releasing the
Bank's rights in any other Collateral and the undersigned hereby waives
all suretyship defenses generally.
8. No delay or omission by the Bank in exercising or enforcing any of
their rights, powers, privileges, remedies, immunities or discretions
(all of which are hereinafter collectively referred to as the "BANK'S
RIGHTS AND REMEDIES") hereunder shall constitute a waiver thereof; and
no waiver by the Bank of any default of the Borrower hereunder shall
operate as a waiver of any other default hereunder. No term or
provision hereof shall be waived, altered or modified except with the
prior written consent of the Bank, which consent makes explicit
reference to this Agreement. Except as provided in the preceding
sentence, no other agreement or transaction, of whatsoever nature,
entered into between the Bank and the Borrower at any time (whether
before, during or after the effective date or term of this Agreement),
shall be construed in any particular as a waiver, modification or
limitation of any of the Bank's rights and remedies under this
Agreement (nor shall anything in this Agreement be construed as a
waiver, modification or limitation of any of the Bank's rights and
remedies under any such other agreement or transaction), but all of the
Bank's rights and remedies not only under the provisions of this
Agreement but also of any such other agreement or transaction shall be
cumulative and not alternative or exclusive, and may be exercised by
the Bank at
-5-
such time or times and in such order of preference as the Bank in its
sole discretion may determine.
9. If any provision of this Agreement or portion of such provision or the
application thereof to any person or circumstances shall to any extent
be held invalid or unenforceable, the remainder of this Agreement (or
the remainder of such provision) and the application thereof to other
persons or circumstances shall not be affected thereby.
10. This Agreement shall be binding upon and inure to the benefit of the
respective heirs, executors, administrators, legal representatives,
successors and assigns of the parties hereto, and shall remain in full
force and effect (and the Bank shall be entitled to rely thereon,
notwithstanding payment of all Obligations of the Obligors to the Bank
at any time or times) until terminated as to future transactions by
written notice from either party to the other party of the termination
hereof; provided that any such termination shall not release or affect
any Collateral in which the Bank already has a security interest of any
Obligations incurred or rights accrued hereunder prior to the effective
date of such notice of such termination. Notwithstanding any such
termination, the Bank shall have a security interest in all Collateral
to secure the payment and performance of Obligations arising after such
termination as a result of commitments or undertakings made or entered
into by the Bank prior to such termination. The parties hereunder
expressly agree that the Collateral granted hereunder is separate and
apart from any guaranties any of the undersigned provide to the Bank.
11. This Agreement is intended to take effect as a sealed instrument and
has been executed or completed and is to be performed in the
Commonwealth of Massachusetts, and it and all transactions hereunder or
pursuant hereto shall be governed as to interpretation, validity,
effect, rights, duties and remedies of the parties hereunder and in all
other respects by the domestic laws of the Commonwealth of
Massachusetts.
Signed and sealed as of the 29th day of March, 1996.
QC OPTICS VOTING TRUST
/s/ Neil H. Aronson BY: /s/ Eric T. Chase
- ---------------------------------- -------------------------------
WITNESS Eric T. Chase, as Trustee
-6-
UNLIMITED GUARANTY OF ERIC T. CHASE TRUSTEE OF
THE QC OPTICS VOTING TRUST
This Unlimited Guaranty (this "Guaranty") is dated as of March 29, 1996
and is entered into, executed and delivered to STATE STREET BANK AND TRUST
COMPANY (the "BANK") by the undersigned ERIC T. CHASE TRUSTEE OF THE QC OPTICS
VOTING TRUST, (a true and correct copy of said Voting Trust is attached hereto
and made a part hereof) (the "TRUST").
WHEREAS, at the request of QC OPTICS, INC. (the "BORROWER"), the Bank
has committed to enter into certain financing arrangements with the Borrower,
including, without limitation, a line of credit in the original principal amount
of $4,000,000.00 (the "QC LOAN"); and
WHEREAS, the issuance by the Guarantor of this Guaranty is a condition
precedent to the Bank's entering into the foregoing financing arrangements with
the Borrower all in accordance with that certain Credit Agreement by and between
the Bank and the Borrower of even date herewith (the "Credit Agreement") and
specific reference is hereby made to Section 2.10 of the Credit Agreement; and
WHEREAS, each of the Stockholders (as defined in the Trust) is a
shareholder and employee of the Borrower; and
WHEREAS, the Guarantor acknowledges and agrees that the Bank's entering
into financing arrangements with the Borrower is in the best interest of the
Guarantor and that such financing by the Bank is necessary and convenient to the
conduct, promotion and attainment of the business of the Guarantor;
NOW THEREFORE, in consideration of the Bank having made, making now or
in the future, loans, advances or otherwise extending credit to the Borrower,
which loans, advances or credit the Guarantor acknowledges would not be made by
the Bank without this Guaranty, the Guarantor, jointly and severally, if more
than one, hereby unconditionally guarantees to the Bank that (a) the Borrower
will duly and punctually pay, at the place specified therefor, or if no place is
specified, or perform at the Bank's Head Office or at the branch of the Bank
where this Guaranty is given, all indebtedness, obligations and liabilities,
direct or
indirect, matured or unmatured, primary or secondary, certain or contingent, of
the Borrower to the Bank now or hereafter owing or incurred (including without
limitation reasonable costs and expenses incurred by the Bank in attempting to
collect or enforce any of the foregoing) which are chargeable to the Borrower
either by law or under the terms of the Bank's arrangements with the Borrower
accrued in each case to the date of payment hereunder, and including, without
limitation, all indebtedness of the Borrower arising from or incurred in
connection with the QC Loan, and all renewals or extensions thereof and
substitutions and replacements therefor (collectively the "Obligations" and
individually an "Obligation"); and (b) if there is an agreement or instrument
evidencing or executed and delivered in connection with any Obligation, the
Borrower will perform in all other respects strictly in accordance with the
terms thereof.
This Guaranty is an absolute, unconditional and continuing guaranty of
the full and punctual payment and performance by the Borrower of the Obligations
and not of their collectability only and is in no way conditioned upon any
requirement that the Bank first attempt to collect any of the Obligations from
the Borrower or any other party primarily or secondarily liable with respect
thereto or resort to any security or other means of obtaining payment of any of
the Obligations which the Bank now has or may acquire after the date hereof, or
upon any other contingency whatsoever.
NOTWITHSTANDING THE FOREGOING AND/OR ANY OTHER PROVISION HEREIN, THIS
GUARANTY IS LIMITED TO THE ASSETS HELD BY THE TRUST AS OF THE DATE HEREOF,
SPECIFICALLY INCLUDING WITHOUT LIMITATION THE STOCK WHICH IS THE SUBJECT MATTER
OF THAT CERTAIN STOCK PLEDGE AGREEMENT FROM THE TRUST TO THE BANK OF EVEN DATE.
Upon any default, after applicable grace periods, if any, by the
Borrower in the full and punctual payment of the Obligations, the liabilities
and obligations of the Guarantor hereunder shall, at the option of the Bank,
become forthwith due and payable to the Bank without demand or notice of any
nature, all of which are expressly waived by the Guarantor. Payments by the
Guarantor hereunder may be required by the Bank on any number of occasions. The
liability of the Guarantor hereunder shall be unlimited in amount.
The Guarantor further agrees, as the principal obligor and not as a
guarantor only, to pay to the Bank forthwith upon demand, in funds immediately
available to the Bank, all
_______
Initial
-2-
reasonable costs and expenses (including court costs and reasonable legal
expenses) incurred or expended by the Bank in connection with this Guaranty and
the enforcement thereof, together with interest on amounts recoverable under
this Guaranty, from the time such amounts become due until payment at the rates
set forth in, as relevant, the promissory note of the Borrower evidencing the QC
Loan (the "NOTE").
The obligations of the Guarantor under this Guaranty shall continue in
full force and effect until (a) the Bank shall have received from the Guarantor
written notice sent by certified or registered mail, return receipt requested,
to the Bank of the Guarantor's intention to discontinue this Guaranty,
notwithstanding any intermediate or temporary payment or settlement of the whole
or any part of the Obligations or (b) the provisions of Section 2.10 of the
Credit Agreement have been satisfied. No such notice shall affect the liability
of the Guarantor hereunder with respect to any obligations incurred by the
Borrower to the Bank prior to the receipt of such notice and written
acknowledgment of receipt by an officer of the Bank. In the event of any such
discontinuance of this Guaranty, all checks, drafts, notes, instruments
(negotiable or otherwise) and writings drawn or made by or for the account of
the Borrower or the Bank or any of its agents and purporting to be dated on or
before the date such discontinuance is received by the Bank, although presented
to and paid or accepted by the Bank after that date, shall form part of the
Obligations.
The Guarantor grants to the Bank, as security for the full and punctual
payment and performance of the Guarantor's obligations hereunder, a continuing
lien on and security interest in all securities or other property belonging to
the Guarantor now or hereafter held by the Bank or, any entity affiliated with
the Bank, and in all deposits and other sums credited by or due from the Bank,
or any entity affiliated with the Bank, to the Guarantor or subject to
withdrawal by the Guarantor; and regardless of the adequacy of any collateral or
other means of obtaining repayment of the Obligations, the Bank may, upon
default by the Borrower of its Obligations and the expiration of all applicable
notice and grace periods and simultaneous notice to the Guarantor, set off the
whole or any portion or portions of any or all such deposits and other sums
against amounts payable under this Guaranty, whether or not any other person or
persons could also withdraw money therefrom.
_______
Initial
-3-
The Bank shall be at liberty, without giving notice to or obtaining the
assent of the Guarantor and without relieving the Guarantor of any liability
hereunder, to deal with the Borrower and with each other party who now is or
after the date hereof becomes liable in any manner for any of the Obligations,
in such manner as the Bank in its sole discretion deems fit, and to this end the
Guarantor gives to the Bank full authority in its sole discretion to do any or
all of the following things: (a) extend credit, make loans and afford other
financial accommodations to the Borrower at such times, in such amounts and on
such terms as the Bank may approve; (b) vary the terms and grant extensions or
renewals of any present or future indebtedness or obligation to the Bank of the
Borrower or of any such other party; (c) grant time, waivers and other
indulgences in respect thereto; (d) vary, exchange, release or discharge, wholly
or partially, or delay in or abstain from perfecting and enforcing any security
or guaranty or other means of obtaining payment of any of the Obligations which
the Bank now has or acquires after the date hereof; (e) accept partial payments
from the Borrower or any such other party; (f) release or discharge, wholly or
partially, any endorser or guarantor; and (g) compromise or make any settlement
or other arrangement with the Borrower or any such other party. The undersigned
has unconditionally delivered this Guaranty to the Bank and acknowledges that
the Guarantor is responsible for the entire amount of the Obligations. The
failure to sign this or any other guaranty by any other person shall not
discharge the liability of the undersigned.
If for any reason the Borrower has no legal existence or is under no
legal obligation to discharge any of the Obligations undertaken or purported to
be undertaken by it or on its behalf, or if any of the monies included in the
Obligations have become irrecoverable from the Borrower by operation of law or
for any other reason, this Guaranty shall nevertheless be binding on the
Guarantor to the same extent as if the Guarantor at all times had been the
principal debtor on all such Obligations. This Guaranty shall be in addition to
any other guaranty or other security for the Obligations, and it shall not be
prejudiced or rendered unenforceable by the invalidity of any such other
guaranty or security. Unless terminated as provided herein, the Guaranty shall
continue to be effective or be reinstated, as the case may be, if at any time
payment of all or any part of the Obligations is rescinded or otherwise must be
restored by the Bank to the Borrower or to the creditors of the Borrower or any
representative of the Borrower or representative of the Borrower's creditors
upon the insolvency, bankruptcy or
_______
Initial
-4-
reorganization of the Borrower or to the undersigned or to the creditors of the
Guarantor or any representative of the Guarantor or representative of the
creditors of the Guarantor upon the insolvency, bankruptcy or reorganization of
the Guarantor or otherwise, all as though such payments had not been made.
The Guarantor waives notice of acceptance hereof, notice of any action
taken or omitted by the Bank in reliance hereon, and any requirement that the
Bank be diligent or prompt in making demands hereunder, giving notice of any
default either to the Guarantor or to the Borrower or asserting any other right
of the Bank hereunder. The Guarantor also irrevocably waives, to the fullest
extent permitted by law, all defenses which at any time may be available in
respect of the Guarantor's obligations hereunder by virtue of any homestead
exemption, stay, moratorium law, statute of limitations, valuations or other
similar law now or hereafter in effect.
So long as any Obligation remains unpaid or undischarged, the Guarantor
will not, by paying any sum recoverable hereunder (whether or not demanded by
the Bank) or by any means or on any other ground, claim any set-off or
counterclaim against the Borrower in respect of any liability of the Guarantor
to the Borrower or, in proceedings under the Bankruptcy Act or insolvency
proceedings of any nature, prove in competition with the Bank in respect of any
payment hereunder or be entitled to have the benefit of any counterclaim or
proof of claim or dividend or payment by or on behalf of the Borrower or the
benefit of any other security for any Obligation which, now or hereafter, the
Bank may hold or in which it may have any share or have any right of
subrogation, reimbursement or indemnity or right of recourse to any security
which the Bank may have or hold with respect to the Obligations.
Notwithstanding anything to the contrary in this Guaranty, the
Guarantor shall have no right of subrogation and no right to seek contribution,
indemnification, or any other form of reimbursement from the Borrower, any other
guarantor, or any other person now or hereafter primarily or secondarily liable
for any obligations of the Borrower to the Bank nor any right of recourse to
security for any obligations, for any disbursement made by the Guarantor under
or in connection with this Guaranty or otherwise so long as all of the
Obligations have not been fully paid and have not been reinstated by reason of
avoidance of any transfer, the return of any payment or otherwise.
_______
Initial
-5-
Further, so long as any Obligation remains unpaid or undischarged, the
Guarantor subordinates any debt evidenced by a note owing to the Guarantor from
the Borrower and any claim or claims the Guarantor may now or hereafter have
against the Borrower to any unpaid or undischarged debt provided that such debts
and claims may be paid so long as no Event of Default (as defined in the Credit
Agreement governing the terms of the QC Loan) shall have occurred and be
continuing.
Any demand on or notice to the Guarantor shall be in writing and shall
be effective when handed to the Guarantor or mailed by certified mail, return
receipt requested, or sent by telegraph to the Guarantor at the address set
forth below or such other address as the Guarantor hereafter designates in
writing.
No provision of this Guaranty can be changed, waived or discharged
except by an instrument in writing signed by the Bank and the Guarantor
expressly referring to the provision of this Guaranty to which such instrument
relates; and no such waiver shall extend to, affect or impair any right with
respect to any Obligation which is not expressly dealt with therein. No course
of dealing or delay or omission on the part of the Bank in exercising any right
shall operate as a waiver thereof or otherwise be prejudicial thereto. This
writing is intended by the parties to be a final expression of this Guaranty and
is intended as a complete and exclusive statement of the terms of their
agreement.
The rights, remedies, powers, privileges, and discretions of the Bank
hereunder (hereinafter the "Bank's Rights and Remedies") shall be cumulative and
not exclusive of any rights or remedies which it would otherwise have. No delay
or omission by the Bank in exercising or enforcing any of the Bank's Rights and
Remedies shall operate as, or constitute, a waiver thereof. No waiver by the
Bank of any of the Bank's Rights and Remedies or of any default or remedies
under any other agreement with the Guarantor, or of any default under any
agreement with either or both of the Borrower, or any other person liable or
obligated for or on the Obligations, shall operate as a waiver of any other of
the Bank's Rights and Remedies or of any default or remedy hereunder or
thereunder. No exercise of any of the Bank's Rights and Remedies and no other
agreement or transaction of whatever nature entered into between the Bank and
the Guarantor, the Bank and the Borrower, and/or the Bank and any such other
person at any time shall preclude any other exercise of the Bank's Rights and
Remedies. No waiver by the Bank of any of the Bank's rights and
_______
Initial
-6-
remedies on any one occasion shall be deemed a waiver on any subsequent
occasion, nor shall it be deemed a continuing waiver. All of the Bank's Rights
and Remedies and all of the Bank's rights, remedies, powers, privileges, and
discretions under any other agreement or transaction with the Guarantor, the
Borrower, or any such other person shall be cumulative and not alternative or
exclusive, and may be exercised by the Bank at such time or times and in such
order of preference as the Bank in its sole discretion may determine.
This instrument and all documents which have been or may be hereinafter
furnished by the undersigned to the Bank may be reproduced by the Bank by any
photographic, photostatic, microfilm, microcard, miniature photographic,
xerographic, or similar process, and the Bank may destroy the original from
which such document was so reproduced. Any such reproduction shall be admissible
in evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made in the regular course of business).
THE GUARANTOR WAIVES ANY RIGHT TO TRIAL BY JURY THE UNDERSIGNED MAY HAVE IN ANY
ACTION OR PROCEEDING, IN LAW OR EQUITY, IN CONNECTION WITH THIS GUARANTY. THE
GUARANTOR AND BANK HEREBY KNOWINGLY AND VOLUNTARILY AND INTENTIONALLY WAIVE ANY
RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER, OR
IN CONNECTION WITH THIS GUARANTY. THE GUARANTOR HEREBY CERTIFIES THAT NO
REPRESENTATIVE OR AGENT OF THE BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT BANK WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THIS WAIVER OF
RIGHT TO JURY TRIAL PROVISION. THE GUARANTOR ACKNOWLEDGES THAT BANK HAS BEEN
INDUCED TO ENTER INTO BANK'S LENDING RELATIONSHIP WITH THE BORROWER BY, AMONG
OTHER THINGS, THE PROVISIONS OF THIS PARAGRAPH.
Notwithstanding the existence of any security interest held by the Bank
(or by any other party) in property securing the Obligations, the Bank shall
have the right to determine the order in which any or all of said property shall
be subjected to the remedies provided herein or in any document evidencing
and/or related to said security interest and/or the Obligations and the right to
determine the order in which any or all portions of the Obligations secured
hereby are satisfied from the proceeds realized upon the exercise of the
remedies provided herein or in any document evidencing and/or related to said
security interest and/or the Obligations. The Guarantor, the Borrower and any
_______
Initial
-7-
party who consents to this interest in the said property and who has actual or
constructive notice hereof hereby waives and shall be deemed to have waived any
and all rights to require the marshalling of assets in connection with the
exercise of any of the remedies permitted by applicable law or provided in any
document evidencing and/or related to said security interest and/or the
Obligations.
This Guaranty is intended to take effect as a sealed instrument to be
governed by and construed in accordance with the laws of The Commonwealth of
Massachusetts and shall inure to the benefit of the Bank and its successors in
title and assigns and shall be binding on the Guarantor and the Guarantor's
heirs, assigns and legal representatives and shall apply to all Obligations of
the Borrower including any successor by operation of law. The Guarantor hereby
consents to and submits to the jurisdiction of the Courts of The Commonwealth of
Massachusetts for all purposes with respect to this Guaranty and all actions,
suits or other proceedings shall be brought in a court of competent jurisdiction
in The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as of the
date first written above.
QC OPTICS VOTING TRUST
/s/ Eric T. Chase
----------------------------------------
Eric T. Chase, Trustee
duly authorized
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. March 29, 1996
Then personally appeared the above named Eric T. Chase Trustee of the
QC Optics Voting Trust, and acknowledged the foregoing instrument to be his free
act and deed on behalf of said QC Optics Voting Trust, before me
/s/ Neil H. Aronson
------------------------------
_______
Initial
-8-
Notary Public
My commission expires: Nov. 28, 1997
-------------
_______
Initial
-9-
UNLIMITED GUARANTY OF ERIC T. CHASE
This Unlimited Guaranty (this "Guaranty") is dated as of March 29, 1996
and is entered into, executed and delivered to STATE STREET BANK AND TRUST
COMPANY (the "BANK") by the undersigned ERIC T. CHASE, with an address of 19
Craigle Circle, Carlisle, MA 01741 (the "GUARANTOR").
WHEREAS, at the request of QC OPTICS, INC. (the "BORROWER"), the Bank
has committed to enter into certain financing arrangements with the Borrower,
including, without limitation, a line of credit in the original principal amount
of $4,000,000.00 (the "QC LOAN"); and
WHEREAS, the issuance by the Guarantor of this Guaranty is a condition
precedent to the Bank's entering into the foregoing financing arrangements with
the Borrower all in accordance with that certain Credit Agreement by and between
the Bank and the Borrower of even date herewith (the "Credit Agreement") and
specific reference is hereby made to Section 2.10 of the Credit Agreement; and
WHEREAS, the Guarantor is one of the principal shareholders and owners
of the Borrower; and
WHEREAS, the Guarantor acknowledges and agrees that the Bank's entering
into financing arrangements with the Borrower is in the best interest of the
Guarantor and that such financing by the Bank is necessary and convenient to the
conduct, promotion and attainment of the business of the Guarantor;
NOW THEREFORE, in consideration of the Bank having made, making now or
in the future, loans, advances or otherwise extending credit to the Borrower,
which loans, advances or credit the Guarantor acknowledges would not be made by
the Bank without this Guaranty, the Guarantor, jointly and severally, if more
than one, hereby unconditionally guarantees to the Bank that (a) the Borrower
will duly and punctually pay, at the place specified therefor, or if no place is
specified, or perform at the Bank's Head Office or at the branch of the Bank
where this Guaranty is given, all indebtedness, obligations and liabilities,
direct or indirect, matured or unmatured, primary or secondary, certain or
contingent, of the Borrower to the Bank now or hereafter owing or
incurred (including without limitation reasonable costs and expenses incurred by
the Bank in attempting to collect or enforce any of the foregoing) which are
chargeable to the Borrower either by law or under the terms of the Bank's
arrangements with the Borrower accrued in each case to the date of payment
hereunder, and including, without limitation, all indebtedness of the Borrower
arising from or incurred in connection with the QC Loan, and all renewals or
extensions thereof and substitutions and replacements therefor (collectively the
"Obligations" and individually an "Obligation"); and (b) if there is an
agreement or instrument evidencing or executed and delivered in connection with
any Obligation, the Borrower will perform in all other respects strictly in
accordance with the terms thereof.
This Guaranty is an absolute, unconditional and continuing guaranty of
the full and punctual payment and performance by the Borrower of the Obligations
and not of their collectability only and is in no way conditioned upon any
requirement that the Bank first attempt to collect any of the Obligations from
the Borrower or any other party primarily or secondarily liable with respect
thereto or resort to any security or other means of obtaining payment of any of
the Obligations which the Bank now has or may acquire after the date hereof, or
upon any other contingency whatsoever.
NOTWITHSTANDING THE FOREGOING AND/OR ANY OTHER PROVISION HEREIN, THE
BANK SHALL HAVE NO INTEREST NOR SHALL BANK BE ENTITLED TO PURSUE ANY EQUITY OR
ANY INTEREST IN OR FROM THE GUARANTOR'S PROPERTY LOCATED IN MAUI, HAWAII MORE
SPECIFICALLY KNOWN AS DESCRIBED IN AS 120 PULAMA PLACE, KIHEI, HAWAII.
Upon any default, after applicable grace periods, if any, by the
Borrower in the full and punctual payment of the Obligations, the liabilities
and obligations of the Guarantor hereunder shall, at the option of the Bank,
become forthwith due and payable to the Bank without demand or notice of any
nature, all of which are expressly waived by the Guarantor. Payments by the
Guarantor hereunder may be required by the Bank on any number of occasions. The
liability of the Guarantor hereunder shall be unlimited in amount.
The Guarantor further agrees, as the principal obligor and not as a
guarantor only, to pay to the Bank forthwith upon demand, in funds immediately
available to the Bank, all reasonable costs and expenses (including court costs
and reasonable legal expenses) incurred or expended by the Bank in
_______
Initial
-2-
connection with this Guaranty and the enforcement thereof, together with
interest on amounts recoverable under this Guaranty, from the time such amounts
become due until payment at the rates set forth in, as relevant, the promissory
note of the Borrower evidencing the QC Loan (the "NOTE").
The obligations of the Guarantor under this Guaranty shall continue in
full force and effect until (a) the Bank shall have received from the Guarantor
written notice sent by certified or registered mail, return receipt requested,
to the Bank of the Guarantor's intention to discontinue this Guaranty,
notwithstanding any intermediate or temporary payment or settlement of the whole
or any part of the Obligations or (b) the provisions of Section 2.10 of the
Credit Agreement have been satisfied. No such notice shall affect the liability
of the Guarantor hereunder with respect to any obligations incurred by the
Borrower to the Bank prior to the receipt of such notice and written
acknowledgment of receipt by an officer of the Bank. In the event of any such
discontinuance of this Guaranty, all checks, drafts, notes, instruments
(negotiable or otherwise) and writings drawn or made by or for the account of
the Borrower or the Bank or any of its agents and purporting to be dated on or
before the date such discontinuance is received by the Bank, although presented
to and paid or accepted by the Bank after that date, shall form part of the
Obligations.
The Guarantor grants to the Bank, as security for the full and punctual
payment and performance of the Guarantor's obligations hereunder, a continuing
lien on and security interest in all securities or other property belonging to
the Guarantor now or hereafter held by the Bank or, any entity affiliated with
the Bank, and in all deposits and other sums credited by or due from the Bank,
or any entity affiliated with the Bank, to the Guarantor or subject to
withdrawal by the Guarantor; and regardless of the adequacy of any collateral or
other means of obtaining repayment of the Obligations, the Bank may, upon
default by the Borrower of its Obligations and the expiration of all applicable
notice and grace periods and simultaneous notice to the Guarantor, set off the
whole or any portion or portions of any or all such deposits and other sums
against amounts payable under this Guaranty, whether or not any other person or
persons could also withdraw money therefrom.
The Bank shall be at liberty, without giving notice to or obtaining the
assent of the Guarantor and without relieving the Guarantor of any liability
hereunder, to deal with the Borrower
_______
Initial
-3-
and with each other party who now is or after the date hereof becomes liable in
any manner for any of the Obligations, in such manner as the Bank in its sole
discretion deems fit, and to this end the Guarantor gives to the Bank full
authority in its sole discretion to do any or all of the following things: (a)
extend credit, make loans and afford other financial accommodations to the
Borrower at such times, in such amounts and on such terms as the Bank may
approve; (b) vary the terms and grant extensions or renewals of any present or
future indebtedness or obligation to the Bank of the Borrower or of any such
other party; (c) grant time, waivers and other indulgences in respect thereto;
(d) vary, exchange, release or discharge, wholly or partially, or delay in or
abstain from perfecting and enforcing any security or guaranty or other means of
obtaining payment of any of the Obligations which the Bank now has or acquires
after the date hereof; (e) accept partial payments from the Borrower or any such
other party; (f) release or discharge, wholly or partially, any endorser or
guarantor; and (g) compromise or make any settlement or other arrangement with
the Borrower or any such other party. The undersigned has unconditionally
delivered this Guaranty to the Bank and acknowledges that the Guarantor is
responsible for the entire amount of the Obligations. The failure to sign this
or any other guaranty by any other person shall not discharge the liability of
the undersigned.
If for any reason the Borrower has no legal existence or is under no
legal obligation to discharge any of the Obligations undertaken or purported to
be undertaken by it or on its behalf, or if any of the monies included in the
Obligations have become irrecoverable from the Borrower by operation of law or
for any other reason, this Guaranty shall nevertheless be binding on the
Guarantor to the same extent as if the Guarantor at all times had been the
principal debtor on all such Obligations. This Guaranty shall be in addition to
any other guaranty or other security for the Obligations, and it shall not be
prejudiced or rendered unenforceable by the invalidity of any such other
guaranty or security. Unless terminated as provided herein, the Guaranty shall
continue to be effective or be reinstated, as the case may be, if at any time
payment of all or any part of the Obligations is rescinded or otherwise must be
restored by the Bank to the Borrower or to the creditors of the Borrower or any
representative of the Borrower or representative of the Borrower's creditors
upon the insolvency, bankruptcy or reorganization of the Borrower or to the
undersigned or to the creditors of the Guarantor or any representative of the
Guarantor or representative of the creditors of the Guarantor upon the
_______
Initial
-4-
insolvency, bankruptcy or reorganization of the Guarantor or otherwise, all as
though such payments had not been made.
The Guarantor waives notice of acceptance hereof, notice of any action
taken or omitted by the Bank in reliance hereon, and any requirement that the
Bank be diligent or prompt in making demands hereunder, giving notice of any
default either to the Guarantor or to the Borrower or asserting any other right
of the Bank hereunder. The Guarantor also irrevocably waives, to the fullest
extent permitted by law, all defenses which at any time may be available in
respect of the Guarantor's obligations hereunder by virtue of any homestead
exemption, stay, moratorium law, statute of limitations, valuations or other
similar law now or hereafter in effect.
So long as any Obligation remains unpaid or undischarged, the Guarantor
will not, by paying any sum recoverable hereunder (whether or not demanded by
the Bank) or by any means or on any other ground, claim any set-off or
counterclaim against the Borrower in respect of any liability of the Guarantor
to the Borrower or, in proceedings under the Bankruptcy Act or insolvency
proceedings of any nature, prove in competition with the Bank in respect of any
payment hereunder or be entitled to have the benefit of any counterclaim or
proof of claim or dividend or payment by or on behalf of the Borrower or the
benefit of any other security for any Obligation which, now or hereafter, the
Bank may hold or in which it may have any share or have any right of
subrogation, reimbursement or indemnity or right of recourse to any security
which the Bank may have or hold with respect to the Obligations.
Notwithstanding anything to the contrary in this Guaranty, the
Guarantor shall have no right of subrogation and no right to seek contribution,
indemnification, or any other form of reimbursement from the Borrower, any other
guarantor, or any other person now or hereafter primarily or secondarily liable
for any obligations of the Borrower to the Bank nor any right of recourse to
security for any obligations, for any disbursement made by the Guarantor under
or in connection with this Guaranty or otherwise so long as all of the
Obligations have not been fully paid and have not been reinstated by reason of
avoidance of any transfer, the return of any payment or otherwise.
Further, so long as any Obligation remains unpaid or undischarged, the
Guarantor subordinates any debt evidenced by a note owing to the Guarantor from
the Borrower and any claim or
_______
Initial
-5-
claims the Guarantor may now or hereafter have against the Borrower to any
unpaid or undischarged debt provided that such debts and claims may be paid so
long as no Event of Default (as defined in the Credit Agreement governing the
terms of the QC Loan) shall have occurred and be continuing.
Any demand on or notice to the Guarantor shall be in writing and shall
be effective when handed to the Guarantor or mailed by certified mail, return
receipt requested, or sent by telegraph to the Guarantor at the address set
forth below or such other address as the Guarantor hereafter designates in
writing.
No provision of this Guaranty can be changed, waived or discharged
except by an instrument in writing signed by the Bank and the Guarantor
expressly referring to the provision of this Guaranty to which such instrument
relates; and no such waiver shall extend to, affect or impair any right with
respect to any Obligation which is not expressly dealt with therein. No course
of dealing or delay or omission on the part of the Bank in exercising any right
shall operate as a waiver thereof or otherwise be prejudicial thereto. This
writing is intended by the parties to be a final expression of this Guaranty and
is intended as a complete and exclusive statement of the terms of their
agreement.
The rights, remedies, powers, privileges, and discretions of the Bank
hereunder (hereinafter the "Bank's Rights and Remedies") shall be cumulative and
not exclusive of any rights or remedies which it would otherwise have. No delay
or omission by the Bank in exercising or enforcing any of the Bank's Rights and
Remedies shall operate as, or constitute, a waiver thereof. No waiver by the
Bank of any of the Bank's Rights and Remedies or of any default or remedies
under any other agreement with the Guarantor, or of any default under any
agreement with either or both of the Borrower, or any other person liable or
obligated for or on the Obligations, shall operate as a waiver of any other of
the Bank's Rights and Remedies or of any default or remedy hereunder or
thereunder. No exercise of any of the Bank's Rights and Remedies and no other
agreement or transaction of whatever nature entered into between the Bank and
the Guarantor, the Bank and the Borrower, and/or the Bank and any such other
person at any time shall preclude any other exercise of the Bank's Rights and
Remedies. No waiver by the Bank of any of the Bank's rights and remedies on any
one occasion shall be deemed a waiver on any subsequent occasion, nor shall it
be deemed a continuing waiver. All of the Bank's Rights and Remedies and all of
the Bank's
_______
Initial
-6-
rights, remedies, powers, privileges, and discretions under any other agreement
or transaction with the Guarantor, the Borrower, or any such other person shall
be cumulative and not alternative or exclusive, and may be exercised by the Bank
at such time or times and in such order of preference as the Bank in its sole
discretion may determine.
This instrument and all documents which have been or may be hereinafter
furnished by the undersigned to the Bank may be reproduced by the Bank by any
photographic, photostatic, microfilm, microcard, miniature photographic,
xerographic, or similar process, and the Bank may destroy the original from
which such document was so reproduced. Any such reproduction shall be admissible
in evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made in the regular course of business).
THE GUARANTOR WAIVES ANY RIGHT TO TRIAL BY JURY THE UNDERSIGNED MAY HAVE IN ANY
ACTION OR PROCEEDING, IN LAW OR EQUITY, IN CONNECTION WITH THIS GUARANTY. THE
GUARANTOR AND BANK HEREBY KNOWINGLY AND VOLUNTARILY AND INTENTIONALLY WAIVE ANY
RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER, OR
IN CONNECTION WITH THIS GUARANTY. THE GUARANTOR HEREBY CERTIFIES THAT NO
REPRESENTATIVE OR AGENT OF THE BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT BANK WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THIS WAIVER OF
RIGHT TO JURY TRIAL PROVISION. THE GUARANTOR ACKNOWLEDGES THAT BANK HAS BEEN
INDUCED TO ENTER INTO BANK'S LENDING RELATIONSHIP WITH THE BORROWER BY, AMONG
OTHER THINGS, THE PROVISIONS OF THIS PARAGRAPH.
Notwithstanding the existence of any security interest held by the Bank
(or by any other party) in property securing the Obligations, the Bank shall
have the right to determine the order in which any or all of said property shall
be subjected to the remedies provided herein or in any document evidencing
and/or related to said security interest and/or the Obligations and the right to
determine the order in which any or all portions of the Obligations secured
hereby are satisfied from the proceeds realized upon the exercise of the
remedies provided herein or in any document evidencing and/or related to said
security interest and/or the Obligations. The Guarantor, the Borrower and any
party who consents to this interest in the said property and who has actual or
constructive notice hereof hereby waives and shall be deemed to have waived any
and all rights to require the
_______
Initial
-7-
marshalling of assets in connection with the exercise of any of the remedies
permitted by applicable law or provided in any document evidencing and/or
related to said security interest and/or the Obligations.
For so long as this Guaranty is in effect and the undersigned has any
liability hereunder, the undersigned shall deliver to the Bank within 90 days
after the calendar year, a personal financial statement of the Guarantor each
prepared in form and substance reasonably satisfactory to the Bank.
This Guaranty is intended to take effect as a sealed instrument to be
governed by and construed in accordance with the laws of The Commonwealth of
Massachusetts and shall inure to the benefit of the Bank and its successors in
title and assigns and shall be binding on the Guarantor and the Guarantor's
heirs, assigns and legal representatives and shall apply to all Obligations of
the Borrower including any successor by operation of law. The Guarantor hereby
consents to and submits to the jurisdiction of the Courts of The Commonwealth of
Massachusetts for all purposes with respect to this Guaranty and all actions,
suits or other proceedings shall be brought in a court of competent jurisdiction
in The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as of the
date first written above.
/s/ Eric T. Chase
------------------------------
Eric T. Chase, Individually
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. March 29, 1996
Then personally appeared the above named Eric T. Chase, and
acknowledged the foregoing instrument to be his free act and deed, before me
/s/ Neil H. Aronson
------------------------------
_______
Initial
-8-
Notary Public
My commission expires: Nov. 28, 1997
_______
Initial
-9-
UNLIMITED GUARANTY OF K. ANDREW BERNAL
This Unlimited Guaranty (this "Guaranty") is dated as of March 29, 1996
and is entered into, executed and delivered to STATE STREET BANK AND TRUST
COMPANY (the "BANK") by the undersigned K. ANDREW BERNAL, with an address of 666
Main Street, Apt. 205, Winchester, MA 01890 (the "GUARANTOR").
WHEREAS, at the request of QC OPTICS, INC. (the "BORROWER"), the Bank
has committed to enter into certain financing arrangements with the Borrower,
including, without limitation, a line of credit in the original principal amount
of $4,000,000.00 (the "QC LOAN"); and
WHEREAS, the issuance by the Guarantor of this Guaranty is a condition
precedent to the Bank's entering into the foregoing financing arrangements with
the Borrower all in accordance with that certain Credit Agreement by and between
the Bank and the Borrower of even date herewith (the "Credit Agreement") and
specific reference is hereby made to Section 2.10 of the Credit Agreement; and
WHEREAS, the Guarantor is one of the principal shareholders and owners
of the Borrower; and
WHEREAS, the Guarantor acknowledges and agrees that the Bank's entering
into financing arrangements with the Borrower is in the best interest of the
Guarantor and that such financing by the Bank is necessary and convenient to the
conduct, promotion and attainment of the business of the Guarantor;
NOW THEREFORE, in consideration of the Bank having made, making now or
in the future, loans, advances or otherwise extending credit to the Borrower,
which loans, advances or credit the Guarantor acknowledges would not be made by
the Bank without this Guaranty, the Guarantor, jointly and severally, if more
than one, hereby unconditionally guarantees to the Bank that (a) the Borrower
will duly and punctually pay, at the place specified therefor, or if no place is
specified, or perform at the Bank's Head Office or at the branch of the Bank
where this Guaranty is given, all indebtedness, obligations and liabilities,
direct or indirect, matured or unmatured, primary or secondary, certain or
contingent, of the Borrower to the Bank now or hereafter owing or
incurred (including without limitation reasonable costs and expenses incurred by
the Bank in attempting to collect or enforce any of the foregoing) which are
chargeable to the Borrower either by law or under the terms of the Bank's
arrangements with the Borrower accrued in each case to the date of payment
hereunder, and including, without limitation, all indebtedness of the Borrower
arising from or incurred in connection with the QC Loan, and all renewals or
extensions thereof and substitutions and replacements therefor (collectively the
"Obligations" and individually an "Obligation"); and (b) if there is an
agreement or instrument evidencing or executed and delivered in connection with
any Obligation, the Borrower will perform in all other respects strictly in
accordance with the terms thereof.
This Guaranty is an absolute, unconditional and continuing guaranty of
the full and punctual payment and performance by the Borrower of the Obligations
and not of their collectability only and is in no way conditioned upon any
requirement that the Bank first attempt to collect any of the Obligations from
the Borrower or any other party primarily or secondarily liable with respect
thereto or resort to any security or other means of obtaining payment of any of
the Obligations which the Bank now has or may acquire after the date hereof, or
upon any other contingency whatsoever.
Upon any default, after applicable grace periods, if any, by the
Borrower in the full and punctual payment of the Obligations, the liabilities
and obligations of the Guarantor hereunder shall, at the option of the Bank,
become forthwith due and payable to the Bank without demand or notice of any
nature, all of which are expressly waived by the Guarantor. Payments by the
Guarantor hereunder may be required by the Bank on any number of occasions. The
liability of the Guarantor hereunder shall be unlimited in amount.
The Guarantor further agrees, as the principal obligor and not as a
guarantor only, to pay to the Bank forthwith upon demand, in funds immediately
available to the Bank, all reasonable costs and expenses (including court costs
and reasonable legal expenses) incurred or expended by the Bank in connection
with this Guaranty and the enforcement thereof, together with interest on
amounts recoverable under this Guaranty, from the time such amounts become due
until payment at the rates set forth in, as relevant, the promissory note of the
Borrower evidencing the QC Loan (the "NOTE").
_______
Initial
-2-
The obligations of the Guarantor under this Guaranty shall continue in
full force and effect until (a) the Bank shall have received from the Guarantor
written notice sent by certified or registered mail, return receipt requested,
to the Bank of the Guarantor's intention to discontinue this Guaranty,
notwithstanding any intermediate or temporary payment or settlement of the whole
or any part of the Obligations or (b) the provisions of Section 2.10 of the
Credit Agreement have been satisfied. No such notice shall affect the liability
of the Guarantor hereunder with respect to any obligations incurred by the
Borrower to the Bank prior to the receipt of such notice and written
acknowledgment of receipt by an officer of the Bank. In the event of any such
discontinuance of this Guaranty, all checks, drafts, notes, instruments
(negotiable or otherwise) and writings drawn or made by or for the account of
the Borrower or the Bank or any of its agents and purporting to be dated on or
before the date such discontinuance is received by the Bank, although presented
to and paid or accepted by the Bank after that date, shall form part of the
Obligations.
The Guarantor grants to the Bank, as security for the full and punctual
payment and performance of the Guarantor's obligations hereunder, a continuing
lien on and security interest in all securities or other property belonging to
the Guarantor now or hereafter held by the Bank or, any entity affiliated with
the Bank, and in all deposits and other sums credited by or due from the Bank,
or any entity affiliated with the Bank, to the Guarantor or subject to
withdrawal by the Guarantor; and regardless of the adequacy of any collateral or
other means of obtaining repayment of the Obligations, the Bank may, upon
default by the Borrower of its Obligations and the expiration of all applicable
notice and grace periods and simultaneous notice to the Guarantor, set off the
whole or any portion or portions of any or all such deposits and other sums
against amounts payable under this Guaranty, whether or not any other person or
persons could also withdraw money therefrom.
The Bank shall be at liberty, without giving notice to or obtaining the
assent of the Guarantor and without relieving the Guarantor of any liability
hereunder, to deal with the Borrower and with each other party who now is or
after the date hereof becomes liable in any manner for any of the Obligations,
in such manner as the Bank in its sole discretion deems fit, and to this end the
Guarantor gives to the Bank full authority in its sole discretion to do any or
all of the following things: (a) extend credit, make loans and afford other
financial accommodations to
_______
Initial
-3-
the Borrower at such times, in such amounts and on such terms as the Bank may
approve; (b) vary the terms and grant extensions or renewals of any present or
future indebtedness or obligation to the Bank of the Borrower or of any such
other party; (c) grant time, waivers and other indulgences in respect thereto;
(d) vary, exchange, release or discharge, wholly or partially, or delay in or
abstain from perfecting and enforcing any security or guaranty or other means of
obtaining payment of any of the Obligations which the Bank now has or acquires
after the date hereof; (e) accept partial payments from the Borrower or any such
other party; (f) release or discharge, wholly or partially, any endorser or
guarantor; and (g) compromise or make any settlement or other arrangement with
the Borrower or any such other party. The undersigned has unconditionally
delivered this Guaranty to the Bank and acknowledges that the Guarantor is
responsible for the entire amount of the Obligations. The failure to sign this
or any other guaranty by any other person shall not discharge the liability of
the undersigned.
If for any reason the Borrower has no legal existence or is under no
legal obligation to discharge any of the Obligations undertaken or purported to
be undertaken by it or on its behalf, or if any of the monies included in the
Obligations have become irrecoverable from the Borrower by operation of law or
for any other reason, this Guaranty shall nevertheless be binding on the
Guarantor to the same extent as if the Guarantor at all times had been the
principal debtor on all such Obligations. This Guaranty shall be in addition to
any other guaranty or other security for the Obligations, and it shall not be
prejudiced or rendered unenforceable by the invalidity of any such other
guaranty or security. Unless terminated as provided herein, the Guaranty shall
continue to be effective or be reinstated, as the case may be, if at any time
payment of all or any part of the Obligations is rescinded or otherwise must be
restored by the Bank to the Borrower or to the creditors of the Borrower or any
representative of the Borrower or representative of the Borrower's creditors
upon the insolvency, bankruptcy or reorganization of the Borrower or to the
undersigned or to the creditors of the Guarantor or any representative of the
Guarantor or representative of the creditors of the Guarantor upon the
insolvency, bankruptcy or reorganization of the Guarantor or otherwise, all as
though such payments had not been made.
The Guarantor waives notice of acceptance hereof, notice of any action
taken or omitted by the Bank in reliance hereon, and any requirement that the
Bank be diligent or prompt in making
_______
Initial
-4-
demands hereunder, giving notice of any default either to the Guarantor or to
the Borrower or asserting any other right of the Bank hereunder. The Guarantor
also irrevocably waives, to the fullest extent permitted by law, all defenses
which at any time may be available in respect of the Guarantor's obligations
hereunder by virtue of any homestead exemption, stay, moratorium law, statute of
limitations, valuations or other similar law now or hereafter in effect.
So long as any Obligation remains unpaid or undischarged, the Guarantor
will not, by paying any sum recoverable hereunder (whether or not demanded by
the Bank) or by any means or on any other ground, claim any set-off or
counterclaim against the Borrower in respect of any liability of the Guarantor
to the Borrower or, in proceedings under the Bankruptcy Act or insolvency
proceedings of any nature, prove in competition with the Bank in respect of any
payment hereunder or be entitled to have the benefit of any counterclaim or
proof of claim or dividend or payment by or on behalf of the Borrower or the
benefit of any other security for any Obligation which, now or hereafter, the
Bank may hold or in which it may have any share or have any right of
subrogation, reimbursement or indemnity or right of recourse to any security
which the Bank may have or hold with respect to the Obligations.
Notwithstanding anything to the contrary in this Guaranty, the
Guarantor shall have no right of subrogation and no right to seek contribution,
indemnification, or any other form of reimbursement from the Borrower, any other
guarantor, or any other person now or hereafter primarily or secondarily liable
for any obligations of the Borrower to the Bank nor any right of recourse to
security for any obligations, for any disbursement made by the Guarantor under
or in connection with this Guaranty or otherwise so long as all of the
Obligations have not been fully paid and have not been reinstated by reason of
avoidance of any transfer, the return of any payment or otherwise.
Further, so long as any Obligation remains unpaid or undischarged, the
Guarantor subordinates any debt evidenced by a note owing to the Guarantor from
the Borrower and any claim or claims the Guarantor may now or hereafter have
against the Borrower to any unpaid or undischarged debt provided that such debts
and claims may be paid so long as no Event of Default (as defined in the Credit
Agreement governing the terms of the QC Loan) shall have occurred and be
continuing.
_______
Initial
-5-
Any demand on or notice to the Guarantor shall be in writing and shall
be effective when handed to the Guarantor or mailed by certified mail, return
receipt requested, or sent by telegraph to the Guarantor at the address set
forth below or such other address as the Guarantor hereafter designates in
writing.
No provision of this Guaranty can be changed, waived or discharged
except by an instrument in writing signed by the Bank and the Guarantor
expressly referring to the provision of this Guaranty to which such instrument
relates; and no such waiver shall extend to, affect or impair any right with
respect to any Obligation which is not expressly dealt with therein. No course
of dealing or delay or omission on the part of the Bank in exercising any right
shall operate as a waiver thereof or otherwise be prejudicial thereto. This
writing is intended by the parties to be a final expression of this Guaranty and
is intended as a complete and exclusive statement of the terms of their
agreement.
The rights, remedies, powers, privileges, and discretions of the Bank
hereunder (hereinafter the "Bank's Rights and Remedies") shall be cumulative and
not exclusive of any rights or remedies which it would otherwise have. No delay
or omission by the Bank in exercising or enforcing any of the Bank's Rights and
Remedies shall operate as, or constitute, a waiver thereof. No waiver by the
Bank of any of the Bank's Rights and Remedies or of any default or remedies
under any other agreement with the Guarantor, or of any default under any
agreement with either or both of the Borrower, or any other person liable or
obligated for or on the Obligations, shall operate as a waiver of any other of
the Bank's Rights and Remedies or of any default or remedy hereunder or
thereunder. No exercise of any of the Bank's Rights and Remedies and no other
agreement or transaction of whatever nature entered into between the Bank and
the Guarantor, the Bank and the Borrower, and/or the Bank and any such other
person at any time shall preclude any other exercise of the Bank's Rights and
Remedies. No waiver by the Bank of any of the Bank's rights and remedies on any
one occasion shall be deemed a waiver on any subsequent occasion, nor shall it
be deemed a continuing waiver. All of the Bank's Rights and Remedies and all of
the Bank's rights, remedies, powers, privileges, and discretions under any other
agreement or transaction with the Guarantor, the Borrower, or any such other
person shall be cumulative and not alternative or exclusive, and may be
exercised by the Bank at such time or times and in such order of preference as
the Bank in its sole discretion may determine.
_______
Initial
-6-
This instrument and all documents which have been or may be hereinafter
furnished by the undersigned to the Bank may be reproduced by the Bank by any
photographic, photostatic, microfilm, microcard, miniature photographic,
xerographic, or similar process, and the Bank may destroy the original from
which such document was so reproduced. Any such reproduction shall be admissible
in evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made in the regular course of business).
THE GUARANTOR WAIVES ANY RIGHT TO TRIAL BY JURY THE UNDERSIGNED MAY HAVE IN ANY
ACTION OR PROCEEDING, IN LAW OR EQUITY, IN CONNECTION WITH THIS GUARANTY. THE
GUARANTOR AND BANK HEREBY KNOWINGLY AND VOLUNTARILY AND INTENTIONALLY WAIVE ANY
RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER, OR
IN CONNECTION WITH THIS GUARANTY. THE GUARANTOR HEREBY CERTIFIES THAT NO
REPRESENTATIVE OR AGENT OF THE BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT BANK WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THIS WAIVER OF
RIGHT TO JURY TRIAL PROVISION. THE GUARANTOR ACKNOWLEDGES THAT BANK HAS BEEN
INDUCED TO ENTER INTO BANK'S LENDING RELATIONSHIP WITH THE BORROWER BY, AMONG
OTHER THINGS, THE PROVISIONS OF THIS PARAGRAPH.
Notwithstanding the existence of any security interest held by the Bank
(or by any other party) in property securing the Obligations, the Bank shall
have the right to determine the order in which any or all of said property shall
be subjected to the remedies provided herein or in any document evidencing
and/or related to said security interest and/or the Obligations and the right to
determine the order in which any or all portions of the Obligations secured
hereby are satisfied from the proceeds realized upon the exercise of the
remedies provided herein or in any document evidencing and/or related to said
security interest and/or the Obligations. The Guarantor, the Borrower and any
party who consents to this interest in the said property and who has actual or
constructive notice hereof hereby waives and shall be deemed to have waived any
and all rights to require the marshalling of assets in connection with the
exercise of any of the remedies permitted by applicable law or provided in any
document evidencing and/or related to said security interest and/or the
Obligations.
For so long as this Guaranty is in effect and the undersigned has any
liability hereunder, the undersigned shall
_______
Initial
-7-
deliver to the Bank within 90 days after the calendar year, a personal financial
statement of the Guarantor including a balance sheet and profit and loss
statement, each prepared in form and substance reasonably satisfactory to the
Bank.
This Guaranty is intended to take effect as a sealed instrument to be
governed by and construed in accordance with the laws of The Commonwealth of
Massachusetts and shall inure to the benefit of the Bank and its successors in
title and assigns and shall be binding on the Guarantor and the Guarantor's
heirs, assigns and legal representatives and shall apply to all Obligations of
the Borrower including any successor by operation of law. The Guarantor hereby
consents to and submits to the jurisdiction of the Courts of The Commonwealth of
Massachusetts for all purposes with respect to this Guaranty and all actions,
suits or other proceedings shall be brought in a court of competent jurisdiction
in The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as of the
date first written above.
/s/ K. Andrew Bernal
-----------------------------------
K. Andrew Bernal, Individually
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. March 29, 1996
Then personally appeared the above named K. Andrew Bernal, and
acknowledged the foregoing instrument to be his free act and deed, before me
/s/ Neil H. Aronson
------------------------------
Notary Public
My commission expires: Nov. 28, 1997
_______
Initial
-8-
ATTACHMENT A
_______
Initial
-9-
ATTACHMENT A
_______
Initial
-10-
QC OPTICS, INC.
1996 STOCK OPTION PLAN
ARTICLE I
PURPOSE OF THE PLAN
The purpose of this Plan is to encourage and enable employees,
consultants, directors and others who are in a position to make significant
contributions to the success of QC OPTICS, INC. and of its affiliated
corporations upon whose judgment, initiative and efforts the Corporation depends
for the successful conduct of its business, to acquire a closer identification
of their interests with those of the Corporation by providing them with
opportunities to purchase stock in the Corporation pursuant to options granted
hereunder, thereby stimulating their efforts on behalf of the Corporation and
strengthening their desire to remain involved with the Corporation. Any
employee, consultant or advisor designated to participate in the Plan is
referred to as a "Participant."
ARTICLE II
DEFINITIONS
2.1 "Affiliated Corporation" means any stock corporation of which a
majority of the voting common or capital stock is owned directly or indirectly
by the Corporation.
2.2 "Award" means an Option granted under Article V.
2.3 "Board" means the Board of Directors of the Corporation or, if one
or more has been appointed, a Committee of the Board of Directors of the
Corporation.
2.4 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.5 "Committee" means a Committee of not less than two members of the
Board appointed by the Board to administer the Plan.
2.6 "Corporation" means QC OPTICS, INC., a Delaware corporation, or its
successor.
2.7 "Employee" means any person who is a regular full-time or part-time
employee of the Corporation or an Affiliated Corporation on or after June 18,
1996.
2.8 "Incentive Stock Option" ("ISO") means an option that qualifies as
an incentive stock option as defined in Section 422 of the Code, as amended.
2.9 "Non-Qualified Option" means any option not intended to qualify as
an Incentive Stock Option.
2.10 "Option" means an Incentive Stock Option or Non-Qualified Option
granted by the Board under Article V of this Plan in the form of a right to
purchase Stock evidenced by an instrument containing such provisions as the
Board may establish. Except as otherwise expressly provided with respect to an
Option grant, no Option granted pursuant to the Plan shall be an Incentive Stock
Option.
2.11 "Participant" means a person selected by the Committee to receive
an award under the Plan.
2.12 "Plan" means this 1996 Stock Option Plan.
2.13 "Reporting Person" means a person subject to Section 16 of the
Securities Exchange Act of 1934 or any successor provision.
-2-
2.14 "Restricted Period" means the period of time selected by the
Committee during which an award may be forfeited by the person.
2.15 "Stock" means the Common Stock, $.01 par value, of the Corporation
or any successor, including any adjustments in the event of changes in capital
structure of the type described in Article XI.
ARTICLE III
ADMINISTRATION OF THE PLAN
3.1 Administration by Board. This Plan shall be administered by the
Board of Directors of the Corporation. The Board may, from time to time,
delegate any of its functions under this plan to one or more Committees. All
references in this Plan to the Board shall also include the Committee or
Committees, if one or more have been appointed by the Board. From time to time
the Board may increase the size of the Committee or committees and appoint
additional members thereto, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies however caused, or remove
all members of the Committee or committees and thereafter directly administer
the Plan. No member of the Board or a committee shall be liable for any action
or determination made in good faith with respect to the Plan or any options
granted under it.
If a Committee is appointed by the Board, a majority of the members of
the Committee shall constitute a quorum, and all determinations of the Committee
under the Plan may be made without notice or meeting of the Committee by a
writing signed by a majority of Committee members. On
-3-
or after registration of the Stock under the Securities Exchange Act of 1934, as
amended, the Board shall delegate the power to select directors and officers to
receive Awards under the Plan, and the timing, pricing and amount of such Awards
to a Committee, all members of which shall be "disinterested persons" within the
meaning of Rule 16b-3 under that Act.
3.2 Powers. The Board of Directors and/or any committee appointed by
the Board shall have full and final authority to operate, manage and administer
the Plan on behalf of the Corporation.
This authority includes, but is not limited to:
(a) The power to grant Awards conditionally or unconditionally,
(b) The power to prescribe the form or forms of any instruments
evidencing Awards granted under this Plan,
(c) The power to interpret the Plan,
(d) The power to provide regulations for the operation of the
incentive features of the Plan, and otherwise to prescribe and
rescind regulations for interpretation, management and
administration of the Plan,
(e) The power to delegate responsibility for Plan operation,
management and administration on such terms, consistent with
the Plan, as the Board may establish,
(f) The power to delegate to other persons the responsibility of
performing ministerial acts in furtherance of the Plan's
purpose, and
-4-
(g) The power to engage the services of persons, companies, or
organizations in furtherance of the Plan's purpose, including
but not limited to, banks, insurance companies, brokerage
firms and consultants.
3.3 Additional Powers. In addition, as to each Option to buy Stock of
the Corporation, the Board shall have full and final authority in its
discretion: (a) to determine the number of shares of Stock subject to each
Option; (b) to determine the time or times at which Options will be granted; (c)
to determine the option price of the shares of Stock subject to each Option,
which price shall be not less than the minimum price specified in Article V of
this Plan; (d) to determine the time or times when each Option shall become
exercisable and the duration of the exercise period (including the acceleration
of any exercise period), which shall not exceed the maximum period specified in
Article V; (e) to determine whether each Option granted shall be an Incentive
Stock Option or a Non- qualified Option; and (f) to waive compliance by a
Participant with any obligation to be performed by him under an Option, to waive
any condition or provision of an Option, and to amend or cancel any Option (and
if an Option is cancelled, to grant a new Option on such terms as the Board may
specify), except that the Board may not take any action with respect to an
outstanding option that would adversely affect the rights of the Participant
under such Option without such Participant's consent. Nothing in the preceding
sentence shall be construed as limiting the power of the Board to make
adjustments required by Article XI.
In no event may the Company grant an Employee any Incentive Stock
Option that is first exercisable during any one calendar year to the extent the
aggregate fair market value of the Stock
-5-
(determined at the time the options are granted) exceeds $100,000 (under all
stock option plans of the Corporation and any Affiliated Corporation); provided,
however, that this paragraph shall have no force and effect if its inclusion in
the Plan is not necessary for Incentive Stock Options issued under the Plan to
qualify as such pursuant to Section 422(d)(1) of the Code.
ARTICLE IV
ELIGIBILITY
4.1 Eligible Employees. All Employees (including Directors who are
Employees) are eligible to be granted Incentive Stock Option and Non-Qualified
Option Awards under this Plan.
4.2 Consultants, Directors and other Non-Employees. Any Consultant,
Director (whether or not an Employee) and any other Non-Employee is eligible to
be granted Non-Qualified Option Awards under the Plan, provided the person has
not irrevocably elected to be ineligible to participate in the Plan.
4.3 Relevant Factors. In selecting individual Employees, Consultants,
Directors and other Non-Employees to whom Awards shall be granted, the Board
shall weigh such factors as are relevant to accomplish the purpose of the Plan
as stated in Article I. An individual who has been granted an Award may be
granted one or more additional Awards, if the Board so determines. The granting
of an Award to any individual shall neither entitle that individual to, nor
disqualify him from, participation in any other grant of Awards.
-6-
ARTICLE V
STOCK OPTION AWARDS
5.1 Number of Shares. Subject to the provisions of Article XI of this
Plan, the aggregate number of shares of Stock for which Options may be granted
under this Plan shall not exceed 360,000 shares. The shares to be delivered upon
exercise of Options under this Plan shall be made available, at the discretion
of the Board, either from authorized but unissued shares or from previously
issued and reacquired shares of Stock held by the Corporation as treasury
shares, including shares purchased in the open market.
Stock issuable upon exercise of an option granted under the Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board of Directors.
5.2 Effect of Expiration, Termination or Surrender. If an Option under
this Plan shall expire or terminate unexercised as to any shares covered
thereby, or shall cease for any reason to be exercisable in whole or in part, or
if the Company shall reacquire any unvested shares issued pursuant to Options
under the Plan, such shares shall thereafter be available for the granting of
other Options under this Plan.
5.3 Term of Options. The full term of each Option granted hereunder
shall be for such period as the Board shall determine. In the case of Incentive
Stock Options granted hereunder, the term shall not exceed ten (10) years from
the date of granting thereof. Each Option shall be subject to earlier
termination as provided in Sections 6.3 and 6.4. Notwithstanding the foregoing,
the term of options intended to qualify as "Incentive Stock Options" shall not
exceed five (5) years from the date of granting thereof if such option is
granted to any employee who at the time such option is
-7-
granted owns more than ten percent (10%) of the total combined voting power of
all classes of stock of the Corporation.
5.4 Option Price. The Option price shall be determined by the Board at
the time any Option is granted. In the case of Incentive Stock Options, the
exercise price shall not be less than l00% of the fair market value of the
shares covered thereby at the time the Incentive Stock Option is granted (but in
no event less than par value), provided that no Incentive Stock Option shall be
granted hereunder to any Employee if at the time of grant the Employee, directly
or indirectly, owns Stock possessing more than 10% of the combined voting power
of all classes of stock of the Corporation and its Affiliated Corporations
unless the Incentive Stock Option price equals not less than 110% of the fair
market value of the shares covered thereby at the time the Incentive Stock
Option is granted. In the case of Non-Qualified Stock Options, the exercise
price shall not be less than par value.
5.5 Fair Market Value. "Fair market value" shall be deemed to be the
fair value of the Stock as determined in good faith by the Board after taking
into consideration all factors that it deems appropriate, including without
limitation, recent sale and offer prices of the Stock in private transactions
negotiated at arm's length. If, at the time an Option is granted under the Plan,
the Corporation's Stock is publicly traded, then "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such Option is granted and
shall mean (i) the average (on that date) of the high and low prices of the
Stock on the principal national securities exchange on which the Stock is
traded, if the Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on that date) of the Stock on the NASDAQ National
Market List, if the Stock is not then traded on a national securities
-8-
exchange; or (iii) the closing bid price (or average of bid prices) last quoted
(on that date) by an established quotation service for over-the-counter
securities, if the Stock is not reported on the NASDAQ National Market List.
5.6 Non-Transferability of Options. No Option granted under this Plan
shall be transferable by the grantee otherwise than by will or the laws of
descent and distribution, and such Option may be exercised during the grantee's
lifetime only by the grantee.
5.7 Foreign Nationals. Awards may be granted to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable laws.
ARTICLE VI
EXERCISE OF OPTION
6.1 Exercise. Each Option granted under this Plan shall be exercisable
on such date or dates and during such period and for such number of shares as
shall be determined pursuant to the provisions of the instrument evidencing such
Option. The Board shall have the right to accelerate the date of exercise of any
option, provided that, the Board shall not accelerate the exercise date of any
Incentive Stock Option granted if such acceleration would violate the annual
vesting limitation contained in Section 422(d)(1) of the Code.
6.2 Notice of Exercise. A person electing to exercise an Option shall
give written notice to the Corporation of such election and of the number of
shares he or she has elected to purchase and shall at the time of exercise
tender the full purchase price of the shares he or she has elected to purchase.
The purchase price can be paid partly or completely in shares of the
Corporation's stock
-9-
valued at Fair Market Value as defined in Section 5.5 hereof, or by any such
other lawful consideration as the Board may determine. Until such person has
been issued a certificate or certificates for the shares so purchased, he or she
shall possess no rights of a record holder with respect to any of such shares.
6.3 Option Unaffected by Change in Duties. No Incentive Stock Option
(and, unless otherwise determined by the Board of Directors, no Non-Qualified
Option granted to a person who is, on the date of the grant, an Employee of the
Corporation or an Affiliated Corporation) shall be affected by any change of
duties or position of the optionee (including transfer to or from an Affiliated
Corporation), so long as he or she continues to be an Employee. Employment shall
be considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute. A bona fide leave of absence with the written approval of
the Board shall not be considered an interruption of employment under the Plan,
provided that such written approval contractually obligates the Corporation or
any Affiliated Corporation to continue the employment of the optionee after the
approved period of absence.
If the optionee shall cease to be an Employee for any reason other than
death, such Option shall thereafter be exercisable only to the extent of the
purchase rights, if any, which have accrued as of the date of such cessation;
provided that (i) the Board may provide in the instrument evidencing any Option
that the Board may in its absolute discretion, upon any such cessation of
employment, determine (but be under no obligation to determine) that such
accrued purchase rights shall be
-10-
deemed to include additional shares covered by such Option; and (ii) unless the
Board shall otherwise provide in the instrument evidencing any Option, upon any
such cessation of employment, such remaining rights to purchase shall in any
event terminate upon the earlier of (A) the expiration of the original term of
the Option; or (B) where such cessation of employment is on account of
disability, the expiration of one year from the date of such cessation of
employment and, otherwise, the expiration of three months from such date. For
purposes of the Plan, the term "disability" shall mean "permanent and total
disability" as defined in Section 22(e)(3) of the Code.
In the case of a Participant who is not an employee, provisions
relating to the exercisability of an Option following termination of service
shall be specified in the award. If not so specified, all Options held by such
Participant shall terminate on termination of service to the Corporation.
6.4 Death of Optionee. Should an optionee die while in possession of
the legal right to exercise an Option or Options under this Plan, such persons
as shall have acquired, by will or by the laws of descent and distribution, the
right to exercise any Options theretofore granted, may, unless otherwise
provided by the Board in any instrument evidencing any Option, exercise such
Options at any time prior to one year from the date of death; provided, that
such Option or Options shall expire in all events no later than the last day of
the original term of such Option; provided, further, that any such exercise
shall be limited to the purchase rights which have accrued as of the date when
the optionee ceased to be an Employee, whether by death or otherwise, unless the
Board provides in the instrument evidencing such Option that, in the discretion
of the Board, additional shares covered by such Option may become subject to
purchase immediately upon the death of the optionee.
-11-
ARTICLE VII
REPORTING PERSON LIMITATIONS
To the extent required to qualify for the exemption provided by Rule
16b-3 under the Securities Exchange Act of 1934, and any successor provision, at
least six months must elapse from the date of acquisition of an Option by a
Reporting Person to the date of disposition of such Option (other than upon
exercise) or its underlying Common Stock.
ARTICLE VIII
TERMS AND CONDITIONS OF OPTIONS
Options shall be evidenced by instruments (which need not be identical)
in such forms as the Board may from time to time approve. Such instruments shall
conform to the terms and conditions set forth in Articles V and VI hereof and
may contain such other provisions as the Board deems advisable which are not
inconsistent with the Plan, including restrictions applicable to shares of Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Board may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to Incentive Stock Options, or to
such other termination and cancellation provisions as the Board may determine.
The Board may from time to time confer authority and responsibility on one or
more of its own members and/or one or more officers of the Corporation to
execute and deliver such instruments. The proper officers of the Corporation are
authorized and directed to take any and all action necessary or advisable from
time to time to carry out the terms of such instruments.
-12-
ARTICLE IX
BENEFIT PLANS
Awards under the Plan are discretionary and are not a part of regular
salary. Awards may not be used in determining the amount of compensation for any
purpose under the benefit plans of the Corporation, or an Affiliated
Corporation, except as the Board may from time to time expressly provide.
Neither the Plan, an Option or any instrument evidencing an Option confers upon
any Participant any right to continue as an employee of, or consultant or
advisor to, the Company or an Affiliated Corporation or affect the right of the
Corporation or any Affiliated Corporation to terminate them at any time. Except
as specifically provided by the Board in any particular case, the loss of
existing or potential profits granted under this Plan shall not constitute an
element of damages in the event of termination of the relationship of a
Participant even if the termination is in violation of an obligation of the
Corporation to the Participant by contract or otherwise.
ARTICLE X
AMENDMENT, SUSPENSION OR TERMINATION
OF THE PLAN
The Board may suspend the Plan or any part thereof at any time or may
terminate the Plan in its entirety. Awards shall not be granted after Plan
termination.
The Board may also amend the Plan from time to time, except that
amendments which affect the following subjects must be approved by stockholders
of the Corporation:
(a) Except as provided in Article XI relative to capital changes,
the number of shares as to which Options may be granted
pursuant to Article V;
(b) The maximum term of Options granted;
-13-
(c) The minimum price at which Options may be granted;
(d) The term of the Plan; and
(e) The requirements as to eligibility for participation in the
Plan.
Awards granted prior to suspension or termination of the Plan may not
be cancelled solely because of such suspension or termination, except with the
consent of the grantee of the Award.
ARTICLE XI
CHANGES IN CAPITAL STRUCTURE
The instruments evidencing Options granted hereunder shall be subject
to adjustment in the event of changes in the outstanding Stock of the
Corporation by reason of Stock dividends, Stock splits, recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges or other
relevant changes in capitalization occurring after the date of an Award to the
same extent as would affect an actual share of Stock issued and outstanding on
the effective date of such change. Such adjustment to outstanding Options shall
be made without change in the total price applicable to the unexercised portion
of such options, and a corresponding adjustment in the applicable option price
per share shall be made. In the event of any such change, the aggregate number
and classes of shares for which Options may thereafter be granted under Section
5.1 of this Plan may be appropriately adjusted as determined by the Board so as
to reflect such change.
Notwithstanding the foregoing, any adjustments made pursuant to this
Article XI with respect to Incentive Stock Options shall be made only after the
Board, after consulting with counsel for the Corporation, determines whether
such adjustments would constitute a "modification" of such Incentive Stock
Options (as that term is defined in Section 424 of the Code) or would cause any
-14-
adverse tax consequences for the holders of such Incentive Stock Options. If the
Board determines that such adjustments made with respect to Incentive Stock
Options would constitute a modification of such Incentive Stock Options, it may
refrain from making such adjustments.
In the event of the proposed dissolution or liquidation of the
Corporation, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Board.
Except as expressly provided herein, no issuance by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. No adjustments
shall be made for dividends paid in cash or in property other than securities of
the Corporation.
No fractional shares shall be issued under the Plan and the optionee
shall receive from the Corporation cash in lieu of such fractional shares.
ARTICLE XII
EFFECTIVE DATE AND TERM OF THE PLAN
The Plan shall become effective on June 18, 1996. The Plan shall
continue until such time as it may be terminated by action of the Board or the
Committee; provided, however, that no Options may be granted under this Plan on
or after the tenth anniversary of the effective date hereof.
-15-
ARTICLE XIII
CONVERSION OF ISOS INTO NON-QUALIFIED
OPTIONS; TERMINATION OF ISOS
The Board, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's
Incentive Stock Options, that have not been exercised on the date of conversion,
into Non-Qualified Options at any time prior to the expiration of such Incentive
Stock Options, regardless of whether the optionee is an employee of the
Corporation or an Affiliated Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of such Options. At the time of such conversion, the
Board or the Committee (with the consent of the optionee) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the Board
or the Committee in its discretion may determine, provided that such conditions
shall not be inconsistent with the Plan. Nothing in the Plan shall be deemed to
give any optionee the right to have such optionee's Incentive Stock Options
converted into Non-Qualified Options, and no such conversion shall occur until
and unless the Board or the Committee takes appropriate action. The Board, with
the consent of the optionee, may also terminate any portion of any Incentive
Stock Option that has not been exercised at the time of such termination.
ARTICLE XIV
APPLICATION OF FUNDS
The proceeds received by the Corporation from the sale of shares
pursuant to Options granted under the Plan shall be used for general corporate
purposes.
-16-
ARTICLE XV
GOVERNMENTAL REGULATION
The Corporation's obligation to sell and deliver shares of Stock under
this Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
ARTICLE XVI
WITHHOLDING OF ADDITIONAL INCOME TAXES
Upon the exercise of a Non-Qualified Option or the making of a
Disqualifying Disposition (as defined in Article XVII) the Corporation, in
accordance with Section 3402(a) of the Code, may require the optionee to pay
additional withholding taxes in respect of the amount that is considered
compensation includible in such person's gross income. The Board in its
discretion may condition the exercise of an Option on the payment of such
additional withholding taxes.
ARTICLE XVII
NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION
Each employee who receives an Incentive Stock Option must agree to
notify the Corporation in writing immediately after the employee makes a
Disqualifying Disposition of any Stock acquired pursuant to the exercise of an
Incentive Stock Option. A Disqualifying Disposition is any disposition
(including any sale) of such Stock before the later of (a) two years after the
date the employee was granted the Incentive Stock Option or (b) one year after
the date the employee acquired Stock by exercising the Incentive Stock Option.
If the employee has died before such stock
-17-
is sold, these holding period requirements do not apply and no Disqualifying
Disposition can occur thereafter.
ARTICLE XVIII
GOVERNING LAW; CONSTRUCTION
The validity and construction of the Plan and the instruments
evidencing Options shall be governed by the laws of the State of Delaware
(without regard to the conflict of law principles thereof). In construing this
Plan, the singular shall include the plural and the masculine gender shall
include the feminine and neuter, unless the context otherwise requires.
-18-
QC OPTICS, INC.
1996 FORMULA STOCK OPTION PLAN
ARTICLE I
PURPOSE OF THE PLAN
The purpose of this Plan is to encourage and enable non-employee
Directors who are in a position to make significant contributions to the success
of QC OPTICS, INC. and of its affiliated corporations upon whose judgment,
initiative and efforts the Corporation depends for the successful conduct of its
business, to acquire a closer identification of their interests with those of
the Corporation by providing them with opportunities to purchase stock in the
Corporation pursuant to options granted hereunder, thereby stimulating their
efforts on behalf of the Corporation and strengthening their desire to remain
involved with the Corporation. Any non-employee Director designated to
participate in the Plan is referred to as a "Participant."
ARTICLE II
DEFINITIONS
2.1 "Affiliated Corporation" means any stock corporation of which a
majority of the voting common or capital stock is owned directly or indirectly
by the Corporation.
2.2 "Award" means an Option granted under Article V.
2.3 "Board" means the Board of Directors of the Corporation or, if one
or more has been appointed, a Committee of the Board of Directors of the
Corporation.
2.4 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.5 "Committee" means a Committee of not less than two members of the
Board appointed by the Board to administer the Plan.
2.6 "Corporation" means QC OPTICS, INC., a Delaware corporation.
2.7 "Non-Employee" means any person who is not a regular full-time or
part-time employee of the Corporation or an Affiliated Corporation on or after
June 18, 1996.
2.8 "Non-Qualified Option" means any option not intended to qualify as
an Incentive Stock Option.
2.9 "Option" means a Non-Qualified Option granted by the Board under
Article V of this Plan in the form of a right to purchase Stock evidenced by an
instrument containing such provisions as the Board may establish.
2.10 "Participant" means a person who is to receive an award under the
Plan.
2.11 "Plan" means this 1996 Formula Stock Option Plan.
2.12 "Reporting Person" means a person subject to Section 16 of the
Securities Exchange Act of 1934 or any successor provision.
2.13 "Restricted Period" means the period of time selected by the
Committee during which an award may be forfeited by the person.
2.14 "Stock" means the Common Stock, $.01 par value, of the Corporation
or any successor, including any adjustments in the event of changes in capital
structure of the type described in Article IX.
ARTICLE III
ADMINISTRATION OF THE PLAN
3.1 Administration by Board. This Plan may be administered by the Board
of Directors or by a committee of the Board of Directors of the Corporation
constituted to permit the Plan to comply with Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the
-2-
"Exchange Act"). If a committee administers this Plan, the Board may, from time
to time, increase the size of the Committee or committees and appoint additional
members thereto, remove members (with or without cause) and appoint new members
in substitution therefor, fill vacancies however caused, or remove all members
of the Committee or committees and thereafter directly administer the Plan. No
member of the Board or a committee shall be liable for any action or
determination made in good faith with respect to the Plan or any options granted
hereunder. Subject to Article X and to the extent such actions are consistent
with the exemptions provided under Rule 16b-3 promulgated under the Exchange
Act, any committee appointed by the Board hereunder also shall have the
authority, both generally and in particular instances, to waive compliance by a
director with any obligation to be performed by him or her under the Plan and to
waive any condition, restriction or provision imposed under the Plan. Such
determinations and actions of the committee, and all other determinations and
actions of the committee made or taken under authority granted by any provision
of the Plan, will be conclusive and binding on all parties.
3.2 Powers. The Board of Directors and/or any committee appointed by
the Board shall have full and final authority to operate, manage and administer
the Plan on behalf of the Corporation. This authority includes, but is not
limited to:
(a) The power to grant Awards conditionally or unconditionally,
(b) The power to prescribe the form or forms of any instruments
evidencing Awards granted under this Plan,
(c) The power to interpret the Plan, and to adopt, amend and
rescind rules and regulations for the administration of the
Plan,
-3-
(d) The power to delegate responsibility for Plan operation,
management and administration on such terms, consistent with
the Plan, as the Board may establish,
(e) The power to delegate to other persons the responsibility of
performing ministerial acts in furtherance of the Plan's
purpose,
(f) The power to engage the services of persons, companies, or
organizations in furtherance of the Plan's purpose, including
but not limited to, banks, insurance companies, brokerage
firms and consultants, and
(g) To interpret the Plan and to decide any questions and settle
all controversies and disputes that may arise in connection
with the Plan.
ARTICLE IV
ELIGIBILITY
4.1 Eligible Persons. All non-employee Directors are eligible to be
granted Non-Qualified Option Awards under this Plan provided the person has not
irrevocably elected to be ineligible to participate in the Plan and provided the
person is not a direct or indirect holder of more than 5% of the outstanding
shares of stock of the Company and its Affiliated Corporations or a person who
is in control of such holder.
ARTICLE V
STOCK OPTION AWARDS
5.1 Number of Shares. Subject to the provisions of Article IX of this
Plan, the aggregate number of shares of Stock for which Options may be granted
under this Plan shall not exceed One Hundred Thousand (100,000) shares. Options
shall be granted under this Plan, without approval or discretion on the part of
the Board, to non-employee Directors as follows: on June 18, 1996, the
-4-
Corporation shall grant, to each of its non-employee Directors, options to
purchase a total of 15,000 shares of Stock. The exercise price of options
granted to non-employee Directors shall be the Fair Market Value of the shares
of Stock on the date of the grant. Said options shall vest and be exercisable in
sixteen (16) equal installments over a period of four (4) years (the "Four Year,
Fiscal Quarter Vesting) beginning with a one-sixteenth (1/16th) installment on
the first day of the Company's fiscal quarter immediately following the grant
and continuing in one-sixteenth (1/16th) installments on the first day of the
Company's subsequent fifteen (15) fiscal quarters, subject to the Director's
continued service as a Director on such dates. Each non-employee Director who
becomes a Director after June 18, 1996 will receive, on the date he or she
becomes a Director, options to purchase a total of 15,000 shares of Stock. The
exercise price of such options will be the Fair Market Value of the shares of
Stock on the date of the grant. Said options shall vest and be exercisable
pursuant to the Four Year, Fiscal Quarter Vesting.
Upon complete vesting of any non-employee Director's grant pursuant to
this Plan, (i.e. after a sixteenth (16th) installment), on the date immediately
following the Corporation's annual meeting of shareholders, said Director shall
be granted options to purchase another 15,000 shares of stock. The options shall
be granted to a non-employee Director only if he or she is a Director on the
date of the grant and has attended, during the Corporation's fiscal year
immediately preceding the grant, at least 75% of meetings of the Board of
Directors and the Committees on which the Director has served. Said options
shall also vest and be exercisable pursuant to the Four Year, Fiscal Quarter
Vesting.
The shares to be delivered upon exercise of Options under this Plan
shall be made available, at the sole discretion of the Board, either from
authorized but unissued shares or from previously
-5-
issued and reacquired shares of Stock held by the Corporation as treasury
shares, including shares purchased in the open market. No fractional shares of
Stock will be delivered under the Plan.
Stock issuable upon exercise of an option granted under the Plan may be
subject to such restrictions on transfer or repurchase rights as shall be
determined by the Board of Directors.
5.2 Effect of Expiration, Termination or Surrender. If an Option under
this Plan shall expire or terminate unexercised as to any shares covered
thereby, or shall cease for any reason to be exercisable in whole or in part, or
if the Company shall reacquire any unvested shares issued pursuant to Options
under the Plan, such shares shall thereafter be available for the granting of
other Options under this Plan.
5.3 Term of Options. Each Option granted hereunder shall be for a term
of ten (10) years from the date of granting thereof. Each Option shall be
subject to earlier termination as provided in Sections 6.3 and 6.4.
5.4 Fair Market Value. If, at the time an Option is granted under the
Plan, the Corporation's Stock is publicly traded, "Fair Market Value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such Option is granted and
shall mean (i) the average (on that date) of the high and low prices of the
Stock on the principal national securities exchange on which the Stock is
traded, if the Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on that date) of the Stock on the NASDAQ or NASDAQ
National Market List, if the Stock is not then traded on a national securities
exchange; or (iii) the closing bid price (or average of bid prices) last quoted
(on that date) by an established quotation service for over-the-counter
securities, if the Stock is not reported on the NASDAQ or NASDAQ National Market
List. However, if the Stock is not publicly traded at the
-6-
time an Option is granted under the Plan, "Fair Market Value" shall be deemed to
be the fair value of the Stock as determined by the Board after taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Stock in private transactions
negotiated at arm's length.
5.5 Non-Transferability of Options. No Option granted under this Plan
shall be transferable by the grantee otherwise than by will or the laws of
descent and distribution, and such Option may be exercised during the grantee's
lifetime only by the grantee.
5.6 Foreign Nationals. Awards may be granted to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable laws.
ARTICLE VI
EXERCISE OF OPTION
6.1 Exercise. Each Option granted under this Plan shall be exercisable
on such date or dates and during such period and for such number of shares as
shall be determined pursuant to the provisions of the instrument evidencing such
Option. The Board shall have the right to accelerate the date of exercise of any
option.
6.2 Notice of Exercise. A person electing to exercise an Option shall
give written notice to the Corporation of such election and of the number of
shares he or she has elected to purchase and shall at the time of exercise
tender the full purchase price of the shares he or she has elected to purchase.
The purchase price can be paid partly or completely in shares of the
Corporation's stock valued at Fair Market Value as defined in Section 5.4
hereof, or by any such other lawful
-7-
consideration as the Board may determine. Until such person has been issued a
certificate or certificates for the shares so purchased and has fully paid the
purchase price for such shares, he or she shall possess no rights of a record
holder with respect to any of such shares. If the Corporation elects to receive
payment for such shares by means of a promissory note, such note, if issued to
an officer, director or holder of 5% or more of the Company's outstanding Common
Stock, shall provide for payment of interest at a rate no less than the interest
rate then payable by the Company to its principal commercial lender, or if the
Company has no loan outstanding to a commercial lender, then the interest rate
payable shall equal the prevailing prime rate of interest then charged by
commercial banks headquartered in Massachusetts (as determined by the Board of
Directors in its reasonable discretion) plus two percent. An option holder shall
not have the rights of a stockholder with regard to awards under the Plan except
as to Stock actually received by him or her under the Plan.
6.3 Option Unaffected by Certain Changes. A Director's term shall be
considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute. A bona fide leave of absence with the written approval of
the Board shall not be considered an interruption of service under the Plan.
If the optionee shall cease to be a Director for any reason other than
death, such Option shall thereafter be exercisable only to the extent of the
purchase rights, if any, which have accrued as of the date of such cessation;
provided that upon any such cessation of service, such remaining rights to
purchase shall in any event terminate upon the expiration of the original term
of the Option.
-8-
6.4 Death of Optionee. Should an optionee die while in possession of
the legal right to exercise an Option or Options under this Plan, such persons
as shall have acquired, by will or by the laws of descent and distribution, the
right to exercise any Options theretofore granted, may, unless otherwise
provided by the Board in any instrument evidencing any Option, exercise such
Options until the expiration of the original term of the Options, provided,
further, that any such exercise shall be limited to the purchase rights that
have accrued as of the date when the optionee ceased to be a Director whether by
death or otherwise.
ARTICLE VII
REPORTING PERSON LIMITATIONS
To the extent required to qualify for the exemption provided by Rule
16b-3 under the Securities Exchange Act of 1934, and any successor provision, at
least six months must elapse from the date of acquisition of an Option by a
Reporting Person to the date of disposition of such Option (other than upon
exercise) or its underlying Common Stock.
ARTICLE VIII
TERMS AND CONDITIONS OF OPTIONS
Options shall be evidenced by instruments (which need not be identical)
in such forms as the Board may from time to time approve. Such instruments shall
conform to the terms and conditions set forth in Articles V and VI hereof and
may contain such other provisions as the Board deems advisable that are not
inconsistent with the Plan, including restrictions applicable to shares of Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Board may specify that such Non-Qualified Option shall be subject to such other
termination and cancellation provisions as the Board may determine. The Board
may from time to time confer authority and
-9-
responsibility on one or more of its own members and/or one or more officers of
the Corporation to execute and deliver such instruments. The proper officers of
the Corporation are authorized and directed to take any and all action necessary
or advisable from time to time to carry out the terms of such instruments.
ARTICLE IX
BENEFIT PLANS
Awards under the Plan are not discretionary. Awards may not be used in
determining the amount of compensation for any purpose under the benefit plans
of the Corporation, or an Affiliated Corporation, except as the Board may from
time to time expressly provide. Neither the Plan, an Option or any instrument
evidencing an Option confers upon any Participant any right to continue as a
Director of, or consultant or advisor to, the Company or an Affiliated
Corporation. Except as specifically provided by the Board in any particular
case, the loss of existing or potential profits granted under this Plan shall
not constitute an element of damages in the event of termination of the
relationship of a Participant even if the termination is in violation of an
obligation of the Corporation to the Participant by contract or otherwise.
ARTICLE X
AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
The Board may suspend the Plan or any part thereof at any time or may
terminate the Plan in its entirety. Awards shall not be granted after Plan
termination. The Plan may not be amended more than once every six months, unless
such changes are necessary to comport with changes in the Code, the Employee
Retirement Income Security Act, or the Rules thereunder. Subject to the
-10-
foregoing, the Board may also amend the Plan from time to time, except that
amendments that affect the following subjects must be approved by stockholders
of the Corporation:
(a) Except as provided in Article XI relative to capital changes,
the number of shares as to which Options may be granted
pursuant to Article V;
(b) The maximum term of Options granted;
(c) The minimum price at which Options may be granted;
(d) The term of the Plan; and
(e) The requirements as to eligibility for participation in the
Plan.
Awards granted prior to suspension or termination of the Plan may not
be cancelled solely because of such suspension or termination, except with the
consent of the grantee of the Award.
ARTICLE XI
CHANGES IN CAPITAL STRUCTURE
The instruments evidencing Options granted hereunder shall be subject
to adjustment in the event of changes in the outstanding Stock of the
Corporation by reason of stock dividends, Stock splits, recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges or other
relevant changes in capitalization occurring after the date of an Award to the
same extent as would affect an actual share of Stock issued and outstanding on
the effective date of such change. Such adjustment to outstanding Options shall
be made without change in the total price applicable to the unexercised portion
of such options, and a corresponding adjustment in the applicable option price
per share shall be made. In the event of any such change, the aggregate number
and classes of shares for which Options may thereafter be granted under Section
5.1 of this Plan may be appropriately adjusted as determined by the Board so as
to reflect such change.
-11-
In the event of the proposed dissolution or liquidation of the
Corporation, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as the Board shall determine.
Except as expressly provided herein, no issuance by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. No adjustments
shall be made for dividends paid in cash or in property other than securities of
the Corporation.
No fractional shares shall be issued under the Plan and the optionee
shall receive from the Corporation cash in lieu of such fractional shares.
ARTICLE XII
EFFECTIVE DATE AND TERM OF THE PLAN
The Plan shall become effective on June 18, 1996. The Plan shall
continue until such time as it may be terminated by action of the Board or the
Committee; provided, however, that no Options may be granted under this Plan on
or after the tenth anniversary of the effective date hereof.
ARTICLE XIII
APPLICATION OF FUNDS
The proceeds received by the Corporation from the sale of shares
pursuant to Options granted under the Plan shall be used for general corporate
purposes.
-12-
ARTICLE XIV
GOVERNMENTAL REGULATION
The Corporation's obligation to sell and deliver shares of Stock under
this Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
ARTICLE XV
WITHHOLDING OF ADDITIONAL INCOME TAXES
Upon the exercise of a Non-Qualified Option the Corporation, in
accordance with Section 3402(a) of the Code, may require the optionee to pay
additional withholding taxes in respect of the amount that is considered
compensation includible in such person's gross income. The Board in its
discretion may condition the exercise of an Option on the payment of such
additional withholding taxes.
ARTICLE XVI
CONDITIONS ON DELIVERY OF STOCK
The Company shall not be obligated to deliver any shares of Stock
pursuant to options granted under the Plan until, (a) in the opinion of the
Company's counsel, all applicable federal and state laws and regulations have
been complied with, and (b) all other legal matters in connection with the
issuance and delivery of such shares have been approved by the Company's
counsel. If the sale of Stock has not been registered under the Securities Act
of 1933, as amended, the Company may require, as a condition to exercise of the
option, such representations or agreements as counsel for the Company may
consider appropriate to avoid violation of such Act and may require that the
certificates evidencing such Stock bear an appropriate legend restricting
transfer.
-13-
ARTICLE XVII
GOVERNING LAW; CONSTRUCTION
The validity and construction of the Plan and the instruments
evidencing Options shall be governed by the internal laws of the State of
Delaware (without regard to the conflict of law principles thereof). In
construing this Plan, the singular shall include the plural and the masculine
gender shall include the feminine and neuter, unless the context otherwise
requires.
-14-
----------------------
KEY EMPLOYEE AGREEMENT
----------------------
To: Eric T. Chase As of July 1, 1996
19 Craigie Circle
Carlisle, Massachusetts 01741
The undersigned, QC Optics, Inc., a Delaware corporation, as well as
its successors and assigns (hereinafter collectively referred to as the
"Company"), hereby agree with you as follows:
l. Position and Responsibilities.
1.1 You shall serve as Chairman, Chief Executive Officer and
President of the Company (or in such other executive capacity as shall be
designated by the Board of Directors and reasonably acceptable to you). You
will, to the best of your ability, devote your full time and best efforts to the
performance of your duties hereunder and the business and affairs of the Company
and perform such duties as may be assigned to you by or on authority of the
Company's Board of Directors from time to time and the duties customarily
associated with such capacity from time to time and at such place or places as
the Company shall designate are appropriate and necessary in connection with
such employment; provided, however, that you shall not be required to relocate
your place of employment beyond a twenty-five (25) mile radius from Burlington,
Massachusetts without your prior written consent.
1.2 You will duly, punctually and faithfully perform and
observe any and all rules and regulations which the Company may now or shall
hereafter establish governing the conduct of its business.
1.3 You will report directly to the Company's Board of
Directors and to individuals so designated by the Board of Directors.
2. Term of Employment.
2.1 The initial term of this Agreement shall be for the period
set forth on Exhibit A annexed hereto commencing with the date hereof.
Thereafter, this Agreement shall be automatically renewed for successive periods
of one year, unless you or the Company shall give the other party not less than
ninety (90) days written notice of non-renewal. Your employment with the Company
may be terminated at any time as provided in Section 2.2.
2.2 The Company shall have the right, upon written notice to
you, to terminate your employment:
(a) immediately at any time for "Cause" (as defined
herein subject to your right of cure and right to dispute as provided
in Section 2.3 herein); or
(b) at any time, upon not less than seven (7)
calendar days written notice, without "Cause," provided that the
Company shall be obligated to pay to you the Severance Benefits set
forth in Sections 6 or 7, as applicable, of Exhibit A, plus any sums
then due to you, less (i) applicable taxes and other required
withholdings, and (ii) any amounts you may owe to the Company. Payments
under this Section 2.2 (b) shall not be due or payable if you are
terminated at any time for "Cause" or if you voluntarily resign from
your employment, except as set forth in Section 7 of Exhibit A.
2.3 For purposes of Section 2.2, the term "Cause" shall mean
(a) gross negligence in the performance of assigned duties; (b) refusal to
perform or discharge the duties or responsibilities assigned by the Board of
Directors of the Company provided the same are not illegal, unethical or
inconsistent with the position of Chairman, Chief Executive Officer and
President of a corporation and the failure to correct such refusal and perform
such duties or responsibilities within a reasonable period of time (but in any
event no less than fourteen (14) calendar days after written notice of such
failure); (c) conviction of a felony involving moral turpitude; (d) willful or
prolonged absence from work not excused by a bona fide medical disability as
reasonably determined by a qualified physician mutually acceptable to both you
and the Company or other good cause as reasonably determined by the Board of
Directors; and (e) falseness of any warranty or representation by you herein or
the breach of your obligations under this Agreement to the material detriment of
the Company. Any dispute, controversy, or claim arising out of, in connection
with, or in relation to the definition of "Cause" shall be settled by
arbitration in accordance with the terms of Section 17 hereof.
2.4 In the event of the Involuntary Termination (as
hereinafter defined) of your employment with the Company at any time, the
Company hereby irrevocably agrees to provide you with Severance Benefits as
defined in Section 6 of Exhibit A hereto or payments in the event of a "Change
in Control" as defined in Section 7 of Exhibit A. In this regard, the phrase
"Involuntary Termination" shall mean (a) any termination of your employment by
the Company other than for "Cause," as defined in Section 2.3, (b) any notice by
the Company not to renew this Agreement pursuant to Section 2.1, or (c) any
termination of your employment by you due to any of the following circumstances:
(i) a reduction in your Base Salary or Company-paid benefits; provided, however,
that a reduction pursuant to the provisions of Section 3 herein shall not
constitute "Involuntary Termination", (ii) a reduction in your eligibility for
any Company bonus or other benefit program, (iii) a material or substantial
change in your title, position, authority or duties, or (iv) a change of your
principal place of employment to a location beyond twenty-five (25) miles of
Burlington, Massachusetts.
-2-
3. Compensation. You shall receive the compensation and benefits set forth
on Exhibit A ("Compensation") for all services to be rendered by you hereunder
and for your transfer of property rights pursuant to an agreement relating to
proprietary information and inventions of even date herewith attached hereto as
Exhibit C between you and the Company (the "Proprietary Infor mation and
Inventions Agreement"). Such Compensation shall be subject to temporary or
permanent reduction by the Board of Directors if the Board shall determine that
economic conditions so warrant such as a significant reduction in the Company's
revenues or net worth.
4. Other Activities During Employment.
4.1 Except for any outside employments and directorships
currently held by you as listed on Exhibit B, and except with the prior written
consent of the Company's Board of Directors, you will not during the term of
this Agreement undertake or engage in any other employment, occupation or
business enterprise other than one in which you are an inactive investor.
4.2 You hereby agree that, except as disclosed on Exhibit B
hereto, during your employment hereunder, you will not, directly or indirectly,
engage (a) individually, (b) as an officer, (c) as a director, (d) as an
employee, (e) as a consultant, (f) as an advisor, (g) as an agent (whether a
salesperson or otherwise), (h) as a broker, or (i) as a partner, coventurer,
stockholder or other proprietor owning directly or indirectly more than five
percent (5%) interest, in any firm, corporation, partnership, trust,
association, or other organization which is engaged in the research,
development, production, manufacture or marketing of equipment or processes in
direct competition with the Company or any other line of business engaged in or
under demonstrable development by the Company (such firm, corporation,
partnership, trust, association, or other organization being hereinafter
referred to as a "Prohibited Enterprise"). Except as may be shown on Exhibit B,
you hereby represent that you are not engaged in any of the foregoing capacities
(a) through (i) in any Prohibited Enterprise.
5. Former Employers.
5.1 You represent and warrant that your employment by the
Company will not conflict with and will not be constrained by any prior or
current employment, consulting agreement or relationship whether oral or
written. You represent and warrant that you do not possess confidential
information arising out of any such employment, consulting agreement or
relationship which, in your best judgment, would be utilized in connection with
your employment by the Company in the absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you
should find that confidential information belonging to any other person or
entity might be usable in connection with the Company's business, you will not
intentionally disclose to the Company or use on behalf of the Company any
confidential information belonging to any of your former employers; but during
your employment by the Company you will use in the performance of your duties
all information which
-3-
is generally known and used by persons with training and experience comparable
to your own all information which is common knowledge in the industry or
otherwise legally in the public domain.
6. Proprietary Information and Inventions. You agree to execute, deliver
and be bound by the provisions of the Proprietary Information and Inventions
Agreement.
7. Post-Employment Activities.
7.1 For a period of two (2) years (or for a lesser period
should the Company so determine) after the termination or expiration, for any
reason, of your employment with the Company hereunder, absent the Company's
prior written approval, you will not directly or indirectly engage in activities
similar or reasonably related to those in which you shall have engaged hereunder
during the two years immediately preceding termination or expiration for, nor
render services similar or reasonably related to those which you shall have
rendered hereunder during such two years to, any person or entity whether now
existing or hereafter established which directly competes with (or proposes or
plans to directly compete with) the Company ("Direct Competitor") in any line of
business engaged in or under development by the Company. Nor shall you entice,
induce or encourage any of the Company's other employees to leave their
employment with the Company or engage in any activity which, were it done by
you, would violate any provision of the Proprietary Information and Inventions
Agreement or this Section 7. As used in this Section 7.1, the term "any line of
business engaged in or under development by the Company" shall be applied as at
the date of termination of your employment, or, if later, as at the date of
termination of any post-employment consultation.
7.2 For a period of two (2) years after the termination of
your employment with the Company, the provisions of Section 4.2 shall be
applicable to you and you shall comply there with. As applied to such two (2)
year post-employment period, the term "any other line of business engaged in or
under development by the Company," as used in Section 4.2, shall be applied as
at the date of termination of your employment with the Company or, if later, as
at the date of termination of any post-employment consultation with the Company.
7.3 No provision of this Agreement shall be construed to
preclude you from performing the same services which the Company hereby retains
you to perform for any person or entity which is not a Direct Competitor of the
Company upon the expiration or termination of your employment (or any
post-employment consultation) so long as you do not thereby violate any term of
the Proprietary Information and Inventions Agreement.
8. Remedies. Your obligations under the Proprietary Information and
Inventions Agreement and the provisions of Sections 4, 6, 7, 8, 9 and 17 of this
Agreement (as modified by Section 10, if applicable) shall survive the
expiration or termination of your employment (whether through your resignation
or otherwise) with the Company. You acknowledge that a remedy at law for any
breach or threatened breach by you of the provisions of the Proprietary
Information and Inventions Agreement or Sections 4 or 7 hereof would be
inadequate and you therefore agree that
-4-
the Company shall be entitled to such injunctive or other equitable relief in
case of any such breach or threatened breach.
9. Assignment. This Agreement and the rights and obligations of the parties
hereto shall bind and inure to the benefit of any successor or successors of the
Company by reorganization, merger or consolidation and any assignee of all or
substantially all of its business and properties, but, except as to any such
successor or assignee of the Company, neither this Agreement nor any rights or
benefits hereunder may be assigned by the Company or by you, except by operation
of law. The Company's obligations and those of any successors or assignees of
the Company under this Agreement, including but not limited to the severance
provisions and other compensation and benefits due to you pursuant to Exhibit A
hereto, will be a condition of and are to remain those of any successor or
assignee.
10. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any one or
more of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT if any one or more of the provisions contained in
this Agreement is or becomes or is deemed invalid, illegal or unenforceable or
in case any provision shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable law
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
11. Notices. Any notice which the Company is required to or may desire to
give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at your address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the Company
hereunder shall be given by personal delivery or by registered or certified
mail, return receipt requested, addressed to the Company at its principal
office, or at such other office as the Company may from time to time designate
in writing. The date of personal delivery or the date of mailing any notice
under this Section 11 shall be deemed to be the date of delivery thereof.
12. Waivers. If the Company should waive any breach of any provision of
this Agreement, the Company shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
13. Complete Agreement; Amendments. The foregoing including Exhibits A, B
and C hereto, is the entire agreement of the parties with respect to the subject
matter hereof, superseding any previous oral or written communications,
representations, understandings, or agreements with the Company or any officer
or representative thereof. Any amendment to this Agreement or waiver
-5-
by the Company of any right hereunder shall be effective only if evidenced by a
written instrument executed by the parties hereto, upon authorization of the
Company's Board of Directors.
14. Headings. The headings of the Sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning of this Agreement.
15. Counterparts. This Agreement may be signed in two counterparts, each of
which shall be deemed an original and both of which shall together constitute
one agreement.
16. Governing Law. This Agreement shall be governed by and construed under
Massachusetts law.
17. Arbitration of Disputes. Subject to the rights of the parties to seek
injunctive relief as described herein, any controversy or claim arising out of,
or relating to, any provision of this Agreement shall be settled by binding
arbitration in accordance with the laws of the Commonwealth of Massachusetts by
three arbitrators, one of whom shall be appointed by the Company, one of whom
shall be appointed by you, and the third arbitrator who shall be appointed by
the first two arbitrators. If the first two arbitrators cannot agree on the
appointment of a third arbitrator, then the third arbitrator shall be appointed
by the American Arbitration Association in the City of Boston. Such arbitration
shall be conducted in the City of Boston in accordance with the rules of the
American Arbitration Association, except with respect to the selection of
arbitrators, which shall be as provided in this Section. Judgment on the award
or determination rendered by the arbitrators shall be final, binding and
conclusive upon the parties, and may be entered in any court having jurisdiction
thereof and shall not be appealable. The prevailing party in such arbitration
proceeding shall be entitled to reimbursement by the other party of all
reasonable legal fees and other costs incurred by the prevailing party in
connection with such proceeding, including any legal fees and costs incurred in
connection with the enforcement of any award.
18. Advice of Separate Counsel. The Company's counsel, O'Connor, Broude &
Aronson, has prepared this document on behalf of the Company. You acknowledge
that you have been advised to review this Agreement with your own legal counsel
and other advisors of your choosing and that prior to entering into this
Agreement, you have had the opportunity to review this Agreement with your
attorney and other advisors and have not asked (or relied upon) O'Connor, Broude
& Aronson to represent you in this matter.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
-6-
If you are in agreement with the foregoing, please sign your name below and
also at the bottom of the Proprietary Information and Inventions Agreement,
whereupon this Agreement shall become binding in accordance with its terms.
Please then return this Agreement to the Company. (You may retain for your
records the accompanying counterpart of this Agreement enclosed herewith).
Very truly yours,
ACCEPTED AND AGREED: QC OPTICS, INC.
- -------------------------- By:
Eric T. Chase ----------------------------
Title:
-------------------------
-7-
EXHIBIT A
---------
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF ERIC T. CHASE
l. Term. The term of the Agreement to which this Exhibit A is attached and
made a part shall be for a period from the date of this Agreement through June
30, 1999.
2. Compensation.
(a) Base Salary. Your base salary ("Base Salary") shall be
$147,000.00 per annum through June 30, 1997, payable in accordance with the
Company's payroll policies at the rate of $12,250.00 per month. Thereafter, your
Base Salary shall be as established by the Board of Directors or Compensation
Committee, but in no event less than your Base Salary for the first year of this
Agreement.
(b) Bonuses. Your bonuses, if any, shall be determined by the
Company's Board of Directors or Compensation Committee.
3. Vacation. You shall be entitled to all legal and religious holidays, and
paid vacation in accordance with Company policy. Any unused vacation may be
accrued or cashed in based on your then current Base Salary.
4. Insurance and Benefits. You shall be eligible for participation in any
health, dental and other group insurance plans which may be established and
maintained by the Company for all full-time employees or which the Company is
required to maintain by law. The Company shall provide you with health insurance
for you and your family providing benefits at least equal to the benefits of the
policies currently in place and shall provide you with group life insurance in
accordance with the Company's policy but not less than two times your base
salary. You shall also be entitled to participate in any employee benefit
programs which the Company's Board of Directors may establish for its key
employees, or for its employees generally, including, but not limited to,
bonuses and stock purchase or option plans.
5. Retirement Plan. You will be eligible to participate in the Company's
401(k) Plan.
6. Severance Benefits.
(a) When provided for in this Agreement, you shall be entitled
to "Severance Benefits." When used in this Agreement, the term "Severance
Benefits" shall mean a total amount equal to your then current annual Base
Salary. The Severance Benefits shall be paid via check to
A-1
you in twelve (12) equal monthly installments commencing within ten (10) days
after the date of your termination of active employment with the Company.
(b) In addition, the term "Severance Benefits" shall include
the continuation for you and your family, during the Severance Period, as
defined below, of all of the other benefits which are provided or available to
you on the last day of your actual service with the Company, including your
continued accrual and the vesting under the terms of any pension or 401(k) plan
then sponsored by the Company to the maximum extent permitted by law. For
purposes of this Agreement, the term "Severance Period" means the period of
twelve (12) months beginning on the last day of your active service with the
Company.
(c) The Severance Benefits referred to above will be in
addition to, and not in substitution for, any accrued and unpaid salary,
vacation, pension, retirement or other benefits, unreimbursed expenses or other
payments to which you may be otherwise entitled.
(d) In the event of your death while you are employed by the
Company, your then current Base Salary shall continue to be paid to your legal
representative for a period of 120 days following the date of your death; and
for a period of three (3) years following your death, the Company shall continue
to provide to your spouse at Company cost the health insurance coverage
described above. If you die during the Severance Period, all cash amounts which
would have been payable to you under this Exhibit A, unless otherwise provided
for herein, shall be paid in accordance with the terms of this Agreement to your
estate.
(e) You shall not be required to mitigate the amount of any
payment the Company becomes obligated to make to you in connection with this
Agreement, by seeking other employment or otherwise.
7. Change in Control.
(a) For purposes of this Agreement, "Change in Control" means
and shall be deemed to occur if any of the following occurs: (i) the acquisition
by an individual, entity or group, as defined in Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of
beneficial ownership, as defined in Rule 13d-3 promulgated under the Exchange
Act, of 25% or more of either (A) the outstanding shares of common stock, $ .01
par value per share, of the Company (the "Common Stock"), or (B) the combined
voting power of the Voting Securities of the Company entitled to vote generally
in the election of directors (the "Voting Securities"); or (ii) individuals who,
on June 18, 1996, constituted the Board of Directors of the Company (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board of Directors of the Company; provided, however, that any individual
becoming a director subsequent to June 18, 1996, whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then serving and comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an
A-2
actual or threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents; or (iii) approval by the Board of Directors
or the shareholders of the Company of a (A) tender offer to acquire any of the
Common Stock or Voting Securities, (B) reorganization, (C) merger or (D)
consolidation, other than a reorganization, merger or consolidation with respect
to which all or substantially all of the individuals and entities who were the
beneficial owners, immediately prior to such reorganization, merger or
consolidation, of the Common Stock and Voting Securities beneficially own,
directly or indirectly, immediately after such reorganization, merger or
consolidation, more than 80% of the then outstanding Common Stock and Voting
Securities (entitled to vote generally in the election of directors) of the
Company resulting from such reorganization, merger or consolidation in
substantially the same proportions as their respective ownership, immediately
prior to such reorganization, merger or consolidation, of the Common Stock and
the Voting Securities; or (iv) approval by the Board of Directors or the
shareholders of the Company of (A) a complete or substantial liquidation or
dissolution of the Company, or (B) the sale or other disposition of all or
substantially all of the assets of the Company, excluding a reorganization of
the Corporation under the corporate laws of another state.
(b) In the event of a Change in Control during the term of
this Agreement or any renewal or extension hereof and provided you remain
employed by the Company for a period of 12 months from the date of the Change in
Control, you will receive, at the one-year anniversary of the Change of Control,
a supplemental amount in a lump sum equal to your annual Base Salary immediately
preceding the Change in Control and Bonuses paid during the preceding fiscal
year, and the fair market value of all other benefits then payable, irrespective
of whether you thereafter actually terminate employment with the Company.
(c) In the event of your actual termination of employment
contemporaneous with or following a Change in Control, except (x) because of
your death, (y) by the Company for Cause or Disability (as hereinafter defined)
or (z) by you other than for Good Reason (as hereinafter defined): (i) you shall
be entitled to receive, in lieu of the sums described in Section 6, an amount
equal to 299% of your annual Base Salary immediately preceding the Change in
Control, to be paid in accordance with the terms of this Agreement; and (ii) the
following additional provisions shall apply (which provisions shall supersede
any other provisions of the Agreement, including but not limited to Section 2 of
the Agreement, to the extent such provisions are inconsistent with the following
provisions):
(1) Disability. For purposes of this Section 7(c),
termination by the Company of your employment based on "Disability" shall mean
termination because of your absence from your duties with the Company for one
hundred eighty (180) consecutive days as a result of your incapacity and
inability to perform the essential functions of your position with reasonable
accommodation, unless within thirty (30) days after Notice of Termination (as
hereinafter defined) is given to you following such absence, you shall have
returned to the performance of the essential functions of your position with
reasonable accommodation.
A-3
(2) Good Reason. Termination by you of your
employment for "Good Reason" shall mean termination based on:
(A) a determination by you, in your
reasonable judgment, that there has been a material adverse change in your
status or position(s) as an executive officer of the Company as in effect
immediately prior to the Change in Control, including, without limitation, a
material adverse change in your status or position as a result of a diminution
in your duties or responsibilities (other than, if applicable, any such change
directly attributable to the fact that the Company is no longer publicly owned)
or the assignment to you of any duties or responsibilities which are
inconsistent with such status or position(s), or any removal of you from, or any
failure to reappoint or reelect you to, such position(s) (except in connection
with the termination of your employment for Cause or Disability or as a result
of your death or by you other than for Good Reason) and further provided that
you have given the Company notice of this material adverse change and the
Company has failed to correct such material adverse change within a reasonable
period of time (but at least 14 days after written notice from you);
(B) a reduction by the Company in your Base
Salary as in effect immediately prior to the Change in Control, provided,
however, that a reduction pursuant to the provisions of Section 3 of the
Agreement shall not be a basis for termination by you of your employment for
"Good Reason";
(C) the failure by the Company to continue
in effect any Plan (as hereinafter defined) in which you are participating at
the time of the Change in Control of the Company (or Plans providing you with at
least substantially similar benefits) other than as a result of the normal
expiration of any such Plan in accordance with its terms as in effect at the
time of the Change in Control, or the taking of any action, or the failure to
act, by the Company which would adversely affect your continued participation in
any of such Plans on at least as favorable a basis to you as is the case on the
date of the Change in Control or which would materially reduce your benefits in
the future under any of such Plans or deprive you of any material benefit
enjoyed by you at the time of the Change in Control;
(D) the failure by the Company to provide
and credit you with the number of paid vacation days to which you are then
entitled in accordance with the Company's normal vacation policy as in effect
immediately prior to the Change in Control;
(E) the Company's requiring you to be based
at any office that is greater than twenty-five (25) miles from where your office
is located immediately prior to the Change in Control except for required travel
on the Company's business to an extent substantially consistent with the
business travel obligations which you undertook on behalf of the Company prior
to the Change in Control;
(F) the failure by the Company to obtain
from any Successor (as hereinafter defined) the assent to this Agreement
contemplated by Section 7(c)(6) hereof;
A-4
(G) any purported termination by the Company
of your employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 7(c)(3) below (and, if applicable,
Section 7(c)(1) above); and for purposes of this Agreement, no such purported
termination shall be effective; or
(H) any refusal by the Company to continue
to allow you to attend to matters or engage in activities not directly related
to the business of the Company which, prior to the Change in Control, you were
permitted by the Board to attend to or engage in.
For purposes of this Agreement, "Plan" shall mean any compensation plan
or any employee benefit plan such as a thrift, pension, profit sharing, medical,
disability, accident, life insurance plan or a relocation plan or policy or any
other plan, program or policy of the Company intended to benefit employees.
(3) Notice of Termination. Any purported termination
by the Company or by you following a Change in Control shall be communicated by
written notice to the other party hereto which indicates the specific
termination provision in this Agreement relied upon (the "Notice of
Termination").
(4) Date of Termination. "Date of Termination"
following a Change in Control shall mean (A) if your employment is to be
terminated for Disability, thirty (30) days after Notice of Termination is given
(provided that you shall not have returned to the performance of your duties on
a full-time basis during such thirty (30) day period), (B) if your employment is
to be terminated by the Company for any reason other than death or Disability or
by you pursuant to Sections 7(c)(2)(F) or 7(c)(6) hereof or for any other Good
Reason, the date specified in the Notice of Termination, or (C) if your
employment is terminated on account of your death, the day after your death. In
the case of termination of your employment by the Company for Cause, if you have
not previously expressly agreed in writing to the termination, then within
thirty (30) days after receipt by you of the Notice of Termination with respect
thereto, you may notify the Company that a dispute exists concerning the
Termination, in which event the Date of Termination shall be the date set either
by mutual written agreement of the parties or by such court having the matter
before it. During the pendency of any such dispute, the Company will continue to
pay you your full compensation in effect just prior to the time the Notice of
Termination is given and until the dispute is resolved. However, if such court
issues a final and non-appealable order finding that the Company had Cause to
terminate you, then you must return all compensation paid to you after the Date
of Termination specified in the Notice of Termination previously received by
you.
(5) Compensation Upon Termination or During
Disability; Other Agreements.
(A) During any period following a Change in
Control of the Company that you fail to perform your duties as a result of
incapacity and inability to perform the essential functions of your position
with reasonable accommodation, you shall continue to receive
A-5
your Base Salary at the rate then in effect and any benefits or awards under any
Plan shall continue to accrue during such period, to the extent not inconsistent
with such Plans, until and unless your employment is terminated pursuant to and
in accordance with this Section 7(c). Thereafter, your benefits shall be
determined in accordance with the Plans then in effect.
(B) If your employment is terminated for
Cause following a Change in Control of the Company, the Company shall pay to you
your Base Salary through the Date of Termination at the rate in effect just
prior to the time a Notice of Termination is given plus any benefits or awards
(including both the cash and stock components) which pursuant to the terms of
any Plans have been earned or become payable, but which have not yet been paid
to you. Thereupon, the Company shall have no further obligations to you under
this Agreement.
(6) Successors, Binding Agreement.
(A) The Company will seek, by written
request at least five (5) business days prior to the time a Person becomes a
Successor (as hereinafter defined), to have such Person, by agreement in form
and substance satisfactory to you, assent to the fulfillment of the Company's
obligations under this Agreement. Failure of such Person to furnish such assent
by the later of (i) three (3) business days prior to the time such Person
becomes a Successor or (ii) two (2) business days after such Person receives a
written request to so assent shall constitute Good Reason for termination by you
of your employment if a Change in Control of the Company occurs or has occurred.
For purposes of this Section 7 of Exhibit A, "Successor" shall mean any person
that succeeds to, or has the practical ability to control (either immediately or
with the passage of time), the Company's business directly, by merger or
consolidation, or indirectly, by purchase of the Company's securities eligible
to vote for the election of directors, or otherwise.
(B) This Agreement shall inure to the
benefit of and be enforceable by your personal legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if no such designee exists, to your estate.
(C) For purposes of this Section 7, the
"Company" shall include any subsidiaries of the Company and any corporation or
other entity which is the surviving or continuing entity in respect of any
merger, consolidation or form of business combination in which the Company
ceases to exist; provided, however, for purposes of determining whether a Change
in Control has occurred herein, the term "Company" shall refer to QC Optics,
Inc. or its Successor(s).
(7) Fees and Expenses; Mitigation.
(A) The Company shall reimburse you, on a
current basis, for all reasonable legal fees and related expenses incurred by
you in connection with the Agreement
A-6
following a Change in Control of the Company, including without limitation, (i)
all such fees and expenses, if any, incurred in contesting or disputing any
termination of your employment or (ii) your seeking to obtain or enforce any
right or benefit provided by this Agreement, in each case, regardless of whether
or not your claim is upheld by a court of competent jurisdiction; provided,
however, you shall be required to repay any such amounts to the Company to the
extent that a court issues a final and non-appealable order setting forth the
determination that the position taken by you was frivolous or advanced by you in
bad faith.
(B) You shall not be required to mitigate
the amount of any payment the Company becomes obligated to make to you in
connection with this Agreement, by seeking other employment or otherwise.
(8) Taxes. All payments to be made to you under this
Agreement will be subject to required withholding of federal, state and local
income and employment taxes.
(d) Notwithstanding any other provision of this Agreement, in
the event that any payment or benefit received or to be received by you as a
result of or in connection with a Change in Control, whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company (all such payment and benefits being hereinafter called the "Total
Payments") would subject you to the excise tax (the "Excise Tax") imposed under
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"),
then, to the extent necessary to eliminate any such imposition of the Excise Tax
(after taking into account any reduction in the Total Payments in accordance
with the provisions of any other plan, arrangement or agreement, if any), (a)
any non-cash severance payments otherwise payable to you shall first be reduced
(if necessary, to zero), and (b) any cash severance payment otherwise payable to
you shall next be reduced. For purposes of the immediately preceding sentence,
(i) no portion of the Total Payments the receipt or enjoyment of which you shall
have effectively waived in writing shall be taken into account, (ii) no portion
of the Total Payment shall be taken into account which in the opinion of
nationally-recognized certified public accountants (in each case as mutually
selected by you and the Company) does not constitute a "parachute payment"
within the meaning of Section 280G of the Code, including, without limitation,
by reason of Section 280G(b)(2) or (b)(4)(A) of the Code, (iii) any payments to
you shall be reduced only to the extent necessary so that the Total Payments
[other than those referred to in clauses (i) and (ii)] in their entirety
constitute reasonable compensation for services actually rendered within the
meaning of section 280G(4)(B) of the Code or are otherwise not subject to
disallowance as deductions, in the opinion of the tax counsel or the accountants
referred to in clause (ii); and (iv) the value of any non-cash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by such accountants in accordance with the requirements of section 280G(d)(3)
and (4) of the Code (and such determination shall be reviewed by such tax
counsel).
A-7
EXHIBIT B
---------
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS OF
ERIC T. CHASE
B-1
EXHIBIT C
---------
------------------------------------------------
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
------------------------------------------------
To: QC Optics, Inc.
154 Middlesex Turnpike
Burlington, Massachusetts 01803
As of July 1, 1996
The undersigned, in consideration of and as a condition of my
employment or continued employment by you and/or by companies which you own,
control, or are affiliated with or their successors in business (collectively,
the "Company"), hereby agrees as follows:
1. Confidentiality. I agree to keep confidential, except as the Company
may otherwise consent in writing, and, except for the Company's benefit, not to
disclose or make any use of at any time either during or subsequent to my
employment, any Inventions (as hereinafter defined), trade secrets, confidential
information, knowledge, data or other information of the Company relating to
products, processes, know-how, designs, formulas, test data, customer lists,
business plans, marketing plans and strategies, pricing strategies, or other
subject matter pertaining to any business of the Company or any of its
affiliates, which I may produce, obtain, or otherwise acquire during the course
of my employment, except as herein provided. I further agree not to deliver,
reproduce or in any way allow any such trade secrets, confidential information,
knowledge, data or other information, or any documentation relating thereto, to
be delivered to or used by any third parties without specific direction or
consent of a duly authorized representative of the Company.
2. Conflicting Employment; Return of Confidential Material. I agree
that during my employment with the Company I will not engage in any other
employment, occupation, consulting or other activity relating to the business in
which the Company is now or may hereafter become engaged, or which would
otherwise conflict with my obligations to the Company. In the event my
employment with the Company terminates for any reason whatsoever, I agree to
promptly surrender and deliver to the Company all records, materials, equipment,
drawings, documents and data of which I may obtain or produce during the course
of my employment, and I will not take with me any description containing or
pertaining to any confidential information, knowledge or data of the Company
which I may produce or obtain during the course of my employment.
C-1
3. Assignment of Inventions.
3.1 I hereby acknowledge and agree that the Company is the
owner of all Inventions. In order to protect the Company's rights to such
Inventions, by executing this Agreement I hereby irrevocably assign to the
Company all my right, title and interest in and to all Inventions to the
Company.
3.2 For purposes of this Agreement, "Inventions" shall mean
all discoveries, processes, designs, technologies, devices, or improvements in
any of the foregoing or other ideas, whether or not patentable and whether or
not reduced to practice, made or conceived by me (whether solely or jointly with
others) during the period of my employment with the Company which relate in any
manner to the actual or demonstrably anticipated business, work, or research and
development of the Company, or result from or are suggested by any task assigned
to me or any work performed by me for or on behalf of the Company.
3.3 Any discovery, process, design, technology, device, or
improvement in any of the foregoing or other ideas, whether or not patentable
and whether or not reduced to practice, made or conceived by me (whether solely
or jointly with others) which I develop entirely on my own time not using any of
the Company's equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such Personal
Invention (a) does not relate to the actual or demonstrably anticipated
business, research and development of the Company, and (b) does not result,
directly or indirectly, from any work performed by me for the Company.
4. Disclosure of Inventions. I agree that in connection with any
Invention, I will promptly disclose such Invention to my immediate superior at
the Company in order to permit the Company to enforce its property rights to
such Invention in accordance with this Agreement. My disclosure shall be
received in confidence by the Company.
5. Patents and Copyrights; Execution of Documents.
5.1 Upon request, I agree to assist the Company or its nominee
(at its expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
Inventions in any and all countries. Such patents and copyrights shall be and
remain the sole and exclusive property of the Company or its nominee. I agree to
perform such lawful acts as the Company deems to be necessary to allow it to
exercise all right, title and interest in and to such patents and copyrights.
5.2 In connection with this Agreement, I agree to execute,
acknowledge and deliver to the Company or its nominee upon request and at its
expense all documents, including assignments of title, patent or copyright
applications, assignments of such applications, assignments of patents or
copyrights upon issuance, as the Company may determine necessary or desirable to
protect the Company's or its nominee's interest in Inventions, and/or to use in
obtaining patents or
C-2
copyrights in any and all countries and to vest title thereto in the Company or
its nominee to any of the foregoing.
6. Maintenance of Records. I agree to keep and maintain adequate and
current written records of all Inventions made by me (in the form of notes,
sketches, drawings and other records as may be specified by the Company), which
records shall be available to and remain the sole property of the Company at all
times.
7. Prior Inventions. It is understood that all Personal Inventions, if
any, whether patented or unpatented, which I made prior to my employment by the
Company, are excluded from this Agreement. To preclude any possible uncertainty,
I have set forth on Schedule A attached hereto a complete list of all of my
prior Personal Inventions, including numbers of all patents and patent
applications and a brief description of all unpatented Personal Inventions which
are not the property of a previous employer. I represent and covenant that the
list is complete and that, if no items are on the list, I have no such prior
Personal Inventions. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company which appears to
threaten or conflict with proprietary rights I claim in any Personal Invention.
In the event of my failure to give such notice, I agree that I will make no
claim against the Company with respect to any such Personal Invention.
8. Other Obligations. I acknowledge that the Company from time to time
may have agreements with other persons or with the U.S. Government or agencies
thereof, which impose obligations or restrictions on the Company regarding
Inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the Company's
obligations.
9. Trade Secrets of Others. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep confidential proprietary information, knowledge or
data acquired by me in confidence or in trust prior to my employment with the
Company, and I will not disclose to the Company, or induce the Company to use,
any confidential or proprietary information or material belonging to any
previous employer or others. I agree not to enter into any agreement either
written or oral in conflict herewith.
10. Modification. I agree that any subsequent change or changes in my
employment duties, salary or compensation or, if applicable, in any Employment
Agreement between the Company and me, shall not affect the validity or scope of
this Agreement.
11. Successors and Assigns. This Agreement shall be binding upon my
heirs, executors, administrators or other legal representatives and is for the
benefit of the Company, its successors and assigns.
C-3
12. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT if any one or more of the provisions contained in
this Agreement is or becomes or is deemed invalid, illegal or unenforceable or
in case any provision shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable law
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
13. Waivers. If either party should waive any breach of any provision
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
14. Complete Agreement, Amendments. I acknowledge receipt of this
Agreement, and agree that with respect to the subject matter thereof it is my
entire agreement with the Company, superseding any previous oral or written
communications, representations, understandings, or agreements with the Company
or any officer or representative thereof. Any amendment to this Agreement or
waiver by either party of any right hereunder shall be effective only if
evidenced by a written instrument executed by the parties hereto, and, in the
case of the Company, upon written authorization of the Company's Board of
Directors.
15. Headings. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
16. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
17. Governing Law. This Agreement shall be governed and construed under
Massachusetts law.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
C-4
18. Employment Status. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company to terminate the employment
of the Employee.
EMPLOYEE
-----------------------------
Eric T. Chase
Accepted and Agreed:
QC OPTICS, INC.
By:
-----------------------------
-----------------------------
Title:
--------------------------
C-5
SCHEDULE A
----------
LIST OF PRIOR INVENTIONS
OF ERIC T. CHASE
Identifying Number or
Title Date Brief Description
- ----- ---- -----------------
----------------------
KEY EMPLOYEE AGREEMENT
----------------------
To: Jay L. Ormsby As of July 1, 1996
381 Crestwood Circle
Salem, New Hampshire 03079
The undersigned, QC Optics, Inc., a Delaware corporation, as well as
its successors and assigns (hereinafter collectively referred to as the
"Company"), hereby agree with you as follows:
l. Position and Responsibilities.
1.1 You shall serve as Vice President of Technology of the
Company (or in such other executive capacity as shall be designated by the Board
of Directors and reasonably acceptable to you). You will, to the best of your
ability, devote your full time and best efforts to the performance of your
duties hereunder and the business and affairs of the Company and perform such
duties as may be assigned to you by or on authority of the Company's Board of
Directors from time to time and the duties customarily associated with such
capacity from time to time and at such place or places as the Company shall
designate are appropriate and necessary in connection with such employment;
provided, however, that you shall not be required to relocate your place of
employment beyond a twenty-five (25) mile radius from Burlington, Massachusetts
without your prior written consent.
1.2 You will duly, punctually and faithfully perform and
observe any and all rules and regulations which the Company may now or shall
hereafter establish governing the conduct of its business.
1.3 You will report directly to the Company's Board of
Directors and to individuals so designated by the Board of Directors.
2. Term of Employment.
2.1 The initial term of this Agreement shall be for the period
set forth on Exhibit A annexed hereto commencing with the date hereof.
Thereafter, this Agreement shall be automatically renewed for successive periods
of one year, unless you or the Company shall give the other party not less than
ninety (90) days written notice of non-renewal. Your employment with the Company
may be terminated at any time as provided in Section 2.2.
2.2 The Company shall have the right, upon written notice to
you, to terminate your employment:
(a) immediately at any time for "Cause" (as defined
herein subject to your right of cure and right to dispute as provided
in Section 2.3 herein); or
(b) at any time, upon not less than seven (7)
calendar days written notice, without "Cause," provided that the
Company shall be obligated to pay to you the Severance Benefits set
forth in Sections 6 or 7, as applicable, of Exhibit A, plus any sums
then due to you, less (i) applicable taxes and other required
withholdings, and (ii) any amounts you may owe to the Company. Payments
under this Section 2.2 (b) shall not be due or payable if you are
terminated at any time for "Cause" or if you voluntarily resign from
your employment, except as set forth in Section 7 of Exhibit A.
2.3 For purposes of Section 2.2, the term "Cause" shall mean
(a) gross negligence in the performance of assigned duties; (b) refusal to
perform or discharge the duties or responsibilities assigned by the Board of
Directors of the Company provided the same are not illegal, unethical or
inconsistent with the position of Vice President of Technology of a corporation
and the failure to correct such refusal and perform such duties or
responsibilities within a reasonable period of time (but in any event no less
than fourteen (14) calendar days after written notice of such failure); (c)
conviction of a felony involving moral turpitude; (d) willful or prolonged
absence from work not excused by a bona fide medical disability as reasonably
determined by a qualified physician mutually acceptable to both you and the
Company or other good cause as reasonably determined by the Board of Directors;
and (e) falseness of any warranty or representation by you herein or the breach
of your obligations under this Agreement to the material detriment of the
Company. Any dispute, controversy, or claim arising out of, in connection with,
or in relation to the definition of "Cause" shall be settled by arbitration in
accordance with the terms of Section 17 hereof.
2.4 In the event of the Involuntary Termination (as
hereinafter defined) of your employment with the Company at any time, the
Company hereby irrevocably agrees to provide you with Severance Benefits as
defined in Section 6 of Exhibit A hereto or payments in the event of a "Change
in Control" as defined in Section 7 of Exhibit A. In this regard, the phrase
"Involuntary Termination" shall mean (a) any termination of your employment by
the Company other than for "Cause," as defined in Section 2.3, (b) any notice by
the Company not to renew this Agreement pursuant to Section 2.1, or (c) any
termination of your employment by you due to any of the following circumstances:
(i) a reduction in your Base Salary or Company-paid benefits; provided, however,
that a reduction pursuant to the provisions of Section 3 herein shall not
constitute "Involuntary Termination", (ii) a reduction in your eligibility for
any Company bonus or other benefit program, (iii) a material or substantial
change in your title, position, authority or duties, or (iv) a change of your
principal place of employment to a location beyond twenty-five (25) miles of
Burlington, Massachusetts.
-2-
3. Compensation. You shall receive the compensation and benefits set
forth on Exhibit A ("Compensation") for all services to be rendered by you
hereunder and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions of even date herewith
attached hereto as Exhibit C between you and the Company (the "Proprietary Infor
mation and Inventions Agreement"). Such Compensation shall be subject to
temporary or permanent reduction by the Board of Directors if the Board shall
determine that economic conditions so warrant such as a significant reduction in
the Company's revenues or net worth.
4. Other Activities During Employment.
4.1 Except for any outside employments and directorships
currently held by you as listed on Exhibit B, and except with the prior written
consent of the Company's Board of Directors, you will not during the term of
this Agreement undertake or engage in any other employment, occupation or
business enterprise other than one in which you are an inactive investor.
4.2 You hereby agree that, except as disclosed on Exhibit B
hereto, during your employment hereunder, you will not, directly or indirectly,
engage (a) individually, (b) as an officer, (c) as a director, (d) as an
employee, (e) as a consultant, (f) as an advisor, (g) as an agent (whether a
salesperson or otherwise), (h) as a broker, or (i) as a partner, coventurer,
stockholder or other proprietor owning directly or indirectly more than five
percent (5%) interest, in any firm, corporation, partnership, trust,
association, or other organization which is engaged in the research,
development, production, manufacture or marketing of equipment or processes in
direct competition with the Company or any other line of business engaged in or
under demonstrable development by the Company (such firm, corporation,
partnership, trust, association, or other organization being hereinafter
referred to as a "Prohibited Enterprise"). Except as may be shown on Exhibit B,
you hereby represent that you are not engaged in any of the foregoing capacities
(a) through (i) in any Prohibited Enterprise.
5. Former Employers.
5.1 You represent and warrant that your employment by the
Company will not conflict with and will not be constrained by any prior or
current employment, consulting agreement or relationship whether oral or
written. You represent and warrant that you do not possess confidential
information arising out of any such employment, consulting agreement or
relationship which, in your best judgment, would be utilized in connection with
your employment by the Company in the absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you
should find that confidential information belonging to any other person or
entity might be usable in connection with the Company's business, you will not
intentionally disclose to the Company or use on behalf of the Company any
confidential information belonging to any of your former employers; but during
your employment by the Company you will use in the performance of your duties
all information which
-3-
is generally known and used by persons with training and experience comparable
to your own all information which is common knowledge in the industry or
otherwise legally in the public domain.
6. Proprietary Information and Inventions. You agree to execute,
deliver and be bound by the provisions of the Proprietary Information and
Inventions Agreement.
7. Post-Employment Activities.
7.1 For a period of two (2) years (or for a lesser period
should the Company so determine) after the termination or expiration, for any
reason, of your employment with the Company hereunder, absent the Company's
prior written approval, you will not directly or indirectly engage in activities
similar or reasonably related to those in which you shall have engaged hereunder
during the two years immediately preceding termination or expiration for, nor
render services similar or reasonably related to those which you shall have
rendered hereunder during such two years to, any person or entity whether now
existing or hereafter established which directly competes with (or proposes or
plans to directly compete with) the Company ("Direct Competitor") in any line of
business engaged in or under development by the Company. Nor shall you entice,
induce or encourage any of the Company's other employees to leave their
employment with the Company or engage in any activity which, were it done by
you, would violate any provision of the Proprietary Information and Inventions
Agreement or this Section 7. As used in this Section 7.1, the term "any line of
business engaged in or under development by the Company" shall be applied as at
the date of termination of your employment, or, if later, as at the date of
termination of any post-employment consultation.
7.2 For a period of two (2) years after the termination of
your employment with the Company, the provisions of Section 4.2 shall be
applicable to you and you shall comply there with. As applied to such two (2)
year post-employment period, the term "any other line of business engaged in or
under development by the Company," as used in Section 4.2, shall be applied as
at the date of termination of your employment with the Company or, if later, as
at the date of termination of any post-employment consultation with the Company.
7.3 No provision of this Agreement shall be construed to
preclude you from performing the same services which the Company hereby retains
you to perform for any person or entity which is not a Direct Competitor of the
Company upon the expiration or termination of your employment (or any
post-employment consultation) so long as you do not thereby violate any term of
the Proprietary Information and Inventions Agreement.
8. Remedies. Your obligations under the Proprietary Information and
Inventions Agreement and the provisions of Sections 4, 6, 7, 8, 9 and 17 of this
Agreement (as modified by Section 10, if applicable) shall survive the
expiration or termination of your employment (whether through your resignation
or otherwise) with the Company. You acknowledge that a remedy at law for any
breach or threatened breach by you of the provisions of the Proprietary
Information and Inventions Agreement or Sections 4 or 7 hereof would be
inadequate and you therefore agree that
-4-
the Company shall be entitled to such injunctive or other equitable relief in
case of any such breach or threatened breach.
9. Assignment. This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation and any
assignee of all or substantially all of its business and properties, but, except
as to any such successor or assignee of the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or by you,
except by operation of law. The Company's obligations and those of any
successors or assignees of the Company under this Agreement, including but not
limited to the severance provisions and other compensation and benefits due to
you pursuant to Exhibit A hereto, will be a condition of and are to remain those
of any successor or assignee.
10. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT if any one or more of the provisions contained in
this Agreement is or becomes or is deemed invalid, illegal or unenforceable or
in case any provision shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable law
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
11. Notices. Any notice which the Company is required to or may desire
to give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at your address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the Company
hereunder shall be given by personal delivery or by registered or certified
mail, return receipt requested, addressed to the Company at its principal
office, or at such other office as the Company may from time to time designate
in writing. The date of personal delivery or the date of mailing any notice
under this Section 11 shall be deemed to be the date of delivery thereof.
12. Waivers. If the Company should waive any breach of any provision of
this Agreement, the Company shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
13. Complete Agreement; Amendments. The foregoing including Exhibits A,
B and C hereto, is the entire agreement of the parties with respect to the
subject matter hereof, superseding any previous oral or written communications,
representations, understandings, or agreements with the Company or any officer
or representative thereof. Any amendment to this Agreement or waiver
-5-
by the Company of any right hereunder shall be effective only if evidenced by a
written instrument executed by the parties hereto, upon authorization of the
Company's Board of Directors.
14. Headings. The headings of the Sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning of this Agreement.
15. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
16. Governing Law. This Agreement shall be governed by and construed
under Massachusetts law.
17. Arbitration of Disputes. Subject to the rights of the parties to
seek injunctive relief as described herein, any controversy or claim arising out
of, or relating to, any provision of this Agreement shall be settled by binding
arbitration in accordance with the laws of the Commonwealth of Massachusetts by
three arbitrators, one of whom shall be appointed by the Company, one of whom
shall be appointed by you, and the third arbitrator who shall be appointed by
the first two arbitrators. If the first two arbitrators cannot agree on the
appointment of a third arbitrator, then the third arbitrator shall be appointed
by the American Arbitration Association in the City of Boston. Such arbitration
shall be conducted in the City of Boston in accordance with the rules of the
American Arbitration Association, except with respect to the selection of
arbitrators, which shall be as provided in this Section. Judgment on the award
or determination rendered by the arbitrators shall be final, binding and
conclusive upon the parties, and may be entered in any court having jurisdiction
thereof and shall not be appealable. The prevailing party in such arbitration
proceeding shall be entitled to reimbursement by the other party of all
reasonable legal fees and other costs incurred by the prevailing party in
connection with such proceeding, including any legal fees and costs incurred in
connection with the enforcement of any award.
18. Advice of Separate Counsel. The Company's counsel, O'Connor, Broude
& Aronson, has prepared this document on behalf of the Company. You acknowledge
that you have been advised to review this Agreement with your own legal counsel
and other advisors of your choosing and that prior to entering into this
Agreement, you have had the opportunity to review this Agreement with your
attorney and other advisors and have not asked (or relied upon) O'Connor, Broude
& Aronson to represent you in this matter.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
-6-
If you are in agreement with the foregoing, please sign your name below
and also at the bottom of the Proprietary Information and Inventions Agreement,
whereupon this Agreement shall become binding in accordance with its terms.
Please then return this Agreement to the Company. (You may retain for your
records the accompanying counterpart of this Agreement enclosed herewith).
Very truly yours,
ACCEPTED AND AGREED: QC OPTICS, INC.
- --------------------------- By:
Jay L. Ormsby -------------------------
Title:
----------------------
-7-
EXHIBIT A
---------
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF JAY L. ORMSBY
l. Term. The term of the Agreement to which this Exhibit A is attached
and made a part shall be for a period from the date of this Agreement through
June 30, 1999.
2. Compensation.
(a) Base Salary. Your base salary ("Base Salary") shall be
$114,500.00 per annum through June 30, 1997, payable in accordance with the
Company's payroll policies at the rate of $9,541.67 per month. Thereafter, your
Base Salary shall be as established by the Board of Directors or Compensation
Committee, but in no event less than your Base salary for the first year of this
Agreement.
(b) Bonuses. Your bonuses, if any, shall be determined by the
Company's Board of Directors or Compensation Committee.
3. Vacation. You shall be entitled to all legal and religious holidays,
and paid vacation in accordance with Company policy. Any unused vacation may be
accrued or cashed in based on your then current Base Salary.
4. Insurance and Benefits. You shall be eligible for participation in
any health, dental and other group insurance plans which may be established and
maintained by the Company for all full-time employees or which the Company is
required to maintain by law. The Company shall provide you with health insurance
for you and your family providing benefits at least equal to the benefits of the
policies currently in place and shall provide you with group life insurance in
accordance with the Company's policy but not less than two times your base
salary. You shall also be entitled to participate in any employee benefit
programs which the Company's Board of Directors may establish for its key
employees, or for its employees generally, including, but not limited to,
bonuses and stock purchase or option plans.
5. Retirement Plan. You will be eligible to participate in the
Company's 401(k) Plan.
6. Severance Benefits.
(a) When provided for in this Agreement, you shall be entitled
to "Severance Benefits." When used in this Agreement, the term "Severance
Benefits" shall mean a total amount equal to your then current annual Base
Salary. The Severance Benefits shall be paid via check to
A-1
you in twelve (12) equal monthly installments commencing within ten (10) days
after the date of your termination of active employment with the Company.
(b) In addition, the term "Severance Benefits" shall include
the continuation for you and your family, during the Severance Period, as
defined below, of all of the other benefits which are provided or available to
you on the last day of your actual service with the Company, including your
continued accrual and the vesting under the terms of any pension or 401(k) plan
then sponsored by the Company to the maximum extent permitted by law. For
purposes of this Agreement, the term "Severance Period" means the period of
twelve (12) months beginning on the last day of your active service with the
Company.
(c) The Severance Benefits referred to above will be in
addition to, and not in substitution for, any accrued and unpaid salary,
vacation, pension, retirement or other benefits, unreimbursed expenses or other
payments to which you may be otherwise entitled.
(d) In the event of your death while you are employed by the
Company, your then current Base Salary shall continue to be paid to your legal
representative for a period of 120 days following the date of your death; and
for a period of three (3) years following your death, the Company shall continue
to provide to your spouse at Company cost the health insurance coverage
described above. If you die during the Severance Period, all cash amounts which
would have been payable to you under this Exhibit A, unless otherwise provided
for herein, shall be paid in accordance with the terms of this Agreement to your
estate.
(e) You shall not be required to mitigate the amount of any
payment the Company becomes obligated to make to you in connection with this
Agreement, by seeking other employment or otherwise.
7. Change in Control.
(a) For purposes of this Agreement, "Change in Control" means
and shall be deemed to occur if any of the following occurs: (i) the acquisition
by an individual, entity or group, as defined in Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of
beneficial ownership, as defined in Rule 13d-3 promulgated under the Exchange
Act, of 25% or more of either (A) the outstanding shares of common stock, $ .01
par value per share, of the Company (the "Common Stock"), or (B) the combined
voting power of the Voting Securities of the Company entitled to vote generally
in the election of directors (the "Voting Securities"); or (ii) individuals who,
on June 18, 1996, constituted the Board of Directors of the Company (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board of Directors of the Company; provided, however, that any individual
becoming a director subsequent to June 18, 1996, whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then serving and comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an
A-2
actual or threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents; or (iii) approval by the Board of Directors
or the shareholders of the Company of a (A) tender offer to acquire any of the
Common Stock or Voting Securities, (B) reorganization, (C) merger or (D)
consolidation, other than a reorganization, merger or consolidation with respect
to which all or substantially all of the individuals and entities who were the
beneficial owners, immediately prior to such reorganization, merger or
consolidation, of the Common Stock and Voting Securities beneficially own,
directly or indirectly, immediately after such reorganization, merger or
consolidation, more than 80% of the then outstanding Common Stock and Voting
Securities (entitled to vote generally in the election of directors) of the
Company resulting from such reorganization, merger or consolidation in
substantially the same proportions as their respective ownership, immediately
prior to such reorganization, merger or consolidation, of the Common Stock and
the Voting Securities; or (iv) approval by the Board of Directors or the
shareholders of the Company of (A) a complete or substantial liquidation or
dissolution of the Company, or (B) the sale or other disposition of all or
substantially all of the assets of the Company, excluding a reorganization of
the Corporation under the corporate laws of another state.
(b) In the event of a Change in Control during the term of
this Agreement or any renewal or extension hereof and provided you remain
employed by the Company for a period of 12 months from the date of the Change in
Control, you will receive, at the one-year anniversary of the Change of Control,
a supplemental amount in a lump sum equal to your annual Base Salary immediately
preceding the Change in Control and Bonuses paid during the preceding fiscal
year, and the fair market value of all other benefits then payable, irrespective
of whether you thereafter actually terminate employment with the Company.
(c) In the event of your actual termination of employment
contemporaneous with or following a Change in Control, except (x) because of
your death, (y) by the Company for Cause or Disability (as hereinafter defined)
or (z) by you other than for Good Reason (as hereinafter defined): (i) you shall
be entitled to receive, in lieu of the sums described in Section 6, an amount
equal to 299% of your then current annual Base Salary immediately preceding the
Change in Control, to be paid in accordance with the terms of this Agreement;
and (ii) the following additional provisions shall apply (which provisions shall
supersede any other provisions of the Agreement, including but not limited to
Section 2 of the Agreement, to the extent such provisions are inconsistent with
the following provisions):
(1) Disability. For purposes of this Section 7(c),
termination by the Company of your employment based on "Disability" shall mean
termination because of your absence from your duties with the Company for one
hundred eighty (180) consecutive days as a result of your incapacity and
inability to perform the essential functions of your position with reasonable
accommodation, unless within thirty (30) days after Notice of Termination (as
hereinafter defined) is given to you following such absence, you shall have
returned to the performance of the essential functions of your position with
reasonable accommodation.
A-3
(2) Good Reason. Termination by you of your
employment for "Good Reason" shall mean termination based on:
(A) a determination by you, in your
reasonable judgment, that there has been a material adverse change in your
status or position(s) as an executive officer of the Company as in effect
immediately prior to the Change in Control, including, without limitation, a
material adverse change in your status or position as a result of a diminution
in your duties or responsibilities (other than, if applicable, any such change
directly attributable to the fact that the Company is no longer publicly owned)
or the assignment to you of any duties or responsibilities which are
inconsistent with such status or position(s), or any removal of you from, or any
failure to reappoint or reelect you to, such position(s) (except in connection
with the termination of your employment for Cause or Disability or as a result
of your death or by you other than for Good Reason) and further provided that
you have given the Company notice of this material adverse change and the
Company has failed to correct such material adverse change within a reasonable
period of time (but at least 14 days after written notice from you);
(B) a reduction by the Company in your Base
Salary as in effect immediately prior to the Change in Control, provided,
however, that a reduction pursuant to the provisions of Section 3 of the
Agreement shall not be a basis for termination by you of your employment for
"Good Reason";
(C) the failure by the Company to continue
in effect any Plan (as hereinafter defined) in which you are participating at
the time of the Change in Control of the Company (or Plans providing you with at
least substantially similar benefits) other than as a result of the normal
expiration of any such Plan in accordance with its terms as in effect at the
time of the Change in Control, or the taking of any action, or the failure to
act, by the Company which would adversely affect your continued participation in
any of such Plans on at least as favorable a basis to you as is the case on the
date of the Change in Control or which would materially reduce your benefits in
the future under any of such Plans or deprive you of any material benefit
enjoyed by you at the time of the Change in Control;
(D) the failure by the Company to provide
and credit you with the number of paid vacation days to which you are then
entitled in accordance with the Company's normal vacation policy as in effect
immediately prior to the Change in Control;
(E) the Company's requiring you to be based
at any office that is greater than twenty-five (25) miles from where your office
is located immediately prior to the Change in Control except for required travel
on the Company's business to an extent substantially consistent with the
business travel obligations which you undertook on behalf of the Company prior
to the Change in Control;
(F) the failure by the Company to obtain
from any Successor (as hereinafter defined) the assent to this Agreement
contemplated by Section 7(c)(6) hereof;
A-4
(G) any purported termination by the Company
of your employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 7(c)(3) below (and, if applicable,
Section 7(c)(1) above); and for purposes of this Agreement, no such purported
termination shall be effective; or
(H) any refusal by the Company to continue
to allow you to attend to matters or engage in activities not directly related
to the business of the Company which, prior to the Change in Control, you were
permitted by the Board to attend to or engage in.
For purposes of this Agreement, "Plan" shall mean any compensation plan
or any employee benefit plan such as a thrift, pension, profit sharing, medical,
disability, accident, life insurance plan or a relocation plan or policy or any
other plan, program or policy of the Company intended to benefit employees.
(3) Notice of Termination. Any purported termination
by the Company or by you following a Change in Control shall be communicated by
written notice to the other party hereto which indicates the specific
termination provision in this Agreement relied upon (the "Notice of
Termination").
(4) Date of Termination. "Date of Termination"
following a Change in Control shall mean (A) if your employment is to be
terminated for Disability, thirty (30) days after Notice of Termination is given
(provided that you shall not have returned to the performance of your duties on
a full-time basis during such thirty (30) day period), (B) if your employment is
to be terminated by the Company for any reason other than death or Disability or
by you pursuant to Sections 7(c)(2)(F) or 7(c)(6) hereof or for any other Good
Reason, the date specified in the Notice of Termination, or (C) if your
employment is terminated on account of your death, the day after your death. In
the case of termination of your employment by the Company for Cause, if you have
not previously expressly agreed in writing to the termination, then within
thirty (30) days after receipt by you of the Notice of Termination with respect
thereto, you may notify the Company that a dispute exists concerning the
Termination, in which event the Date of Termination shall be the date set either
by mutual written agreement of the parties or by such court having the matter
before it. During the pendency of any such dispute, the Company will continue to
pay you your full compensation in effect just prior to the time the Notice of
Termination is given and until the dispute is resolved. However, if such court
issues a final and non-appealable order finding that the Company had Cause to
terminate you, then you must return all compensation paid to you after the Date
of Termination specified in the Notice of Termination previously received by
you.
(5) Compensation Upon Termination or During
Disability; Other Agreements.
(A) During any period following a Change in
Control of the Company that you fail to perform your duties as a result of
incapacity and inability to perform the essential functions of your position
with reasonable accommodation, you shall continue to receive
A-5
your Base Salary at the rate then in effect and any benefits or awards under any
Plan shall continue to accrue during such period, to the extent not inconsistent
with such Plans, until and unless your employment is terminated pursuant to and
in accordance with this Section 7(c). Thereafter, your benefits shall be
determined in accordance with the Plans then in effect.
(B) If your employment is terminated for
Cause following a Change in Control of the Company, the Company shall pay to you
your Base Salary through the Date of Termination at the rate in effect just
prior to the time a Notice of Termination is given plus any benefits or awards
(including both the cash and stock components) which pursuant to the terms of
any Plans have been earned or become payable, but which have not yet been paid
to you. Thereupon, the Company shall have no further obligations to you under
this Agreement.
(6) Successors, Binding Agreement.
(A) The Company will seek, by written
request at least five (5) business days prior to the time a Person becomes a
Successor (as hereinafter defined), to have such Person, by agreement in form
and substance satisfactory to you, assent to the fulfillment of the Company's
obligations under this Agreement. Failure of such Person to furnish such assent
by the later of (i) three (3) business days prior to the time such Person
becomes a Successor or (ii) two (2) business days after such Person receives a
written request to so assent shall constitute Good Reason for termination by you
of your employment if a Change in Control of the Company occurs or has occurred.
For purposes of this Section 7 of Exhibit A, "Successor" shall mean any person
that succeeds to, or has the practical ability to control (either immediately or
with the passage of time), the Company's business directly, by merger or
consolidation, or indirectly, by purchase of the Company's securities eligible
to vote for the election of directors, or otherwise.
(B) This Agreement shall inure to the
benefit of and be enforceable by your personal legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if no such designee exists, to your estate.
(C) For purposes of this Section 7, the
"Company" shall include any subsidiaries of the Company and any corporation or
other entity which is the surviving or continuing entity in respect of any
merger, consolidation or form of business combination in which the Company
ceases to exist; provided, however, for purposes of determining whether a Change
in Control has occurred herein, the term "Company" shall refer to QC Optics,
Inc. or its Successor(s).
(7) Fees and Expenses; Mitigation.
(A) The Company shall reimburse you, on a
current basis, for all reasonable legal fees and related expenses incurred by
you in connection with the Agreement
A-6
following a Change in Control of the Company, including without limitation, (i)
all such fees and expenses, if any, incurred in contesting or disputing any
termination of your employment or (ii) your seeking to obtain or enforce any
right or benefit provided by this Agreement, in each case, regardless of whether
or not your claim is upheld by a court of competent jurisdiction; provided,
however, you shall be required to repay any such amounts to the Company to the
extent that a court issues a final and non-appealable order setting forth the
determination that the position taken by you was frivolous or advanced by you in
bad faith.
(B) You shall not be required to mitigate
the amount of any payment the Company becomes obligated to make to you in
connection with this Agreement, by seeking other employment or otherwise.
(8) Taxes. All payments to be made to you under this
Agreement will be subject to required withholding of federal, state and local
income and employment taxes.
(d) Notwithstanding any other provision of this Agreement, in
the event that any payment or benefit received or to be received by you as a
result of or in connection with a Change in Control, whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company (all such payment and benefits being hereinafter called the "Total
Payments") would subject you to the excise tax (the "Excise Tax") imposed under
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"),
then, to the extent necessary to eliminate any such imposition of the Excise Tax
(after taking into account any reduction in the Total Payments in accordance
with the provisions of any other plan, arrangement or agreement, if any), (a)
any non-cash severance payments otherwise payable to you shall first be reduced
(if necessary, to zero), and (b) any cash severance payment otherwise payable to
you shall next be reduced. For purposes of the immediately preceding sentence,
(i) no portion of the Total Payments the receipt or enjoyment of which you shall
have effectively waived in writing shall be taken into account, (ii) no portion
of the Total Payment shall be taken into account which in the opinion of
nationally-recognized certified public accountants (in each case as mutually
selected by you and the Company) does not constitute a "parachute payment"
within the meaning of Section 280G of the Code, including, without limitation,
by reason of Section 280G(b)(2) or (b)(4)(A) of the Code, (iii) any payments to
you shall be reduced only to the extent necessary so that the Total Payments
[other than those referred to in clauses (i) and (ii)] in their entirety
constitute reasonable compensation for services actually rendered within the
meaning of section 280G(4)(B) of the Code or are otherwise not subject to
disallowance as deductions, in the opinion of the tax counsel or the accountants
referred to in clause (ii); and (iv) the value of any non-cash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by such accountants in accordance with the requirements of section 280G(d)(3)
and (4) of the Code (and such determination shall be reviewed by such tax
counsel).
A-7
EXHIBIT B
---------
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS OF
JAY L. ORMSBY
B-1
EXHIBIT C
---------
------------------------------------------------
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
------------------------------------------------
To: QC Optics, Inc.
154 Middlesex Turnpike
Burlington, Massachusetts 01803
As of July 1, 1996
The undersigned, in consideration of and as a condition of my
employment or continued employment by you and/or by companies which you own,
control, or are affiliated with or their successors in business (collectively,
the "Company"), hereby agrees as follows:
1. Confidentiality. I agree to keep confidential, except as the Company
may otherwise consent in writing, and, except for the Company's benefit, not to
disclose or make any use of at any time either during or subsequent to my
employment, any Inventions (as hereinafter defined), trade secrets, confidential
information, knowledge, data or other information of the Company relating to
products, processes, know-how, designs, formulas, test data, customer lists,
business plans, marketing plans and strategies, pricing strategies, or other
subject matter pertaining to any business of the Company or any of its
affiliates, which I may produce, obtain, or otherwise acquire during the course
of my employment, except as herein provided. I further agree not to deliver,
reproduce or in any way allow any such trade secrets, confidential information,
knowledge, data or other information, or any documentation relating thereto, to
be delivered to or used by any third parties without specific direction or
consent of a duly authorized representative of the Company.
2. Conflicting Employment; Return of Confidential Material. I agree
that during my employment with the Company I will not engage in any other
employment, occupation, consulting or other activity relating to the business in
which the Company is now or may hereafter become engaged, or which would
otherwise conflict with my obligations to the Company. In the event my
employment with the Company terminates for any reason whatsoever, I agree to
promptly surrender and deliver to the Company all records, materials, equipment,
drawings, documents and data of which I may obtain or produce during the course
of my employment, and I will not take with me any description containing or
pertaining to any confidential information, knowledge or data of the Company
which I may produce or obtain during the course of my employment.
C-1
3. Assignment of Inventions.
3.1 I hereby acknowledge and agree that the Company is the
owner of all Inventions. In order to protect the Company's rights to such
Inventions, by executing this Agreement I hereby irrevocably assign to the
Company all my right, title and interest in and to all Inventions to the
Company.
3.2 For purposes of this Agreement, "Inventions" shall mean
all discoveries, processes, designs, technologies, devices, or improvements in
any of the foregoing or other ideas, whether or not patentable and whether or
not reduced to practice, made or conceived by me (whether solely or jointly with
others) during the period of my employment with the Company which relate in any
manner to the actual or demonstrably anticipated business, work, or research and
development of the Company, or result from or are suggested by any task assigned
to me or any work performed by me for or on behalf of the Company.
3.3 Any discovery, process, design, technology, device, or
improvement in any of the foregoing or other ideas, whether or not patentable
and whether or not reduced to practice, made or conceived by me (whether solely
or jointly with others) which I develop entirely on my own time not using any of
the Company's equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such Personal
Invention (a) does not relate to the actual or demonstrably anticipated
business, research and development of the Company, and (b) does not result,
directly or indirectly, from any work performed by me for the Company.
4. Disclosure of Inventions. I agree that in connection with any
Invention, I will promptly disclose such Invention to my immediate superior at
the Company in order to permit the Company to enforce its property rights to
such Invention in accordance with this Agreement. My disclosure shall be
received in confidence by the Company.
5. Patents and Copyrights; Execution of Documents.
5.1 Upon request, I agree to assist the Company or its nominee
(at its expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
Inventions in any and all countries. Such patents and copyrights shall be and
remain the sole and exclusive property of the Company or its nominee. I agree to
perform such lawful acts as the Company deems to be necessary to allow it to
exercise all right, title and interest in and to such patents and copyrights.
5.2 In connection with this Agreement, I agree to execute,
acknowledge and deliver to the Company or its nominee upon request and at its
expense all documents, including assignments of title, patent or copyright
applications, assignments of such applications, assignments of patents or
copyrights upon issuance, as the Company may determine necessary or desirable to
protect the Company's or its nominee's interest in Inventions, and/or to use in
obtaining patents or
C-2
copyrights in any and all countries and to vest title thereto in the Company or
its nominee to any of the foregoing.
6. Maintenance of Records. I agree to keep and maintain adequate and
current written records of all Inventions made by me (in the form of notes,
sketches, drawings and other records as may be specified by the Company), which
records shall be available to and remain the sole property of the Company at all
times.
7. Prior Inventions. It is understood that all Personal Inventions, if
any, whether patented or unpatented, which I made prior to my employment by the
Company, are excluded from this Agreement. To preclude any possible uncertainty,
I have set forth on Schedule A attached hereto a complete list of all of my
prior Personal Inventions, including numbers of all patents and patent
applications and a brief description of all unpatented Personal Inventions which
are not the property of a previous employer. I represent and covenant that the
list is complete and that, if no items are on the list, I have no such prior
Personal Inventions. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company which appears to
threaten or conflict with proprietary rights I claim in any Personal Invention.
In the event of my failure to give such notice, I agree that I will make no
claim against the Company with respect to any such Personal Invention.
8. Other Obligations. I acknowledge that the Company from time to time
may have agreements with other persons or with the U.S. Government or agencies
thereof, which impose obligations or restrictions on the Company regarding
Inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the Company's
obligations.
9. Trade Secrets of Others. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep confidential proprietary information, knowledge or
data acquired by me in confidence or in trust prior to my employment with the
Company, and I will not disclose to the Company, or induce the Company to use,
any confidential or proprietary information or material belonging to any
previous employer or others. I agree not to enter into any agreement either
written or oral in conflict herewith.
10. Modification. I agree that any subsequent change or changes in my
employment duties, salary or compensation or, if applicable, in any Employment
Agreement between the Company and me, shall not affect the validity or scope of
this Agreement.
11. Successors and Assigns. This Agreement shall be binding upon my
heirs, executors, administrators or other legal representatives and is for the
benefit of the Company, its successors and assigns.
C-3
12. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT if any one or more of the provisions contained in
this Agreement is or becomes or is deemed invalid, illegal or unenforceable or
in case any provision shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable law
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
13. Waivers. If either party should waive any breach of any provision
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
14. Complete Agreement, Amendments. I acknowledge receipt of this
Agreement, and agree that with respect to the subject matter thereof it is my
entire agreement with the Company, superseding any previous oral or written
communications, representations, understandings, or agreements with the Company
or any officer or representative thereof. Any amendment to this Agreement or
waiver by either party of any right hereunder shall be effective only if
evidenced by a written instrument executed by the parties hereto, and, in the
case of the Company, upon written authorization of the Company's Board of
Directors.
15. Headings. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
16. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
17. Governing Law. This Agreement shall be governed and construed under
Massachusetts law.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
C-4
18. Employment Status. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company to terminate the employment
of the Employee.
EMPLOYEE
----------------------------
Jay L. Ormsby
Accepted and Agreed:
QC OPTICS, INC.
By:
-------------------------------
-------------------------------
Title:
-----------------------------
C-5
SCHEDULE A
----------
LIST OF PRIOR INVENTIONS
OF JAY L. ORMSBY
Identifying Number or
Title Date Brief Description
- ----- ---- -----------------
----------------------
KEY EMPLOYEE AGREEMENT
----------------------
To: Albert E. Tobey As of July 1, 1996
12 Auburn Avenue
Wilmington, Massachusetts 01887
The undersigned, QC Optics, Inc., a Delaware corporation, as well as
its successors and assigns (hereinafter collectively referred to as the
"Company"), hereby agree with you as follows:
l. Position and Responsibilities.
1.1 You shall serve as Vice President of Operations of the
Company (or in such other executive capacity as shall be designated by the Board
of Directors and reasonably acceptable to you). You will, to the best of your
ability, devote your full time and best efforts to the performance of your
duties hereunder and the business and affairs of the Company and perform such
duties as may be assigned to you by or on authority of the Company's Board of
Directors from time to time and the duties customarily associated with such
capacity from time to time and at such place or places as the Company shall
designate are appropriate and necessary in connection with such employment;
provided, however, that you shall not be required to relocate your place of
employment beyond a twenty-five (25) mile radius from Burlington, Massachusetts
without your prior written consent.
1.2 You will duly, punctually and faithfully perform and
observe any and all rules and regulations which the Company may now or shall
hereafter establish governing the conduct of its business.
1.3 You will report directly to the Company's Board of
Directors and to individuals so designated by the Board of Directors.
2. Term of Employment.
2.1 The initial term of this Agreement shall be for the period
set forth on Exhibit A annexed hereto commencing with the date hereof.
Thereafter, this Agreement shall be automatically renewed for successive periods
of one year, unless you or the Company shall give the other party not less than
ninety (90) days written notice of non-renewal. Your employment with the Company
may be terminated at any time as provided in Section 2.2.
2.2 The Company shall have the right, upon written notice to
you, to terminate your employment:
(a) immediately at any time for "Cause" (as defined
herein subject to your right of cure and right to dispute as provided
in Section 2.3 herein); or
(b) at any time, upon not less than seven (7)
calendar days written notice, without "Cause," provided that the
Company shall be obligated to pay to you the Severance Benefits set
forth in Sections 6 or 7, as applicable, of Exhibit A, plus any sums
then due to you, less (i) applicable taxes and other required
withholdings, and (ii) any amounts you may owe to the Company. Payments
under this Section 2.2 (b) shall not be due or payable if you are
terminated at any time for "Cause" or if you voluntarily resign from
your employment, except as set forth in Section 7 of Exhibit A.
2.3 For purposes of Section 2.2, the term "Cause" shall mean
(a) gross negligence in the performance of assigned duties; (b) refusal to
perform or discharge the duties or responsibilities assigned by the Board of
Directors of the Company provided the same are not illegal, unethical or
inconsistent with the position of Vice President of Operations of a corporation
and the failure to correct such refusal and perform such duties or
responsibilities within a reasonable period of time (but in any event no less
than fourteen (14) calendar days after written notice of such failure); (c)
conviction of a felony involving moral turpitude; (d) willful or prolonged
absence from work not excused by a bona fide medical disability as reasonably
determined by a qualified physician mutually acceptable to both you and the
Company or other good cause as reasonably determined by the Board of Directors;
and (e) falseness of any warranty or representation by you herein or the breach
of your obligations under this Agreement to the material detriment of the
Company. Any dispute, controversy, or claim arising out of, in connection with,
or in relation to the definition of "Cause" shall be settled by arbitration in
accordance with the terms of Section 17 hereof.
2.4 In the event of the Involuntary Termination (as
hereinafter defined) of your employment with the Company at any time, the
Company hereby irrevocably agrees to provide you with Severance Benefits as
defined in Section 6 of Exhibit A hereto or payments in the event of a "Change
in Control" as defined in Section 7 of Exhibit A. In this regard, the phrase
"Involuntary Termination" shall mean (a) any termination of your employment by
the Company other than for "Cause," as defined in Section 2.3, (b) any notice by
the Company not to renew this Agreement pursuant to Section 2.1, or (c) any
termination of your employment by you due to any of the following circumstances:
(i) a reduction in your Base Salary or Company-paid benefits; provided, however,
that a reduction pursuant to the provisions of Section 3 herein shall not
constitute "Involuntary Termination", (ii) a reduction in your eligibility for
any Company bonus or other benefit program, (iii) a material or substantial
change in your title, position, authority or duties, or (iv) a change of your
principal place of employment to a location beyond twenty-five (25) miles of
Burlington, Massachusetts.
-2-
3. Compensation. You shall receive the compensation and benefits set
forth on Exhibit A ("Compensation") for all services to be rendered by you
hereunder and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions of even date herewith
attached hereto as Exhibit C between you and the Company (the "Proprietary Infor
mation and Inventions Agreement"). Such Compensation shall be subject to
temporary or permanent reduction by the Board of Directors if the Board shall
determine that economic conditions so warrant such as a significant reduction in
the Company's revenues or net worth.
4. Other Activities During Employment.
4.1 Except for any outside employments and directorships
currently held by you as listed on Exhibit B, and except with the prior written
consent of the Company's Board of Directors, you will not during the term of
this Agreement undertake or engage in any other employment, occupation or
business enterprise other than one in which you are an inactive investor.
4.2 You hereby agree that, except as disclosed on Exhibit B
hereto, during your employment hereunder, you will not, directly or indirectly,
engage (a) individually, (b) as an officer, (c) as a director, (d) as an
employee, (e) as a consultant, (f) as an advisor, (g) as an agent (whether a
salesperson or otherwise), (h) as a broker, or (i) as a partner, coventurer,
stockholder or other proprietor owning directly or indirectly more than five
percent (5%) interest, in any firm, corporation, partnership, trust,
association, or other organization which is engaged in the research,
development, production, manufacture or marketing of equipment or processes in
direct competition with the Company or any other line of business engaged in or
under demonstrable development by the Company (such firm, corporation,
partnership, trust, association, or other organization being hereinafter
referred to as a "Prohibited Enterprise"). Except as may be shown on Exhibit B,
you hereby represent that you are not engaged in any of the foregoing capacities
(a) through (i) in any Prohibited Enterprise.
5. Former Employers.
5.1 You represent and warrant that your employment by the
Company will not conflict with and will not be constrained by any prior or
current employment, consulting agreement or relationship whether oral or
written. You represent and warrant that you do not possess confidential
information arising out of any such employment, consulting agreement or
relationship which, in your best judgment, would be utilized in connection with
your employment by the Company in the absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you
should find that confidential information belonging to any other person or
entity might be usable in connection with the Company's business, you will not
intentionally disclose to the Company or use on behalf of the Company any
confidential information belonging to any of your former employers; but during
your employment by the Company you will use in the performance of your duties
all information which
-3-
is generally known and used by persons with training and experience comparable
to your own all information which is common knowledge in the industry or
otherwise legally in the public domain.
6. Proprietary Information and Inventions. You agree to execute,
deliver and be bound by the provisions of the Proprietary Information and
Inventions Agreement.
7. Post-Employment Activities.
7.1 For a period of two (2) years (or for a lesser period
should the Company so determine) after the termination or expiration, for any
reason, of your employment with the Company hereunder, absent the Company's
prior written approval, you will not directly or indirectly engage in activities
similar or reasonably related to those in which you shall have engaged hereunder
during the two years immediately preceding termination or expiration for, nor
render services similar or reasonably related to those which you shall have
rendered hereunder during such two years to, any person or entity whether now
existing or hereafter established which directly competes with (or proposes or
plans to directly compete with) the Company ("Direct Competitor") in any line of
business engaged in or under development by the Company. Nor shall you entice,
induce or encourage any of the Company's other employees to leave their
employment with the Company or engage in any activity which, were it done by
you, would violate any provision of the Proprietary Information and Inventions
Agreement or this Section 7. As used in this Section 7.1, the term "any line of
business engaged in or under development by the Company" shall be applied as at
the date of termination of your employment, or, if later, as at the date of
termination of any post-employment consultation.
7.2 For a period of two (2) years after the termination of
your employment with the Company, the provisions of Section 4.2 shall be
applicable to you and you shall comply there with. As applied to such two (2)
year post-employment period, the term "any other line of business engaged in or
under development by the Company," as used in Section 4.2, shall be applied as
at the date of termination of your employment with the Company or, if later, as
at the date of termination of any post-employment consultation with the Company.
7.3 No provision of this Agreement shall be construed to
preclude you from performing the same services which the Company hereby retains
you to perform for any person or entity which is not a Direct Competitor of the
Company upon the expiration or termination of your employment (or any
post-employment consultation) so long as you do not thereby violate any term of
the Proprietary Information and Inventions Agreement.
8. Remedies. Your obligations under the Proprietary Information and
Inventions Agreement and the provisions of Sections 4, 6, 7, 8, 9 and 17 of this
Agreement (as modified by Section 10, if applicable) shall survive the
expiration or termination of your employment (whether through your resignation
or otherwise) with the Company. You acknowledge that a remedy at law for any
breach or threatened breach by you of the provisions of the Proprietary
Information and Inventions Agreement or Sections 4 or 7 hereof would be
inadequate and you therefore agree that
-4-
the Company shall be entitled to such injunctive or other equitable relief in
case of any such breach or threatened breach.
9. Assignment. This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation and any
assignee of all or substantially all of its business and properties, but, except
as to any such successor or assignee of the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or by you,
except by operation of law. The Company's obligations and those of any
successors or assignees of the Company under this Agreement, including but not
limited to the severance provisions and other compensation and benefits due to
you pursuant to Exhibit A hereto, will be a condition of and are to remain those
of any successor or assignee.
10. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT if any one or more of the provisions contained in
this Agreement is or becomes or is deemed invalid, illegal or unenforceable or
in case any provision shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable law
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
11. Notices. Any notice which the Company is required to or may desire
to give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at your address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the Company
hereunder shall be given by personal delivery or by registered or certified
mail, return receipt requested, addressed to the Company at its principal
office, or at such other office as the Company may from time to time designate
in writing. The date of personal delivery or the date of mailing any notice
under this Section 11 shall be deemed to be the date of delivery thereof.
12. Waivers. If the Company should waive any breach of any provision of
this Agreement, the Company shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
13. Complete Agreement; Amendments. The foregoing including Exhibits A,
B and C hereto, is the entire agreement of the parties with respect to the
subject matter hereof, superseding any previous oral or written communications,
representations, understandings, or agreements with the Company or any officer
or representative thereof. Any amendment to this Agreement or waiver
-5-
by the Company of any right hereunder shall be effective only if evidenced by a
written instrument executed by the parties hereto, upon authorization of the
Company's Board of Directors.
14. Headings. The headings of the Sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning of this Agreement.
15. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
16. Governing Law. This Agreement shall be governed by and construed
under Massachusetts law.
17. Arbitration of Disputes. Subject to the rights of the parties to
seek injunctive relief as described herein, any controversy or claim arising out
of, or relating to, any provision of this Agreement shall be settled by binding
arbitration in accordance with the laws of the Commonwealth of Massachusetts by
three arbitrators, one of whom shall be appointed by the Company, one of whom
shall be appointed by you, and the third arbitrator who shall be appointed by
the first two arbitrators. If the first two arbitrators cannot agree on the
appointment of a third arbitrator, then the third arbitrator shall be appointed
by the American Arbitration Association in the City of Boston. Such arbitration
shall be conducted in the City of Boston in accordance with the rules of the
American Arbitration Association, except with respect to the selection of
arbitrators, which shall be as provided in this Section. Judgment on the award
or determination rendered by the arbitrators shall be final, binding and
conclusive upon the parties, and may be entered in any court having jurisdiction
thereof and shall not be appealable. The prevailing party in such arbitration
proceeding shall be entitled to reimbursement by the other party of all
reasonable legal fees and other costs incurred by the prevailing party in
connection with such proceeding, including any legal fees and costs incurred in
connection with the enforcement of any award.
18. Advice of Separate Counsel. The Company's counsel, O'Connor, Broude
& Aronson, has prepared this document on behalf of the Company. You acknowledge
that you have been advised to review this Agreement with your own legal counsel
and other advisors of your choosing and that prior to entering into this
Agreement, you have had the opportunity to review this Agreement with your
attorney and other advisors and have not asked (or relied upon) O'Connor, Broude
& Aronson to represent you in this matter.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
-6-
If you are in agreement with the foregoing, please sign your name below
and also at the bottom of the Proprietary Information and Inventions Agreement,
whereupon this Agreement shall become binding in accordance with its terms.
Please then return this Agreement to the Company. (You may retain for your
records the accompanying counterpart of this Agreement enclosed herewith).
Very truly yours,
ACCEPTED AND AGREED: QC OPTICS, INC.
- ----------------------------- By:
Albert E. Tobey -----------------------
Title:
--------------------
-7-
EXHIBIT A
---------
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF ALBERT E. TOBEY
l. Term. The term of the Agreement to which this Exhibit A is attached
and made a part shall be for a period from the date of this Agreement through
December 31, 1997.
2. Compensation.
(a) Base Salary. Your base salary ("Base Salary") shall be
$110,300 per annum through December 31, 1997, payable in accordance with the
Company's payroll policies at the rate of $9,191.67 per month. Thereafter, your
Base Salary shall be as established by the Board of Directors or Compensation
Committee.
(b) Bonuses. Your bonuses, if any, shall be determined by the
Company's Board of Directors or Compensation Committee.
3. Vacation. You shall be entitled to all legal and religious holidays,
and paid vacation in accordance with Company policy. Any unused vacation may be
accrued or cashed in based on your then current Base Salary.
4. Insurance and Benefits. You shall be eligible for participation in
any health, dental and other group insurance plans which may be established and
maintained by the Company for all full-time employees or which the Company is
required to maintain by law. The Company shall provide you with health insurance
for you and your family providing benefits at least equal to the benefits of the
policies currently in place and shall provide you with group life insurance in
accordance with the Company's policy but not less than two times your base
salary. You shall also be entitled to participate in any employee benefit
programs which the Company's Board of Directors may establish for its key
employees, or for its employees generally, including, but not limited to,
bonuses and stock purchase or option plans.
5. Retirement Plan. You will be eligible to participate in the
Company's 401(k) Plan.
6. Severance Benefits.
(a) When provided for in this Agreement, you shall be entitled
to "Severance Benefits." When used in this Agreement, the term "Severance
Benefits" shall mean a total amount equal to six (6) months of your then current
annual Base Salary. The Severance Benefits shall be paid via check to you in six
(6) equal monthly installments commencing within ten (10) days after the date of
your termination of active employment with the Company.
A-1
(b) In addition, the term "Severance Benefits" shall include
the continuation for you and your family, during the Severance Period, as
defined below, of all of the other benefits which are provided or available to
you on the last day of your actual service with the Company, including your
continued accrual and the vesting under the terms of any pension or 401(k) plan
then sponsored by the Company to the maximum extent permitted by law. For
purposes of this Agreement, the term "Severance Period" means the period of six
(6) months beginning on the last day of your active service with the Company.
(c) The Severance Benefits referred to above will be in
addition to, and not in substitution for, any accrued and unpaid salary,
vacation, pension, retirement or other benefits, unreimbursed expenses or other
payments to which you may be otherwise entitled.
(d) In the event of your death while you are employed by the
Company, your then current Base Salary shall continue to be paid to your legal
representative for a period of 120 days following the date of your death; and
for a period of three (3) years following your death, the Company shall continue
to provide to your spouse at Company cost the health insurance coverage
described above. If you die during the Severance Period, all cash amounts which
would have been payable to you under this Exhibit A, unless otherwise provided
for herein, shall be paid in accordance with the terms of this Agreement to your
estate.
(e) You shall not be required to mitigate the amount of any
payment the Company becomes obligated to make to you in connection with this
Agreement, by seeking other employment or otherwise.
7. Change in Control.
(a) For purposes of this Agreement, "Change in Control" means
and shall be deemed to occur if any of the following occurs: (i) the acquisition
by an individual, entity or group, as defined in Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of
beneficial ownership, as defined in Rule 13d-3 promulgated under the Exchange
Act, of 25% or more of either (A) the outstanding shares of common stock, $ .01
par value per share, of the Company (the "Common Stock"), or (B) the combined
voting power of the Voting Securities of the Company entitled to vote generally
in the election of directors (the "Voting Securities"); or (ii) individuals who,
on June 18, 1996, constituted the Board of Directors of the Company (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board of Directors of the Company; provided, however, that any individual
becoming a director subsequent to June 18, 1996, whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then serving and comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents;
or (iii) approval by the Board of Directors or the shareholders of the Company
of a (A)
A-2
tender offer to acquire any of the Common Stock or Voting Securities, (B)
reorganization, (C) merger or (D) consolidation, other than a reorganization,
merger or consolidation with respect to which all or substantially all of the
individuals and entities who were the beneficial owners, immediately prior to
such reorganization, merger or consolidation, of the Common Stock and Voting
Securities beneficially own, directly or indirectly, immediately after such
reorganization, merger or consolidation, more than 80% of the then outstanding
Common Stock and Voting Securities (entitled to vote generally in the election
of directors) of the Company resulting from such reorganization, merger or
consolidation in substantially the same proportions as their respective
ownership, immediately prior to such reorganization, merger or consolidation, of
the Common Stock and the Voting Securities; or (iv) approval by the Board of
Directors or the shareholders of the Company of (A) a complete or substantial
liquidation or dissolution of the Company, or (B) the sale or other disposition
of all or substantially all of the assets of the Company, excluding a
reorganization of the Corporation under the corporate laws of another state.
(b) In the event of a Change in Control during the term of
this Agreement or any renewal or extension hereof and provided you remain
employed by the Company for a period of 12 months from the date of the Change in
Control, you will receive, at the one-year anniversary of the Change of Control,
a supplemental amount in a lump sum equal to six (6) months of your annual Base
Salary immediately preceding the Change in Control and Bonuses paid during the
preceding fiscal year, and the fair market value of all other benefits then
payable, irrespective of whether you thereafter actually terminate employment
with the Company.
(c) In the event of your actual termination of employment
contemporaneous with or following a Change in Control, except (x) because of
your death, (y) by the Company for Cause or Disability (as hereinafter defined)
or (z) by you other than for Good Reason (as hereinafter defined): (i) you shall
be entitled to receive, in lieu of the sums described in Section 6, an amount
equal to 150% of your annual Base Salary immediately preceding the Change in
Control, to be paid in accordance with the terms of this Agreement; and (ii) the
following additional provisions shall apply (which provisions shall supersede
any other provisions of the Agreement, including but not limited to Section 2 of
the Agreement, to the extent such provisions are inconsistent with the following
provisions):
(1) Disability. For purposes of this Section 7(c),
termination by the Company of your employment based on "Disability" shall mean
termination because of your absence from your duties with the Company for one
hundred eighty (180) consecutive days as a result of your incapacity and
inability to perform the essential functions of your position with reasonable
accommodation, unless within thirty (30) days after Notice of Termination (as
hereinafter defined) is given to you following such absence, you shall have
returned to the performance of the essential functions of your position with
reasonable accommodation.
(2) Good Reason. Termination by you of your
employment for "Good Reason" shall mean termination based on:
A-3
(A) a determination by you, in your
reasonable judgment, that there has been a material adverse change in your
status or position(s) as an executive officer of the Company as in effect
immediately prior to the Change in Control, including, without limitation, a
material adverse change in your status or position as a result of a diminution
in your duties or responsibilities (other than, if applicable, any such change
directly attributable to the fact that the Company is no longer publicly owned)
or the assignment to you of any duties or responsibilities which are
inconsistent with such status or position(s), or any removal of you from, or any
failure to reappoint or reelect you to, such position(s) (except in connection
with the termination of your employment for Cause or Disability or as a result
of your death or by you other than for Good Reason) and further provided that
you have given the Company notice of this material adverse change and the
Company has failed to correct such material adverse change within a reasonable
period of time (but at least 14 days after written notice from you);
(B) a reduction by the Company in your Base
Salary as in effect immediately prior to the Change in Control, provided,
however, that a reduction pursuant to the provisions of Section 3 of the
Agreement shall not be a basis for termination by you of your employment for
"Good Reason";
(C) the failure by the Company to continue
in effect any Plan (as hereinafter defined) in which you are participating at
the time of the Change in Control of the Company (or Plans providing you with at
least substantially similar benefits) other than as a result of the normal
expiration of any such Plan in accordance with its terms as in effect at the
time of the Change in Control, or the taking of any action, or the failure to
act, by the Company which would adversely affect your continued participation in
any of such Plans on at least as favorable a basis to you as is the case on the
date of the Change in Control or which would materially reduce your benefits in
the future under any of such Plans or deprive you of any material benefit
enjoyed by you at the time of the Change in Control;
(D) the failure by the Company to provide
and credit you with the number of paid vacation days to which you are then
entitled in accordance with the Company's normal vacation policy as in effect
immediately prior to the Change in Control;
(E) the Company's requiring you to be based
at any office that is greater than twenty-five (25) miles from where your office
is located immediately prior to the Change in Control except for required travel
on the Company's business to an extent substantially consistent with the
business travel obligations which you undertook on behalf of the Company prior
to the Change in Control;
(F) the failure by the Company to obtain
from any Successor (as hereinafter defined) the assent to this Agreement
contemplated by Section 7(c)(6) hereof;
(G) any purported termination by the Company
of your employment which is not effected pursuant to a Notice of Termination
satisfying the requirements
A-4
of Section 7(c)(3) below (and, if applicable, Section 7(c)(1) above); and for
purposes of this Agreement, no such purported termination shall be effective; or
(H) any refusal by the Company to continue
to allow you to attend to matters or engage in activities not directly related
to the business of the Company which, prior to the Change in Control, you were
permitted by the Board to attend to or engage in.
For purposes of this Agreement, "Plan" shall mean any compensation plan
or any employee benefit plan such as a thrift, pension, profit sharing, medical,
disability, accident, life insurance plan or a relocation plan or policy or any
other plan, program or policy of the Company intended to benefit employees.
(3) Notice of Termination. Any purported termination
by the Company or by you following a Change in Control shall be communicated by
written notice to the other party hereto which indicates the specific
termination provision in this Agreement relied upon (the "Notice of
Termination").
(4) Date of Termination. "Date of Termination"
following a Change in Control shall mean (A) if your employment is to be
terminated for Disability, thirty (30) days after Notice of Termination is given
(provided that you shall not have returned to the performance of your duties on
a full-time basis during such thirty (30) day period), (B) if your employment is
to be terminated by the Company for any reason other than death or Disability or
by you pursuant to Sections 7(c)(2)(F) or 7(c)(6) hereof or for any other Good
Reason, the date specified in the Notice of Termination, or (C) if your
employment is terminated on account of your death, the day after your death. In
the case of termination of your employment by the Company for Cause, if you have
not previously expressly agreed in writing to the termination, then within
thirty (30) days after receipt by you of the Notice of Termination with respect
thereto, you may notify the Company that a dispute exists concerning the
Termination, in which event the Date of Termination shall be the date set either
by mutual written agreement of the parties or by such court having the matter
before it. During the pendency of any such dispute, the Company will continue to
pay you your full compensation in effect just prior to the time the Notice of
Termination is given and until the dispute is resolved. However, if such court
issues a final and non-appealable order finding that the Company had Cause to
terminate you, then you must return all compensation paid to you after the Date
of Termination specified in the Notice of Termination previously received by
you.
(5) Compensation Upon Termination or During
Disability; Other Agreements.
(A) During any period following a Change in
Control of the Company that you fail to perform your duties as a result of
incapacity and inability to perform the essential functions of your position
with reasonable accommodation, you shall continue to receive
A-5
your Base Salary at the rate then in effect and any benefits or awards under any
Plan shall continue to accrue during such period, to the extent not inconsistent
with such Plans, until and unless your employment is terminated pursuant to and
in accordance with this Section 7(c). Thereafter, your benefits shall be
determined in accordance with the Plans then in effect.
(B) If your employment is terminated for
Cause following a Change in Control of the Company, the Company shall pay to you
your Base Salary through the Date of Termination at the rate in effect just
prior to the time a Notice of Termination is given plus any benefits or awards
(including both the cash and stock components) which pursuant to the terms of
any Plans have been earned or become payable, but which have not yet been paid
to you. Thereupon, the Company shall have no further obligations to you under
this Agreement.
(6) Successors, Binding Agreement.
(A) The Company will seek, by written
request at least five (5) business days prior to the time a Person becomes a
Successor (as hereinafter defined), to have such Person, by agreement in form
and substance satisfactory to you, assent to the fulfillment of the Company's
obligations under this Agreement. Failure of such Person to furnish such assent
by the later of (i) three (3) business days prior to the time such Person
becomes a Successor or (ii) two (2) business days after such Person receives a
written request to so assent shall constitute Good Reason for termination by you
of your employment if a Change in Control of the Company occurs or has occurred.
For purposes of this Section 7 of Exhibit A, "Successor" shall mean any person
that succeeds to, or has the practical ability to control (either immediately or
with the passage of time), the Company's business directly, by merger or
consolidation, or indirectly, by purchase of the Company's securities eligible
to vote for the election of directors, or otherwise.
(B) This Agreement shall inure to the
benefit of and be enforceable by your personal legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if no such designee exists, to your estate.
(C) For purposes of this Section 7, the
"Company" shall include any subsidiaries of the Company and any corporation or
other entity which is the surviving or continuing entity in respect of any
merger, consolidation or form of business combination in which the Company
ceases to exist; provided, however, for purposes of determining whether a Change
in Control has occurred herein, the term "Company" shall refer to QC Optics,
Inc. or its Successor(s).
(7) Fees and Expenses; Mitigation.
(A) The Company shall reimburse you, on a
current basis, for all reasonable legal fees and related expenses incurred by
you in connection with the Agreement following a Change in Control of the
Company, including without limitation, (i) all such fees and expenses, if any,
incurred in contesting or disputing any termination of your employment or (ii)
your
A-6
seeking to obtain or enforce any right or benefit provided by this Agreement, in
each case, regardless of whether or not your claim is upheld by a court of
competent jurisdiction; provided, however, you shall be required to repay any
such amounts to the Company to the extent that a court issues a final and
non-appealable order setting forth the determination that the position taken by
you was frivolous or advanced by you in bad faith.
(B) You shall not be required to mitigate
the amount of any payment the Company becomes obligated to make to you in
connection with this Agreement, by seeking other employment or otherwise.
(8) Taxes. All payments to be made to you under this
Agreement will be subject to required withholding of federal, state and local
income and employment taxes.
(d) Notwithstanding any other provision of this Agreement, in
the event that any payment or benefit received or to be received by you as a
result of or in connection with a Change in Control, whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company (all such payment and benefits being hereinafter called the "Total
Payments") would subject you to the excise tax (the "Excise Tax") imposed under
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"),
then, to the extent necessary to eliminate any such imposition of the Excise Tax
(after taking into account any reduction in the Total Payments in accordance
with the provisions of any other plan, arrangement or agreement, if any), (a)
any non-cash severance payments otherwise payable to you shall first be reduced
(if necessary, to zero), and (b) any cash severance payment otherwise payable to
you shall next be reduced. For purposes of the immediately preceding sentence,
(i) no portion of the Total Payments the receipt or enjoyment of which you shall
have effectively waived in writing shall be taken into account, (ii) no portion
of the Total Payment shall be taken into account which in the opinion of
nationally-recognized certified public accountants (in each case as mutually
selected by you and the Company) does not constitute a "parachute payment"
within the meaning of Section 280G of the Code, including, without limitation,
by reason of Section 280G(b)(2) or (b)(4)(A) of the Code, (iii) any payments to
you shall be reduced only to the extent necessary so that the Total Payments
[other than those referred to in clauses (i) and (ii)] in their entirety
constitute reasonable compensation for services actually rendered within the
meaning of section 280G(4)(B) of the Code or are otherwise not subject to
disallowance as deductions, in the opinion of the tax counsel or the accountants
referred to in clause (ii); and (iv) the value of any non-cash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by such accountants in accordance with the requirements of section 280G(d)(3)
and (4) of the Code (and such determination shall be reviewed by such tax
counsel).
A-7
EXHIBIT B
---------
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS OF
ALBERT E. TOBEY
B-1
EXHIBIT C
---------
------------------------------------------------
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
------------------------------------------------
To: QC Optics, Inc.
154 Middlesex Turnpike
Burlington, Massachusetts 01803
As of July 1, 1996
The undersigned, in consideration of and as a condition of my
employment or continued employment by you and/or by companies which you own,
control, or are affiliated with or their successors in business (collectively,
the "Company"), hereby agrees as follows:
1. Confidentiality. I agree to keep confidential, except as the Company
may otherwise consent in writing, and, except for the Company's benefit, not to
disclose or make any use of at any time either during or subsequent to my
employment, any Inventions (as hereinafter defined), trade secrets, confidential
information, knowledge, data or other information of the Company relating to
products, processes, know-how, designs, formulas, test data, customer lists,
business plans, marketing plans and strategies, pricing strategies, or other
subject matter pertaining to any business of the Company or any of its
affiliates, which I may produce, obtain, or otherwise acquire during the course
of my employment, except as herein provided. I further agree not to deliver,
reproduce or in any way allow any such trade secrets, confidential information,
knowledge, data or other information, or any documentation relating thereto, to
be delivered to or used by any third parties without specific direction or
consent of a duly authorized representative of the Company.
2. Conflicting Employment; Return of Confidential Material. I agree
that during my employment with the Company I will not engage in any other
employment, occupation, consulting or other activity relating to the business in
which the Company is now or may hereafter become engaged, or which would
otherwise conflict with my obligations to the Company. In the event my
employment with the Company terminates for any reason whatsoever, I agree to
promptly surrender and deliver to the Company all records, materials, equipment,
drawings, documents and data of which I may obtain or produce during the course
of my employment, and I will not take with me any description containing or
pertaining to any confidential information, knowledge or data of the Company
which I may produce or obtain during the course of my employment.
C-1
3. Assignment of Inventions.
3.1 I hereby acknowledge and agree that the Company is the
owner of all Inventions. In order to protect the Company's rights to such
Inventions, by executing this Agreement I hereby irrevocably assign to the
Company all my right, title and interest in and to all Inventions to the
Company.
3.2 For purposes of this Agreement, "Inventions" shall mean
all discoveries, processes, designs, technologies, devices, or improvements in
any of the foregoing or other ideas, whether or not patentable and whether or
not reduced to practice, made or conceived by me (whether solely or jointly with
others) during the period of my employment with the Company which relate in any
manner to the actual or demonstrably anticipated business, work, or research and
development of the Company, or result from or are suggested by any task assigned
to me or any work performed by me for or on behalf of the Company.
3.3 Any discovery, process, design, technology, device, or
improvement in any of the foregoing or other ideas, whether or not patentable
and whether or not reduced to practice, made or conceived by me (whether solely
or jointly with others) which I develop entirely on my own time not using any of
the Company's equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such Personal
Invention (a) does not relate to the actual or demonstrably anticipated
business, research and development of the Company, and (b) does not result,
directly or indirectly, from any work performed by me for the Company.
4. Disclosure of Inventions. I agree that in connection with any
Invention, I will promptly disclose such Invention to my immediate superior at
the Company in order to permit the Company to enforce its property rights to
such Invention in accordance with this Agreement. My disclosure shall be
received in confidence by the Company.
5. Patents and Copyrights; Execution of Documents.
5.1 Upon request, I agree to assist the Company or its nominee
(at its expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
Inventions in any and all countries. Such patents and copyrights shall be and
remain the sole and exclusive property of the Company or its nominee. I agree to
perform such lawful acts as the Company deems to be necessary to allow it to
exercise all right, title and interest in and to such patents and copyrights.
5.2 In connection with this Agreement, I agree to execute,
acknowledge and deliver to the Company or its nominee upon request and at its
expense all documents, including assignments of title, patent or copyright
applications, assignments of such applications, assignments of patents or
copyrights upon issuance, as the Company may determine necessary or desirable to
protect the Company's or its nominee's interest in Inventions, and/or to use in
obtaining patents or
C-2
copyrights in any and all countries and to vest title thereto in the Company or
its nominee to any of the foregoing.
6. Maintenance of Records. I agree to keep and maintain adequate and
current written records of all Inventions made by me (in the form of notes,
sketches, drawings and other records as may be specified by the Company), which
records shall be available to and remain the sole property of the Company at all
times.
7. Prior Inventions. It is understood that all Personal Inventions, if
any, whether patented or unpatented, which I made prior to my employment by the
Company, are excluded from this Agreement. To preclude any possible uncertainty,
I have set forth on Schedule A attached hereto a complete list of all of my
prior Personal Inventions, including numbers of all patents and patent
applications and a brief description of all unpatented Personal Inventions which
are not the property of a previous employer. I represent and covenant that the
list is complete and that, if no items are on the list, I have no such prior
Personal Inventions. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company which appears to
threaten or conflict with proprietary rights I claim in any Personal Invention.
In the event of my failure to give such notice, I agree that I will make no
claim against the Company with respect to any such Personal Invention.
8. Other Obligations. I acknowledge that the Company from time to time
may have agreements with other persons or with the U.S. Government or agencies
thereof, which impose obligations or restrictions on the Company regarding
Inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the Company's
obligations.
9. Trade Secrets of Others. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep confidential proprietary information, knowledge or
data acquired by me in confidence or in trust prior to my employment with the
Company, and I will not disclose to the Company, or induce the Company to use,
any confidential or proprietary information or material belonging to any
previous employer or others. I agree not to enter into any agreement either
written or oral in conflict herewith.
10. Modification. I agree that any subsequent change or changes in my
employment duties, salary or compensation or, if applicable, in any Employment
Agreement between the Company and me, shall not affect the validity or scope of
this Agreement.
11. Successors and Assigns. This Agreement shall be binding upon my
heirs, executors, administrators or other legal representatives and is for the
benefit of the Company, its successors and assigns.
C-3
12. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT if any one or more of the provisions contained in
this Agreement is or becomes or is deemed invalid, illegal or unenforceable or
in case any provision shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable law
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
13. Waivers. If either party should waive any breach of any provision
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
14. Complete Agreement, Amendments. I acknowledge receipt of this
Agreement, and agree that with respect to the subject matter thereof it is my
entire agreement with the Company, superseding any previous oral or written
communications, representations, understandings, or agreements with the Company
or any officer or representative thereof. Any amendment to this Agreement or
waiver by either party of any right hereunder shall be effective only if
evidenced by a written instrument executed by the parties hereto, and, in the
case of the Company, upon written authorization of the Company's Board of
Directors.
15. Headings. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
16. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
17. Governing Law. This Agreement shall be governed and construed under
Massachusetts law.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
C-4
18. Employment Status. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company to terminate the employment
of the Employee.
EMPLOYEE
-----------------------------
ALBERT E. TOBEY
Accepted and Agreed:
QC OPTICS, INC.
By:
---------------------------
---------------------------
Title:
-------------------------
C-5
SCHEDULE A
----------
LIST OF PRIOR INVENTIONS
OF ALBERT E. TOBEY
Identifying Number or
Title Date Brief Description
- ----- ---- -----------------
----------------------
KEY EMPLOYEE AGREEMENT
----------------------
To: Karl Andrew Bernal As of July 1, 1996
666 Main Street, Apt. 205
Winchester, Massachusetts 01890
The undersigned, QC Optics, Inc., a Delaware corporation, as well as
its successors and assigns (hereinafter collectively referred to as the
"Company"), hereby agree with you as follows:
l. Position and Responsibilities.
1.1 You shall serve as Vice President of Sales and Marketing,
and Secretary of the Company (or in such other executive capacity as shall be
designated by the Board of Directors and reasonably acceptable to you). You
will, to the best of your ability, devote your full time and best efforts to the
performance of your duties hereunder and the business and affairs of the Company
and perform such duties as may be assigned to you by or on authority of the
Company's Board of Directors from time to time and the duties customarily
associated with such capacity from time to time and at such place or places as
the Company shall designate are appropriate and necessary in connection with
such employment; provided, however, that you shall not be required to relocate
your place of employment beyond a twenty-five (25) mile radius from Burlington,
Massachusetts without your prior written consent.
1.2 You will duly, punctually and faithfully perform and
observe any and all rules and regulations which the Company may now or shall
hereafter establish governing the conduct of its business.
1.3 You will report directly to the Company's Board of
Directors and to individuals so designated by the Board of Directors.
2. Term of Employment.
2.1 The initial term of this Agreement shall be for the period
set forth on Exhibit A annexed hereto commencing with the date hereof.
Thereafter, this Agreement shall be automatically renewed for successive periods
of one year, unless you or the Company shall give the other party not less than
ninety (90) days written notice of non-renewal. Your employment with the Company
may be terminated at any time as provided in Section 2.2.
2.2 The Company shall have the right, upon written notice to
you, to terminate your employment:
(a) immediately at any time for "Cause" (as defined
herein subject to your right of cure and right to dispute as provided
in Section 2.3 herein); or
(b) at any time, upon not less than seven (7)
calendar days written notice, without "Cause," provided that the
Company shall be obligated to pay to you the Severance Benefits set
forth in Sections 6 or 7, as applicable, of Exhibit A, plus any sums
then due to you, less (i) applicable taxes and other required
withholdings, and (ii) any amounts you may owe to the Company. Payments
under this Section 2.2 (b) shall not be due or payable if you are
terminated at any time for "Cause" or if you voluntarily resign from
your employment, except as set forth in Section 7 of Exhibit A.
2.3 For purposes of Section 2.2, the term "Cause" shall mean
(a) gross negligence in the performance of assigned duties; (b) refusal to
perform or discharge the duties or responsibilities assigned by the Board of
Directors of the Company provided the same are not illegal, unethical or
inconsistent with the position of Vice President of Sales and Marketing, and
Secretary of a corporation and the failure to correct such refusal and perform
such duties or responsibilities within a reasonable period of time (but in any
event no less than fourteen (14) calendar days after written notice of such
failure); (c) conviction of a felony involving moral turpitude; (d) willful or
prolonged absence from work not excused by a bona fide medical disability as
reasonably determined by a qualified physician mutually acceptable to both you
and the Company or other good cause as reasonably determined by the Board of
Directors; and (e) falseness of any warranty or representation by you herein or
the breach of your obligations under this Agreement to the material detriment of
the Company. Any dispute, controversy, or claim arising out of, in connection
with, or in relation to the definition of "Cause" shall be settled by
arbitration in accordance with the terms of Section 17 hereof.
2.4 In the event of the Involuntary Termination (as
hereinafter defined) of your employment with the Company at any time, the
Company hereby irrevocably agrees to provide you with Severance Benefits as
defined in Section 6 of Exhibit A hereto or payments in the event of a "Change
in Control" as defined in Section 7 of Exhibit A. In this regard, the phrase
"Involuntary Termination" shall mean (a) any termination of your employment by
the Company other than for "Cause," as defined in Section 2.3, (b) any notice by
the Company not to renew this Agreement pursuant to Section 2.1, or (c) any
termination of your employment by you due to any of the following circumstances:
(i) a reduction in your Base Salary or Company-paid benefits; provided, however,
that a reduction pursuant to the provisions of Section 3 herein shall not
constitute "Involuntary Termination", (ii) a reduction in your eligibility for
any Company bonus or other benefit program, (iii) a material or substantial
change in your title, position, authority or duties, or (iv) a change of your
principal place of employment to a location beyond twenty-five (25) miles of
Burlington, Massachusetts.
-2-
3. Compensation. You shall receive the compensation and benefits set
forth on Exhibit A ("Compensation") for all services to be rendered by you
hereunder and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions of even date herewith
attached hereto as Exhibit C between you and the Company (the "Proprietary Infor
mation and Inventions Agreement"). Such Compensation shall be subject to
temporary or permanent reduction by the Board of Directors if the Board shall
determine that economic conditions so warrant such as a significant reduction in
the Company's revenues or net worth.
4. Other Activities During Employment.
4.1 Except for any outside employments and directorships
currently held by you as listed on Exhibit B, and except with the prior written
consent of the Company's Board of Directors, you will not during the term of
this Agreement undertake or engage in any other employment, occupation or
business enterprise other than one in which you are an inactive investor.
4.2 You hereby agree that, except as disclosed on Exhibit B
hereto, during your employment hereunder, you will not, directly or indirectly,
engage (a) individually, (b) as an officer, (c) as a director, (d) as an
employee, (e) as a consultant, (f) as an advisor, (g) as an agent (whether a
salesperson or otherwise), (h) as a broker, or (i) as a partner, coventurer,
stockholder or other proprietor owning directly or indirectly more than five
percent (5%) interest, in any firm, corporation, partnership, trust,
association, or other organization which is engaged in the research,
development, production, manufacture or marketing of equipment or processes in
direct competition with the Company or any other line of business engaged in or
under demonstrable development by the Company (such firm, corporation,
partnership, trust, association, or other organization being hereinafter
referred to as a "Prohibited Enterprise"). Except as may be shown on Exhibit B,
you hereby represent that you are not engaged in any of the foregoing capacities
(a) through (i) in any Prohibited Enterprise.
5. Former Employers.
5.1 You represent and warrant that your employment by the
Company will not conflict with and will not be constrained by any prior or
current employment, consulting agreement or relationship whether oral or
written. You represent and warrant that you do not possess confidential
information arising out of any such employment, consulting agreement or
relationship which, in your best judgment, would be utilized in connection with
your employment by the Company in the absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you
should find that confidential information belonging to any other person or
entity might be usable in connection with the Company's business, you will not
intentionally disclose to the Company or use on behalf of the Company any
confidential information belonging to any of your former employers; but during
your employment by the Company you will use in the performance of your duties
all information which
-3-
is generally known and used by persons with training and experience comparable
to your own all information which is common knowledge in the industry or
otherwise legally in the public domain.
6. Proprietary Information and Inventions. You agree to execute,
deliver and be bound by the provisions of the Proprietary Information and
Inventions Agreement.
7. Post-Employment Activities.
7.1 For a period of two (2) years (or for a lesser period
should the Company so determine) after the termination or expiration, for any
reason, of your employment with the Company hereunder, absent the Company's
prior written approval, you will not directly or indirectly engage in activities
similar or reasonably related to those in which you shall have engaged hereunder
during the two years immediately preceding termination or expiration for, nor
render services similar or reasonably related to those which you shall have
rendered hereunder during such two years to, any person or entity whether now
existing or hereafter established which directly competes with (or proposes or
plans to directly compete with) the Company ("Direct Competitor") in any line of
business engaged in or under development by the Company. Nor shall you entice,
induce or encourage any of the Company's other employees to leave their
employment with the Company or engage in any activity which, were it done by
you, would violate any provision of the Proprietary Information and Inventions
Agreement or this Section 7. As used in this Section 7.1, the term "any line of
business engaged in or under development by the Company" shall be applied as at
the date of termination of your employment, or, if later, as at the date of
termination of any post-employment consultation.
7.2 For a period of two (2) years after the termination of
your employment with the Company, the provisions of Section 4.2 shall be
applicable to you and you shall comply there with. As applied to such two (2)
year post-employment period, the term "any other line of business engaged in or
under development by the Company," as used in Section 4.2, shall be applied as
at the date of termination of your employment with the Company or, if later, as
at the date of termination of any post-employment consultation with the Company.
7.3 No provision of this Agreement shall be construed to
preclude you from performing the same services which the Company hereby retains
you to perform for any person or entity which is not a Direct Competitor of the
Company upon the expiration or termination of your employment (or any
post-employment consultation) so long as you do not thereby violate any term of
the Proprietary Information and Inventions Agreement.
8. Remedies. Your obligations under the Proprietary Information and
Inventions Agreement and the provisions of Sections 4, 6, 7, 8, 9 and 17 of this
Agreement (as modified by Section 10, if applicable) shall survive the
expiration or termination of your employment (whether through your resignation
or otherwise) with the Company. You acknowledge that a remedy at law for any
breach or threatened breach by you of the provisions of the Proprietary
Information and Inventions Agreement or Sections 4 or 7 hereof would be
inadequate and you therefore agree that
-4-
the Company shall be entitled to such injunctive or other equitable relief in
case of any such breach or threatened breach.
9. Assignment. This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation and any
assignee of all or substantially all of its business and properties, but, except
as to any such successor or assignee of the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or by you,
except by operation of law. The Company's obligations and those of any
successors or assignees of the Company under this Agreement, including but not
limited to the severance provisions and other compensation and benefits due to
you pursuant to Exhibit A hereto, will be a condition of and are to remain those
of any successor or assignee.
10. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT if any one or more of the provisions contained in
this Agreement is or becomes or is deemed invalid, illegal or unenforceable or
in case any provision shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable law
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
11. Notices. Any notice which the Company is required to or may desire
to give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at your address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the Company
hereunder shall be given by personal delivery or by registered or certified
mail, return receipt requested, addressed to the Company at its principal
office, or at such other office as the Company may from time to time designate
in writing. The date of personal delivery or the date of mailing any notice
under this Section 11 shall be deemed to be the date of delivery thereof.
12. Waivers. If the Company should waive any breach of any provision of
this Agreement, the Company shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
13. Complete Agreement; Amendments. The foregoing including Exhibits A,
B and C hereto, is the entire agreement of the parties with respect to the
subject matter hereof, superseding any previous oral or written communications,
representations, understandings, or agreements with the Company or any officer
or representative thereof. Any amendment to this Agreement or waiver
-5-
by the Company of any right hereunder shall be effective only if evidenced by a
written instrument executed by the parties hereto, upon authorization of the
Company's Board of Directors.
14. Headings. The headings of the Sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning of this Agreement.
15. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
16. Governing Law. This Agreement shall be governed by and construed
under Massachusetts law.
17. Arbitration of Disputes. Subject to the rights of the parties to
seek injunctive relief as described herein, any controversy or claim arising out
of, or relating to, any provision of this Agreement shall be settled by binding
arbitration in accordance with the laws of the Commonwealth of Massachusetts by
three arbitrators, one of whom shall be appointed by the Company, one of whom
shall be appointed by you, and the third arbitrator who shall be appointed by
the first two arbitrators. If the first two arbitrators cannot agree on the
appointment of a third arbitrator, then the third arbitrator shall be appointed
by the American Arbitration Association in the City of Boston. Such arbitration
shall be conducted in the City of Boston in accordance with the rules of the
American Arbitration Association, except with respect to the selection of
arbitrators, which shall be as provided in this Section. Judgment on the award
or determination rendered by the arbitrators shall be final, binding and
conclusive upon the parties, and may be entered in any court having jurisdiction
thereof and shall not be appealable. The prevailing party in such arbitration
proceeding shall be entitled to reimbursement by the other party of all
reasonable legal fees and other costs incurred by the prevailing party in
connection with such proceeding, including any legal fees and costs incurred in
connection with the enforcement of any award.
18. Advice of Separate Counsel. The Company's counsel, O'Connor, Broude
& Aronson, has prepared this document on behalf of the Company. You acknowledge
that you have been advised to review this Agreement with your own legal counsel
and other advisors of your choosing and that prior to entering into this
Agreement, you have had the opportunity to review this Agreement with your
attorney and other advisors and have not asked (or relied upon) O'Connor, Broude
& Aronson to represent you in this matter.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
-6-
If you are in agreement with the foregoing, please sign your name below
and also at the bottom of the Proprietary Information and Inventions Agreement,
whereupon this Agreement shall become binding in accordance with its terms.
Please then return this Agreement to the Company. (You may retain for your
records the accompanying counterpart of this Agreement enclosed herewith).
Very truly yours,
ACCEPTED AND AGREED: QC OPTICS, INC.
- ------------------------------ By:
Karl Andrew Bernal -----------------------
Title:
---------------------
-7-
EXHIBIT A
---------
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF KARL ANDREW BERNAL
l. Term. The term of the Agreement to which this Exhibit A is attached
and made a part shall be for a period from the date of this Agreement through
December 31, 1997.
2. Compensation.
(a) Base Salary. Your base salary ("Base Salary") shall be
$79,000.00 per annum through December 31, 1997, payable in accordance with the
Company's payroll policies at the rate of $6,583.33 per month. Thereafter, your
Base Salary shall be as established by the Board of Directors or Compensation
Committee.
(b) Bonuses. Your bonuses, if any, shall be determined by the
Company's Board of Directors or Compensation Committee.
(c) Incentive Payment. You shall be entitled to monthly
Incentive Payments of one-half (1/2) of one percent (1%), or (0.005), of all
Major Orders, subject to likely reduction by the Company's Board of Directors or
Compensation Committee, especially as Company revenues increase. A "Major Order"
shall be defined as any order for systems or products of the Company other than
(i) orders for spare parts or service less than $25,000.00, and (ii) orders for
spare parts or service from Company distributors or representatives. The monthly
Incentive Payments shall be payable at a rate of 50% when a Major Order is
booked by the Company and 50% upon receipt of customer payment for the order. In
the event that full payment for a Major Order is not received from a customer
within twelve (12) months of product shipment, or if an order is cancelled prior
to shipment, you shall return to the Company 100% of any Incentive Payment
amount paid to you based upon such an order.
3. Vacation. You shall be entitled to all legal and religious holidays,
and paid vacation in accordance with Company policy. Any unused vacation may be
accrued or cashed in based on your then current Base Salary.
4. Insurance and Benefits. You shall be eligible for participation in
any health, dental and other group insurance plans which may be established and
maintained by the Company for all full-time employees or which the Company is
required to maintain by law. The Company shall provide you with health insurance
for you and your family providing benefits at least equal to the benefits of the
policies currently in place and shall provide you with group life insurance in
accordance with the Company's policy but not less than two times your base
salary. You shall also be entitled to participate in any employee benefit
programs which the Company's Board of Directors
A-1
may establish for its key employees, or for its employees generally, including,
but not limited to, bonuses and stock purchase or option plans.
5. Retirement Plan. You will be eligible to participate in the
Company's 401(k) Plan.
6. Severance Benefits.
(a) When provided for in this Agreement, you shall be entitled
to "Severance Benefits." When used in this Agreement, the term "Severance
Benefits" shall mean a total amount equal to six (6) months of your then current
annual Base Salary. The Severance Benefits shall be paid via check to you in six
(6) equal monthly installments commencing within ten (10) days after the date of
your termination of active employment with the Company.
(b) In addition, the term "Severance Benefits" shall include
the continuation for you and your family, during the Severance Period, as
defined below, of all of the other benefits which are provided or available to
you on the last day of your actual service with the Company, including your
continued accrual and the vesting under the terms of any pension or 401(k) plan
then sponsored by the Company to the maximum extent permitted by law. For
purposes of this Agreement, the term "Severance Period" means the period of six
(6) months beginning on the last day of your active service with the Company.
(c) The Severance Benefits referred to above will be in
addition to, and not in substitution for, any accrued and unpaid salary,
vacation, pension, retirement or other benefits, unreimbursed expenses or other
payments to which you may be otherwise entitled.
(d) In the event of your death while you are employed by the
Company, your then current Base Salary shall continue to be paid to your legal
representative for a period of 120 days following the date of your death; and
for a period of three (3) years following your death, the Company shall continue
to provide to your spouse at Company cost the health insurance coverage
described above. If you die during the Severance Period, all cash amounts which
would have been payable to you under this Exhibit A, unless otherwise provided
for herein, shall be paid in accordance with the terms of this Agreement to your
estate.
(e) You shall not be required to mitigate the amount of any
payment the Company becomes obligated to make to you in connection with this
Agreement, by seeking other employment or otherwise.
7. Change in Control.
(a) For purposes of this Agreement, "Change in Control" means
and shall be deemed to occur if any of the following occurs: (i) the acquisition
by an individual, entity or group, as defined in Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the
A-2
"Exchange Act"), of beneficial ownership, as defined in Rule 13d-3 promulgated
under the Exchange Act, of 25% or more of either (A) the outstanding shares of
common stock, $ .01 par value per share, of the Company (the "Common Stock"), or
(B) the combined voting power of the Voting Securities of the Company entitled
to vote generally in the election of directors (the "Voting Securities"); or
(ii) individuals who, on June 18, 1996, constituted the Board of Directors of
the Company (the "Incumbent Board") cease for any reason to constitute at least
a majority of the Board of Directors of the Company; provided, however, that any
individual becoming a director subsequent to June 18, 1996, whose election, or
nomination for election by the Company's shareholders, was approved by a vote of
at least a majority of the directors then serving and comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents; or (iii) approval by the Board of Directors
or the shareholders of the Company of a (A) tender offer to acquire any of the
Common Stock or Voting Securities, (B) reorganization, (C) merger or (D)
consolidation, other than a reorganization, merger or consolidation with respect
to which all or substantially all of the individuals and entities who were the
beneficial owners, immediately prior to such reorganization, merger or
consolidation, of the Common Stock and Voting Securities beneficially own,
directly or indirectly, immediately after such reorganization, merger or
consolidation, more than 80% of the then outstanding Common Stock and Voting
Securities (entitled to vote generally in the election of directors) of the
Company resulting from such reorganization, merger or consolidation in
substantially the same proportions as their respective ownership, immediately
prior to such reorganization, merger or consolidation, of the Common Stock and
the Voting Securities; or (iv) approval by the Board of Directors or the
shareholders of the Company of (A) a complete or substantial liquidation or
dissolution of the Company, or (B) the sale or other disposition of all or
substantially all of the assets of the Company, excluding a reorganization of
the Corporation under the corporate laws of another state.
(b) In the event of a Change in Control during the term of
this Agreement or any renewal or extension hereof and provided you remain
employed by the Company for a period of 12 months from the date of the Change in
Control, you will receive, at the one-year anniversary of the Change of Control,
a supplemental amount in a lump sum equal to six (6) months of your annual Base
Salary immediately preceding the Change in Control and Bonuses paid during the
preceding fiscal year, and the fair market value of all other benefits then
payable, irrespective of whether you thereafter actually terminate employment
with the Company.
(c) In the event of your actual termination of employment
contemporaneous with or following a Change in Control, except (x) because of
your death, (y) by the Company for Cause or Disability (as hereinafter defined)
or (z) by you other than for Good Reason (as hereinafter defined): (i) you shall
be entitled to receive, in lieu of the sums described in Section 6, an amount
equal to 150% of your annual Base Salary immediately preceding the Change in
Control , to be paid in accordance with the terms of this Agreement; and (ii)
the following additional provisions shall apply (which provisions shall
supersede any other provisions of the Agreement, including but not
A-3
limited to Section 2 of the Agreement, to the extent such provisions are
inconsistent with the following provisions):
(1) Disability. For purposes of this Section 7(c),
termination by the Company of your employment based on "Disability" shall mean
termination because of your absence from your duties with the Company for one
hundred eighty (180) consecutive days as a result of your incapacity and
inability to perform the essential functions of your position with reasonable
accommodation, unless within thirty (30) days after Notice of Termination (as
hereinafter defined) is given to you following such absence, you shall have
returned to the performance of the essential functions of your position with
reasonable accommodation.
(2) Good Reason. Termination by you of your
employment for "Good Reason" shall mean termination based on:
(A) a determination by you, in your
reasonable judgment, that there has been a material adverse change in your
status or position(s) as an executive officer of the Company as in effect
immediately prior to the Change in Control, including, without limitation, a
material adverse change in your status or position as a result of a diminution
in your duties or responsibilities (other than, if applicable, any such change
directly attributable to the fact that the Company is no longer publicly owned)
or the assignment to you of any duties or responsibilities which are
inconsistent with such status or position(s), or any removal of you from, or any
failure to reappoint or reelect you to, such position(s) (except in connection
with the termination of your employment for Cause or Disability or as a result
of your death or by you other than for Good Reason) and further provided that
you have given the Company notice of this material adverse change and the
Company has failed to correct such material adverse change within a reasonable
period of time (but at least 14 days after written notice from you);
(B) a reduction by the Company in your Base
Salary as in effect immediately prior to the Change in Control, provided,
however, that a reduction pursuant to the provisions of Section 3 of the
Agreement shall not be a basis for termination by you of your employment for
"Good Reason";
(C) the failure by the Company to continue
in effect any Plan (as hereinafter defined) in which you are participating at
the time of the Change in Control of the Company (or Plans providing you with at
least substantially similar benefits) other than as a result of the normal
expiration of any such Plan in accordance with its terms as in effect at the
time of the Change in Control, or the taking of any action, or the failure to
act, by the Company which would adversely affect your continued participation in
any of such Plans on at least as favorable a basis to you as is the case on the
date of the Change in Control or which would materially reduce your benefits in
the future under any of such Plans or deprive you of any material benefit
enjoyed by you at the time of the Change in Control;
A-4
(D) the failure by the Company to provide
and credit you with the number of paid vacation days to which you are then
entitled in accordance with the Company's normal vacation policy as in effect
immediately prior to the Change in Control;
(E) the Company's requiring you to be based
at any office that is greater than twenty-five (25) miles from where your office
is located immediately prior to the Change in Control except for required travel
on the Company's business to an extent substantially consistent with the
business travel obligations which you undertook on behalf of the Company prior
to the Change in Control;
(F) the failure by the Company to obtain
from any Successor (as hereinafter defined) the assent to this Agreement
contemplated by Section 7(c)(6) hereof;
(G) any purported termination by the Company
of your employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 7(c)(3) below (and, if applicable,
Section 7(c)(1) above); and for purposes of this Agreement, no such purported
termination shall be effective; or
(H) any refusal by the Company to continue
to allow you to attend to matters or engage in activities not directly related
to the business of the Company which, prior to the Change in Control, you were
permitted by the Board to attend to or engage in.
For purposes of this Agreement, "Plan" shall mean any compensation plan
or any employee benefit plan such as a thrift, pension, profit sharing, medical,
disability, accident, life insurance plan or a relocation plan or policy or any
other plan, program or policy of the Company intended to benefit employees.
(3) Notice of Termination. Any purported termination
by the Company or by you following a Change in Control shall be communicated by
written notice to the other party hereto which indicates the specific
termination provision in this Agreement relied upon (the "Notice of
Termination").
(4) Date of Termination. "Date of Termination"
following a Change in Control shall mean (A) if your employment is to be
terminated for Disability, thirty (30) days after Notice of Termination is given
(provided that you shall not have returned to the performance of your duties on
a full-time basis during such thirty (30) day period), (B) if your employment is
to be terminated by the Company for any reason other than death or Disability or
by you pursuant to Sections 7(c)(2)(F) or 7(c)(6) hereof or for any other Good
Reason, the date specified in the Notice of Termination, or (C) if your
employment is terminated on account of your death, the day after your death. In
the case of termination of your employment by the Company for Cause, if you have
not previously expressly agreed in writing to the termination, then within
thirty (30) days after receipt by you of the Notice of Termination with respect
thereto, you may notify the Company that a dispute exists concerning the
Termination, in which event the Date of Termination shall be the date set either
A-5
by mutual written agreement of the parties or by such court having the matter
before it. During the pendency of any such dispute, the Company will continue to
pay you your full compensation in effect just prior to the time the Notice of
Termination is given and until the dispute is resolved. However, if such court
issues a final and non-appealable order finding that the Company had Cause to
terminate you, then you must return all compensation paid to you after the Date
of Termination specified in the Notice of Termination previously received by
you.
(5) Compensation Upon Termination or During
Disability; Other Agreements.
(A) During any period following a Change in
Control of the Company that you fail to perform your duties as a result of
incapacity and inability to perform the essential functions of your position
with reasonable accommodation, you shall continue to receive your Base Salary at
the rate then in effect and any benefits or awards under any Plan shall continue
to accrue during such period, to the extent not inconsistent with such Plans,
until and unless your employment is terminated pursuant to and in accordance
with this Section 7(c). Thereafter, your benefits shall be determined in
accordance with the Plans then in effect.
(B) If your employment is terminated for
Cause following a Change in Control of the Company, the Company shall pay to you
your Base Salary through the Date of Termination at the rate in effect just
prior to the time a Notice of Termination is given plus any benefits or awards
(including both the cash and stock components) which pursuant to the terms of
any Plans have been earned or become payable, but which have not yet been paid
to you. Thereupon, the Company shall have no further obligations to you under
this Agreement.
(6) Successors, Binding Agreement.
(A) The Company will seek, by written
request at least five (5) business days prior to the time a Person becomes a
Successor (as hereinafter defined), to have such Person, by agreement in form
and substance satisfactory to you, assent to the fulfillment of the Company's
obligations under this Agreement. Failure of such Person to furnish such assent
by the later of (i) three (3) business days prior to the time such Person
becomes a Successor or (ii) two (2) business days after such Person receives a
written request to so assent shall constitute Good Reason for termination by you
of your employment if a Change in Control of the Company occurs or has occurred.
For purposes of this Section 7 of Exhibit A, "Successor" shall mean any person
that succeeds to, or has the practical ability to control (either immediately or
with the passage of time), the Company's business directly, by merger or
consolidation, or indirectly, by purchase of the Company's securities eligible
to vote for the election of directors, or otherwise.
(B) This Agreement shall inure to the
benefit of and be enforceable by your personal legal representatives, executors,
administrators, successors, heirs, distributees,
A-6
devisees and legatees. If you should die while any amount would still be payable
to you hereunder if you had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to your devisee, legatee or other designee or, if no such designee
exists, to your estate.
(C) For purposes of this Section 7, the
"Company" shall include any subsidiaries of the Company and any corporation or
other entity which is the surviving or continuing entity in respect of any
merger, consolidation or form of business combination in which the Company
ceases to exist; provided, however, for purposes of determining whether a Change
in Control has occurred herein, the term "Company" shall refer to QC Optics,
Inc. or its Successor(s).
(7) Fees and Expenses; Mitigation.
(A) The Company shall reimburse you, on a
current basis, for all reasonable legal fees and related expenses incurred by
you in connection with the Agreement following a Change in Control of the
Company, including without limitation, (i) all such fees and expenses, if any,
incurred in contesting or disputing any termination of your employment or (ii)
your seeking to obtain or enforce any right or benefit provided by this
Agreement, in each case, regardless of whether or not your claim is upheld by a
court of competent jurisdiction; provided, however, you shall be required to
repay any such amounts to the Company to the extent that a court issues a final
and non-appealable order setting forth the determination that the position taken
by you was frivolous or advanced by you in bad faith.
(B) You shall not be required to mitigate
the amount of any payment the Company becomes obligated to make to you in
connection with this Agreement, by seeking other employment or otherwise.
(8) Taxes. All payments to be made to you under this
Agreement will be subject to required withholding of federal, state and local
income and employment taxes.
(d) Notwithstanding any other provision of this Agreement, in
the event that any payment or benefit received or to be received by you as a
result of or in connection with a Change in Control, whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company (all such payment and benefits being hereinafter called the "Total
Payments") would subject you to the excise tax (the "Excise Tax") imposed under
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"),
then, to the extent necessary to eliminate any such imposition of the Excise Tax
(after taking into account any reduction in the Total Payments in accordance
with the provisions of any other plan, arrangement or agreement, if any), (a)
any non-cash severance payments otherwise payable to you shall first be reduced
(if necessary, to zero), and (b) any cash severance payment otherwise payable to
you shall next be reduced. For purposes of the immediately preceding sentence,
(i) no portion of the Total Payments the receipt or enjoyment of which you shall
have effectively waived in writing shall be taken into account, (ii) no portion
of the Total Payment shall be taken into account which in the opinion of
nationally-
A-7
recognized certified public accountants (in each case as mutually selected by
you and the Company) does not constitute a "parachute payment" within the
meaning of Section 280G of the Code, including, without limitation, by reason of
Section 280G(b)(2) or (b)(4)(A) of the Code, (iii) any payments to you shall be
reduced only to the extent necessary so that the Total Payments [other than
those referred to in clauses (i) and (ii)] in their entirety constitute
reasonable compensation for services actually rendered within the meaning of
section 280G(4)(B) of the Code or are otherwise not subject to disallowance as
deductions, in the opinion of the tax counsel or the accountants referred to in
clause (ii); and (iv) the value of any non-cash benefit or any deferred payment
or benefit included in the Total Payments shall be determined by such
accountants in accordance with the requirements of section 280G(d)(3) and (4) of
the Code (and such determination shall be reviewed by such tax counsel).
A-8
EXHIBIT B
---------
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS OF
KARL ANDREW BERNAL
B-1
EXHIBIT C
---------
------------------------------------------------
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
------------------------------------------------
To: QC Optics, Inc.
154 Middlesex Turnpike
Burlington, Massachusetts 01803
As of July 1, 1996
The undersigned, in consideration of and as a condition of my
employment or continued employment by you and/or by companies which you own,
control, or are affiliated with or their successors in business (collectively,
the "Company"), hereby agrees as follows:
1. Confidentiality. I agree to keep confidential, except as the Company
may otherwise consent in writing, and, except for the Company's benefit, not to
disclose or make any use of at any time either during or subsequent to my
employment, any Inventions (as hereinafter defined), trade secrets, confidential
information, knowledge, data or other information of the Company relating to
products, processes, know-how, designs, formulas, test data, customer lists,
business plans, marketing plans and strategies, pricing strategies, or other
subject matter pertaining to any business of the Company or any of its
affiliates, which I may produce, obtain, or otherwise acquire during the course
of my employment, except as herein provided. I further agree not to deliver,
reproduce or in any way allow any such trade secrets, confidential information,
knowledge, data or other information, or any documentation relating thereto, to
be delivered to or used by any third parties without specific direction or
consent of a duly authorized representative of the Company.
2. Conflicting Employment; Return of Confidential Material. I agree
that during my employment with the Company I will not engage in any other
employment, occupation, consulting or other activity relating to the business in
which the Company is now or may hereafter become engaged, or which would
otherwise conflict with my obligations to the Company. In the event my
employment with the Company terminates for any reason whatsoever, I agree to
promptly surrender and deliver to the Company all records, materials, equipment,
drawings, documents and data of which I may obtain or produce during the course
of my employment, and I will not take with me any description containing or
pertaining to any confidential information, knowledge or data of the Company
which I may produce or obtain during the course of my employment.
C-1
3. Assignment of Inventions.
3.1 I hereby acknowledge and agree that the Company is the
owner of all Inventions. In order to protect the Company's rights to such
Inventions, by executing this Agreement I hereby irrevocably assign to the
Company all my right, title and interest in and to all Inventions to the
Company.
3.2 For purposes of this Agreement, "Inventions" shall mean
all discoveries, processes, designs, technologies, devices, or improvements in
any of the foregoing or other ideas, whether or not patentable and whether or
not reduced to practice, made or conceived by me (whether solely or jointly with
others) during the period of my employment with the Company which relate in any
manner to the actual or demonstrably anticipated business, work, or research and
development of the Company, or result from or are suggested by any task assigned
to me or any work performed by me for or on behalf of the Company.
3.3 Any discovery, process, design, technology, device, or
improvement in any of the foregoing or other ideas, whether or not patentable
and whether or not reduced to practice, made or conceived by me (whether solely
or jointly with others) which I develop entirely on my own time not using any of
the Company's equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such Personal
Invention (a) does not relate to the actual or demonstrably anticipated
business, research and development of the Company, and (b) does not result,
directly or indirectly, from any work performed by me for the Company.
4. Disclosure of Inventions. I agree that in connection with any
Invention, I will promptly disclose such Invention to my immediate superior at
the Company in order to permit the Company to enforce its property rights to
such Invention in accordance with this Agreement. My disclosure shall be
received in confidence by the Company.
5. Patents and Copyrights; Execution of Documents.
5.1 Upon request, I agree to assist the Company or its nominee
(at its expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
Inventions in any and all countries. Such patents and copyrights shall be and
remain the sole and exclusive property of the Company or its nominee. I agree to
perform such lawful acts as the Company deems to be necessary to allow it to
exercise all right, title and interest in and to such patents and copyrights.
5.2 In connection with this Agreement, I agree to execute,
acknowledge and deliver to the Company or its nominee upon request and at its
expense all documents, including assignments of title, patent or copyright
applications, assignments of such applications, assignments of patents or
copyrights upon issuance, as the Company may determine necessary or desirable to
protect the Company's or its nominee's interest in Inventions, and/or to use in
obtaining patents or
C-2
copyrights in any and all countries and to vest title thereto in the Company or
its nominee to any of the foregoing.
6. Maintenance of Records. I agree to keep and maintain adequate and
current written records of all Inventions made by me (in the form of notes,
sketches, drawings and other records as may be specified by the Company), which
records shall be available to and remain the sole property of the Company at all
times.
7. Prior Inventions. It is understood that all Personal Inventions, if
any, whether patented or unpatented, which I made prior to my employment by the
Company, are excluded from this Agreement. To preclude any possible uncertainty,
I have set forth on Schedule A attached hereto a complete list of all of my
prior Personal Inventions, including numbers of all patents and patent
applications and a brief description of all unpatented Personal Inventions which
are not the property of a previous employer. I represent and covenant that the
list is complete and that, if no items are on the list, I have no such prior
Personal Inventions. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company which appears to
threaten or conflict with proprietary rights I claim in any Personal Invention.
In the event of my failure to give such notice, I agree that I will make no
claim against the Company with respect to any such Personal Invention.
8. Other Obligations. I acknowledge that the Company from time to time
may have agreements with other persons or with the U.S. Government or agencies
thereof, which impose obligations or restrictions on the Company regarding
Inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the Company's
obligations.
9. Trade Secrets of Others. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep confidential proprietary information, knowledge or
data acquired by me in confidence or in trust prior to my employment with the
Company, and I will not disclose to the Company, or induce the Company to use,
any confidential or proprietary information or material belonging to any
previous employer or others. I agree not to enter into any agreement either
written or oral in conflict herewith.
10. Modification. I agree that any subsequent change or changes in my
employment duties, salary or compensation or, if applicable, in any Employment
Agreement between the Company and me, shall not affect the validity or scope of
this Agreement.
11. Successors and Assigns. This Agreement shall be binding upon my
heirs, executors, administrators or other legal representatives and is for the
benefit of the Company, its successors and assigns.
C-3
12. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT if any one or more of the provisions contained in
this Agreement is or becomes or is deemed invalid, illegal or unenforceable or
in case any provision shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable law
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
13. Waivers. If either party should waive any breach of any provision
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
14. Complete Agreement, Amendments. I acknowledge receipt of this
Agreement, and agree that with respect to the subject matter thereof it is my
entire agreement with the Company, superseding any previous oral or written
communications, representations, understandings, or agreements with the Company
or any officer or representative thereof. Any amendment to this Agreement or
waiver by either party of any right hereunder shall be effective only if
evidenced by a written instrument executed by the parties hereto, and, in the
case of the Company, upon written authorization of the Company's Board of
Directors.
15. Headings. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
16. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
17. Governing Law. This Agreement shall be governed and construed under
Massachusetts law.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
C-4
18. Employment Status. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company to terminate the employment
of the Employee.
EMPLOYEE
---------------------------
KARL ANDREW BERNAL
Accepted and Agreed:
QC OPTICS, INC.
By:
--------------------------
--------------------------
Title:
-----------------------
C-5
SCHEDULE A
----------
LIST OF PRIOR INVENTIONS
OF KARL ANDREW BERNAL
Identifying Number or
Title Date Brief Description
- ----- ---- -----------------
----------------------
KEY EMPLOYEE AGREEMENT
----------------------
To: Abdu Boudour As of July 1, 1996
25 Star Road
West Newton, Massachusetts 02165
The undersigned, QC Optics, Inc., a Delaware corporation, as well as
its successors and assigns (hereinafter collectively referred to as the
"Company"), hereby agree with you as follows:
l. Position and Responsibilities.
1.1 You shall serve as Vice President of Engineering of the
Company (or in such other executive capacity as shall be designated by the Board
of Directors and reasonably acceptable to you). You will, to the best of your
ability, devote your full time and best efforts to the performance of your
duties hereunder and the business and affairs of the Company and perform such
duties as may be assigned to you by or on authority of the Company's Board of
Directors from time to time and the duties customarily associated with such
capacity from time to time and at such place or places as the Company shall
designate are appropriate and necessary in connection with such employment;
provided, however, that you shall not be required to relocate your place of
employment beyond a twenty-five (25) mile radius from Burlington, Massachusetts
without your prior written consent.
1.2 You will duly, punctually and faithfully perform and
observe any and all rules and regulations which the Company may now or shall
hereafter establish governing the conduct of its business.
1.3 You will report directly to the Company's Board of
Directors and to individuals so designated by the Board of Directors.
2. Term of Employment.
2.1 The initial term of this Agreement shall be for the period
set forth on Exhibit A annexed hereto commencing with the date hereof.
Thereafter, this Agreement shall be automatically renewed for successive periods
of one year, unless you or the Company shall give the other party not less than
ninety (90) days written notice of non-renewal. Your employment with the Company
may be terminated at any time as provided in Section 2.2.
2.2 The Company shall have the right, upon written notice to
you, to terminate your employment:
(a) immediately at any time for "Cause" (as defined
herein subject to your right of cure and right to dispute as provided
in Section 2.3 herein); or
(b) at any time, upon not less than seven (7)
calendar days written notice, without "Cause," provided that the
Company shall be obligated to pay to you the Severance Benefits set
forth in Sections 6 or 7, as applicable, of Exhibit A, plus any sums
then due to you, less (i) applicable taxes and other required
withholdings, and (ii) any amounts you may owe to the Company. Payments
under this Section 2.2 (b) shall not be due or payable if you are
terminated at any time for "Cause" or if you voluntarily resign from
your employment, except as set forth in Section 7 of Exhibit A.
2.3 For purposes of Section 2.2, the term "Cause" shall mean
(a) gross negligence in the performance of assigned duties; (b) refusal to
perform or discharge the duties or responsibilities assigned by the Board of
Directors of the Company provided the same are not illegal, unethical or
inconsistent with the position of Vice President of Engineering of a corporation
and the failure to correct such refusal and perform such duties or
responsibilities within a reasonable period of time (but in any event no less
than fourteen (14) calendar days after written notice of such failure); (c)
conviction of a felony involving moral turpitude; (d) willful or prolonged
absence from work not excused by a bona fide medical disability as reasonably
determined by a qualified physician mutually acceptable to both you and the
Company or other good cause as reasonably determined by the Board of Directors;
and (e) falseness of any warranty or representation by you herein or the breach
of your obligations under this Agreement to the material detriment of the
Company. Any dispute, controversy, or claim arising out of, in connection with,
or in relation to the definition of "Cause" shall be settled by arbitration in
accordance with the terms of Section 17 hereof.
2.4 In the event of the Involuntary Termination (as
hereinafter defined) of your employment with the Company at any time, the
Company hereby irrevocably agrees to provide you with Severance Benefits as
defined in Section 6 of Exhibit A hereto or payments in the event of a "Change
in Control" as defined in Section 7 of Exhibit A. In this regard, the phrase
"Involuntary Termination" shall mean (a) any termination of your employment by
the Company other than for "Cause," as defined in Section 2.3, (b) any notice by
the Company not to renew this Agreement pursuant to Section 2.1, or (c) any
termination of your employment by you due to any of the following circumstances:
(i) a reduction in your Base Salary or Company-paid benefits; provided, however,
that a reduction pursuant to the provisions of Section 3 herein shall not
constitute "Involuntary Termination", (ii) a reduction in your eligibility for
any Company bonus or other benefit program, (iii) a material or substantial
change in your title, position, authority or duties, or (iv) a change of your
principal place of employment to a location beyond twenty-five (25) miles of
Burlington, Massachusetts.
-2-
3. Compensation. You shall receive the compensation and benefits set
forth on Exhibit A ("Compensation") for all services to be rendered by you
hereunder and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions of even date herewith
attached hereto as Exhibit C between you and the Company (the "Proprietary Infor
mation and Inventions Agreement"). Such Compensation shall be subject to
temporary or permanent reduction by the Board of Directors if the Board shall
determine that economic conditions so warrant such as a significant reduction in
the Company's revenues or net worth.
4. Other Activities During Employment.
4.1 Except for any outside employments and directorships
currently held by you as listed on Exhibit B, and except with the prior written
consent of the Company's Board of Directors, you will not during the term of
this Agreement undertake or engage in any other employment, occupation or
business enterprise other than one in which you are an inactive investor.
4.2 You hereby agree that, except as disclosed on Exhibit B
hereto, during your employment hereunder, you will not, directly or indirectly,
engage (a) individually, (b) as an officer, (c) as a director, (d) as an
employee, (e) as a consultant, (f) as an advisor, (g) as an agent (whether a
salesperson or otherwise), (h) as a broker, or (i) as a partner, coventurer,
stockholder or other proprietor owning directly or indirectly more than five
percent (5%) interest, in any firm, corporation, partnership, trust,
association, or other organization which is engaged in the research,
development, production, manufacture or marketing of equipment or processes in
direct competition with the Company or any other line of business engaged in or
under demonstrable development by the Company (such firm, corporation,
partnership, trust, association, or other organization being hereinafter
referred to as a "Prohibited Enterprise"). Except as may be shown on Exhibit B,
you hereby represent that you are not engaged in any of the foregoing capacities
(a) through (i) in any Prohibited Enterprise.
5. Former Employers.
5.1 You represent and warrant that your employment by the
Company will not conflict with and will not be constrained by any prior or
current employment, consulting agreement or relationship whether oral or
written. You represent and warrant that you do not possess confidential
information arising out of any such employment, consulting agreement or
relationship which, in your best judgment, would be utilized in connection with
your employment by the Company in the absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you
should find that confidential information belonging to any other person or
entity might be usable in connection with the Company's business, you will not
intentionally disclose to the Company or use on behalf of the Company any
confidential information belonging to any of your former employers; but during
your employment by the Company you will use in the performance of your duties
all information which
-3-
is generally known and used by persons with training and experience comparable
to your own all information which is common knowledge in the industry or
otherwise legally in the public domain.
6. Proprietary Information and Inventions. You agree to execute,
deliver and be bound by the provisions of the Proprietary Information and
Inventions Agreement.
7. Post-Employment Activities.
7.1 For a period of two (2) years (or for a lesser period
should the Company so determine) after the termination or expiration, for any
reason, of your employment with the Company hereunder, absent the Company's
prior written approval, you will not directly or indirectly engage in activities
similar or reasonably related to those in which you shall have engaged hereunder
during the two years immediately preceding termination or expiration for, nor
render services similar or reasonably related to those which you shall have
rendered hereunder during such two years to, any person or entity whether now
existing or hereafter established which directly competes with (or proposes or
plans to directly compete with) the Company ("Direct Competitor") in any line of
business engaged in or under development by the Company. Nor shall you entice,
induce or encourage any of the Company's other employees to leave their
employment with the Company or engage in any activity which, were it done by
you, would violate any provision of the Proprietary Information and Inventions
Agreement or this Section 7. As used in this Section 7.1, the term "any line of
business engaged in or under development by the Company" shall be applied as at
the date of termination of your employment, or, if later, as at the date of
termination of any post-employment consultation.
7.2 For a period of two (2) years after the termination of
your employment with the Company, the provisions of Section 4.2 shall be
applicable to you and you shall comply there with. As applied to such two (2)
year post-employment period, the term "any other line of business engaged in or
under development by the Company," as used in Section 4.2, shall be applied as
at the date of termination of your employment with the Company or, if later, as
at the date of termination of any post-employment consultation with the Company.
7.3 No provision of this Agreement shall be construed to
preclude you from performing the same services which the Company hereby retains
you to perform for any person or entity which is not a Direct Competitor of the
Company upon the expiration or termination of your employment (or any
post-employment consultation) so long as you do not thereby violate any term of
the Proprietary Information and Inventions Agreement.
8. Remedies. Your obligations under the Proprietary Information and
Inventions Agreement and the provisions of Sections 4, 6, 7, 8, 9 and 17 of this
Agreement (as modified by Section 10, if applicable) shall survive the
expiration or termination of your employment (whether through your resignation
or otherwise) with the Company. You acknowledge that a remedy at law for any
breach or threatened breach by you of the provisions of the Proprietary
Information and Inventions Agreement or Sections 4 or 7 hereof would be
inadequate and you therefore agree that
-4-
the Company shall be entitled to such injunctive or other equitable relief in
case of any such breach or threatened breach.
9. Assignment. This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation and any
assignee of all or substantially all of its business and properties, but, except
as to any such successor or assignee of the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or by you,
except by operation of law. The Company's obligations and those of any
successors or assignees of the Company under this Agreement, including but not
limited to the severance provisions and other compensation and benefits due to
you pursuant to Exhibit A hereto, will be a condition of and are to remain those
of any successor or assignee.
10. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT if any one or more of the provisions contained in
this Agreement is or becomes or is deemed invalid, illegal or unenforceable or
in case any provision shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable law
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
11. Notices. Any notice which the Company is required to or may desire
to give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at your address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the Company
hereunder shall be given by personal delivery or by registered or certified
mail, return receipt requested, addressed to the Company at its principal
office, or at such other office as the Company may from time to time designate
in writing. The date of personal delivery or the date of mailing any notice
under this Section 11 shall be deemed to be the date of delivery thereof.
12. Waivers. If the Company should waive any breach of any provision of
this Agreement, the Company shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
13. Complete Agreement; Amendments. The foregoing including Exhibits A,
B and C hereto, is the entire agreement of the parties with respect to the
subject matter hereof, superseding any previous oral or written communications,
representations, understandings, or agreements with the Company or any officer
or representative thereof. Any amendment to this Agreement or waiver
-5-
by the Company of any right hereunder shall be effective only if evidenced by a
written instrument executed by the parties hereto, upon authorization of the
Company's Board of Directors.
14. Headings. The headings of the Sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning of this Agreement.
15. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
16. Governing Law. This Agreement shall be governed by and construed
under Massachusetts law.
17. Arbitration of Disputes. Subject to the rights of the parties to
seek injunctive relief as described herein, any controversy or claim arising out
of, or relating to, any provision of this Agreement shall be settled by binding
arbitration in accordance with the laws of the Commonwealth of Massachusetts by
three arbitrators, one of whom shall be appointed by the Company, one of whom
shall be appointed by you, and the third arbitrator who shall be appointed by
the first two arbitrators. If the first two arbitrators cannot agree on the
appointment of a third arbitrator, then the third arbitrator shall be appointed
by the American Arbitration Association in the City of Boston. Such arbitration
shall be conducted in the City of Boston in accordance with the rules of the
American Arbitration Association, except with respect to the selection of
arbitrators, which shall be as provided in this Section. Judgment on the award
or determination rendered by the arbitrators shall be final, binding and
conclusive upon the parties, and may be entered in any court having jurisdiction
thereof and shall not be appealable. The prevailing party in such arbitration
proceeding shall be entitled to reimbursement by the other party of all
reasonable legal fees and other costs incurred by the prevailing party in
connection with such proceeding, including any legal fees and costs incurred in
connection with the enforcement of any award.
18. Advice of Separate Counsel. The Company's counsel, O'Connor, Broude
& Aronson, has prepared this document on behalf of the Company. You acknowledge
that you have been advised to review this Agreement with your own legal counsel
and other advisors of your choosing and that prior to entering into this
Agreement, you have had the opportunity to review this Agreement with your
attorney and other advisors and have not asked (or relied upon) O'Connor, Broude
& Aronson to represent you in this matter.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
-6-
If you are in agreement with the foregoing, please sign your name below
and also at the bottom of the Proprietary Information and Inventions Agreement,
whereupon this Agreement shall become binding in accordance with its terms.
Please then return this Agreement to the Company. (You may retain for your
records the accompanying counterpart of this Agreement enclosed herewith).
Very truly yours,
ACCEPTED AND AGREED: QC OPTICS, INC.
- --------------------------- By:
Abdu Boudour ------------------------
Title:
--------------------
-7-
EXHIBIT A
---------
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF ABDU BOUDOUR
l. Term. The term of the Agreement to which this Exhibit A is attached
and made a part shall be for a period from the date of this Agreement through
December 31, 1997.
2. Compensation.
(a) Base Salary. Your base salary ("Base Salary") shall be
$90,000.00 per annum through December 31, 1997, payable in accordance with the
Company's payroll policies at the rate of $7,500.00 per month. Thereafter, your
Base Salary shall be as established by the Board of Directors or Compensation
Committee.
(b) Bonuses. Your bonuses, if any, shall be determined by the
Company's Board of Directors or Compensation Committee.
3. Vacation. You shall be entitled to all legal and religious holidays,
and paid vacation paid in accordance with Company policy. Any unused vacation
may be accrued or cashed in based on your then current Base Salary.
4. Insurance and Benefits. You shall be eligible for participation in
any health, dental and other group insurance plans which may be established and
maintained by the Company for all full-time employees or which the Company is
required to maintain by law. The Company shall provide you with health insurance
for you and your family providing benefits at least equal to the benefits of the
policies currently in place and shall provide you with group life insurance in
accordance with the Company's policy but not less than two times your base
salary. You shall also be entitled to participate in any employee benefit
programs which the Company's Board of Directors may establish for its key
employees, or for its employees generally, including, but not limited to,
bonuses and stock purchase or option plans.
5. Retirement Plan. You will be eligible to participate in the
Company's 401(k) Plan.
6. Severance Benefits.
(a) When provided for in this Agreement, you shall be entitled
to "Severance Benefits." When used in this Agreement, the term "Severance
Benefits" shall mean a total amount equal to six (6) months of your then current
annual Base Salary. The Severance Benefits shall be paid via check to you in six
(6) equal monthly installments commencing within ten (10) days after the date of
your termination of active employment with the Company.
A-1
(b) In addition, the term "Severance Benefits" shall include
the continuation for you and your family, during the Severance Period, as
defined below, of all of the other benefits which are provided or available to
you on the last day of your actual service with the Company, including your
continued accrual and the vesting under the terms of any pension or 401(k) plan
then sponsored by the Company to the maximum extent permitted by law. For
purposes of this Agreement, the term "Severance Period" means the period of six
(6) months beginning on the last day of your active service with the Company.
(c) The Severance Benefits referred to above will be in
addition to, and not in substitution for, any accrued and unpaid salary,
vacation, pension, retirement or other benefits, unreimbursed expenses or other
payments to which you may be otherwise entitled.
(d) In the event of your death while you are employed by the
Company, your then current Base Salary shall continue to be paid to your legal
representative for a period of 120 days following the date of your death; and
for a period of three (3) years following your death, the Company shall continue
to provide to your spouse at Company cost the health insurance coverage
described above. If you die during the Severance Period, all cash amounts which
would have been payable to you under this Exhibit A, unless otherwise provided
for herein, shall be paid in accordance with the terms of this Agreement to your
estate.
(e) You shall not be required to mitigate the amount of any
payment the Company becomes obligated to make to you in connection with this
Agreement, by seeking other employment or otherwise.
7. Change in Control.
(a) For purposes of this Agreement, "Change in Control" means
and shall be deemed to occur if any of the following occurs: (i) the acquisition
by an individual, entity or group, as defined in Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of
beneficial ownership, as defined in Rule 13d-3 promulgated under the Exchange
Act, of 25% or more of either (A) the outstanding shares of common stock, $ .01
par value per share, of the Company (the "Common Stock"), or (B) the combined
voting power of the Voting Securities of the Company entitled to vote generally
in the election of directors (the "Voting Securities"); or (ii) individuals who,
on June 18, 1996, constituted the Board of Directors of the Company (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board of Directors of the Company; provided, however, that any individual
becoming a director subsequent to June 18, 1996, whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then serving and comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents;
or (iii) approval by the Board of Directors or the shareholders of the Company
of a (A)
A-2
tender offer to acquire any of the Common Stock or Voting Securities, (B)
reorganization, (C) merger or (D) consolidation, other than a reorganization,
merger or consolidation with respect to which all or substantially all of the
individuals and entities who were the beneficial owners, immediately prior to
such reorganization, merger or consolidation, of the Common Stock and Voting
Securities beneficially own, directly or indirectly, immediately after such
reorganization, merger or consolidation, more than 80% of the then outstanding
Common Stock and Voting Securities (entitled to vote generally in the election
of directors) of the Company resulting from such reorganization, merger or
consolidation in substantially the same proportions as their respective
ownership, immediately prior to such reorganization, merger or consolidation, of
the Common Stock and the Voting Securities; or (iv) approval by the Board of
Directors or the shareholders of the Company of (A) a complete or substantial
liquidation or dissolution of the Company, or (B) the sale or other disposition
of all or substantially all of the assets of the Company, excluding a
reorganization of the Corporation under the corporate laws of another state.
(b) In the event of a Change in Control during the term of
this Agreement or any renewal or extension hereof and provided you remain
employed by the Company for a period of 12 months from the date of the Change in
Control, you will receive, at the one-year anniversary of the Change of Control,
a supplemental amount in a lump sum equal to six (6) months of your annual Base
Salary immediately preceding the Change in Control and Bonuses paid during the
preceding fiscal year, and the fair market value of all other benefits then
payable, irrespective of whether you thereafter actually terminate employment
with the Company.
(c) In the event of your actual termination of employment
contemporaneous with or following a Change in Control, except (x) because of
your death, (y) by the Company for Cause or Disability (as hereinafter defined)
or (z) by you other than for Good Reason (as hereinafter defined): (i) you shall
be entitled to receive, in lieu of the sums described in Section 6, an amount
equal to 150% of your annual Base Salary immediately preceding the Change in
Control , to be paid in accordance with the terms of this Agreement; and (ii)
the following additional provisions shall apply (which provisions shall
supersede any other provisions of the Agreement, including but not limited to
Section 2 of the Agreement, to the extent such provisions are inconsistent with
the following provisions):
(1) Disability. For purposes of this Section 7(c),
termination by the Company of your employment based on "Disability" shall mean
termination because of your absence from your duties with the Company for one
hundred eighty (180) consecutive days as a result of your incapacity and
inability to perform the essential functions of your position with reasonable
accommodation, unless within thirty (30) days after Notice of Termination (as
hereinafter defined) is given to you following such absence, you shall have
returned to the performance of the essential functions of your position with
reasonable accommodation.
(2) Good Reason. Termination by you of your
employment for "Good Reason" shall mean termination based on:
A-3
(A) a determination by you, in your
reasonable judgment, that there has been a material adverse change in your
status or position(s) as an executive officer of the Company as in effect
immediately prior to the Change in Control, including, without limitation, a
material adverse change in your status or position as a result of a diminution
in your duties or responsibilities (other than, if applicable, any such change
directly attributable to the fact that the Company is no longer publicly owned)
or the assignment to you of any duties or responsibilities which are
inconsistent with such status or position(s), or any removal of you from, or any
failure to reappoint or reelect you to, such position(s) (except in connection
with the termination of your employment for Cause or Disability or as a result
of your death or by you other than for Good Reason) and further provided that
you have given the Company notice of this material adverse change and the
Company has failed to correct such material adverse change within a reasonable
period of time (but at least 14 days after written notice from you);
(B) a reduction by the Company in your Base
Salary as in effect immediately prior to the Change in Control, provided,
however, that a reduction pursuant to the provisions of Section 3 of the
Agreement shall not be a basis for termination by you of your employment for
"Good Reason";
(C) the failure by the Company to continue
in effect any Plan (as hereinafter defined) in which you are participating at
the time of the Change in Control of the Company (or Plans providing you with at
least substantially similar benefits) other than as a result of the normal
expiration of any such Plan in accordance with its terms as in effect at the
time of the Change in Control, or the taking of any action, or the failure to
act, by the Company which would adversely affect your continued participation in
any of such Plans on at least as favorable a basis to you as is the case on the
date of the Change in Control or which would materially reduce your benefits in
the future under any of such Plans or deprive you of any material benefit
enjoyed by you at the time of the Change in Control;
(D) the failure by the Company to provide
and credit you with the number of paid vacation days to which you are then
entitled in accordance with the Company's normal vacation policy as in effect
immediately prior to the Change in Control;
(E) the Company's requiring you to be based
at any office that is greater than twenty-five (25) miles from where your office
is located immediately prior to the Change in Control except for required travel
on the Company's business to an extent substantially consistent with the
business travel obligations which you undertook on behalf of the Company prior
to the Change in Control;
(F) the failure by the Company to obtain
from any Successor (as hereinafter defined) the assent to this Agreement
contemplated by Section 7(c)(6) hereof;
(G) any purported termination by the Company
of your employment which is not effected pursuant to a Notice of Termination
satisfying the requirements
A-4
of Section 7(c)(3) below (and, if applicable, Section 7(c)(1) above); and for
purposes of this Agreement, no such purported termination shall be effective; or
(H) any refusal by the Company to continue
to allow you to attend to matters or engage in activities not directly related
to the business of the Company which, prior to the Change in Control, you were
permitted by the Board to attend to or engage in.
For purposes of this Agreement, "Plan" shall mean any compensation plan
or any employee benefit plan such as a thrift, pension, profit sharing, medical,
disability, accident, life insurance plan or a relocation plan or policy or any
other plan, program or policy of the Company intended to benefit employees.
(3) Notice of Termination. Any purported termination
by the Company or by you following a Change in Control shall be communicated by
written notice to the other party hereto which indicates the specific
termination provision in this Agreement relied upon (the "Notice of
Termination").
(4) Date of Termination. "Date of Termination"
following a Change in Control shall mean (A) if your employment is to be
terminated for Disability, thirty (30) days after Notice of Termination is given
(provided that you shall not have returned to the performance of your duties on
a full-time basis during such thirty (30) day period), (B) if your employment is
to be terminated by the Company for any reason other than death or Disability or
by you pursuant to Sections 7(c)(2)(F) or 7(c)(6) hereof or for any other Good
Reason, the date specified in the Notice of Termination, or (C) if your
employment is terminated on account of your death, the day after your death. In
the case of termination of your employment by the Company for Cause, if you have
not previously expressly agreed in writing to the termination, then within
thirty (30) days after receipt by you of the Notice of Termination with respect
thereto, you may notify the Company that a dispute exists concerning the
Termination, in which event the Date of Termination shall be the date set either
by mutual written agreement of the parties or by such court having the matter
before it. During the pendency of any such dispute, the Company will continue to
pay you your full compensation in effect just prior to the time the Notice of
Termination is given and until the dispute is resolved. However, if such court
issues a final and non-appealable order finding that the Company had Cause to
terminate you, then you must return all compensation paid to you after the Date
of Termination specified in the Notice of Termination previously received by
you.
(5) Compensation Upon Termination or During
Disability; Other Agreements.
(A) During any period following a Change in
Control of the Company that you fail to perform your duties as a result of
incapacity and inability to perform the essential functions of your position
with reasonable accommodation, you shall continue to receive your Base Salary at
the rate then in effect and any benefits or awards under any Plan shall continue
to accrue during such period, to the extent not inconsistent with such Plans,
until and unless your
A-5
employment is terminated pursuant to and in accordance with this Section 7(c).
Thereafter, your benefits shall be determined in accordance with the Plans then
in effect.
(B) If your employment is terminated for
Cause following a Change in Control of the Company, the Company shall pay to you
your Base Salary through the Date of Termination at the rate in effect just
prior to the time a Notice of Termination is given plus any benefits or awards
(including both the cash and stock components) which pursuant to the terms of
any Plans have been earned or become payable, but which have not yet been paid
to you. Thereupon, the Company shall have no further obligations to you under
this Agreement.
(6) Successors, Binding Agreement.
(A) The Company will seek, by written
request at least five (5) business days prior to the time a Person becomes a
Successor (as hereinafter defined), to have such Person, by agreement in form
and substance satisfactory to you, assent to the fulfillment of the Company's
obligations under this Agreement. Failure of such Person to furnish such assent
by the later of (i) three (3) business days prior to the time such Person
becomes a Successor or (ii) two (2) business days after such Person receives a
written request to so assent shall constitute Good Reason for termination by you
of your employment if a Change in Control of the Company occurs or has occurred.
For purposes of this Section 7 of Exhibit A, "Successor" shall mean any person
that succeeds to, or has the practical ability to control (either immediately or
with the passage of time), the Company's business directly, by merger or
consolidation, or indirectly, by purchase of the Company's securities eligible
to vote for the election of directors, or otherwise.
(B) This Agreement shall inure to the
benefit of and be enforceable by your personal legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if no such designee exists, to your estate.
(C) For purposes of this Section 7, the
"Company" shall include any subsidiaries of the Company and any corporation or
other entity which is the surviving or continuing entity in respect of any
merger, consolidation or form of business combination in which the Company
ceases to exist; provided, however, for purposes of determining whether a Change
in Control has occurred herein, the term "Company" shall refer to QC Optics,
Inc. or its Successor(s).
(7) Fees and Expenses; Mitigation.
(A) The Company shall reimburse you, on a
current basis, for all reasonable legal fees and related expenses incurred by
you in connection with the Agreement following a Change in Control of the
Company, including without limitation, (i) all such fees and expenses, if any,
incurred in contesting or disputing any termination of your employment or (ii)
your
A-6
seeking to obtain or enforce any right or benefit provided by this Agreement, in
each case, regardless of whether or not your claim is upheld by a court of
competent jurisdiction; provided, however, you shall be required to repay any
such amounts to the Company to the extent that a court issues a final and
non-appealable order setting forth the determination that the position taken by
you was frivolous or advanced by you in bad faith.
(B) You shall not be required to mitigate
the amount of any payment the Company becomes obligated to make to you in
connection with this Agreement, by seeking other employment or otherwise.
(8) Taxes. All payments to be made to you under this
Agreement will be subject to required withholding of federal, state and local
income and employment taxes.
(d) Notwithstanding any other provision of this Agreement, in
the event that any payment or benefit received or to be received by you as a
result of or in connection with a Change in Control, whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company (all such payment and benefits being hereinafter called the "Total
Payments") would subject you to the excise tax (the "Excise Tax") imposed under
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"),
then, to the extent necessary to eliminate any such imposition of the Excise Tax
(after taking into account any reduction in the Total Payments in accordance
with the provisions of any other plan, arrangement or agreement, if any), (a)
any non-cash severance payments otherwise payable to you shall first be reduced
(if necessary, to zero), and (b) any cash severance payment otherwise payable to
you shall next be reduced. For purposes of the immediately preceding sentence,
(i) no portion of the Total Payments the receipt or enjoyment of which you shall
have effectively waived in writing shall be taken into account, (ii) no portion
of the Total Payment shall be taken into account which in the opinion of
nationally-recognized certified public accountants (in each case as mutually
selected by you and the Company) does not constitute a "parachute payment"
within the meaning of Section 280G of the Code, including, without limitation,
by reason of Section 280G(b)(2) or (b)(4)(A) of the Code, (iii) any payments to
you shall be reduced only to the extent necessary so that the Total Payments
[other than those referred to in clauses (i) and (ii)] in their entirety
constitute reasonable compensation for services actually rendered within the
meaning of section 280G(4)(B) of the Code or are otherwise not subject to
disallowance as deductions, in the opinion of the tax counsel or the accountants
referred to in clause (ii); and (iv) the value of any non-cash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by such accountants in accordance with the requirements of section 280G(d)(3)
and (4) of the Code (and such determination shall be reviewed by such tax
counsel).
A-7
EXHIBIT B
---------
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS OF
ABDU BOUDOUR
B-1
EXHIBIT C
---------
------------------------------------------------
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
------------------------------------------------
To: QC Optics, Inc.
154 Middlesex Turnpike
Burlington, Massachusetts 01803
As of July 1, 1996
The undersigned, in consideration of and as a condition of my
employment or continued employment by you and/or by companies which you own,
control, or are affiliated with or their successors in business (collectively,
the "Company"), hereby agrees as follows:
1. Confidentiality. I agree to keep confidential, except as the Company
may otherwise consent in writing, and, except for the Company's benefit, not to
disclose or make any use of at any time either during or subsequent to my
employment, any Inventions (as hereinafter defined), trade secrets, confidential
information, knowledge, data or other information of the Company relating to
products, processes, know-how, designs, formulas, test data, customer lists,
business plans, marketing plans and strategies, pricing strategies, or other
subject matter pertaining to any business of the Company or any of its
affiliates, which I may produce, obtain, or otherwise acquire during the course
of my employment, except as herein provided. I further agree not to deliver,
reproduce or in any way allow any such trade secrets, confidential information,
knowledge, data or other information, or any documentation relating thereto, to
be delivered to or used by any third parties without specific direction or
consent of a duly authorized representative of the Company.
2. Conflicting Employment; Return of Confidential Material. I agree
that during my employment with the Company I will not engage in any other
employment, occupation, consulting or other activity relating to the business in
which the Company is now or may hereafter become engaged, or which would
otherwise conflict with my obligations to the Company. In the event my
employment with the Company terminates for any reason whatsoever, I agree to
promptly surrender and deliver to the Company all records, materials, equipment,
drawings, documents and data of which I may obtain or produce during the course
of my employment, and I will not take with me any description containing or
pertaining to any confidential information, knowledge or data of the Company
which I may produce or obtain during the course of my employment.
C-1
3. Assignment of Inventions.
3.1 I hereby acknowledge and agree that the Company is the
owner of all Inventions. In order to protect the Company's rights to such
Inventions, by executing this Agreement I hereby irrevocably assign to the
Company all my right, title and interest in and to all Inventions to the
Company.
3.2 For purposes of this Agreement, "Inventions" shall mean
all discoveries, processes, designs, technologies, devices, or improvements in
any of the foregoing or other ideas, whether or not patentable and whether or
not reduced to practice, made or conceived by me (whether solely or jointly with
others) during the period of my employment with the Company which relate in any
manner to the actual or demonstrably anticipated business, work, or research and
development of the Company, or result from or are suggested by any task assigned
to me or any work performed by me for or on behalf of the Company.
3.3 Any discovery, process, design, technology, device, or
improvement in any of the foregoing or other ideas, whether or not patentable
and whether or not reduced to practice, made or conceived by me (whether solely
or jointly with others) which I develop entirely on my own time not using any of
the Company's equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such Personal
Invention (a) does not relate to the actual or demonstrably anticipated
business, research and development of the Company, and (b) does not result,
directly or indirectly, from any work performed by me for the Company.
4. Disclosure of Inventions. I agree that in connection with any
Invention, I will promptly disclose such Invention to my immediate superior at
the Company in order to permit the Company to enforce its property rights to
such Invention in accordance with this Agreement. My disclosure shall be
received in confidence by the Company.
5. Patents and Copyrights; Execution of Documents.
5.1 Upon request, I agree to assist the Company or its nominee
(at its expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
Inventions in any and all countries. Such patents and copyrights shall be and
remain the sole and exclusive property of the Company or its nominee. I agree to
perform such lawful acts as the Company deems to be necessary to allow it to
exercise all right, title and interest in and to such patents and copyrights.
5.2 In connection with this Agreement, I agree to execute,
acknowledge and deliver to the Company or its nominee upon request and at its
expense all documents, including assignments of title, patent or copyright
applications, assignments of such applications, assignments of patents or
copyrights upon issuance, as the Company may determine necessary or desirable to
protect the Company's or its nominee's interest in Inventions, and/or to use in
obtaining patents or
C-2
copyrights in any and all countries and to vest title thereto in the Company or
its nominee to any of the foregoing.
6. Maintenance of Records. I agree to keep and maintain adequate and
current written records of all Inventions made by me (in the form of notes,
sketches, drawings and other records as may be specified by the Company), which
records shall be available to and remain the sole property of the Company at all
times.
7. Prior Inventions. It is understood that all Personal Inventions, if
any, whether patented or unpatented, which I made prior to my employment by the
Company, are excluded from this Agreement. To preclude any possible uncertainty,
I have set forth on Schedule A attached hereto a complete list of all of my
prior Personal Inventions, including numbers of all patents and patent
applications and a brief description of all unpatented Personal Inventions which
are not the property of a previous employer. I represent and covenant that the
list is complete and that, if no items are on the list, I have no such prior
Personal Inventions. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company which appears to
threaten or conflict with proprietary rights I claim in any Personal Invention.
In the event of my failure to give such notice, I agree that I will make no
claim against the Company with respect to any such Personal Invention.
8. Other Obligations. I acknowledge that the Company from time to time
may have agreements with other persons or with the U.S. Government or agencies
thereof, which impose obligations or restrictions on the Company regarding
Inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the Company's
obligations.
9. Trade Secrets of Others. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep confidential proprietary information, knowledge or
data acquired by me in confidence or in trust prior to my employment with the
Company, and I will not disclose to the Company, or induce the Company to use,
any confidential or proprietary information or material belonging to any
previous employer or others. I agree not to enter into any agreement either
written or oral in conflict herewith.
10. Modification. I agree that any subsequent change or changes in my
employment duties, salary or compensation or, if applicable, in any Employment
Agreement between the Company and me, shall not affect the validity or scope of
this Agreement.
11. Successors and Assigns. This Agreement shall be binding upon my
heirs, executors, administrators or other legal representatives and is for the
benefit of the Company, its successors and assigns.
C-3
12. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT if any one or more of the provisions contained in
this Agreement is or becomes or is deemed invalid, illegal or unenforceable or
in case any provision shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable law
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
13. Waivers. If either party should waive any breach of any provision
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
14. Complete Agreement, Amendments. I acknowledge receipt of this
Agreement, and agree that with respect to the subject matter thereof it is my
entire agreement with the Company, superseding any previous oral or written
communications, representations, understandings, or agreements with the Company
or any officer or representative thereof. Any amendment to this Agreement or
waiver by either party of any right hereunder shall be effective only if
evidenced by a written instrument executed by the parties hereto, and, in the
case of the Company, upon written authorization of the Company's Board of
Directors.
15. Headings. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
16. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
17. Governing Law. This Agreement shall be governed and construed under
Massachusetts law.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
C-4
18. Employment Status. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company to terminate the employment
of the Employee.
EMPLOYEE
--------------------------
ABDU BOUDOUR
Accepted and Agreed:
QC OPTICS, INC.
By:
----------------------------
----------------------------
Title:
-------------------------
C-5
SCHEDULE A
----------
LIST OF PRIOR INVENTIONS
OF ABDU BOUDOUR
Identifying Number or
Title Date Brief Description
- ----- ---- -----------------
----------------------
KEY EMPLOYEE AGREEMENT
----------------------
To: John R. Freeman As of July 1, 1996
300 Kent Street
Brookline, Massachusetts 02146
The undersigned, QC Optics, Inc., a Delaware corporation, as well as
its successors and assigns (hereinafter collectively referred to as the
"Company"), hereby agree with you as follows:
l. Position and Responsibilities.
1.1 You shall serve as Vice President of Finance and Treasurer
of the Company (or in such other executive capacity as shall be designated by
the Board of Directors and reasonably acceptable to you). You will, to the best
of your ability, devote your full time and best efforts to the performance of
your duties hereunder and the business and affairs of the Company and perform
such duties as may be assigned to you by or on authority of the Company's Board
of Directors from time to time and the duties customarily associated with such
capacity from time to time and at such place or places as the Company shall
designate are appropriate and necessary in connection with such employment;
provided, however, that you shall not be required to relocate your place of
employment beyond a twenty-five (25) mile radius from Burlington, Massachusetts
without your prior written consent.
1.2 You will duly, punctually and faithfully perform and
observe any and all rules and regulations which the Company may now or shall
hereafter establish governing the conduct of its business.
1.3 You will report directly to the Company's Board of
Directors and to individuals so designated by the Board of Directors.
2. Term of Employment.
2.1 The initial term of this Agreement shall be for the period
set forth on Exhibit A annexed hereto commencing with the date hereof.
Thereafter, this Agreement shall be automatically renewed for successive periods
of one year, unless you or the Company shall give the other party not less than
ninety (90) days written notice of non-renewal. Your employment with the Company
may be terminated at any time as provided in Section 2.2.
2.2 The Company shall have the right, upon written notice to
you, to terminate your employment:
(a) immediately at any time for "Cause" (as defined
herein subject to your right of cure and right to dispute as provided
in Section 2.3 herein); or
(b) at any time, upon not less than seven (7)
calendar days written notice, without "Cause," provided that the
Company shall be obligated to pay to you the Severance Benefits set
forth in Sections 6 or 7, as applicable, of Exhibit A, plus any sums
then due to you, less (i) applicable taxes and other required
withholdings, and (ii) any amounts you may owe to the Company. Payments
under this Section 2.2 (b) shall not be due or payable if you are
terminated at any time for "Cause" or if you voluntarily resign from
your employment, except as set forth in Section 7 of Exhibit A.
2.3 For purposes of Section 2.2, the term "Cause" shall mean
(a) gross negligence in the performance of assigned duties; (b) refusal to
perform or discharge the duties or responsibilities assigned by the Board of
Directors of the Company provided the same are not illegal, unethical or
inconsistent with the position of Vice President of Finance and Treasurer of a
corporation and the failure to correct such refusal and perform such duties or
responsibilities within a reasonable period of time (but in any event no less
than fourteen (14) calendar days after written notice of such failure); (c)
conviction of a felony involving moral turpitude; (d) willful or prolonged
absence from work not excused by a bona fide medical disability as reasonably
determined by a qualified physician mutually acceptable to both you and the
Company or other good cause as reasonably determined by the Board of Directors;
and (e) falseness of any warranty or representation by you herein or the breach
of your obligations under this Agreement to the material detriment of the
Company. Any dispute, controversy, or claim arising out of, in connection with,
or in relation to the definition of "Cause" shall be settled by arbitration in
accordance with the terms of Section 17 hereof.
2.4 In the event of the Involuntary Termination (as
hereinafter defined) of your employment with the Company at any time, the
Company hereby irrevocably agrees to provide you with Severance Benefits as
defined in Section 6 of Exhibit A hereto or payments in the event of a "Change
in Control" as defined in Section 7 of Exhibit A. In this regard, the phrase
"Involuntary Termination" shall mean (a) any termination of your employment by
the Company other than for "Cause," as defined in Section 2.3, (b) any notice by
the Company not to renew this Agreement pursuant to Section 2.1, or (c) any
termination of your employment by you due to any of the following circumstances:
(i) a reduction in your Base Salary or Company-paid benefits; provided, however,
that a reduction pursuant to the provisions of Section 3 herein shall not
constitute "Involuntary Termination", (ii) a reduction in your eligibility for
any Company bonus or other benefit program, (iii) a material or substantial
change in your title, position, authority or duties, or (iv) a change of your
principal place of employment to a location beyond twenty-five (25) miles of
Burlington, Massachusetts.
-2-
3. Compensation. You shall receive the compensation and benefits set
forth on Exhibit A ("Compensation") for all services to be rendered by you
hereunder and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions of even date herewith
attached hereto as Exhibit C between you and the Company (the "Proprietary Infor
mation and Inventions Agreement"). Such Compensation shall be subject to
temporary or permanent reduction by the Board of Directors if the Board shall
determine that economic conditions so warrant such as a significant reduction in
the Company's revenues or net worth.
4. Other Activities During Employment.
4.1 Except for any outside employments and directorships
currently held by you as listed on Exhibit B, and except with the prior written
consent of the Company's Board of Directors, you will not during the term of
this Agreement undertake or engage in any other employment, occupation or
business enterprise other than one in which you are an inactive investor.
4.2 You hereby agree that, except as disclosed on Exhibit B
hereto, during your employment hereunder, you will not, directly or indirectly,
engage (a) individually, (b) as an officer, (c) as a director, (d) as an
employee, (e) as a consultant, (f) as an advisor, (g) as an agent (whether a
salesperson or otherwise), (h) as a broker, or (i) as a partner, coventurer,
stockholder or other proprietor owning directly or indirectly more than five
percent (5%) interest, in any firm, corporation, partnership, trust,
association, or other organization which is engaged in the research,
development, production, manufacture or marketing of equipment or processes in
direct competition with the Company or any other line of business engaged in or
under demonstrable development by the Company (such firm, corporation,
partnership, trust, association, or other organization being hereinafter
referred to as a "Prohibited Enterprise"). Except as may be shown on Exhibit B,
you hereby represent that you are not engaged in any of the foregoing capacities
(a) through (i) in any Prohibited Enterprise.
5. Former Employers.
5.1 You represent and warrant that your employment by the
Company will not conflict with and will not be constrained by any prior or
current employment, consulting agreement or relationship whether oral or
written. You represent and warrant that you do not possess confidential
information arising out of any such employment, consulting agreement or
relationship which, in your best judgment, would be utilized in connection with
your employment by the Company in the absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you
should find that confidential information belonging to any other person or
entity might be usable in connection with the Company's business, you will not
intentionally disclose to the Company or use on behalf of the Company any
confidential information belonging to any of your former employers; but during
your employment by the Company you will use in the performance of your duties
all information which
-3-
is generally known and used by persons with training and experience comparable
to your own all information which is common knowledge in the industry or
otherwise legally in the public domain.
6. Proprietary Information and Inventions. You agree to execute,
deliver and be bound by the provisions of the Proprietary Information and
Inventions Agreement.
7. Post-Employment Activities.
7.1 For a period of two (2) years (or for a lesser period
should the Company so determine) after the termination or expiration, for any
reason, of your employment with the Company hereunder, absent the Company's
prior written approval, you will not directly or indirectly engage in activities
similar or reasonably related to those in which you shall have engaged hereunder
during the two years immediately preceding termination or expiration for, nor
render services similar or reasonably related to those which you shall have
rendered hereunder during such two years to, any person or entity whether now
existing or hereafter established which directly competes with (or proposes or
plans to directly compete with) the Company ("Direct Competitor") in any line of
business engaged in or under development by the Company. Nor shall you entice,
induce or encourage any of the Company's other employees to leave their
employment with the Company or engage in any activity which, were it done by
you, would violate any provision of the Proprietary Information and Inventions
Agreement or this Section 7. As used in this Section 7.1, the term "any line of
business engaged in or under development by the Company" shall be applied as at
the date of termination of your employment, or, if later, as at the date of
termination of any post-employment consultation.
7.2 For a period of two (2) years after the termination of
your employment with the Company, the provisions of Section 4.2 shall be
applicable to you and you shall comply there with. As applied to such two (2)
year post-employment period, the term "any other line of business engaged in or
under development by the Company," as used in Section 4.2, shall be applied as
at the date of termination of your employment with the Company or, if later, as
at the date of termination of any post-employment consultation with the Company.
7.3 No provision of this Agreement shall be construed to
preclude you from performing the same services which the Company hereby retains
you to perform for any person or entity which is not a Direct Competitor of the
Company upon the expiration or termination of your employment (or any
post-employment consultation) so long as you do not thereby violate any term of
the Proprietary Information and Inventions Agreement.
8. Remedies. Your obligations under the Proprietary Information and
Inventions Agreement and the provisions of Sections 4, 6, 7, 8, 9 and 17 of this
Agreement (as modified by Section 10, if applicable) shall survive the
expiration or termination of your employment (whether through your resignation
or otherwise) with the Company. You acknowledge that a remedy at law for any
breach or threatened breach by you of the provisions of the Proprietary
Information and Inventions Agreement or Sections 4 or 7 hereof would be
inadequate and you therefore agree that
-4-
the Company shall be entitled to such injunctive or other equitable relief in
case of any such breach or threatened breach.
9. Assignment. This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation and any
assignee of all or substantially all of its business and properties, but, except
as to any such successor or assignee of the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or by you,
except by operation of law. The Company's obligations and those of any
successors or assignees of the Company under this Agreement, including but not
limited to the severance provisions and other compensation and benefits due to
you pursuant to Exhibit A hereto, will be a condition of and are to remain those
of any successor or assignee.
10. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT if any one or more of the provisions contained in
this Agreement is or becomes or is deemed invalid, illegal or unenforceable or
in case any provision shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable law
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
11. Notices. Any notice which the Company is required to or may desire
to give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at your address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the Company
hereunder shall be given by personal delivery or by registered or certified
mail, return receipt requested, addressed to the Company at its principal
office, or at such other office as the Company may from time to time designate
in writing. The date of personal delivery or the date of mailing any notice
under this Section 11 shall be deemed to be the date of delivery thereof.
12. Waivers. If the Company should waive any breach of any provision of
this Agreement, the Company shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
13. Complete Agreement; Amendments. The foregoing including Exhibits A,
B and C hereto, is the entire agreement of the parties with respect to the
subject matter hereof, superseding any previous oral or written communications,
representations, understandings, or agreements with the Company or any officer
or representative thereof. Any amendment to this Agreement or waiver
-5-
by the Company of any right hereunder shall be effective only if evidenced by a
written instrument executed by the parties hereto, upon authorization of the
Company's Board of Directors.
14. Headings. The headings of the Sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning of this Agreement.
15. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
16. Governing Law. This Agreement shall be governed by and construed
under Massachusetts law.
17. Arbitration of Disputes. Subject to the rights of the parties to
seek injunctive relief as described herein, any controversy or claim arising out
of, or relating to, any provision of this Agreement shall be settled by binding
arbitration in accordance with the laws of the Commonwealth of Massachusetts by
three arbitrators, one of whom shall be appointed by the Company, one of whom
shall be appointed by you, and the third arbitrator who shall be appointed by
the first two arbitrators. If the first two arbitrators cannot agree on the
appointment of a third arbitrator, then the third arbitrator shall be appointed
by the American Arbitration Association in the City of Boston. Such arbitration
shall be conducted in the City of Boston in accordance with the rules of the
American Arbitration Association, except with respect to the selection of
arbitrators, which shall be as provided in this Section. Judgment on the award
or determination rendered by the arbitrators shall be final, binding and
conclusive upon the parties, and may be entered in any court having jurisdiction
thereof and shall not be appealable. The prevailing party in such arbitration
proceeding shall be entitled to reimbursement by the other party of all
reasonable legal fees and other costs incurred by the prevailing party in
connection with such proceeding, including any legal fees and costs incurred in
connection with the enforcement of any award.
18. Advice of Separate Counsel. The Company's counsel, O'Connor, Broude
& Aronson, has prepared this document on behalf of the Company. You acknowledge
that you have been advised to review this Agreement with your own legal counsel
and other advisors of your choosing and that prior to entering into this
Agreement, you have had the opportunity to review this Agreement with your
attorney and other advisors and have not asked (or relied upon) O'Connor, Broude
& Aronson to represent you in this matter.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
-6-
If you are in agreement with the foregoing, please sign your name below
and also at the bottom of the Proprietary Information and Inventions Agreement,
whereupon this Agreement shall become binding in accordance with its terms.
Please then return this Agreement to the Company. (You may retain for your
records the accompanying counterpart of this Agreement enclosed herewith).
Very truly yours,
ACCEPTED AND AGREED: QC OPTICS, INC.
- ------------------------- By:
John R. Freeman ------------------------
Title:
---------------------
-7-
EXHIBIT A
---------
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF JOHN R. FREEMAN
l. Term. The term of the Agreement to which this Exhibit A is attached
and made a part shall be for a period from the date of this Agreement through
December 31, 1997.
2. Compensation.
(a) Base Salary. Your base salary ("Base Salary") shall be
$100,000.00 per annum through December 31, 1997, payable in accordance with the
Company's payroll policies at the rate of $8,333.33 per month. Thereafter, your
Base Salary shall be as established by the Board of Directors or Compensation
Committee.
(b) Bonuses. Your bonuses, if any, shall be determined by the
Company's Board of Directors or Compensation Committee.
3. Vacation. You shall be entitled to all legal and religious holidays,
and paid vacation in accordance with Company policy. Any unused vacation may be
accrued or cashed in based on your then current Base Salary.
4. Insurance and Benefits. You shall be eligible for participation in
any health, dental and other group insurance plans which may be established and
maintained by the Company for all full-time employees or which the Company is
required to maintain by law. The Company shall provide you with health insurance
for you and your family providing benefits at least equal to the benefits of the
policies currently in place and shall provide you with group life insurance in
accordance with the Company's policy but not less than two times your base
salary. You shall also be entitled to participate in any employee benefit
programs which the Company's Board of Directors may establish for its key
employees, or for its employees generally, including, but not limited to,
bonuses and stock purchase or option plans.
5. Retirement Plan. You will be eligible to participate in the
Company's 401(k) Plan.
6. Severance Benefits.
(a) When provided for in this Agreement, you shall be entitled
to "Severance Benefits." When used in this Agreement, the term "Severance
Benefits" shall mean a total amount equal to six (6) months of your then current
annual Base Salary. The Severance Benefits shall be paid via check to you in six
(6) equal monthly installments commencing within ten (10) days after the date of
your termination of active employment with the Company.
A-1
(b) In addition, the term "Severance Benefits" shall include
the continuation for you and your family, during the Severance Period, as
defined below, of all of the other benefits which are provided or available to
you on the last day of your actual service with the Company, including your
continued accrual and the vesting under the terms of any pension or 401(k) plan
then sponsored by the Company to the maximum extent permitted by law. For
purposes of this Agreement, the term "Severance Period" means the period of six
(6) months beginning on the last day of your active service with the Company.
(c) The Severance Benefits referred to above will be in
addition to, and not in substitution for, any accrued and unpaid salary,
vacation, pension, retirement or other benefits, unreimbursed expenses or other
payments to which you may be otherwise entitled.
(d) In the event of your death while you are employed by the
Company, your then current Base Salary shall continue to be paid to your legal
representative for a period of 120 days following the date of your death; and
for a period of three (3) years following your death, the Company shall continue
to provide to your spouse at Company cost the health insurance coverage
described above. If you die during the Severance Period, all cash amounts which
would have been payable to you under this Exhibit A, unless otherwise provided
for herein, shall be paid in accordance with the terms of this Agreement to your
estate.
(e) You shall not be required to mitigate the amount of any
payment the Company becomes obligated to make to you in connection with this
Agreement, by seeking other employment or otherwise.
7. Change in Control.
(a) For purposes of this Agreement, "Change in Control" means
and shall be deemed to occur if any of the following occurs: (i) the acquisition
by an individual, entity or group, as defined in Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of
beneficial ownership, as defined in Rule 13d-3 promulgated under the Exchange
Act, of 25% or more of either (A) the outstanding shares of common stock, $ .01
par value per share, of the Company (the "Common Stock"), or (B) the combined
voting power of the Voting Securities of the Company entitled to vote generally
in the election of directors (the "Voting Securities"); or (ii) individuals who,
on June 18, 1996, constituted the Board of Directors of the Company (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board of Directors of the Company; provided, however, that any individual
becoming a director subsequent to June 18, 1996, whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then serving and comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents;
or (iii) approval by the Board of Directors or the shareholders of the Company
of a (A)
A-2
tender offer to acquire any of the Common Stock or Voting Securities, (B)
reorganization, (C) merger or (D) consolidation, other than a reorganization,
merger or consolidation with respect to which all or substantially all of the
individuals and entities who were the beneficial owners, immediately prior to
such reorganization, merger or consolidation, of the Common Stock and Voting
Securities beneficially own, directly or indirectly, immediately after such
reorganization, merger or consolidation, more than 80% of the then outstanding
Common Stock and Voting Securities (entitled to vote generally in the election
of directors) of the Company resulting from such reorganization, merger or
consolidation in substantially the same proportions as their respective
ownership, immediately prior to such reorganization, merger or consolidation, of
the Common Stock and the Voting Securities; or (iv) approval by the Board of
Directors or the shareholders of the Company of (A) a complete or substantial
liquidation or dissolution of the Company, or (B) the sale or other disposition
of all or substantially all of the assets of the Company, excluding a
reorganization of the Corporation under the corporate laws of another state.
(b) In the event of a Change in Control during the term of
this Agreement or any renewal or extension hereof and provided you remain
employed by the Company for a period of 12 months from the date of the Change in
Control, you will receive, at the one-year anniversary of the Change of Control,
a supplemental amount in a lump sum equal to six (6) months of your annual Base
Salary immediately preceding the Change in Control and Bonuses paid during the
preceding fiscal year, and the fair market value of all other benefits then
payable, irrespective of whether you thereafter actually terminate employment
with the Company.
(c) In the event of your actual termination of employment
contemporaneous with or following a Change in Control, except (x) because of
your death, (y) by the Company for Cause or Disability (as hereinafter defined)
or (z) by you other than for Good Reason (as hereinafter defined): (i) you shall
be entitled to receive, in lieu of the sums described in Section 6, an amount
equal to 150% of your annual Base Salary immediately preceding the Change in
Control, to be paid in accordance with the terms of this Agreement; and (ii) the
following additional provisions shall apply (which provisions shall supersede
any other provisions of the Agreement, including but not limited to Section 2 of
the Agreement, to the extent such provisions are inconsistent with the following
provisions):
(1) Disability. For purposes of this Section 7(c),
termination by the Company of your employment based on "Disability" shall mean
termination because of your absence from your duties with the Company for one
hundred eighty (180) consecutive days as a result of your incapacity and
inability to perform the essential functions of your position with reasonable
accommodation, unless within thirty (30) days after Notice of Termination (as
hereinafter defined) is given to you following such absence, you shall have
returned to the performance of the essential functions of your position with
reasonable accommodation.
(2) Good Reason. Termination by you of your
employment for "Good Reason" shall mean termination based on:
A-3
(A) a determination by you, in your
reasonable judgment, that there has been a material adverse change in your
status or position(s) as an executive officer of the Company as in effect
immediately prior to the Change in Control, including, without limitation, a
material adverse change in your status or position as a result of a diminution
in your duties or responsibilities (other than, if applicable, any such change
directly attributable to the fact that the Company is no longer publicly owned)
or the assignment to you of any duties or responsibilities which are
inconsistent with such status or position(s), or any removal of you from, or any
failure to reappoint or reelect you to, such position(s) (except in connection
with the termination of your employment for Cause or Disability or as a result
of your death or by you other than for Good Reason) and further provided that
you have given the Company notice of this material adverse change and the
Company has failed to correct such material adverse change within a reasonable
period of time (but at least 14 days after written notice from you);
(B) a reduction by the Company in your Base
Salary as in effect immediately prior to the Change in Control, provided,
however, that a reduction pursuant to the provisions of Section 3 of the
Agreement shall not be a basis for termination by you of your employment for
"Good Reason";
(C) the failure by the Company to continue
in effect any Plan (as hereinafter defined) in which you are participating at
the time of the Change in Control of the Company (or Plans providing you with at
least substantially similar benefits) other than as a result of the normal
expiration of any such Plan in accordance with its terms as in effect at the
time of the Change in Control, or the taking of any action, or the failure to
act, by the Company which would adversely affect your continued participation in
any of such Plans on at least as favorable a basis to you as is the case on the
date of the Change in Control or which would materially reduce your benefits in
the future under any of such Plans or deprive you of any material benefit
enjoyed by you at the time of the Change in Control;
(D) the failure by the Company to provide
and credit you with the number of paid vacation days to which you are then
entitled in accordance with the Company's normal vacation policy as in effect
immediately prior to the Change in Control;
(E) the Company's requiring you to be based
at any office that is greater than twenty-five (25) miles from where your office
is located immediately prior to the Change in Control except for required travel
on the Company's business to an extent substantially consistent with the
business travel obligations which you undertook on behalf of the Company prior
to the Change in Control;
(F) the failure by the Company to obtain
from any Successor (as hereinafter defined) the assent to this Agreement
contemplated by Section 7(c)(6) hereof;
(G) any purported termination by the Company
of your employment which is not effected pursuant to a Notice of Termination
satisfying the requirements
A-4
of Section 7(c)(3) below (and, if applicable, Section 7(c)(1) above); and for
purposes of this Agreement, no such purported termination shall be effective; or
(H) any refusal by the Company to continue
to allow you to attend to matters or engage in activities not directly related
to the business of the Company which, prior to the Change in Control, you were
permitted by the Board to attend to or engage in.
For purposes of this Agreement, "Plan" shall mean any compensation plan
or any employee benefit plan such as a thrift, pension, profit sharing, medical,
disability, accident, life insurance plan or a relocation plan or policy or any
other plan, program or policy of the Company intended to benefit employees.
(3) Notice of Termination. Any purported termination
by the Company or by you following a Change in Control shall be communicated by
written notice to the other party hereto which indicates the specific
termination provision in this Agreement relied upon (the "Notice of
Termination").
(4) Date of Termination. "Date of Termination"
following a Change in Control shall mean (A) if your employment is to be
terminated for Disability, thirty (30) days after Notice of Termination is given
(provided that you shall not have returned to the performance of your duties on
a full-time basis during such thirty (30) day period), (B) if your employment is
to be terminated by the Company for any reason other than death or Disability or
by you pursuant to Sections 7(c)(2)(F) or 7(c)(6) hereof or for any other Good
Reason, the date specified in the Notice of Termination, or (C) if your
employment is terminated on account of your death, the day after your death. In
the case of termination of your employment by the Company for Cause, if you have
not previously expressly agreed in writing to the termination, then within
thirty (30) days after receipt by you of the Notice of Termination with respect
thereto, you may notify the Company that a dispute exists concerning the
Termination, in which event the Date of Termination shall be the date set either
by mutual written agreement of the parties or by such court having the matter
before it. During the pendency of any such dispute, the Company will continue to
pay you your full compensation in effect just prior to the time the Notice of
Termination is given and until the dispute is resolved. However, if such court
issues a final and non-appealable order finding that the Company had Cause to
terminate you, then you must return all compensation paid to you after the Date
of Termination specified in the Notice of Termination previously received by
you.
(5) Compensation Upon Termination or During
Disability; Other Agreements.
(A) During any period following a Change in
Control of the Company that you fail to perform your duties as a result of
incapacity and inability to perform the essential functions of your position
with reasonable accommodation, you shall continue to receive your Base Salary at
the rate then in effect and any benefits or awards under any Plan shall continue
to accrue during such period, to the extent not inconsistent with such Plans,
until and unless your
A-5
employment is terminated pursuant to and in accordance with this Section 7(c).
Thereafter, your benefits shall be determined in accordance with the Plans then
in effect.
(B) If your employment is terminated for
Cause following a Change in Control of the Company, the Company shall pay to you
your Base Salary through the Date of Termination at the rate in effect just
prior to the time a Notice of Termination is given plus any benefits or awards
(including both the cash and stock components) which pursuant to the terms of
any Plans have been earned or become payable, but which have not yet been paid
to you. Thereupon, the Company shall have no further obligations to you under
this Agreement.
(6) Successors, Binding Agreement.
(A) The Company will seek, by written
request at least five (5) business days prior to the time a Person becomes a
Successor (as hereinafter defined), to have such Person, by agreement in form
and substance satisfactory to you, assent to the fulfillment of the Company's
obligations under this Agreement. Failure of such Person to furnish such assent
by the later of (i) three (3) business days prior to the time such Person
becomes a Successor or (ii) two (2) business days after such Person receives a
written request to so assent shall constitute Good Reason for termination by you
of your employment if a Change in Control of the Company occurs or has occurred.
For purposes of this Section 7 of Exhibit A, "Successor" shall mean any person
that succeeds to, or has the practical ability to control (either immediately or
with the passage of time), the Company's business directly, by merger or
consolidation, or indirectly, by purchase of the Company's securities eligible
to vote for the election of directors, or otherwise.
(B) This Agreement shall inure to the
benefit of and be enforceable by your personal legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if no such designee exists, to your estate.
(C) For purposes of this Section 7, the
"Company" shall include any subsidiaries of the Company and any corporation or
other entity which is the surviving or continuing entity in respect of any
merger, consolidation or form of business combination in which the Company
ceases to exist; provided, however, for purposes of determining whether a Change
in Control has occurred herein, the term "Company" shall refer to QC Optics,
Inc. or its Successor(s).
(7) Fees and Expenses; Mitigation.
(A) The Company shall reimburse you, on a
current basis, for all reasonable legal fees and related expenses incurred by
you in connection with the Agreement following a Change in Control of the
Company, including without limitation, (i) all such fees and expenses, if any,
incurred in contesting or disputing any termination of your employment or (ii)
your
A-6
seeking to obtain or enforce any right or benefit provided by this Agreement, in
each case, regardless of whether or not your claim is upheld by a court of
competent jurisdiction; provided, however, you shall be required to repay any
such amounts to the Company to the extent that a court issues a final and
non-appealable order setting forth the determination that the position taken by
you was frivolous or advanced by you in bad faith.
(B) You shall not be required to mitigate
the amount of any payment the Company becomes obligated to make to you in
connection with this Agreement, by seeking other employment or otherwise.
(8) Taxes. All payments to be made to you under this
Agreement will be subject to required withholding of federal, state and local
income and employment taxes.
(d) Notwithstanding any other provision of this Agreement, in
the event that any payment or benefit received or to be received by you as a
result of or in connection with a Change in Control, whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company (all such payment and benefits being hereinafter called the "Total
Payments") would subject you to the excise tax (the "Excise Tax") imposed under
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"),
then, to the extent necessary to eliminate any such imposition of the Excise Tax
(after taking into account any reduction in the Total Payments in accordance
with the provisions of any other plan, arrangement or agreement, if any), (a)
any non-cash severance payments otherwise payable to you shall first be reduced
(if necessary, to zero), and (b) any cash severance payment otherwise payable to
you shall next be reduced. For purposes of the immediately preceding sentence,
(i) no portion of the Total Payments the receipt or enjoyment of which you shall
have effectively waived in writing shall be taken into account, (ii) no portion
of the Total Payment shall be taken into account which in the opinion of
nationally-recognized certified public accountants (in each case as mutually
selected by you and the Company) does not constitute a "parachute payment"
within the meaning of Section 280G of the Code, including, without limitation,
by reason of Section 280G(b)(2) or (b)(4)(A) of the Code, (iii) any payments to
you shall be reduced only to the extent necessary so that the Total Payments
[other than those referred to in clauses (i) and (ii)] in their entirety
constitute reasonable compensation for services actually rendered within the
meaning of section 280G(4)(B) of the Code or are otherwise not subject to
disallowance as deductions, in the opinion of the tax counsel or the accountants
referred to in clause (ii); and (iv) the value of any non-cash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by such accountants in accordance with the requirements of section 280G(d)(3)
and (4) of the Code (and such determination shall be reviewed by such tax
counsel).
A-7
EXHIBIT B
---------
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS OF
JOHN R. FREEMAN
B-1
EXHIBIT C
---------
------------------------------------------------
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
------------------------------------------------
To: QC Optics, Inc.
154 Middlesex Turnpike
Burlington, Massachusetts 01803
As of July 1, 1996
The undersigned, in consideration of and as a condition of my
employment or continued employment by you and/or by companies which you own,
control, or are affiliated with or their successors in business (collectively,
the "Company"), hereby agrees as follows:
1. Confidentiality. I agree to keep confidential, except as the Company
may otherwise consent in writing, and, except for the Company's benefit, not to
disclose or make any use of at any time either during or subsequent to my
employment, any Inventions (as hereinafter defined), trade secrets, confidential
information, knowledge, data or other information of the Company relating to
products, processes, know-how, designs, formulas, test data, customer lists,
business plans, marketing plans and strategies, pricing strategies, or other
subject matter pertaining to any business of the Company or any of its
affiliates, which I may produce, obtain, or otherwise acquire during the course
of my employment, except as herein provided. I further agree not to deliver,
reproduce or in any way allow any such trade secrets, confidential information,
knowledge, data or other information, or any documentation relating thereto, to
be delivered to or used by any third parties without specific direction or
consent of a duly authorized representative of the Company.
2. Conflicting Employment; Return of Confidential Material. I agree
that during my employment with the Company I will not engage in any other
employment, occupation, consulting or other activity relating to the business in
which the Company is now or may hereafter become engaged, or which would
otherwise conflict with my obligations to the Company. In the event my
employment with the Company terminates for any reason whatsoever, I agree to
promptly surrender and deliver to the Company all records, materials, equipment,
drawings, documents and data of which I may obtain or produce during the course
of my employment, and I will not take with me any description containing or
pertaining to any confidential information, knowledge or data of the Company
which I may produce or obtain during the course of my employment.
C-1
3. Assignment of Inventions.
3.1 I hereby acknowledge and agree that the Company is the
owner of all Inventions. In order to protect the Company's rights to such
Inventions, by executing this Agreement I hereby irrevocably assign to the
Company all my right, title and interest in and to all Inventions to the
Company.
3.2 For purposes of this Agreement, "Inventions" shall mean
all discoveries, processes, designs, technologies, devices, or improvements in
any of the foregoing or other ideas, whether or not patentable and whether or
not reduced to practice, made or conceived by me (whether solely or jointly with
others) during the period of my employment with the Company which relate in any
manner to the actual or demonstrably anticipated business, work, or research and
development of the Company, or result from or are suggested by any task assigned
to me or any work performed by me for or on behalf of the Company.
3.3 Any discovery, process, design, technology, device, or
improvement in any of the foregoing or other ideas, whether or not patentable
and whether or not reduced to practice, made or conceived by me (whether solely
or jointly with others) which I develop entirely on my own time not using any of
the Company's equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such Personal
Invention (a) does not relate to the actual or demonstrably anticipated
business, research and development of the Company, and (b) does not result,
directly or indirectly, from any work performed by me for the Company.
4. Disclosure of Inventions. I agree that in connection with any
Invention, I will promptly disclose such Invention to my immediate superior at
the Company in order to permit the Company to enforce its property rights to
such Invention in accordance with this Agreement. My disclosure shall be
received in confidence by the Company.
5. Patents and Copyrights; Execution of Documents.
5.1 Upon request, I agree to assist the Company or its nominee
(at its expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
Inventions in any and all countries. Such patents and copyrights shall be and
remain the sole and exclusive property of the Company or its nominee. I agree to
perform such lawful acts as the Company deems to be necessary to allow it to
exercise all right, title and interest in and to such patents and copyrights.
5.2 In connection with this Agreement, I agree to execute,
acknowledge and deliver to the Company or its nominee upon request and at its
expense all documents, including assignments of title, patent or copyright
applications, assignments of such applications, assignments of patents or
copyrights upon issuance, as the Company may determine necessary or desirable to
protect the Company's or its nominee's interest in Inventions, and/or to use in
obtaining patents or
C-2
copyrights in any and all countries and to vest title thereto in the Company or
its nominee to any of the foregoing.
6. Maintenance of Records. I agree to keep and maintain adequate and
current written records of all Inventions made by me (in the form of notes,
sketches, drawings and other records as may be specified by the Company), which
records shall be available to and remain the sole property of the Company at all
times.
7. Prior Inventions. It is understood that all Personal Inventions, if
any, whether patented or unpatented, which I made prior to my employment by the
Company, are excluded from this Agreement. To preclude any possible uncertainty,
I have set forth on Schedule A attached hereto a complete list of all of my
prior Personal Inventions, including numbers of all patents and patent
applications and a brief description of all unpatented Personal Inventions which
are not the property of a previous employer. I represent and covenant that the
list is complete and that, if no items are on the list, I have no such prior
Personal Inventions. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company which appears to
threaten or conflict with proprietary rights I claim in any Personal Invention.
In the event of my failure to give such notice, I agree that I will make no
claim against the Company with respect to any such Personal Invention.
8. Other Obligations. I acknowledge that the Company from time to time
may have agreements with other persons or with the U.S. Government or agencies
thereof, which impose obligations or restrictions on the Company regarding
Inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the Company's
obligations.
9. Trade Secrets of Others. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep confidential proprietary information, knowledge or
data acquired by me in confidence or in trust prior to my employment with the
Company, and I will not disclose to the Company, or induce the Company to use,
any confidential or proprietary information or material belonging to any
previous employer or others. I agree not to enter into any agreement either
written or oral in conflict herewith.
10. Modification. I agree that any subsequent change or changes in my
employment duties, salary or compensation or, if applicable, in any Employment
Agreement between the Company and me, shall not affect the validity or scope of
this Agreement.
11. Successors and Assigns. This Agreement shall be binding upon my
heirs, executors, administrators or other legal representatives and is for the
benefit of the Company, its successors and assigns.
C-3
12. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT if any one or more of the provisions contained in
this Agreement is or becomes or is deemed invalid, illegal or unenforceable or
in case any provision shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable law
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
13. Waivers. If either party should waive any breach of any provision
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
14. Complete Agreement, Amendments. I acknowledge receipt of this
Agreement, and agree that with respect to the subject matter thereof it is my
entire agreement with the Company, superseding any previous oral or written
communications, representations, understandings, or agreements with the Company
or any officer or representative thereof. Any amendment to this Agreement or
waiver by either party of any right hereunder shall be effective only if
evidenced by a written instrument executed by the parties hereto, and, in the
case of the Company, upon written authorization of the Company's Board of
Directors.
15. Headings. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
16. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
17. Governing Law. This Agreement shall be governed and construed under
Massachusetts law.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
C-4
18. Employment Status. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company to terminate the employment
of the Employee.
EMPLOYEE
-------------------------------
John R. Freeman
Accepted and Agreed:
QC OPTICS, INC.
By:
-----------------------------
-----------------------------
Title:
--------------------------
C-5
SCHEDULE A
----------
LIST OF PRIOR INVENTIONS
OF JOHN R. FREEMAN
Identifying Number or
Title Date Brief Description
- ----- ---- -----------------
EXHIBIT 11
EARNINGS PER SHARE COMPUTATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, December 31, March 31, March 31,
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net income (loss) $470,057 $908,219 $(252,356) $300,141
======== ======== ========= ========
Weighted average common
shares outstanding 2,150,000 2,150,000 2,150,000 2,150,000
Weighted shares issued from
exercise and assumed exercise
of:
Warrants -- -- -- --
Options 23,174 23,174 23,174 23,174
-------- -------- --------- --------
Weighted average common and
common equivalent shares
outstanding 2,173,174 2,173,174 2,173,174 2,173,174
======== ======== ========= ========
REPORTED EARNINGS PER SHARE:
Net income (loss) per common
and common equivalent share $0.22 $0.42 ($0.12) $0.14
======== ======== ========= ========
FULLY DILUTED EARNINGS PER SHARE:
Fully diluted EPS is not shown as there is no dilution from Primary EPS.
</TABLE>
Ths exhibit should be reviewed in conjunction with Note 2
of Notes to Financial Statements.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To QC Optics, Inc.:
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/S/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
July 3, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 MAR-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 1,430,964 900,907
<SECURITIES> 0 0
<RECEIVABLES> 3,311,706 3,961,184
<ALLOWANCES> 75,000 75,000
<INVENTORY> 2,893,122 2,833,686
<CURRENT-ASSETS> 7,578,795 7,638,954
<PP&E> 476,422 476,422
<DEPRECIATION> 358,243 371,143
<TOTAL-ASSETS> 7,721,910 7,769,169
<CURRENT-LIABILITIES> 5,518,072 2,962,456
<BONDS> 0 3,052,734
0 0
0 0
<COMMON> 21,500 21,500
<OTHER-SE> 2,182,338 1,732,479
<TOTAL-LIABILITY-AND-EQUITY> 7,721,910 7,769,169
<SALES> 10,373,464 3,212,008
<TOTAL-REVENUES> 10,373,464 3,212,008
<CGS> 4,798,902 1,521,052
<TOTAL-COSTS> 4,798,902 1,521,052
<OTHER-EXPENSES> 4,355,217 1,330,107
<LOSS-PROVISION> 75,000 0
<INTEREST-EXPENSE> 156,345 38,838
<INCOME-PRETAX> 988,000 322,011
<INCOME-TAX> 79,781 21,870
<INCOME-CONTINUING> 908,219 300,141
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 908,219 300,141
<EPS-PRIMARY> 0.42 0.14
<EPS-DILUTED> 0.42 0.14
</TABLE>
