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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 26, 1999
Commission file number 0-21294
Aseco Corporation
(Exact name of registrant as specified in its charter)
Delaware 04-2816806
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 Donald Lynch Boulevard, Marlboro, Massachusetts 01752
(Address of principal executive offices)
(508) 481-8896
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
-------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of September 26, 1999.
Common Stock, $.01 par value 3,908,370
(Title of each class) (Number of shares)
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ASECO CORPORATION
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets (unaudited)
at September 26, 1999 and March 28, 1999 3
Condensed Consolidated Statements of Operations
(unaudited) for the three and six months ended
September 26, 1999 and September 27, 1998 4
Condensed Consolidated Statements of Cash Flows
(unaudited) for the six months ended September 26, 1999
and September 27, 1998 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-12
Item 3. Quantitative and Qualitative Disclosure About Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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2
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ASECO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
September 26, March 28,
(in thousands, except share and per share data) 1999 1999
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<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,652 $ 1,229
Accounts receivable, less allowance
for doubtful accounts of $1,014 at
September 26, 1999 and $1,027 at March 28, 1999 6,437 4,041
Inventories, net 5,624 5,893
Prepaid expenses and other current assets 330 1,918
------------------- -----------------
Total current assets 14,043 13,081
Plant and equipment, at cost 7,341 7,341
Less accumulated depreciation and amortization 5,666 5,207
-------------------- -----------------
1,675 2,134
Other assets, net 124 109
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$15,842 $ 15,324
=================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line of credit $ 1,351 $ 475
Accounts payable 2,865 1,964
Accrued expenses 2,509 2,868
Current portion of capital lease obligations 4 12
------------------- -----------------
Total current liabilities 6,729 5,319
Stockholders' equity
Preferred stock, $.01 par value, 1,000,000
shares authorized, none issued and outstanding -- --
Common stock, $.01 par value: Authorized 15,000,000
shares, issued and outstanding 3,908,370 and 3,832,799 shares
at September 26, 1999 and March 28, 1999, respectively 39 38
Additional paid in capital 18,422 18,321
Accumulated deficit (9,376) (8,382)
Foreign currency translation adjustment 28 28
------------------- -----------------
Total stockholders' equity 9,113 10,005
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$ 15,842 $ 15,324
=================== =================
</TABLE>
See notes to condensed consolidated financial statements
3
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ASECO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share data)
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<CAPTION>
Three months ended Six months ended
September 26, 1999 September 27, 1998 September 26, 1999 September 27, 1998
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<S> <C> <C> <C> <C>
Net sales $ 5,652 $ 4,395 $ 10,369 $ 11,025
Cost of sales 3,345 3,641 6,158 7,701
--------------------- --------------------- --------------------- ---------------------
Gross profit 2,307 754 4,211 3,324
Research and development costs 850 1,217 1,706 2,876
Selling, general and
administrative expense 1,859 2,151 3,473 4,537
Restructuring charge -- 1,300 -- 1,300
--------------------- --------------------- --------------------- ---------------------
Loss from operations (402) (3,914) (968) (5,389)
Other income (expense):
Interest income -- 31 58
Interest expense (41) (54) (50) (59)
Other, net -- 20 24 11
--------------------- --------------------- --------------------- ---------------------
(41) (3) (26) 10
--------------------- --------------------- --------------------- ---------------------
Loss before income taxes (443) (3,917) (994) (5,379)
Income tax benefit -- (347) -- (689)
--------------------- --------------------- --------------------- ---------------------
Net loss ($ 443) ($ 3,570) ($ 994) ($4,690)
===================== ===================== ===================== =====================
Loss per share, basic ($ 0.11) ($ 0.96) ($ .26) ($ 1.26)
Shares used to compute loss
per share, basic 3,881,000 3,735,000 3,861,000 3,734,000
Loss per share, diluted ($ 0.11) ($ 0.96) ($ .26) ($ 1.26)
Shares used to compute loss
per share, diluted 3,881,000 3,735,000 3,861,000 3,734,,000
</TABLE>
See notes to condensed consolidated financial statements
4
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ASECO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
(in thousands)
Six months ended
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September 26, September 27,
1999 1998
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Operating activities:
Net loss $ (994) $(4,690)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 504 1,009
Loss on sale of plant and equipment -- 5
Restructuring charge -- 1,300
Inventory write-off -- 850
Changes in assets and liabilities:
Accounts receivable (2,396) 3,246
Inventories, net 269 (978)
Prepaid expenses and other current assets 1,588 66
Accounts payable and accrued expenses 542 (3,988)
----------------- ------------------
Total adjustments 507 1,510
----------------- ------------------
Cash used in operating activities (487) (3,180)
Investing activities:
Proceeds from sale of plant and equipment -- 7
Acquisition of plant and equipment -- (342)
Increase in software development costs and
other assets (60) (136)
----------------- ------------------
Cash used in investing activities (60) (471)
Financing activities:
Net proceeds from issuance of common stock 102 50
Borrowings on line of credit 876 4,390
Payments of long-term capital lease obligations (8) (16)
----------------- ------------------
Cash provided by financing activities 970 4,424
----------------- ------------------
Effect of exchange rate changes on cash -- 3
Net increase in cash and cash equivalents 423 776
Cash and cash equivalents at the beginning of period 1,229 4,431
----------------- ------------------
Cash and cash equivalents at the end of period $ 1,652 $ 5,207
================= ==================
</TABLE>
See notes to condensed consolidated financial statements
5
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ASECO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 26, 1999
1. Basis of Presentation -- The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
six month period ended September 26, 1999 are not necessarily indicative of the
results that may be expected for the year ended March 26, 2000. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
March 28, 1999.
2. Comprehensive Income -- Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" (SFAS 130) requires the reporting and display
of comprehensive income and its components. Under this standard, certain
revenues, expenses, gains and losses recognized during the period are included
in comprehensive income, regardless of whether they are considered to be results
of operations of the period. During the second quarter of fiscal 2000, total
comprehensive loss amounted to $443,000 versus comprehensive loss of $3,534,000
for the second quarter of fiscal 1999. Comprehensive loss for the first six
months of fiscal 2000 was $994,000 versus comrehensive loss for the first six
months of fiscal 1999 of $4,665,000. The difference between comprehensive loss
and net loss as reported on the Consolidated Statements of Operations is
attributable to the foreign currency translation adjustment.
3. New Accounting Pronouncements -- The Company has not yet adopted Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133) which is required to be adopted in fiscal
2002, as amended by Financial Accounting Standards No. 137. Adoption of this
standard is not expected to have a material impact on the Company's financial
position or results of operations.
4. Inventories -
<TABLE>
<CAPTION>
September 26, March 28,
(in thousands) 1999 1999
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<S> <C> <C>
Raw Materials $ 1,833 $ 1,966
Work in Process 3,413 3,441
Finished Goods 378 486
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$ 5,624 $ 5,893
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5. Restructuring and Other Charges -- In the second quarter of fiscal 1999, the
Company announced a plan to consolidate its UK wafer handling and inspection
operations. This plan included the closure of the Company's UK facility and
related transfer of manufacturing and other operations to the United States as
well as the discontinuation of several older product models in an effort to
focus the operation's product offerings. In conjunction with this plan, the
Company recorded a $2.2 million special charge
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including a $850,000 charge to cost of sales for inventory write-downs related
to product discontinuation and a $1.3 million restructuring charge. The
principal components of the restructuring charge included $627,000 for a write-
down of fixed and other long-term assets no longer used by the operation,
$241,000 for severance related charges, $325,000 for a write-down of goodwill
related to the impairment of such assets indicated using estimated future cash
flows, and $65,000 of lease termination and related costs. As of January 1999,
the closure and transfer were substantially complete, fixed assets were disposed
of and severance related costs were paid.
In the fourth quarter of fiscal 1999, the Company recorded a special charge
of $6.2 million. The charge reflected the impact of continuing unfavorable
conditions in the semiconductor capital equipment market, a more gradual
recovery than was previously anticipated and expected future technology changes
in this market upon the Company's product line, cost structure and asset base.
Components of the charge included 1) a $5.0 million charge to cost of goods sold
for write-downs related principally to excess inventory based on revised fiscal
year 2000 and beyond forecasted operating plans; 2) a $351,000 charge to
research and development for the write-down of development equipment no longer
used by the Company as a result of a refocusing of development efforts to
address expected technology changes and; 3) a $854,000 charge to selling,
general and administrative expense including $544,000 related to the write-down
of various assets whose net realizable value was adversely affected based on
revised fiscal year 2000 and beyond forecasted operating plans, $280,000 related
to costs associated with the layoff of 13 employees and $30,000 related to the
closure of the Company's Malaysian subsidiary. As of June 1999, fixed assets
deemed no longer useable were put out of service and segregated for disposal,
and all severance related costs were paid.
6. Credit Facility -- On August 19, 1999, the Company entered into a two-year
revolving credit agreement (the "Credit Agreement") allowing for maximum
availability of $3.0 million based on a percentage of qualified accounts
receivable and inventory. Borrowings under the Credit Agreement are secured by
all the assets of the Company and are subject to certain financial covenants
including specified levels of net worth, and debt to net worth ratios and
limitations on capital expenditures. Interest accrues on outstanding balances
under the Credit Agreement at prime plus 1.5%. As of November 5, 1999,
availability under this facility was $3.0 million. The Company's indebtedness
for borrowed money was $1,351,000 at September 26, 1999, compared to $475,000 at
March 28, 1999. As of September 26, 1999, the Company was in compliance with all
covenants under the Credit Agreement.
7. Repayment of Loan -- On July 6, 1999, an executive officer repaid $140,000
to the Company in settlement of the principal portion of an outstanding loan.
The Board of Directors agreed to forgive all accrued interest on such loan.
8. Taxes -- No tax benefit was recorded in the second quarter of fiscal 2000
because no benefit from operating loss carryback provisions was available to the
Company. The Company recorded a valuation allowance for deferred tax assets,
principally representing net operating loss carryforwards and other deferred tax
assets the realization of which the Company does not deem more likely than not.
9. Merger -- On September 20, 1999, the Company announced a definitive merger
agreement with Micro Component Technology, Inc., a test handler manufacturer.
The transaction, which is structured as a stock merger, is valued at
approximately $16.3 million, subject to certain adjustments. The agreement has
been approved by the Board of Directors of each company and is subject to
approval by the shareholders of each company and regulatory agencies. The
Company anticipates that the merger will close in December 1999.
7
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Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
For the three and six months ended September 26, 1999 and September 27, 1998
Pending Merger
--------------
On September 20, 1999, the Company announced a definitive merger agreement
with Micro Component Technology, Inc., a test handler manufacturer. The
transaction, which is structured as a stock merger, is valued at approximately
$16.3 million, subject to certain adjustments. The agreement has been approved
by the Board of Directors of each company and is subject to approval by the
shareholders of each company and regulatory agencies. The Company anticipates
that the merger will close in December 1999.
Results of Operations-Overview
------------------------------
During fiscal 1999, the Company undertook several actions to address the
impact of the market downturn on the Company. In the second quarter of fiscal
1999, the Company recorded a special charge of $2.2 million including a $850,000
charge to cost of sales for inventory write-downs related to product
discontinuation and a $1.3 million restructuring charge. The principal
components of the restructuring charge included $627,000 for a write-down of
fixed and other long-term assets no longer used by the operation, $241,000 for
severance related charges, $325,000 for a write-down of goodwill related to the
impairment of such assets indicated using estimated future cash flows, and
$65,000 of lease termination and related costs. As of January 1999, the closure
and transfer were substantially complete, fixed assets were disposed of and
severance related costs were paid.
In the fourth quarter of fiscal 1999, the Company recorded a special charge
of $6.2 million. The charge reflected the impact of continuing unfavorable
conditions in the semiconductor capital equipment market, a more gradual
recovery than was previously anticipated and expected future technology changes
in this market upon the Company's product line, cost structure and asset base.
Components of the charge included 1) a $5.0 million charge to cost of goods sold
for write-downs related principally to excess inventory based on revised fiscal
year 2000 and beyond forecasted operating plans; 2) a $351,000 charge to
research and development for the write-down of development equipment no longer
used by the Company as a result of a refocusing of development efforts to
address expected technology changes and; 3) a $854,000 charge to selling,
general and administrative expense including $544,000 related to the write-down
of various assets whose net realizable value was adversely affected based on
revised fiscal year 2000 and beyond forecasted operating plans, $280,000 related
to costs associated with the layoff of 13 employees and $30,000 related to the
closure of the Company's Malaysian subsidiary. As of June 1999, fixed assets
deemed no longer useable were put out of service and segregated for disposal,
and all severance related costs were paid.
Three and Six Months Ended September 26, 1999 and September 27, 1998
- ---------------------------------------------------------------------
Net sales for the second quarter of fiscal 2000 increased 29% to $5.7
million from $4.4 million for the second quarter of fiscal 1999. For the first
six months of fiscal 2000, net sales decreased 6% to $10.4
8
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million from $11.0 million for the same period last year. The increase in
quarterly net sales resulted from an increase in demand for the Company's
products, particularly those serving the small outline (SO) and accelerometer
product markets, resulting from improved semiconductor capital equipment market
conditions.
International sales represented approximately 18% of net sales in the
second quarter and first six months of fiscal 2000 compared to 35% and 42% of
net sales in the second quarter and first six months of fiscal 1999,
respectively.
Gross profit for the second quarter of fiscal 2000 was $2.3 million, or 41%
of net sales, compared to $754,000, or 17% of net sales, in the second quarter
of fiscal 1999. During the first six months of fiscal 2000, gross profit was
$4.2 million, or 41% of net sales compared to $3.3 million, or 30% of net sales,
for the same period in fiscal 1999. Gross profit in the second quarter of fiscal
1999 was impacted by a special charge of $850,000 described above in the section
"Results of Operations-Overview". Additionally, gross profit in both periods was
significantly influenced by a product shipment mix including a larger component
of the Company's lower gross margin products.
Research and development costs decreased 30% to $850,000 in the second
quarter of fiscal 2000 from $1.2 million in the same quarter last year. Research
and development costs for the first six months of fiscal 2000 decreased 41% to
$1.7 million from $2.9 million in the first six months of the prior year. The
decrease in spending was primarily the result of workforce reductions
implemented during fiscal 1999. Development spending in the first six months of
fiscal 2000 was focused on various enhancements and features for the Company's
existing products and a new test handler platform.
Selling, general and administrative expenses decreased 14% to $1.9 million
in the second quarter of fiscal 2000 from $2.2 million in the second quarter of
fiscal 1999. During the first six months of fiscal 2000, selling, general and
administrative expenses decreased 23% to $3.5 million compared to $4.5 million
for the same period in fiscal 1999. The decrease in selling, general and
administrative expenses was a result of reductions in headcount during fiscal
1999 and strict controls over discretionary spending.
As a result of the above, the Company generated an operating loss of
$402,000 for the second quarter of fiscal 2000 and $968,000 for the first six
months of fiscal 2000 compared to an operating loss of $3.9 million and $5.4
million in the second quarter and first six months of fiscal 1999, respectively.
Other income (expense), net consists primarily of interest expense paid on
the Company's outstanding line of credit balance.
The Company recorded no income tax benefit in the second quarter and first
six months of fiscal 2000 because no benefits from operating loss carryback
provisions were available to the Company. The Company recorded a valuation
allowance for deferred tax assets, principally representing net operating loss
carryforwards and other deferred tax assets, the realization of which the
Company does not deem more likely than not.
Net loss for the second quarter of fiscal 2000 was $443,000, or $.11 per
share, compared to net loss of $3.6 million, or $.96 per share, in the second
quarter of fiscal 1999. Net loss for the first six months
9
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of fiscal 2000 was $994,000, or $.26 per share, compared to net loss of $4.7
million, or $1.26 per share, in the same period last year.
Liquidity and Capital Resources
-------------------------------
The Company historically has funded its operations primarily through cash
flows from operations, bank borrowings and the private and public sale of equity
securities. At September 26, 1999, the Company had cash, net of borrowings, of
$301,000 and working capital of approximately $7.3 million.
The Company used approximately $487,000 in cash for operating activities
during the first six months of fiscal 2000. The primary working capital factors
affecting cash from operations were accounts receivable, inventory and accounts
payable and accrued expenses. Accounts receivable increased approximately $2.4
million as a result of an increase in net sales from March 1999. Additionally,
the majority of second quarter equipment shipments occurred in the last month of
the second quarter. Inventory decreased approximately $269,000 during the first
six months of fiscal 2000 as the Company was able to manage material receipts
and ship product from finished inventory. Accounts payable and accrued expenses
increased approximately $542,000 during the first six months of the year as a
result of the increase in business volume. Lastly, in the second quarter of
fiscal 2000, the Company received an income tax refund in the amount of
approximately $1.3 million related to federal taxes paid by the Company in
fiscal 1998 and prior periods.
The Company used approximately $30,000 to fund internal software
development costs while capital expenditures were deminimus as a result of a
Company-wide freeze on capital spending.
On August 19, 1999, the Company entered into a two-year revolving credit
agreement (the "Credit Agreement") allowing for maximum availability of $3.0
million based on a percentage of qualified accounts receivable and inventory.
Borrowings under the Credit Agreement are secured by all the assets of the
Company and are subject to certain financial covenants including specified
levels of net worth, and debt to net worth ratios and limitations on capital
expenditures. Interest accrues on outstanding balances under the Credit
Agreement at prime plus 1.5%. As of November 5, 1999, availability under this
facility was $3.0 million. The Company's indebtedness for borrowed money was
$1,351,000 at September 26, 1999, compared to $475,000 at March 28, 1999. As of
September 26, 1999, the Company was in compliance with all covenants under the
Credit Agreement.
Although the Company is cautiously optimistic regarding market conditions
in the semiconductor industry, the Company continues to expect to be effected by
a more gradual recovery in the market and the effect of expected future
technology changes in this market upon the Company's product line. As a result,
the Company intends to monitor, and further reduce if necessary, its expenses if
projected lower net sales levels continue. Although the Company anticipates that
it will incur losses in future quarters which will negatively impact its
liquidity position, the Company believes that funds generated from operations,
existing cash balances and available borrowing capacity will be sufficient to
meet the Company's cash requirements for at least the next twelve months.
However, if the Company is unable to meet its operating plan, and in particular
its forecast for product shipments, the Company may require additional capital.
There can be no assurance that if the Company is required to secure additional
capital that such capital will be available on reasonable terms, if at all, at
such time as required by the Company.
10
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Year 2000
---------
Historically, certain computer programs have been written using two digits
rather than four to define the applicable year, which could result in a computer
recognizing a date using "00" as the year 1900 rather than the year 2000. This
in turn, could result in major system failures or miscalculations, and is
generally referred to as the "Year 2000 Problem".
In the second quarter of fiscal 1999, the Company completed its
implementation of a new enterprise-wide management information system that the
vendor has represented is Year 2000 compliant. In addition, the Company has
completed an assessment of other software used by the Company for Year 2000
compliance and has noted no material instances of non-compliance. On an on-going
basis, the Company reviews each of its new hardware and software purchases to
ensure that it is Year 2000 compliant. The Company has also conducted a review
of its product line and has determined that most of the products it has sold and
will continue to sell do not require remediation to be Year 2000 compliant. This
conclusion is based partly on third party representations that product
components, such as personal computers, will be Year 2000 compliant. The Company
had no means of ensuring that such suppliers' components will be Year 2000
compliant.
The Company is in the process of gathering information about the Year 2000
compliance status of its significant suppliers and customers. Additionally, the
compliance status of the Company's external agents who process vital Company
data such as payroll, employee benefits, and banking information have been
queried for Year 2000 compliance. To date, the Company is not aware of any such
external agent with a Year 2000 issue that would materially impact the Company's
results of operations, liquidity, or capital resources. However, the Company had
no means of ensuring that external agents will be Year 2000 ready.
To date the Company has incurred approximately $870,000 ($207,000 expensed
and $663,000 capitalized for new systems and equipment) related to all phases of
the Year 2000 compliance initiatives.
Although the Company does not believe that it will incur any additional
material costs or experience material disruptions in its business associated
with preparing its internal systems for Year 2000 compliance, there can be no
assurances that the Company will not experience serious unanticipated negative
consequences and/or material costs caused by undetected errors or defects in the
technology used in its internal systems, which is comprised of third party
software and third party hardware that contain embedded software.
The most reasonably likely worst case scenarios would include (i)
corruption of data contained in the Company's internal information systems
relating to, among other things, manufacturing and customer orders, shipments
billing and collections, (ii) hardware failures, (iii) the failure of
infrastructure services provided by government agencies and other third parties
(i.e., electricity, phone service, water transport, payroll, employee benefits,
etc.), (iv) warranty and litigation expense associated with third-party software
incorporated into the Company's products that is not Year 2000 compliant, and
(v) a decline in sales resulting from disruptions in the economy generally due
to Year 2000 issues.
The Company has contingency plans for certain critical applications and is
working on such plans for others. These contingency plans involve among other
actions, manual workarounds and adjusting staffing strategies.
11
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Cautionary Statement for Purposes of "Safe Harbor" Provisions of the Private
- ----------------------------------------------------------------------------
Securities Litigation Reform Act of 1995
- ----------------------------------------
This Report on Form 10Q contains forward-looking statements relating to
future events or the future financial performance of the Company. Readers are
cautioned that such statements, which may be identified by words including
"anticipates," "believes," "intends," "estimates," "plans," and other similar
expressions, are only predictions or estimations and are subject to known and
unknown risks and uncertainties, over which the Company has little or no
control. In evaluating such statements, readers should consider the various
factors identified below which could cause actual events, performance or results
to differ materially from those indicated by such statements.
Liquidity -- As of September 26, 1999 the Company had cash, net of
borrowings, of $301,000 and working capital of approximately $7.3 million. As a
result of anticipated continued weakness in the semiconductor market, the
Company expects to incur further losses in future quarters which will negatively
impact its liquidity position. Although the Company believes that funds
generated from operations, existing cash balances and available borrowing will
be sufficient to meet the Company's cash requirements for at least the next
twelve months, if the Company is unable to meet its operating plan, the Company
may require additional capital. There can be no assurance that if the Company is
required to secure additional capital that such capital will be available on
reasonable terms, if at all, at such time as required by the Company.
Semiconductor Market Fluctuations -- The semiconductor market has
historically been cyclical and subject to significant economic downturns at
various times, which often have a disproportionate effect on manufacturers of
semiconductor capital equipment. As a result, there can be no assurance that the
Company will not experience material fluctuations in future quarterly or annual
operating results as a result of such a market fluctuation. The semiconductor
industry in recent periods has experienced decreased demand, and it is uncertain
how long these conditions will continue.
Reliance on Distributor -- In November 1997, Aseco entered into a
distribution agreement with Rasco A.G. ("Rasco") pursuant to which Aseco markets
and sells Rasco's SO1000 test handler in the United States, Canada and Taiwan.
To achieve sales objectives, the Company must rely on Rasco to build and ship
test handlers in accordance with a quarterly schedule. There can be no assurance
that Rasco will be able to consistently meet such a schedule. Accordingly, the
Company's operating results are subject to variability from quarter to quarter
and could be adversely affected for a particular quarter if shipments for that
quarter were lower than anticipated. Additionally, termination of the Rasco
relationship with the Company could adversely affect the Company's financial
performance. There can be no assurance that the Company will be able to retain
its current distribution agreement with Rasco.
Variability in Quarterly Operating Results -- During each quarter, the
Company customarily sells a limited number of systems, thus a change in the
shipment of a few systems in a quarter can have a significant impact on results
of operations for a particular quarter. To achieve sales objectives, the Company
must generally obtain orders for systems to be shipped in the same quarter in
which the order is obtained. Moreover, customers may cancel or reschedule
shipments with limited or no penalty, and production difficulties could delay
shipments. Accordingly, the Company's operating results are subject to
significant variability from quarter to quarter and could be adversely affected
for a particular quarter if shipments for that quarter were lower than
anticipated. Moreover, since the Company ships a significant quantity of
products at or near the end of each quarter, the magnitude of fluctuation is
not known until late in or at the end of any given quarter.
New Product Introductions -- The Company's success depends in part on its
continued ability to develop and market new products. There can be no assurance
that the Company will be able to develop and introduce new products in a timely
manner or that such products, if developed, will achieve market acceptance.
Additionally there can be no assurance that the Company will be able to
manufacture such products at profitable levels or in sufficient quantities to
meet customer requirements. The inability of the Company to do any of the
foregoing could have a material adverse effect on the Company's operating
results.
International Operations -- In the second quarter and first six months of
fiscal 2000, 18% of the Company's net sales were derived from customers in
international markets compared to 35% and 42% in the second quarter and first
six months of fiscal 1999. The Company is therefore subject to certain risks
common to many export activities, such as governmental regulations, export
license requirements, air transportation disruptions, freight rates and the risk
of imposition of tariffs and other trade barriers. A portion of the Company's
international sales are invoiced in foreign currencies and, accordingly, are
subject to fluctuating currency exchange rates. As such there can be no
assurance that the Company will be able to protect its position by hedging its
exposure to currency exchange rate fluctuations.
Competition -- The markets for the Company's products are highly
competitive. The Company's competitors include a number of established companies
that have significantly greater financial, technical, manufacturing and
marketing resources than the Company. The Company also competes with a number of
smaller companies. There can be no assurance that the Company will be able to
compete successfully against current and future sources of competition or that
the competitive pressures faced by the Company will not adversely affect its
profitability or financial performance.
Customer Concentrations -- Although the Company has a growing customer
base, from time to time, an individual customer may account for 10% or more of
the Company's quarterly or annual net sales. During the fiscal year ended
March 28, 1999, two customers accounted for 14% and 13% of net sales,
respectively. The Company expects that such customer concentration of net sales
will continue to occur from time to time as customers place large quantity
orders with the Company. As a result, the loss of, or significant reduction in
purchases by any such customer could have an adverse effect on the Company's
annual or quarterly financial results.
Investments in Research & Development -- The Company is currently investing
in specific time-sensitive strategic programs related to the research and
development area which the Company believes is critical to its future ability to
compete effectively in the market. As such, the Company plans to continue to
invest in such programs at a planned rate and not to reduce or limit the
increase in such expenditures until such programs are completed. As a result
there can be no assurance that such expenditures will not adversely affect the
Company's quarterly or annual profitability or financial performance.
Reliance on Third-Party Distribution Channels -- The Company markets and
sells its products primarily through third-party manufacturers' representative
organizations which are not under the direct control of the Company. The Company
has limited internal sales personnel. A reduction in the sales efforts by the
Company's current manufacturers' representatives or a termination of their
relationships with the Company could adversely affect the Company's operations
and financial performance. There can be no assurance that the Company will be
able to retain its current manufacturers' representatives or its distribution
channels by selling directly through its sales employees or enter into
arrangements with new manufacturers' representatives.
Dependence on Key Personnel -- The Company's success depends to a
significant extent upon a number of senior management and technical personnel.
These persons are not bound by employment agreements. The loss of the services
of a number of these key persons could have a material adverse effect on the
Company. The Company's future success will depend in large part upon its ability
to attract and retain highly skilled technical, managerial and marketing
personnel. Competition for such personnel in the Company's industry is intense.
There can be no assurance that the Company will continue to be successful in
attracting and retaining the personnel it requires to successfully develop new
and enhanced products and to continue to grow and operate profitably.
Dependence on Proprietary Technology -- The Company's success is dependent
upon proprietary software and hardware which the Company protects primarily
through patents and restrictions on access to its trade secrets. There can be no
assurance that the steps taken by the Company to protect its proprietary rights
will be adequate to prevent misappropriation of its technology or independent
development by others of similar technology. Although the Company believes that
its products and technology do not infringe any existing proprietary rights of
others, the use of patents to protect software and hardware has increased and
there can be no assurance that third parties will not assert infringement claims
against the Company in the future.
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
There has been no material change in the Company's assessment of its
sensitivity to market risk from that described in the Company's Annual Report
on Form 10-K for the fiscal year ended March 28, 1999.
12
<PAGE>
ASECO CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None.
Item 2. Changes in Securities and Use of Proceeds:
None.
Item 3. Defaults upon Senior Securities:
None.
Item 4. Submissions of Matters to a Vote of Security Holders:
On August 11, 1999, the annual Meeting of Stockholders was held and
the following matters were voted upon:
1. Dr. Sheldon Buckler and Dr. Gerald L. Wilson were elected to the
Board of Directors, for three year terms. The vote was 3,388,932
in favor, 173,543 withheld.
2. An amendment to the Company's Employee Stock Purchase Plan
increasing the number of shares issuable under such plan from
150,000 to 500,000. The vote was 3,354,756 in favor, 196,348
against, and 8,371 abstaining.
3. Certain amendments to the Company's 1993 Non-Employee Director
Stock Option Plan. The vote was 3,322,796 in favor, 223,626
against, and 16,053 abstaining.
4. The Board of Directors' selection of Ernst & Young LLP as the
Company's independent auditors for the year ended March 26, 2000
was ratified with 3,442,091 in favor, 101,799 against, and 18,585
abstaining.
Item 5. Other Information:
None.
Item 6. Listing of Exhibits
Exhibit Description
No.
10.24 Commercial Revolving Loan and Security Agreement dated August 19,
1999, between the Company and American Commercial Finance Corporation,
filed herewith.
2.0 Agreement and Plan of Merger, dated as of September 18, 1999 by and
between the Company, Micro Technology, Inc., and MCT Acquisition,
Inc.
13
<PAGE>
ASECO CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Signature Title Date
/s/ Sebastian J. Sicari President, Chief Executive Officer November 10, 1999
- ------------------------- (principal executive officer)
Sebastian J. Sicari
/s/ Mary R. Barletta Vice President, Chief Financial November 10, 1999
- ------------------------- Officer, Treasurer
Mary R. Barletta (principal financial and
accounting officer)
14
<PAGE>
EXHIBIT 10.24
AMERICAN COMMERCIAL FINANCE CORPORATION
COMMERCIAL REVOLVING LOAN AND SECURITY AGREEMENT
August 19, 1999
1. SECURITY INTEREST. Aseco Corporation, a Delaware corporation with its chief
executive office and principal place of business at 500 Donald Lynch Boulevard,
Marlboro, Massachusetts 01752 (hereinafter referred to as the "Borrower"), for
valuable consideration, receipt whereof is hereby acknowledged, hereby grants to
American Commercial Finance Corporation, a Delaware corporation with an office
at 433 South Main Street, West Hartford, Connecticut 06110, the secured party
hereunder (hereinafter called the "Lender"), a continuing security interest in
and to, and assigns to Lender, the following property of the Borrower, wherever
located and whether now owned or hereafter acquired:
(a) all inventory, including all goods, merchandise, raw materials,
goods and work in process, finished goods, and other tangible personal property
now owned or hereafter acquired and held for sale or lease or furnished or to be
furnished under contracts of service or used or consumed in Borrower's business
(all hereinafter called the "Inventory");
(b) all accounts (as defined in the Uniform Commercial Code,
hereinafter "Accounts"), contracts, contract rights, notes, bills, drafts,
acceptances, general intangibles (including without limitation registered and
unregistered tradenames, copyrights, customer lists, goodwill, computer
programs, computer records, computer software, computer data, trade secrets,
trademarks, patents, ledger sheets, files, records, data processing records
relating to any Accounts and all tax refunds of every kind and nature to which
Borrower is now or hereafter may become entitled to, no matter how arising),
instruments, documents, chattel paper, securities, security entitlements,
security accounts, investment property, choses in action, and all other debts,
obligations and liabilities in whatever form, owing to Borrower from any person,
firm or corporation or any other legal entity, whether now existing or hereafter
arising, now or hereafter received by or belonging or owing to Borrower, for
goods sold by it or for services rendered by it, or however otherwise same may
have been established or created, all guarantees and securities therefor, all
right, title and interest of Borrower in the merchandise or services which gave
rise thereto, including the rights of reclamation and stoppage in transit, all
rights to replevy goods, and all rights of an unpaid seller of merchandise or
services (all hereinafter called the "Receivables");
(c) all machinery, equipment, fixtures and other goods (as defined in
Article 9 of the Uniform Commercial Code) whether now owned or hereafter
acquired by the Borrower and wherever located, all replacements and
substitutions therefor or accessions thereto and all proceeds thereof (all
hereinafter called the "Equipment"); and
(d) all proceeds and products of all of the foregoing in any form,
including, without limitation, all proceeds of credit, fire or other insurance,
and also including, without limitation, rents and profits resulting from the
temporary use of any of the foregoing (which, with Inventory, Receivables and
Equipment are all hereinafter called "Collateral").
<PAGE>
2. OBLIGATIONS SECURED. The security interest granted hereby is to secure
payment and performance of all debts, liabilities and obligations of Borrower to
Lender hereunder and also any and all other debts, liabilities and obligations
of Borrower to Lender of every kind and description, direct or indirect,
absolute or contingent, primary or secondary, due or to become due, now existing
or hereafter arising, whether or not such obligations are related to the
transactions described in this Agreement, by class, or kind, or whether or not
contemplated by the parties at the time of the granting of this security
interest, regardless of how they arise or by what agreement or instrument they
may be evidenced or whether evidenced by any agreement or instrument, and
includes obligations to perform acts and refrain from taking action as well as
obligations to pay money including, without limitation, all interest, fees,
charges, expenses and overdrafts, and also including, without limitation, all
obligations and liabilities which Lender may incur or become liable for, on
account of, or as a result of, any transactions between Lender and Borrower
including any which may arise out of any letter of credit, acceptance or similar
instrument or obligation guaranteed or issued by Lender for the account of
Borrower (all hereinafter called "Obligations").
3. BORROWER'S PLACES OF BUSINESS, INVENTORY LOCATIONS AND RETURNS POLICY.
Borrower warrants that Borrower has no places of business other than that shown
at the beginning of this Agreement, unless other places of business are listed
on Schedule "A", annexed hereto, in which event Borrower represents that it has
additional places of business at those locations set forth on Schedule "A".
a) Borrower's principal executive office and the office where Borrower
keeps its records concerning its accounts, contract rights and other property,
is that shown at the beginning of this Agreement. All Inventory presently owned
by Borrower is stored at the locations set forth on Schedule "A".
b) Borrower will promptly notify Lender in writing of any change in the
location of any place of business or the location of any Inventory or the
establishment of any new place of business or location of Inventory or office
where its records are kept which would be shown in this Agreement if it were
executed after such change.
c) Borrower represents and warrants that Exhibit 1 attached hereto
describes its returns policy and that it does now, and will continue to, apply
the material provisions of such policy consistently in the conduct of its
business and agrees that it shall notify Lender in writing before materially
changing its policy or the application thereof.
4. BORROWER'S ADDITIONAL REPRESENTATIONS AND WARRANTIES. Borrower represents
and warrants that:
(a) Borrower is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and shall hereafter remain in
good standing as a corporation in that state, and is duly qualified and in good
standing in every other state in which the failure to qualify or become licensed
could have a material adverse effect on the financial condition, business or
operations of the Borrower.
(b) Borrower's exact legal name is as set forth in this Agreement and
Borrower will not undertake or commit to undertake any act which will result in
a change of Borrower's legal name, without giving Lender at least thirty (30)
days' prior written notice of the same.
(c) The execution, delivery and performance of this Agreement, and any
other document executed in connection herewith, are within the Borrower's
corporate powers, have been duly authorized, are not in contravention of law or
the terms of the Borrower's charter, by-laws or other incorporation papers, or
of any indenture, agreement or undertaking to which the Borrower is a party or
by which it or any of its properties may be bound.
(d) The Certificate of Incorporation and all amendments thereto of
Borrower have been duly filed. All capital stock issued by Borrower and
outstanding was and is properly issued.
<PAGE>
(e) Borrower owns all of the assets reflected in the most recent of
Borrower's financial statements provided to Lender, except assets sold or
otherwise disposed of in the ordinary course of business since the date thereof,
and such assets together with any assets acquired since such date, including
without limitation the Collateral, are free and clear of any lien, pledge,
security interest, charge, mortgage or encumbrance of any nature whatsoever,
except (i) the security interests and other encumbrances (if any) listed on
Schedule "B" annexed hereto, (ii) those leases set forth on Schedule "C" annexed
hereto, (iii) those liens permitted pursuant to Section 13(h) of this Agreement,
and (iv) liens and security interests in favor of Lender.
(f) Except as set forth on Schedule "D" annexed hereto, Borrower has
made or filed all tax returns, reports and declarations relating to any material
tax liability required by any jurisdiction to which it is subject (any tax
liability which may result in a lien on any Collateral being hereby deemed
material); has paid all taxes shown or determined to be due thereon except those
being contested in good faith and which Borrower has, prior to the date of such
contest, identified in writing to Lender as being contested; and has made
adequate provision for the payment of all taxes so contested, so that no lien
will encumber any Collateral.
(g) Borrower (i) is subject to no charter, corporate or other legal
restriction, or any judgment, award, decree, order, governmental rule or
regulation or contractual restriction which could have a material adverse effect
on its financial condition, business or prospects, and (ii) is in compliance
with its charter documents and by-laws, all material contractual requirements by
which it or any of its properties may be bound and all applicable laws, rules
and regulations (including without limitation those relating to environmental
protection) other than laws, rules or regulations the validity or applicability
of which it is contesting in good faith or provisions of any of the foregoing
the failure to comply with which cannot reasonably be expected to materially
adversely affect its financial condition, business or prospects or the value of
any Collateral.
(h) There is no action, suit, proceeding or investigation pending or,
to Borrower's knowledge, threatened against or affecting it or any of its assets
before or by any court or other governmental authority which, if determined
adversely to it, would have a material adverse effect on its financial
condition, business or prospects or the value of any Collateral.
(i) Borrower is in compliance with ERISA; no Reportable Event has
occurred and is continuing with respect to any Plan; and it has no unfunded
vested liability under any Plan. The word "Plan" as used in this Agreement means
any employee plan subject to Title IV of the Employee Retirement Income Security
Act of 1974 ("ERISA") maintained for employees of Borrower, any subsidiary of
Borrower or any other trade or business under common control with Borrower
within the meaning of Section 414(c) of the Internal Revenue Code of 1986 or any
regulations thereunder.
3
<PAGE>
5. LOANS AND OTHER FINANCIAL ACCOMMODATIONS.
(a) From time to time upon Borrower's request, so long as the sum of
the aggregate principal amount of all loans outstanding and the requested loan
does not exceed the lesser of (i) the Borrowing Base (as defined below), or (ii)
the Credit Limit (as defined below), Lender shall make such requested loan,
provided that there has not occurred an Event of Default or an event which, with
notice or the lapse of time or both, would constitute an Event of Default.
(b) All loans shall bear interest and at the option of the Lender
shall be evidenced by notes in a form satisfactory to Lender, but in the absence
of notes shall be evidenced by Lender's records of loans and repayments.
Interest will be charged to Borrower at a fluctuating rate which is
the daily equivalent to a rate equal to the aggregate of : (x) the Prime Rate,
and (y) one and one-half (1.50%) percent per annum, or at such other rate agreed
on from time to time by the parties, upon any balance owing to Lender at the
close of each day and shall be payable (i) on the first day of each month in
arrears; (ii) on termination of this Agreement pursuant to Section 18 hereof;
(iii) on acceleration of the time for payment of the Obligations pursuant to
Section 14 hereof; and (iv) on the date the Obligations are paid in full. Any
change in the interest rate because of a change in the Prime Rate shall become
effective, without notice or demand, on the first day of each month immediately
following the month in which any change in the Prime Rate occurs so that the
Prime Rate in effect on the last day of any month shall be the Prime Rate for
interest computation purposes for the next succeeding month. Interest shall be
computed on the basis of the actual number of days elapsed over a year of three
hundred sixty (360) days. The term "Prime Rate" as used herein shall mean the
Prime Rate as published from time to time in the "Money Rates" section of The
---
Wall Street Journal or any successor publication, or in the event that such rate
- -------------------
is no longer published in The Wall Street Journal, a comparable index or
-----------------------
reference selected by Lender in its reasonable discretion. The Prime Rate may
not be the lowest or most favorable rate charged by Lender. Interest shall be
payable in lawful money of the United States of America to Lender, or as Lender
shall direct, without set-off, deduction or counterclaim.
Borrower and Lender have agreed that, because Lender is arranging for
the availability to Lender of sufficient funds to finance the loans, interest
will be charged on a minimum assumed principal balance of not less than Two
Million One Hundred Thousand ($2,100,000.00) Dollars. Accordingly, interest for
each month shall accrue on the loans, at the rate set forth above, on the
greater of: (i) the average daily unpaid loan balance of the loan; or (ii) a
minimum assumed principal balance of not less than Two Million One Hundred
Thousand ($2,100,000.00) Dollars and shall be payable as set forth above.
(c) The term "Borrowing Base" as used herein shall mean the sum of
the following:
(i) seventy (70%) percent of the unpaid face amount of Qualified
Accounts (as defined below) or such other percentage thereof as may from
time to time be fixed by Lender upon notice to Borrower, if Lender
determines in its reasonable judgment that there has been a change in
circumstances relating to any or all Accounts from those circumstances in
existence on or prior to the date hereof; PLUS
(ii) the lesser of (A) $800,000.00, or (B) twenty-five (25%) of the
cost or market value, whichever is lower, of all Eligible Inventory (as
defined below) consisting of inventory located on the premises of Borrower,
or such other percentage thereof as may from time to time be fixed by
Lender upon notice to Borrower, if Lender determines in its reasonable
judgment that there has been a change in circumstances relating to any or
all such Inventory from those circumstances in existence on or prior to the
date hereof;
but in no event shall the sum of all loans plus the sum of the aggregate amount
undrawn on all letters of credit and acceptances be in excess of the Credit
Limit.
For purposes of computing the Borrowing Base, the value of any
Qualified Account with a net face value in excess of Fifty Thousand ($50,000.00)
Dollars shall be reduced
<PAGE>
to Fifty Thousand ($50,000.00) Dollars prior to the application of such
Borrowing Base. Lender may, in its sole discretion, raise or lower the Fifty
Thousand ($50,000.00) Dollars limit set forth in the immediately preceding
sentence without in any way creating a course of conduct which requires Lender
to maintain such raised or lowered limit or to raise or lower such limit again
in the future. Lender, in the exercise of its discretion, has set credit limits
on those customers of Borrower set forth on Schedule "E" annexed hereto. Lender
may, in its sole discretion, raise or lower the credit limits described on
Schedule "E" without in any way creating a course of conduct which requires
Lender to maintain such raised or lowered credit limits or to raise or lower
such credit limits again in the future.
(d) The term "Credit Limit" as used herein shall mean an amount equal
to Three Million ($3,000,000.00) Dollars.
(e) Borrower hereby authorizes and directs Lender, in Lender's sole
discretion (provided, however, Lender shall have no obligation to do so): (i) to
pay accrued interest as the same becomes due and payable pursuant to this
Agreement or pursuant to any note or other agreement between Borrower and
Lender, and to treat the same as a loan to Borrower, which shall be added to
Borrower's loan balance pursuant to this Agreement; or (ii) apply the proceeds
of Collateral, including, without limitation, payments on Accounts and other
payments from sales or lease of Inventory and any other funds to the payment of
such items. Lender shall promptly notify Borrower of any such charges or
applications.
(f) Borrower shall pay to Lender the principal amount of all loans as
follows:
(i) Borrowing Base Exceeded. Whenever the outstanding principal
-----------------------
balance of all loans exceeds the Borrowing Base, Borrower shall
immediately pay to Lender the excess of the outstanding principal
balance of the loans over the Borrowing Base.
(ii) Payment in Full on Termination. On termination of this
------------------------------
Agreement, pursuant to Section 18 or acceleration of the obligations
pursuant to Section 14, Borrower shall pay to Lender the entire
outstanding principal balance of all loans and shall deliver to Lender
cash collateral in an amount equal to the aggregate of amounts then
undrawn on all outstanding Letters of Credit guaranteed by the Lender
for the account of the Borrower.
5
<PAGE>
(g) The making of loans, advances, and credits by Lender to the
Borrower in excess of the above described Borrowing Base formula is for the
benefit of the Borrower and does not affect the obligations of Borrower
hereunder; all such loans constitute Obligations and must be repaid by Borrower
in accordance with the terms of this Agreement.
(h) Lender may, at any time and from time to time, in its reasonable
judgment establish reserves against the Accounts and/or the Inventory of the
Borrower. The amount of such reserves shall be subtracted from Qualified
Accounts or Eligible Inventory, as applicable, when calculating the amount of
the Borrowing Base.
(i) Borrower shall also pay to Lender a nonrefundable commitment fee
equal to the greater of (i) one-half of one (.50%) percent of the Credit Limit,
or (ii) Fifteen Thousand ($15,000.00) Dollars, on the date hereof and on each
anniversary date of this Agreement. It is understood that the determination of
the Credit Limit shall be made without regard to the components of the Borrowing
Base based upon Qualified Accounts and Eligible Inventory. For example, for
purposes of this provision, on the date hereof the maximum principal amount of
the Loan is Three Million ($3,000,000.00) Dollars and the commitment fee payable
on the date hereof is Fifteen Thousand ($15,000.00) Dollars.
(j) It is the intention of the parties hereto to comply strictly with
applicable usury laws, if any; accordingly, notwithstanding any provisions to
the contrary in this Agreement or any other documents or instruments executed in
connection herewith, in no event shall this Agreement or such documents or
instruments require or permit the payment, taking, reserving, receiving,
collecting or charging of any sums constituting interest under applicable laws
which exceed the maximum amount permitted by such laws. If any such excess
interest is called for, contracted for, charged, paid, taken, reserved,
collected or received in connection with the Obligations or in any communication
by Lender or any other person to the Borrower or any other person, or in the
event all or part of the principal of the Obligations or interest thereon shall
be prepaid or accelerated, so that under any of such circumstances or under any
other circumstance whatsoever the amount of interest contracted for, charged,
taken, collected, reserved, or received on the amount of principal actually
outstanding from time to time under this Agreement shall exceed the maximum
amount of interest permitted by applicable usury laws, if any, then in any such
event it is agreed as follows: (i) the provisions of this paragraph shall govern
and control, (ii) neither the Borrower nor any other person or entity now or
hereafter liable for the payment of the Obligations shall be obligated to pay
the amount of such interest to the extent such interest is in excess of the
maximum amount of interest permitted by applicable usury laws, if any, (iii) any
such excess which is or has been received notwithstanding this paragraph shall
be credited against the then unpaid principal balance hereof or, if the
Obligations have been or would be paid in full by such credit, refunded to the
Borrower, and (iv) the provisions of this Agreement and the other documents or
instruments executed in connection herewith, and any communication to the
Borrower, shall immediately be deemed reformed and such excess interest reduced,
without the necessity of executing any other document, to the maximum lawful
rate allowed under applicable laws as now or hereafter construed by courts
having jurisdiction hereof or thereof. Without limiting the foregoing, all
calculations of the rate of interest contracted for, charged, taken, collected,
reserved, or received in connection herewith which are made for the purpose of
determining whether such rate exceeds the maximum lawful rate shall be made to
the extent permitted by applicable laws by amortizing, prorating, allocating and
spreading during the period of the full term of the Obligations, including all
prior and subsequent renewals and extensions, all interest at any time
contracted for, charged, taken, collected, reserved or received. The terms of
this paragraph shall be deemed to be incorporated in every Loan Document and
communication relating to the Obligations.
(k) In the event Borrower's Accounts suffer a dilution at any time
resulting from bad debts, credit memos, returned merchandise or any other reason
or any combination thereof (other than payment) in an amount equal to or greater
than five (5%) percent of that portion of the Borrowing Base computed pursuant
to Section 5(c)(i), Lender, in its sole discretion, may reduce the applicable
percentage to be applied to the face amount of Qualified Accounts used to
determine that portion of the Borrowing Base computed pursuant to Section
5(c)(i).
<PAGE>
6. DEFINITION OF QUALIFIED ACCOUNT. The term "Qualified Account", as used
herein, means an Account owing to Borrower which met the following
specifications at the time it came into existence and continues to meet the same
until it is collected in full:
(a) The Account is not more than ninety (90) days from the date of
the invoice thereof.
(b) The Account arose from the performance of services or an outright
sale of goods by Borrower, such goods have been shipped to the account debtor,
and Borrower has possession of, or has delivered to Lender, shipping and
delivery receipts evidencing such shipment.
(c) The Account is not subject to any prior assignment, claim, lien,
or security interest, and Borrower will not make any further assignment thereof
or create any further security interest therein, nor permit Borrower's rights
therein to be reached by attachment, levy, garnishment or other judicial
process.
(d) The Account is not subject to set-off, credit, allowance or
adjustment by the account debtor, except discount allowed for prompt payment and
the account debtor has not disputed his liability thereon and has not returned
any of the goods from the sale of which the Account arose.
(e) The Account arose in the ordinary course of Borrower's business
and did not arise from the performance of services or a sale of goods to a
supplier or employee of the Borrower.
(f) No notice of bankruptcy or insolvency of the account debtor has
been received by or is known to the Borrower.
(g) The Account is not owed by an account debtor whose principal
place of business is outside the United States of America, unless the Account is
insured by an entity, acceptable to Lender, on terms and conditions satisfactory
to Lender pursuant to a credit insurance policy that names Lender as a
co-insured.
(h) The Account is not owed by an entity which is a parent,
brother/sister, subsidiary or affiliate of Borrower.
(i) The account debtor is not located in the State of New Jersey or
in the State of Minnesota, unless Borrower has filed and shall file all legally
required Notice of Business Activities Reports with the New Jersey Division of
Taxation or the Minnesota Department of Revenue, as the case may be.
7
<PAGE>
(j) The Account (the "Excess Account") when aggregated with all of
the Accounts of that account debtor does not exceed twenty (20%) percent of the
then aggregate of Qualified Accounts, provided that, in such event, only the
Excess Account will be excluded from the definition of Qualified Account.
(k) The Account is not evidenced by a promissory note.
(l) The Account did not arise out of any sale made on a bill and
hold, dating or delayed shipment basis.
(m) Lender, in accordance with its normal credit policies, has not
deemed the Account to be unacceptable for any reason.
PROVIDED THAT if at any time twenty-five (25%) percent or more of the aggregate
amount of the Accounts due from any account debtor are unpaid in whole or in
part more than ninety (90) days from the respective dates of invoice, from and
after such time none of the Accounts (then existing or hereafter arising) due
from such account debtor shall be deemed to be Qualified Accounts until such
time as all Accounts due from such account debtor are (as a result of actual
payments received thereon) no more than ninety (90) days from the date of
invoice; Accounts payable by Borrower to an account debtor shall be netted
against Accounts due from such account debtor and the difference (if positive)
shall constitute Qualified Accounts from such account debtor for purposes of
determining the Borrowing Base (notwithstanding paragraph (d) above);
characterization of any Account due from an account debtor as a Qualified
Account shall not be deemed a determination by Lender as to its actual value nor
in any way obligate Lender to accept any Account subsequently arising from such
account debtor to be, or to continue to deem such Account to be, a Qualified
Account; it is Borrower's responsibility to determine the creditworthiness of
account debtors and all risks concerning the same and collection of Accounts are
with Borrower; and all Accounts whether or not Qualified Accounts constitute
Collateral.
7. DEFINITION OF ELIGIBLE INVENTORY. The term "Eligible Inventory", as used
herein, means Borrower's raw materials, work in process and finished goods which
are initially and at all times until sold: new and unused (except, with Lender's
written approval, used equipment held for sale or lease), in first-class
condition, merchantable and saleable through normal trade channels; at a
location which has been identified in writing to Lender, at a location that has
been approved by Lender in writing; subject to a perfected security interest in
favor of Lender; owned by Borrower free and clear of any lien except in favor of
Lender; not obsolete; not scrap, waste, defective goods and the like; have been
produced by Borrower in accordance with the Federal Fair Labor Standards Act of
1938, as amended, and all rules, regulations and orders promulgated thereunder;
not stored with a bailee, warehouseman or similar party unless Lender has given
its prior written consent thereto and Borrower has caused each such bailee,
warehouseman or similar party to issue and deliver to Lender warehouse receipts
in Lender's name for such Inventory; and have not been designated by Lender, in
accordance with its normal credit policies, as unacceptable for any reason by
notice to Borrower. As of the date hereof, the only approved Inventory location
is the principal executive office of Borrower.
8. LENDER'S REPORTS. After the end of each month, Lender will render to
Borrower a statement of Borrower's loan account with Lender hereunder, showing
all applicable credits and debits. Each statement shall be considered correct
and to have been accepted by Borrower and shall be conclusively binding upon
Borrower in respect of all charges, debits and credits of whatsoever nature
contained therein under or pursuant to this Agreement, and the closing balance
shown therein, unless Borrower notifies Lender in writing of any discrepancy
within ten (10) days from the mailing by Lender to Borrower of any such monthly
statement.
<PAGE>
9. COLLECTIONS; SET OFF; NOTICE OF ASSIGNMENT; EXPENSES; POWER OF ATTORNEY.
(a) Unless Lender notifies Borrower that it specifically dispenses
with one or more of the following requirements, Borrower will, immediately upon
receipt of the proceeds of Collateral (i.e., all checks, drafts, cash and other
remittances in payment of any Inventory sold or in payment or on account of
Borrower's accounts, contracts, contract rights, notes, bills, drafts,
acceptances, general intangibles, choses in action and all other forms of
obligations), deliver the same to Lender accompanied by a remittance report in
form specified by Lender. Said proceeds shall be delivered to Lender in the same
form received except for the endorsement of Borrower where necessary to permit
collection of items, which endorsement Borrower agrees to make. So long as
Lender elects to keep a Collateral Account (as defined below) in existence,
Borrower shall deposit the proceeds of Collateral in the Collateral Account and
shall, on the day of each deposit, forward to Lender a copy of the deposit
receipt of the depository bank indicating that such deposit has been made. All
collections of the proceeds of Collateral shall be set forth on a schedule in
form and substance satisfactory to Lender. Collections of proceeds of Collateral
shall be credited to the Obligations of Borrower on the day of actual receipt by
Lender; provided, however, that all credits shall be conditional credits subject
to collection and that returned items, at Lender's option, may be charged to
Borrower; and further provided that for purposes of the computation of interest,
items shall not be deemed to be collected until three (3) days after their
actual receipt by Lender. The order and method of such application shall be in
the reasonable discretion of Lender and any portion of such funds which Lender
elects not to so apply shall be paid over from time to time by Lender to
Borrower. Lender will at all times have the right to require Borrower (i) to
enter into a lockbox arrangement with a bank (satisfactory to Lender) for the
collection of such remittances and payments, or (ii) to maintain its deposit
accounts at a financial institution which has agreed to accept drafts drawn on
it by Lender under a written depository transfer agreement with Lender and to
block Borrower's account and to waive its rights as against such account. The
term "Collateral Account" as used herein shall mean a bank account to the
proceeds of Collateral are credited and over which Lender has the sole power of
application and withdrawal.
9
<PAGE>
(b) Any and all deposits or other sums at any time credited by or due
from Lender to Borrower shall at all times constitute additional security for
the Obligations and may be set-off against any Obligations at any time following
the occurrence of an Event of Default or an event which with notice or the lapse
of time, or both, would constitute an Event of Default whether or not they are
then due or other security held by Lender is considered by Lender to be
adequate. Any and all instruments, documents, policies and certificates of
insurance, securities, goods, accounts, choses in action, general intangibles,
chattel papers, cash, property and the proceeds thereof (whether or not the same
are Collateral or proceeds thereof hereunder) owned by Borrower or in which
Borrower has an interest, which now or hereafter are at any time in possession
or control of Lender or in transit by mail or carrier to or from Lender or in
the possession of any third party acting in Lender's behalf, without regard to
whether Lender received the same in pledge, for safekeeping, as agent for
collection or transmission or otherwise or whether Lender had conditionally
released the same, shall constitute additional security for the Obligations and
may be applied at any time following the occurrence of an Event of Default or an
event which with notice or the lapse of time, or both, would constitute an Event
of Default, to any Obligations which are then owing, whether due or not due.
Lender shall be entitled to presume, in the absence of clear and specific
written notice to the contrary hereinafter provided by Borrower to Lender, that
any and all deposits maintained by Borrower with Lender are general accounts as
to which no person or entity other than Borrower has any legal or equitable
interest whatsoever.
(c) Lender may at any time, after the occurrence of an Event of
Default or an event which, with notice or the passage of time or both, would
constitute an Event of Default, notify account debtors that Collateral has been
assigned to Lender and that payments shall be made directly to or as directed by
Lender. Upon request of Lender at any time, Borrower will so notify such account
debtors and will indicate on all billings to such account debtors that their
Accounts must be paid directly to or as directed by Lender. Lender shall have
full power to collect, compromise, endorse, sell or otherwise deal with the
Collateral or proceeds thereof in its own name or in the name of Borrower.
(d) Borrower shall pay to Lender on demand any and all reasonable
counsel fees and other expenses incurred by Lender in connection with the
preparation, interpretation, enforcement, administration or amendment of this
Agreement, or of any documents relating thereto, and any and all reasonable
expenses, including, but not limited to, a collection charge on all Accounts
collected, all reasonable attorneys' fees and expenses, and all other expenses
of like or unlike nature which may be expended by Lender to obtain or enforce
payment of any Account either as against the account debtor, Borrower, or any
guarantor or surety of Borrower or in the prosecution or defense of any action
or concerning any matter growing out of or connected with the subject matter of
this Agreement, the Obligations or the Collateral or any of Lender's rights or
interests therein or thereto, including, without limiting the generality of the
foregoing, any counsel fees or expenses incurred in any bankruptcy or insolvency
proceedings and all reasonable costs and expenses incurred or paid by Lender in
connection with the administration, supervision, protection or realization on
any security held by Lender for the debt secured hereby, whether such security
was granted by Borrower or by any other person primarily or secondarily liable
(with or without recourse) with respect to such debt, and all reasonable costs
and expenses incurred by Lender in connection with the defense, settlement or
satisfaction of any action, claim or demand asserted against Lender in
connection with the debt secured hereby, all of which amounts shall be
considered advances to protect Lender's security, and shall be secured hereby.
At its option, and without limiting any other rights or remedies, Lender may at
any time pay or discharge any taxes, liens, security interests or other
encumbrances at any time levied against or placed on any of the Collateral, and
may procure and pay any premiums on any insurance required to be carried by
Borrower, and provide for the maintenance and preservation of any of the
Collateral, and otherwise take any action reasonably deemed necessary to Lender
to protect its security, and all amounts expended by Lender in connection with
any of the foregoing matters, including reasonable attorneys' fees, shall be
considered obligations of Borrower and shall be secured hereby.
(e) Borrower does hereby make, constitute and appoint any officer or
agent of Lender as Borrower's true and lawful attorney-in-fact, with power to
endorse the name of Borrower or any of Borrower's officers or agents upon any
notes, checks, drafts, money orders,
<PAGE>
or other instruments of payment (including payments payable under any policy of
insurance on the Collateral) or Collateral that may come into possession of
Lender in full or part payment of any amounts owing to Lender; to sign and
endorse the name of Borrower or any of Borrower's officers or agents upon any
invoice, freight or express bill, bill of lading, storage or warehouse receipts,
drafts against debtors, assignments, verifications and notices in connection
with Accounts, and any instrument or documents relating thereto or to Borrower's
rights therein; to give written notice to such office and officials of the
United States Post Office to effect such change or changes of address so that
all mail addressed to Borrower may be delivered directly to Lender; granting
upon Borrower's said attorney full power to do any and all things necessary to
be done in and about the premises as fully and effectually as Borrower might or
could do, and hereby ratifying all that said attorney shall lawfully do or cause
to be done by virtue hereof. Neither Lender nor the attorney shall be liable for
any acts or omissions nor for any error of judgment or mistake, except for their
gross negligence or willful misconduct. This power of attorney shall be
irrevocable for the term of this Agreement and all transactions hereunder and
thereafter as long as Borrower may be indebted to Lender. Except for the
endorsement of checks and other items of payment that may come into possession
of Lender, Lender agrees not to exercise the foregoing power of attorney prior
to the occurrence of an Event of Default.
10. FINANCING STATEMENTS. At the request of Lender, Borrower will join with
Lender in executing one or more Financing Statements pursuant to the Uniform
Commercial Code or other notices appropriate under applicable law in form
satisfactory to Lender and will pay the cost of filing the same in all public
offices wherever filing is deemed by Lender to be necessary or desirable. A
legible carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement.
11. BORROWER'S REPORTS. Borrower covenants and agrees that from the date hereof
until payment and performance in full of all Obligations, and until the
termination of this Agreement, unless Lender otherwise consents in writing,
Borrower shall deliver or cause to be delivered to Lender:
(a) Within thirty (30) days after the close of each fiscal month of
Borrower, internally prepared, unaudited, financial statements of Borrower
including balance sheets as of the close of each month and statements of income
and retained earnings for such month and for that portion of the fiscal year-to-
date then ended, which shall be prepared on a basis consistent with that of the
preceding period or containing disclosure of the effect on financial condition
or results of operations, and which shall be certified by the chief financial
officer of Borrower as being accurate and fairly presenting the financial
condition of Borrower.
11
<PAGE>
(b) Within ninety (90) days after the close of each fiscal year of
Borrower, consolidated and consolidating audited financial statements including
a balance sheet as of the close of such fiscal year and statements of income,
stockholders' capital and cash flow for the year then ended, prepared in
conformity with generally accepted accounting principles, applied on a basis
consistent with that of the preceding year or containing disclosure of the
effect on financial condition or results of operations of any change in the
application of accounting principles during the year, and accompanied by a
report thereon containing an unqualified opinion of a recognized certified
public accounting firm selected by Borrower and reasonably satisfactory to
Lender, which opinion shall state that such financial statements fairly present
the financial condition and results of operations of Borrower in accordance with
generally accepted accounting principles, and also accompanied by a written
statement from such accountants stating that they have reviewed such financial
statements and the financial covenants set forth in Section 13 and have found no
evidence of an Event of Default having occurred or of an event which with
passage of time and/or giving of notice would constitute an Event of Default
having occurred.
(c) Within ten (10) days of the close of each month, monthly aging of
accounts receivable and accounts payable and inventory status reports in form,
scope and substance satisfactory to Lender. Inventory status reports shall
include and identify all Inventory not located at the chief executive office of
Borrower.
(d) Daily loan and collateral designations in the form supplied by
Lender to Borrower.
(e) Within ten (10) days after Borrower's receipt, any management
letter prepared by Borrower's independent auditors.
(f) Contemporaneously with the delivery to shareholders or
governmental agencies, including, without limitation, the Securities and
Exchange Commission, copies of all reports and information delivered to
shareholders or filed with governmental agencies.
(g) Within ninety (90) days after the close of each fiscal year of
Aseco (Singapore) PTE LTD, a guarantor of the obligations of Borrower,
consolidated and consolidating audited financial statements of Aseco (Singapore)
PTE LTD and Borrower prepared by independent public accountants reasonably
satisfactory to Lender and accompanied by an unqualified opinion of such
independent public accountants as to the consolidated financial statements. The
consolidating portion of the financial statements will be unaudited.
(h) Within ninety (90) days after the close of each fiscal year of
Aseco International, Inc., a guarantor of the obligations of Borrower,
internally prepared financial statements as of the end of such fiscal year, all
in reasonable detail and stating in comparative form the respective figures for
the corresponding date and period for the prior fiscal year, all prepared in
accordance with generally accepted accounting principles consistently applied
and certified by the chief financial officer of Aseco International, Inc.
(i) As soon as available and in any event within thirty (30) days
after the close of each quarterly period of Borrower's fiscal year, a Compliance
Certificate in the form of Exhibit 2 annexed hereto prepared by Borrower's
certified public accountants.
(j) Promptly upon Lender's written request, such other information
about the financial condition and operations of Borrower or any guarantor, as
Lender may, from time to time, reasonably request.
(k) Immediately upon becoming aware of any Event of Default, or if
any representation or warranty contained herein is no longer true or accurate,
notice thereof in writing.
Commencing ninety (90) days from the date hereof, all information
regarding sales, cash receipts, Accounts and Inventory shall be transmitted to
Lender electronically, in ASCII readable formats, either on disk or transmitted
to Lender via modem. In the event that Borrower fails to report such information
to Lender electronically, Lender reserves the right, in
<PAGE>
its sole discretion, toadjust the margin over the Prime Rate payable by Borrower
hereunder upon ten (10) days notice to Borrower.
12. GENERAL AGREEMENTS OF BORROWER.
(a) Borrower agrees to keep all the Collateral insured with coverage
and in amounts not less than that usually carried by one engaged in a like
business and in any event not less than that required by Lender with loss
payable to Lender and Borrower, as their interests may appear, hereby appointing
Lender as attorney for Borrower in obtaining, adjusting, settling and canceling
such insurance and endorsing any drafts. As further assurance for the payment
and performance of the Obligations, Borrower hereby assigns to Lender all sums,
including returns of unearned premiums, which may become payable under any
policy of insurance on the Collateral and Borrower hereby directs each insurance
company issuing any such policy to make payment of such sums directly to Lender.
(b) Lender or its agents have the right during ordinary business
hours to inspect the Collateral and all records pertaining thereto at intervals
to be determined by Lender and without hindrance or delay.
(c) Borrower will at all times keep accurate and complete records of
Borrower's Inventory, Accounts and other Collateral, and will permit Lender to
audit the books and records of Borrower and to conduct or cause to be conducted
appraisals of Borrower's assets at such times, upon reasonable notice, and in
such manner and detail as Lender deems reasonable. Without limiting the
generality of the foregoing, Lender shall be allowed to verify the Receivables
and Inventory of Borrower and to confirm with account debtors the validity and
amount of Receivables. Borrower shall promptly pay to Lender reasonable audit
fees and any out-of-pocket expenses incurred by any third party retained by
Lender in connection with any audit if Lender, in its sole discretion, deems it
necessary to hire outside auditors after the occurrence of an Event of Default.
In addition, Borrower shall promptly pay or reimburse Lender for the costs of
any such appraisals conducted by or for Lender. Lender may pay any such audit
fees and out-of-pocket expenses and treat the same as a loan to Borrower.
(d) Borrower will maintain a standard and modern system of accounting
which enables Borrower to produce financial statements in accordance with
generally accepted accounting principles and maintain records pertaining to the
Collateral that contain information as from time to time may be requested by
Lender.
(e) Borrower will maintain its corporate existence in good standing
and comply in all material respects with all laws and regulations of the United
States or of any state or states thereof or of any political subdivision
thereof, or of any governmental authority which may be applicable to it or to
its business.
(f) Borrower will pay all real and personal property taxes,
assessments and charges and all franchises, income, unemployment, old age
benefits, withholding, sales and other taxes assessed against it, or payable by
it at such times and in such manner as to prevent any penalty from accruing or
any lien or charge from attaching to its property.
(g) Lender may in its own name or in the name of others communicate
with account debtors in order to verify with them to Lender's reasonable
satisfaction the existence, amount and terms of any Accounts.
its sole discretion, to adjust the margin over the Prime Rate payable by
Borrower hereunder upon ten (10) days notice to Borrower.
13
<PAGE>
(h) This Agreement may but need not be supplemented by separate
assignments of Accounts and if such assignments are given the rights and
security interests given thereby shall be in addition to and not in limitation
of the rights and security interests given by this Agreement.
(i) If any of Borrower's Accounts arise out of contracts with the
United States or any department, agency, or instrumentality thereof, Borrower
will immediately notify Lender thereof in writing and execute any instruments
and take any steps reasonably required by Lender in order that all monies due
and to become due under such contracts shall be assigned to Lender and notice
thereof given to the Government under the Federal Assignment of Claims Act.
(j) If any of Borrower's Accounts should be evidenced by promissory
notes, trade acceptances, or other instruments for the payment of money,
Borrower will immediately deliver same to Lender, appropriately endorsed to
Lender's order and, regardless of the form of such endorsement, Borrower hereby
waives presentment, demand, notice of dishonor, protest and notice of protest
and all other notices with respect thereto.
(k) Borrower will promptly pay when due all taxes and assessments
upon the Collateral or for its use or operation or upon this Loan and Security
Agreement, or upon any note or notes evidencing the Obligations, and will, at
the request of Lender, promptly furnish Lender the receipted bills therefor. At
its option, Lender may discharge taxes, liens or security interests or other
encumbrances at any time levied or placed on the Collateral, may pay for
insurance on the Collateral and may pay for the maintenance and preservation of
the Collateral. Borrower agrees to reimburse Lender on demand for any payments
made, or any expenses incurred by Lender pursuant to the foregoing
authorization, and upon failure of the Borrower so to reimburse Lender, any such
sums paid or advanced by Lender shall be deemed secured by the Collateral and
constitute part of the Obligations.
(l) Borrower will immediately notify Lender upon receipt of
notification of any potential or known release or threat of release of hazardous
materials, hazardous waste, hazardous or toxic substance or oil from any site
operated by Borrower or of the incurrence of any expense or loss in connection
therewith or with the Borrower's obtaining knowledge of any investigation,
action or the incurrence of any expense or loss by any governmental authority in
connection with the assessment, containment or removal of any hazardous material
or oil for which expense or loss the Borrower may be liable. As used herein, the
terms "hazardous waste," "hazardous or toxic substance," "hazardous material" or
"oil" shall have the same meanings as defined and used in any of the following
(the "Acts"): the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq.; the Federal
------
Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901 et seq.; the
------
Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801 et seq.; the
------
Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; M.G.L.A. c. 21E
------
(Massachusetts Oil and Hazardous Material Release Prevention Act); M.G.L.A. c.
21C (Massachusetts Hazardous Waste Management Act); and/or the regulations
adopted and publications promulgated pursuant to any of the Acts, as the same
may be amended from time to time.
(m) Except for Lender's gross negligence or willful misconduct,
Borrower will indemnify and save Lender harmless from all loss, costs, damage,
liability or expenses (including, without limitation, court costs and reasonable
attorneys' fees) that Lender may sustain or incur by reason of defending or
protecting this security interest or the priority thereof or enforcing the
Obligations, or in the prosecution or defense of any action or proceeding
concerning any matter growing out of or in connection with this Agreement and/or
any other documents now or hereafter executed in connection with this Agreement
and/or the Obligations and/or the Collateral. This indemnity shall survive the
repayment of the Obligations and the termination of Lender's agreement to make
loans available to Borrower and the termination of this Agreement.
(n) At the option of Lender, Borrower will furnish to Lender, from
time to time, within five (5) days after the accrual in accordance with
applicable law of Borrower's obligation to make deposits for F.I.C.A. and
withholding taxes and/or sales taxes, proof satisfactory to Lender that such
deposits have been made as required.
<PAGE>
(o) Should Borrower fail to make any of such deposits or furnish such
proof then Lender may, in its sole and absolute discretion, (a) make any of such
deposits or any part thereof, (b) pay such taxes, or any part thereof, or (c)
set-up such reserves as Lender, in its judgment, shall deem necessary to satisfy
the liability for such taxes. Each amount so deposited or paid shall constitute
an advance under the terms hereof, repayable on demand with interest, as
provided herein, and secured by all Collateral and any other property at any
time pledged by Borrower with Lender. Nothing herein shall be deemed to obligate
Lender to make any such deposit or payment or set-up such reserve and the making
of one or more of such deposits or payments or the setting-up of such reserve
shall not constitute (i) an agreement on Lender's part to take any further or
similar action, or (ii) a waiver of any default by Borrower under the terms
hereof.
(p) All advances by Lender to Borrower under this Agreement and under
any other agreement constitute one general revolving fluctuating loan, and all
indebtedness of Borrower to Lender under this and under any other agreement
constitute one general Obligation. Each advance to Borrower hereunder or
otherwise shall be made upon the security of all of the Collateral held and to
be held by Lender. It is distinctly understood and agreed that all of the rights
of Lender contained in this Agreement shall likewise apply, insofar as
applicable, to any modification of or supplement to this Agreement and to any
other agreements between Lender and Borrower. Any default of this Agreement by
Borrower shall constitute, likewise, a default by Borrower of any other existing
agreement with Lender, and any default by Borrower of any other agreement with
Lender shallconstitute a default of this Agreement. The entire Obligation of
Borrower to Lender shall become due and payable when payments become due and
payable hereunder upon termination of this Agreement.
(q) Borrower hereby grants to Lender for a term to commence on the
date of this Agreement and continuing thereafter until all debts and Obligations
of any kind or character owing from Borrower to Lender are fully paid and
discharged, the right to use all premises or places of business which Borrower
presently has or may hereafter have and where any of the Collateral may be
located, at a total rental for the entire period of $1.00. Lender agrees not to
exercise the rights granted in this paragraph unless and until Lender determines
to exercise its rights against the Collateral.
15
<PAGE>
(r) Borrower will, at its expense, upon request of Lender promptly
and duly execute and deliver such documents and assurances and take such actions
as may be necessary or desirable or as Lender may request in order to correct
any defect, error or omission which may at any time be discovered or to more
effectively carry out the intent and purpose of this Agreement and to establish,
perfect and protect Lender's security interest, rights and remedies created or
intended to be created hereunder.
(s) Borrower shall perform any and all further steps reasonably
requested by Lender to perfect Lender's security interest in Inventory, placing
and maintaining signs, appointing custodians, maintaining stock records and
transferring Inventory to warehouses. A "cycle count" of all Inventory, wherever
located, shall be taken by Borrower at least annually and whenever requested by
Lender if one or more of the Events of Default exist.
(t) Borrower hereby grants to Lender for a term to commence on the
date of this Agreement and continuing thereafter until all debts and Obligations
of any kind or character owed to Lender are fully paid and discharged, a
non-exclusive irrevocable royalty-free license in connection with Lender's
exercise of its rights hereunder, to use, apply or affix any trademark, trade
name logo or the like and to use any patents, in which the Borrower now or
hereafter has rights, which license may be used by Lender upon and after the
occurrence of any one or more of the Events of Default, provided, however, that
such use by Lender shall be suspended if such Events of Default are cured. This
license shall be in addition to, and not in lieu of, the inclusion of all of
Borrower's trademarks, servicemarks, tradenames, logos, goodwill, patents,
franchises and licenses in the Collateral; in addition to the right to use said
Collateral as provided in this paragraph, Lender shall have full right to
exercise any and all of its other rights regarding Collateral with respect to
such trademarks, servicemarks, tradenames, logos, goodwill, patents, franchises
and licenses. Lender agrees not to exercise the license granted pursuant to this
section prior to the occurrence of an Event of Default which is continuing.
(u) Borrower will maintain its main operating account and depository
accounts at Fleet National Bank. Borrower also maintains bank accounts at
USTrust, correspondents of Fleet National Bank in Singapore, The Royal Bank of
Canada in Barbados and Midland Bank in England.
13. BORROWER'S NEGATIVE COVENANTS. Borrower will not at any time without
Lender's prior written consent:
(a) (Tangible Net Worth) permit its tangible net worth to be less
--------------------
than $6,000,000.00;
(b) (Debt to Worth) permit the aggregate amount of its indebtedness
---------------
to be more than 1.25 times the amount of its tangible net worth;
(c) (Capital Expenditures) during any fiscal year of Borrower, make,
----------------------
directly or indirectly, capital expenditures in an aggregate amount greater than
$500,000.00;
(d) (Capital Base) (i) permit its tangible capital base to be less
--------------
than $6,000,000.00, or (ii) permit its senior indebtedness to be more than 1.25
times the amount of its tangible capital base;
(e) (Subchapter S Corporation) if Borrower is a Subchapter S
--------------------------
corporation, make distributions to its shareholders during any fiscal year of
Borrower in an aggregate amount greater than the amount necessary to pay federal
and state income taxes upon Borrower's undistributed income for such year;
(g) (Disposition of Collateral) sell, assign, exchange or otherwise
---------------------------
dispose of any of the Collateral, other than Inventory consisting of (i) scrap,
waste, defective goods and the like; (ii) obsolete goods; (iii) finished goods
sold in the ordinary course of business or any interest therein to any
individual, partnership, trust or other corporation; and (iv) Equipment which is
no longer required or deemed necessary for the conduct of Borrower's business,
so long as Borrower receives therefor a sum substantially equal to such
Equipment's fair value, remits such sum to
<PAGE>
Lender in accordance with the terms of this Agreement or replaces such Equipment
with other equipment of similar value which is subject to a first security
interest in Lender's favor;
(h) (Liens) create, permit to be created or suffer to exist any lien,
-------
encumbrance or security interest of any kind ("Lien") upon any of the Collateral
or any other property of Borrower, now owned or hereafter acquired, except: (i)
landlords', carriers', warehousemen's, mechanics' and other similar liens
arising by operation of law in the ordinary course of Borrower's business; (ii)
arising out of pledge or deposits under worker's compensation, unemployment
insurance, old age pension, social security, retirement benefits or other
similar legislation; (iii) purchase money Liens arising in the ordinary course
of business (so long as the indebtedness secured thereby does not exceed the
lesser of the cost or fair market value of the property subject thereto, and
such Lien extends to no other property); (iv) Liens for unpaid taxes that are
either (x) not yet due and payable, or (y) are subject of permitted protests;
(v) Liens which are the subject of permitted protests; (vi) those Liens and
encumbrances set forth on Schedule "B" annexed hereto; and (vii) in favor of
Lender; the term "permitted protests" as used herein means the right of the
Borrower to protest any Lien (other than a Lien that secures the Obligations),
tax (other than payroll taxes or taxes that are the subject of a federal or
state tax lien) or rental payment, provided that (x) a reserve with respect to
such liability is established on the books of the Borrower in an amount that is
reasonably satisfactory to the Lender, (y) any such protest is instituted and
diligently prosecuted by the Borrower in good faith, and (z) the Lender is
satisfied that, while such protest is pending, there will be no impairment of
the enforceability, validity or priority of any of the Liens of the Lender in
and to the Collateral;
(i) (Dividends) pay any dividends on or make any distribution on
-----------
account of (except, if Borrower is a Subchapter S corporation, consistent with
paragraph (f) above) any class of Borrower's capital stock in cash or in
property (other than additional shares of such stock), or redeem, purchase or
otherwise acquire, directly or indirectly, any of such stock;
(j) (Loans) make any loans or advances to any individual,
-------
partnership, trust or other corporation, including without limitation Borrower's
directors, officers and employees, except advances to officers or employees with
respect to expenses incurred by them in the ordinary course of their duties
which are properly reimbursable by Borrower;
(k) (Guarantees) assume, guaranty, endorse or otherwise become
------------
directly or contingently liable in respect of (including without limitation by
way of agreement, contingent or otherwise, to purchase, provide funds to or
otherwise invest in a debtor or otherwise to assure a creditor against loss),
any indebtedness (except guarantees by endorsement of instruments for deposit or
collection in the ordinary course of business and guarantees in favor of Lender)
of any individual, partnership, trust or other corporation;
17
<PAGE>
(l) (Investments) (i) use any loan proceeds to purchase or carry any
-------------
"margin stock" (as defined in Regulation U of the Board of Governors of the
Federal Reserve System) or (ii) invest in or purchase any stock or securities of
any individual, partnership, trust or other corporation except (x) readily
marketable direct obligations of, or obligations guaranteed by, the United
States of America or any agency thereof or (y) cash collateral maintained with
Lender. Lender agrees to pay interest on any such cash collateral in an amount
equal to the interest that would be paid by Fleet National Bank on certificates
of deposit issued for a similar amount for a similar time period.
(m) (Transactions with Affiliates) enter into any lease or other
------------------------------
transaction with any shareholder, officer or affiliate on terms any less
favorable than those which might be obtained at the time from persons who (or
entities which) are not such a shareholder, officer or affiliate;
(n) (Subsidiaries) sell, transfer or otherwise dispose of any stock
--------------
of any subsidiary of Borrower; or
(o) (Mergers, Consolidations or Sales) (a) merge or consolidate with
----------------------------------
or into any corporation; (b) enter into any joint venture or partnership with
any person, firm or corporation; (c) convey, lease or sell all or any material
portion of its property or assets or business to any other person, firm or
corporation, except for the sale of Inventory in the ordinary course of its
business; or (d) convey, lease or sell any of its assets to any person, firm or
corporation for less than the fair market value thereof.
For purposes of this section: "affiliate" shall mean any person or
entity (i) which directly or indirectly controls, or is controlled by or is
under common control with the Borrower or a subsidiary, (ii) which directly or
indirectly beneficially holds or owns five (5%) percent or more of any class of
voting stock of the Borrower or any subsidiary, or (iii) five (5%) percent or
more of the voting stock of which is directly or indirectly beneficially owned
or held by the Borrower or a subsidiary; "capital assets" shall mean assets
that, in accordance with generally accepted accounting principles, are required
or permitted to be depreciated or amortized on the Borrower's balance sheet;
"capital expenditures" shall mean but not be limited to amounts paid during such
fiscal year for capital assets or capital leases and shall include, in the case
of a purchase, the entire purchase price and, in the case of a capital lease
(but not an operating lease), the entire rental for the term; "capital leases"
shall mean capital leases, conditional sales contracts and other title retention
agreements relating to the purchase or acquisition of capital assets; "cash
flow" shall mean EBITDA, minus unfinanced capital expenditures, minus taxes
actually paid; "CMLTD" shall mean the current maturity of long term indebtedness
paid during the applicable period, including but not limited to, amounts
required to be paid during such period under capital leases; "control" shall
mean the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of any person or entity, whether
through the ownership of voting securities, by contract or otherwise;
"distributions" shall mean all payment or distributions to shareholders in cash
or in property other than reasonable salaries, bonuses and expense
reimbursements; "EBITDA" shall mean, for the applicable period, income from
continuing operations before the payment of interest and taxes, plus
depreciation and amortization, determined in accordance with generally accepted
accounting principles; "fixed charges" shall mean interest, plus CMLTD;
"indebtedness" shall mean (i) all liabilities for borrowed money, for the
deferred purchase price of property or services, and under leases which are or
should be, under generally accepted accounting principles, recorded as capital
leases, in respect of which a person or entity is directly or indirectly,
absolutely or contingently liable as obligor, guarantor, endorser or otherwise,
or in respect of which such person or entity otherwise assures a creditor
against loss, (ii) all liabilities of the type described in (i) above which are
secured by (or for which the holder has an existing right, contingent or
otherwise, to be secured by) any lien upon property owned by such person or
entity, whether or not such person or entity has assumed or become liable for
the payment thereof, and (iii) all other liabilities or obligations which would,
in accordance with generally accepted accounting principles, be classified as
liabilities of such person or entity; "interest" shall mean, for the applicable
period, all interest paid or payable, including, but not limited to, interest
paid or payable on indebtedness and on capital leases, determined in accordance
with generally accepted accounting principles; "senior indebtedness" shall mean
any indebtedness which is not subordinated indebtedness; "subordinated
indebtedness" shall mean indebtedness which is expressly stated to be
subordinated or junior in right of payment to Borrower's
<PAGE>
Obligations to Lender in a manner and in a form which is satisfactory to Lender;
"tangible capital base" shall mean Borrower's tangible net worth plus its
subordinated indebtedness; "tangible net worth" shall mean Borrower's
stockholders' equity determined in accordance with generally accepted accounting
principles, consistently applied, subtracting therefrom (i) intangibles (as
----------- ---------
determined in accordance with such principles so applied) and (ii) accounts and
indebtedness owing to Borrower from any employee or parent, subsidiary or other
affiliate of Borrower; and "unfinanced capital expenditures" shall mean capital
expenditures, minus long term indebtedness issued during the applicable period
for the acquisition of capital assets.
14. DEFAULT; RIGHTS AND REMEDIES UPON DEFAULT.
(a) Upon the occurrence of any one or more of the following events
(herein, "Events of Default"), Lender may decline to make any or all further
loans hereunder or under any other agreements with Borrower, any and all
Obligations of the Borrower to Lender shall become immediately due and payable,
at the option of Lender and without notice or demand. The occurrence of any such
Event of Default shall also constitute, without notice or demand, a default
under all other agreements between Lender and the Borrower and instruments and
papers given Lender by the Borrower, whether such agreements, instruments, or
papers now exist or hereafter arise, namely:
(i) The failure by the Borrower to pay when due any principal,
interest, fees, costs, and expenses due pursuant to this Agreement.
(ii) The failure by the Borrower to pay, when due, any other
Obligations.
(iii) Default by the Borrower in the observance or performance of any
of the covenants or agreements of the Borrower contained in Sections 9(a)
or 13 of this Agreement.
(iv) The failure by the Borrower to promptly, punctually and
faithfully perform, or observe any term, covenant or agreement on its part
to be performed or observed pursuant to any of the provisions of this
Agreement, other than those described in Sections 5(b), 5(f), 5(i), 9(a),
9(d), 13, or in any other agreement with Lender which is not remedied
within the earlier of fifteen (15) days after (i) notice thereof by Lender
to Borrower, or (ii) the date Borrower was required to give notice to
Lender pursuant to Section 11(i) hereof.
(v) The determination by Lender that any representation or warranty
heretofore, now or hereafter made by the Borrower to Lender, in any
documents, instrument, agreement, or paper was not true or accurate when
given in any material respect.
(vi) The occurrence of any event such that any material indebtedness
of the Borrower from any lender other than Lender could be accelerated,
notwithstanding that such acceleration has not taken place.
19
<PAGE>
(vii) The occurrence of any event which would cause a lien creditor,
as that term is defined in Section 9-301 of the Code, to take priority over
advances made by Lender.
(viii) A filing against or relating to the Borrower of (A) a federal
tax lien in favor of the United States of America or any political
subdivision of the United States of America, or (B) a state tax lien in
favor of any state of the United States of America or any political
subdivision of any such state.
(ix) The occurrence of any event of default under any agreement
between Lender and the Borrower or instrument or paper given Lender by the
Borrower, whether such agreement, instrument, or paper now exists or
hereafter arises (notwithstanding that Lender may not have exercised its
rights upon default under any such other agreement, instrument or paper).
(x) Any act by, against, or relating to the Borrower, or its
property or assets, which act constitutes the application for, consent to,
or sufferance of the appointment of a receiver, trustee or other person,
pursuant to court action or otherwise, over all, or any part of the
Borrower's property.
(xi) The granting of any trust mortgage or execution of an
assignment for the benefit of the creditors of the Borrower, or the
occurrence of any other voluntary or involuntary liquidation or extension
of debt agreement for the Borrower; the failure by the Borrower to
generally pay the debts of the Borrower as they mature; adjudication of
bankruptcy or insolvency relative to the Borrower; the entry of an order
for relief or similar order with respect to the Borrower in any proceeding
pursuant to Title 11 of the United States Code entitled "Bankruptcy"
(hereinafter the "Bankruptcy Code") or any other federal bankruptcy law;
the filing of any complaint, application, or petition by or against the
Borrower initiating any matter in which the Borrower is or may be granted
any relief from the debts of the Borrower pursuant to the Bankruptcy Code
or any other insolvency statute or procedure; the calling or sufferance of
a meeting of creditors of the Borrower; the meeting by the Borrower of a
formal or informal creditor's committee; the offering by or entering into
by the Borrower of any composition, extension or any other arrangement
seeking relief or extension for the debts of the Borrower, or the
initiation of any other judicial or non-judicial proceeding or agreement
by, against or including the Borrower which seeks or intends to accomplish
a reorganization or arrangement with creditors.
(xii) The entry of any judgment(s) against Borrower, which
judgment(s) is not satisfied or appealed from (with execution or similar
process stayed) within thirty (30) days of its entry.
(xiii) The occurrence of any event or circumstance with respect to the
Borrower such that Lender shall believe in good faith that the prospect of
payment of all or any part of the Obligations or the performance by the
Borrower under this Agreement or any other agreement between Lender and the
Borrower is impaired or there shall occur any material adverse change in
the business or financial condition of the Borrower.
(xiv) The entry of any court order which enjoins, restrains or in any
way prevents the Borrower from conducting all or any part of its business
affairs in the ordinary course of business.
(xv) The service of any process upon Lender seeking to attach by
trustee process any funds of the Borrower on deposit with Lender.
(xvi) Any change in the identity, authority or responsibilities of
any person having management or policy authority with respect to the
Borrower from that existing at the execution of this Agreement, unless such
person is replaced within thirty (30) days by another person acceptable to
Lender.
(xvii) The occurrence of any material uninsured loss, theft, damage or
destruction to any material asset(s) of the Borrower.
<PAGE>
(xviii) Any act by or against, or relating to the Borrower or its
assets pursuant to which any creditor of the Borrower seeks to reclaim or
repossess or reclaims or repossesses all or a portion of the Borrower's
assets.
(xix) The death, termination of existence, dissolution, or
liquidation of the Borrower, or the ceasing to carry on actively any
substantial part of Borrower's current business.
(xx) This Agreement shall, at any time after its execution and
delivery and for any reason, cease (A) to create a valid and perfected
first priority security interest in and to the property purported to be
subject to this Agreement; or (B) to be in full force and effect or shall
be declared null and void, or the validity or enforceability hereof shall
be contested by the Borrower or any guarantor of the Borrower denies it has
any further liability or obligation hereunder.
(xxi) Any of the following events occur or exist with respect to
the Borrower or any ERISA affiliate: (A) any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Internal Revenue
Code) involving any Plan; (B) any "reportable event" (as defined in Section
4043 of ERISA and the regulations issued under such Section) shall occur
with respect to any Plan; (C) The filing under Section 4041 of ERISA of a
notice of intent to terminate any Plan or the termination of any Plan; (D)
any event or circumstance exists which might constitute grounds entitling
the Pension Benefit Guaranty Corporation (PBGC) to institute proceedings
under Section 4042 of ERISA for the termination of, or for the appointment
of a trustee to administer, any Plan, or the institution by the PBGC of any
such proceedings; (E) or partial withdrawal under Section 4201 or 4204 of
ERISA from a Multiemployer Plan or the reorganization, insolvency, or
termination of any Multiemployer Plan; and in each case above, such event
or condition, together with all other events or conditions, if any, could
in the opinion of Lender subject the Borrower to any tax, penalty, or other
liability to a Plan, a Multiemployer Plan, the PBGC, or otherwise.
(xxii) The occurrence of (A) any of the Events of Default described
in Sections 14(vi), 14(viii), 14(xi), 14(xii), or 14(xix), with respect to
any guarantor to Lender of the Obligations, as if such guarantor were the
"Borrower" described therein, or (B) the failure by any guarantor to Lender
of the Obligations to perform in accordance with the terms of any agreement
between such guarantor and the Lender.
(xxiii) The termination of any guaranty by any guarantor of the
Obligations.
Upon the occurrence and during the continuance of an Event of Default,
Lender may declare any obligation Lender may have hereunder to be
cancelled, declare all Obligations of Borrower to be due and payable and
proceed to enforce payment of the Obligations and to exercise any and all
of the rights and remedies afforded to Lender by the Uniform Commercial
Code or under the terms of this Agreement or otherwise. In addition, upon
the occurrence and during the continuation of an Event of Default, if
Lender proceeds to enforce payment of the Obligations, Borrower shall be
obligated to deliver to Lender cash collateral in an amount equal to the
aggregate amounts then undrawn on all outstanding Letters of Credit or
acceptances issued or guaranteed by Lender for the account of Borrower, if
any, and Lender may proceed to enforce payment of the same and to exercise
all rights and remedies afforded to Lender by the Uniform Commercial Code
or under the terms of this Agreement or otherwise. Upon the occurrence of,
and during the continuance of, an Event of Default, the Borrower, as
additional compensation to the Lender for its increased credit risk,
promises to pay interest on all Obligations (including, without limitation,
principal, whether or not past due, past due interest and any other amounts
past due under this Agreement) at a per annum rate of three (3%) percent
greater than the rate of interest then specified in Section 5 of this
Agreement.
(b) Upon the filing of any complaint, application, or petition by or
against the Borrower initiating any matter in which the Borrower is or may be
granted any relief from the debts of the Borrower pursuant to the Bankruptcy
Code, Lender's obligation hereunder shall be
21
<PAGE>
cancelled immediately, automatically, and without notice, and all Obligations of
the Borrower then outstanding shall become immediately due and payable without
presentation, demand, or notice of any kind to the Borrower.
(c) Any sale or other disposition of the Collateral may be at public
or private sale upon such terms and in such manner as the Lender deems
advisable, having due regard to compliance with any statute or regulation which
might affect, limit or apply to the Lender's disposition of the Collateral. The
Lender may conduct any such sale or other disposition of the Collateral upon the
Borrower's premises. Unless the Collateral is perishable or threatens to decline
speedily in value, or is of a type customarily sold on a recognized market (in
which event the Lender shall provide the Borrower with such notice as may be
practicable under the circumstances), the Lender shall give the Borrower at
least the greater of the minimum notice required by law or seven (7) days prior
written notice of the date, time and place of any proposed public sale, and of
the date after which any private sale or other disposition of the Collateral may
be made. The Lender may purchase the Collateral, or any portion of it at any
such sale.
(d) In connection with the Lender's exercise of the Lender's rights
after the occurrence of an Event of Default, the Lender may enter upon, occupy
and use any premises owned or occupied by the Borrower, and may exclude the
Borrower from such premises or portion thereof as may have been so entered upon,
occupied, or used by the Lender. The Lender shall not be required to remove any
of the Collateral from any such premises upon the Lender's taking possession
thereof, and may render any Collateral unusable to the Borrower. In no event,
absent gross negligence or willful misconduct, shall the Lender be liable to the
Borrower for use or occupancy by the Lender of any premises pursuant to this
Agreement.
(e) Upon the occurrence and during the continuation of any Event of
Default, the Lender may require the Borrower to assemble the Collateral and
make it available to the Lender at the Borrower's sole risk and expense at
a place or places which are reasonably convenient to both the Lender and
the Borrower.
15. PROCESSING AND SALES OF INVENTORY. So long as Borrower is not in default
hereunder, Borrower shall have the right, in the regular course of business, to
process and sell Borrower's Inventory. A sale in the ordinary course of business
shall not include a transfer in total or partial satisfaction of a debt.
16. WAIVER OF JURY TRIAL. BORROWER AND Lender EACH HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT 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 AGREEMENT. Borrower hereby certifies that neither Lender nor
any of its representatives, agents or counsel has represented, expressly or
otherwise, that Lender 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 Lender has been induced to enter into this Agreement by, among
other things, this waiver. Borrower acknowledges that it has read the provisions
of this Agreement and in particular, this section; has consulted legal counsel;
understands the right it is granting in this Agreement and is waiving in this
section in particular; and makes the above waiver knowingly, voluntarily and
intentionally.
17. CONSENT TO JURISDICTION. Borrower and Lender agree that any action or
proceeding to enforce or arising out of this Agreement may be commenced in the
Superior Court for the judicial District of Hartford or the United States
District Court for the District of Connecticut at Hartford, and Borrower waives
personal service of process and agrees that a summons and complaint commencing
an action or proceeding in any such court shall be properly served and confer
personal jurisdiction if served by registered or certified mail to Borrower, or
as otherwise provided by the laws of the State of Connecticut or the United
States of America.
18. TERMINATION
(a) Unless renewed in writing, this Agreement shall terminate on
August 31, 2001 (the "Termination Date"), and all Obligations shall be due and
payable in full without presentation, demand, or further notice 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
<PAGE>
same. Lender 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 security interest, Lender's
rights and remedies hereunder and 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, or contracted or
committed for (whether or not outstanding), before the receipt of such notice by
Lender, 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.
23
<PAGE>
(b) If Borrower pays in full all or substantially all of the
Obligations prior to the Termination Date, other than temporarily from funds
internally generated in the ordinary course of business, at the time of such
payment Borrower shall also pay to Lender a prepayment premium in an amount
equal to: (i) five (5%) percent of the Credit Limit, if paid during the first
year after the date of this Agreement, and (ii) three (3%) percent of the Credit
Limit, if prepaid during the second year after the date of this Agreement. Any
tender of payment in full of the Obligations following an acceleration by Lender
of the Obligations pursuant to Section 14 shall be for purposes of this section
deemed to be a prepayment requiring Borrower to pay the aforementioned
prepayment premium.
Such prepayment premium shall be paid to Lender as liquidated damages
for the loss of the bargain by Lender and not as a penalty.
The foregoing notwithstanding, Lender will waive the three (3%)
percent prepayment premium in the second year if Borrower pays all of its
Obligations to Lender with the proceeds of a loan from USTrust or any successor
to USTrust.
(c) In the event that Lender continues to make loans hereunder after
the Termination Date without a written extension of the Termination Date, all
such loans: (i) shall be made in the sole and absolute discretion of Lender; and
(ii) shall, together with all other Obligations, be payable thereafter ON
DEMAND.
19. MISCELLANEOUS.
(a) No delay or omission on the part of Lender in exercising any
rights shall operate as a waiver of such right or any other right. Waiver on any
one occasion shall not be construed as a bar to or waiver of any right or remedy
on any future occasion. All Lender's rights and remedies, whether evidenced
hereby or by any other agreement, instrument or paper, shall be cumulative and
may be exercised singularly or concurrently.
(b) Lender is authorized to make loans under the terms of this
Agreement upon the request, either written or oral, in the name of Borrower or
any authorized person whose name appears at the end of this Agreement or of any
of the following named person, or persons, from time to time, holding the
following offices of Borrower, President, Treasurer and such other officers and
authorized signatories as may from time to time be set forth in separate banking
and borrowing resolutions.
(c) This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties hereto; provided,
--------
however, that Borrower may not assign this Agreement or any rights or duties
- -------
hereunder without Lender's prior written consent and any prohibited assignment
shall be absolutely void. No consent to an assignment by Lender shall release
Borrower from its Obligations. Lender may assign this Agreement and its rights
and duties hereunder and no consent or approval by Borrower is required in
connection with any such assignment. Lender reserves the right to sell, assign,
transfer, negotiate or grant participations in all or any part of, or any
interest in Lender's rights and benefits hereunder. In connection with any
assignment or participation, Lender may disclose all documents and information
which Lender now or hereafter may have relating to Borrower or Borrower's
business. To the extent that Lender assigns its rights and obligations hereunder
to another party, Lender thereafter shall be released from such assigned
obligations to Borrower and such assignment shall effect a novation between
Borrower and such other party.
(d) Borrower agrees that any and all loans made by Lender to Borrower
or for its account under this Agreement shall be conclusively deemed to have
been authorized by Borrower and to have been made pursuant to duly authorized
requests therefor on its behalf.
(e) Unless otherwise defined in this Agreement, capitalized words
shall have the meanings set forth in the Uniform Commercial Code as in effect in
the Commonwealth of Massachusetts as of the date of this Agreement.
(f) Paragraph and section headings used in this Agreement are for
convenience only, and shall not effect the construction of this Agreement. If
one or more
<PAGE>
provisions of this Agreement (or the application thereof) shall be invalid,
illegal or unenforceable in any respect in any jurisdiction, the same shall not,
invalidate or render illegal or unenforceable such provision (or its
application) in any other jurisdiction or any other provision of this Agreement
(or its application). This Agreement is the entire agreement of the parties with
respect to the subject matter hereof and supersedes any prior written or verbal
communications or instruments relating thereto.
(g) Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other loan document shall
be in writing and (except for financial statements and other informational
documents which may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by registered or certified mail (postage prepaid,
return receipt requested ), overnight courier, or telefacsimile to Borrower or
to Lender, as the case may be, at its address set forth below:
If to Lender: American Commercial Finance
Corporation
433 South Main Street
West Hartford, Connecticut 06110
Attn: Richard E. Mount, President
Telephone: (800) 970-9997
Telecopier: (800) 217-0500
With a copy to: Michael J. Ruberto, Esq.
Shapiro, Israel & Weiner, P.C.
100 North Washington Street
Boston, Massachusetts 02110
Telephone: (617) 742-4200
Telecopier: (617) 742-2355
If to Borrower: Aseco Corporation
500 Donald Lynch Boulevard
Marlboro, Massachusetts 01752
Attn: Sebestian J. Sicari, President
Telephone: (508) 481-8896
Telecopier:
With a copy to: Robert V. Jahrling, Esq.
Choate, Hall & Stewart
Exchange Place, 53 State Street
Boston, Massachusetts 02109
Telephone: (617) 248-5000
Telecopier:(617) 248-4000
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demand sent in accordance with this section shall be
deemed received on the earlier of the date of actual receipt or three (3) days
after the deposit thereof in the mail.
(h) Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against Lender or Borrower, whether under any
rule of construction or otherwise. On the contrary, this Agreement has been
reviewed by all parties and shall be construed and interpreted according to the
ordinary meaning of the words used so as to fairly accomplish the purposes and
intentions of all parties hereto.
(i) Each provision of this Agreement shall be severable from every
other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
(j) This Agreement, together with the other documents and instruments
executed concurrently herewith represent the entire and final understanding of
the parties with respect to the transactions contemplated hereby and shall not
be contradicted or qualified by evidence of any prior, contemporaneous or
subsequent other agreement, oral or written, before the date hereof.
25
<PAGE>
(k) This Agreement can only be amended by a writing signed by both
Lender and Borrower.
(l) This Agreement and other financing agreements, and all
transactions, assignments and transfers hereunder and thereunder, and all the
rights of the parties, shall be governed as to validity, construction,
enforcement and in all other respects by the laws of the State of Connecticut
(but not its conflicts of law provisions). Borrower hereby designates and
appoints, without power of revocation, the Secretary of the State of Connecticut
as Borrower's agent upon whom may be served all process, pleadings, notices or
other papers which may be served upon it as a result of any of its Obligations
under this Agreement. Borrower agrees that the Superior Court for the Judicial
District of Hartford or the United States District Court for the District of
Connecticut at Hartford shall have jurisdiction to hear and determine any claims
or disputes pertaining to the financing transactions of which this Agreement is
a part and/or to any matter arising or in any way related to this Agreement or
any other agreement between Lender and Borrower, and Borrower expressly submits
and consents in advance to such jurisdiction in any action or proceeding.
20. WAIVERS.
(a) BORROWER ACKNOWLEDGES THAT THE LOAN EVIDENCED HEREBY IS A
COMMERCIAL TRANSACTION AND WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER
903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE
OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH LENDER MAY DESIRE TO
USE, AND FURTHER WAIVES ITS RIGHTS TO REQUEST THAT LENDER POST A BOND, WITH OR
WITHOUT SURETY, TO PROTECT BORROWER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY
PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY LENDER. BORROWER FURTHER WAIVES
DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT, NOTICE OF NONPAYMENT, PROTEST AND
NOTICE OF ANY RENEWALS OR EXTENSIONS.
(b) BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT,
ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY
RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS AGREEMENT IS A PART AND/OR
THE ENFORCEMENT OF ANY OF LENDER'S RIGHTS, INCLUDING WITHOUT LIMITATION, TORT
CLAIMS. BORROWER ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY,
WITHOUT DURESS AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER
WITH ITS ATTORNEYS. BORROWER FURTHER ACKNOWLEDGES THAT LENDER HAS NOT
REPRESENTED TO BORROWER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY
ENFORCED IN ALL INSTANCES.
(c) BORROWER ACKNOWLEDGES THAT IT MAKES THE FOREGOING WAIVERS IN (a)
AND (b) ABOVE, KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER
CONSIDERATION OF THE RAMIFICATIONS OF SUCH WAIVERS WITH ITS ATTORNEYS.
Witnessed by: ASECO CORPORATION
______________________________ By:/s/ Mary R. Barletta
---------------------------
______________________________________ Mary R. Barletta, Treasurer
<PAGE>
AMERICAN COMMERCIAL FINANCE
CORPORATION
By:/s/ Richard E.Mount
-------------------------------
Richard E. Mount, President
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. August 19, 1999
Then personally appeared the above-named, Mary R. Barletta, Treasurer, and
acknowledged the foregoing instrument to be the free act and deed of Aseco
Corporation, before me,
/s/Michael J. Ruberto, Notary Public
My Commission Expires: June 15, 2001
27
<PAGE>
EXHIBIT 2.0
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of the 18th day of September, 1999, by
and among Micro Component Technology, Inc., a Minnesota corporation ("Parent"),
MCT Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of
Parent ("Merger Sub"), and Aseco Corporation, a Delaware corporation (the
"Company").
WHEREAS, the Board of Directors of the Parent and the Company deem it advisable
and in the best interests of their respective stockholders to consummate, and
have approved, the business combination transaction provided for herein in which
Merger Sub would merge (the "Merger") with and into the Company, and the Company
would become a wholly-owned subsidiary of Parent.
WHEREAS, the parties hereto intend that (i) the issuance of the Parent Common
Stock (as defined below) to the shareholders of the Company in connection with
the Merger shall be on a tax-free basis to the shareholders of the Company and
(ii) this transaction shall qualify for federal income tax purposes as a
reorganization within the meaning of (S)(S) 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 Effective Time of the Merger. Subject to the provisions of this
Agreement, articles of merger (the "Articles of Merger") shall be properly
executed and thereafter duly filed with the Secretary of State of Delaware as
provided in the Delaware General Corporation Law (the "Delaware Law"), as soon
as practicable on or after the Closing (as defined in Section 1.2). The Merger
shall become effective upon the filing of the Articles of Merger with the
Secretary of State of Delaware or at such other time as the parties may agree
upon in writing pursuant to applicable law (the "Effective Time").
Section 1.2 Closing. The closing of the Merger (the "Closing") will take place
as set forth in Section 6.4 hereof at the offices of Best & Flanagan LLP, 4000
U.S. Bank Place, 601 Second Avenue South, Minneapolis, Minnesota, or at such
other place and time as is agreed to in writing by the parties hereto.
Section 1.3 Effects of the Merger.
(a) At the Effective Time (i) Merger Sub shall be merged with and into the
Company which shall be the surviving corporation (the "Surviving Corporation";
Merger Sub and the Company are sometimes referred to herein as the "Constituent
Corporations") and the separate existence of Merger Sub shall cease, (ii) the
Certificate of Incorporation of Merger Sub shall be the Certificate of
Incorporation of the Surviving Corporation, and (iii) the Bylaws of the Merger
Sub as in effect immediately prior to the Effective Time shall be the Bylaws of
the Surviving Corporation.
(b) Upon the effectiveness of the Merger, all of the estate, property, rights,
privileges, powers and franchises of the Constituent Corporations and all of
their property, real, personal and mixed, and all the debts due on whatever
account to either of them, as well as all stock subscriptions and other choses
in action belonging to either of them shall be transferred to and vested in the
Surviving Corporation; and all claims, demands, property and other interests
shall be the property of the Surviving Corporation, and the title to all real
estate vested in either of the Constituent Corporations shall not revert or be
in any way impaired by reason of the Merger, but shall be vested in the
Surviving Corporation all as provided in Section 251 and 259 and other
applicable provisions of Delaware Law. The Merger is intended to constitute a
tax-free reorganization under Section 368(a) of the Code. The parties hereby
adopt this Agreement as a "plan of reorganization" within the meaning of Section
368(a) of the Code and the regulations thereunder.
Section 1.4 Directors and Officers of Surviving Corporation.
(a) The directors of Merger Sub at the Effective Time shall be the initial
directors of the Surviving Corporation and shall hold office from the Effective
Time until their respective successors are duly elected or appointed and qualify
in the manner provided in the Certificate of Incorporation and Bylaws of the
Surviving Corporation, or as otherwise provided by law.
(b) The officers of the Merger Sub at the Effective Time shall be the initial
officers of the Surviving Corporation and shall hold office from the Effective
Time until their respective successors are duly elected or appointed and qualify
in the manner provided in the Certificate of Incorporation and Bylaws of the
Surviving Corporation, or as otherwise provided by law.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holders thereof:
(a) Each issued and outstanding share of the Company's Common Stock, $.01 par
value (the "Shares") not owned by Parent, Merger Sub or any other direct or
indirect subsidiary of Parent (other than those Shares held by stockholders of
the Company who properly exercise any dissenters' rights available under
applicable law) immediately prior to the Effective Time shall be converted into
the right to receive its pro rata share of the Shareholder Consideration (as
defined below).
(b) Each then outstanding Share owned by Parent, Merger Sub or any other direct
or indirect subsidiary of Parent shall be cancelled.
<PAGE>
(c) Each share of the common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into one share of the
common stock of the Surviving Corporation.
(d) All Shares that are owned by the Company as treasury stock or by any wholly
owned Subsidiary (as hereinafter defined) of the Company shall be cancelled and
retired for no value and shall cease to exist and no consideration shall be
delivered in exchange therefor. As used in this Agreement, the word "Subsidiary"
means, with respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which (i) at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such party or (ii) such party or any other
Subsidiary of such party is a general partner (excluding partnerships, the
general partnership interests of which held by such party or any Subsidiary of
such party do not have a majority of the voting interest in such partnership).
Section 2.2 Consideration. The total consideration to be paid in connection with
the Merger shall be $16,300,000, subject to any adjustment pursuant to in
Section 6.6 and the effect of the maximum and minimum prices set forth below
(the "Acquisition Consideration"). Except as provided in Section 2.3(b), the
Acquisition Consideration, shall be paid solely in shares of the Parent's Common
Stock, $.01 par value per share (the "Parent Common Stock"). The Shareholder
Consideration shall be the aggregate number of shares of Parent Common Stock,
subject to Section 2.3(b), to be issued upon conversion pursuant to Section
2.1(a), determined as follows:
(a) The Acquisition Consideration, subject to Section 6.6, shall be divided by
the average closing sale price per share of the Parent Common Stock over the
last twenty trading days prior to the day of the Closing, as reported by Nasdaq,
provided that if such average closing price is less than $3.565 per share, the
divisor shall be $3.565, and if such average closing price is more than $5.563,
the divisor shall be $5.563 as so adjusted (the "Parent Stock Price"). The
result shall be the "Total Share Consideration".
(b) The Total Share Consideration shall be divided by the actual number of
Shares outstanding immediately prior to the Closing (plus 709,152 shares to
reflect shares reserved to options (which was calculated on the treasury stock
method as of the execution of this Agreement)). The result shall be the
"Exchange Ratio".
(c) The number of shares of Parent Common Stock determined by multiplying the
Exchange Ratio by the number of issued and outstanding shares of Shares
immediately prior to the Closing shall be the "Shareholder Consideration".
Section 2.3 Payment of the Acquisition Consideration.
(a) Exchange Agent. As of the Effective Time, the Parent shall deposit with
Norwest Bank Minnesota, N.A. (the "Exchange Agent"), the Shareholder
Consideration. The Exchange Agent shall hold such shares in a separate account
for exchange pursuant to the terms of this Agreement (the "Exchange Fund").
Promptly after the Effective Time, the Exchange Agent shall mail to each holder
of record of Shares immediately prior to the Effective Time (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Shares shall pass, only upon proper delivery of
certificates for the Shares (the "Certificates") to the Exchange Agent and shall
be in customary form) and (ii) instructions for use in effecting the surrender
of the Certificates (or affidavits in lieu thereof) in exchange for certificates
representing shares of Parent Common Stock. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with such letter of transmittal,
duly executed, and such other documents as may be required pursuant to such
instructions, the holder of such Certificate shall receive in exchange therefore
a new certificate representing that number of whole shares of Parent Common
Stock determined by multiplying the number of Shares represented by such
Certificate by the Exchange Ratio, and subtracting any resulting fractional
Shares. The holder shall also receive cash in lieu of any fractional shares, and
the Certificate so surrendered shall forthwith be cancelled.
In the event of a transfer of ownership of Shares which is not registered in the
transfer records of the Company, a certificate representing the proper number of
shares of Parent Common Stock may be issued to a transferee if the certificate
representing such Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.4, each Certificate shall be deemed at any time
after the Effective Time to represent the shares of Parent Common Stock (and
cash in lieu of fractional shares) into which the Shares previously represented
by such Certificate were converted at the Effective Time. All shares of Parent
Common Stock issued upon conversion of the Shares (including any cash paid in
lieu of fractional shares) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Shares.
(b) No Fractional Shares. No certificates or scrip representing fractional
shares of Parent Common Stock shall be issued upon the surrender for exchange of
Certificates for the Shares and the owner of such fractional share interests
will not be entitled to vote or to any rights of a stockholder of the Parent.
Each holder of Certificates who otherwise would be entitled to receive a
fractional share of Parent Common Stock shall receive, in lieu of such
fractional share interest, an amount of cash (without interest) determined by
multiplying (i) the Parent Stock Price, by (ii) the fractional share interest to
which such holder would otherwise be entitled. The Parent shall transfer to the
Exchange Agent on a timely basis the cash necessary to make payments under this
paragraph (b).
(c) Lost, Stolen or Destroyed Certificates. If any Certificate has been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
or entity that claims such Certificate to be lost, stolen or destroyed, Parent
will issue in exchange for such lost, stolen or destroyed Certificate such pro
rata share of the Shareholder Consideration deliverable in respect thereof as
determined in accordance with this Agreement; provided that Parent may require
that the owner of such lost, stolen or destroyed Certificate deliver a bond in
such sum as it may reasonably direct as indemnity against any claim that may be
made against Parent, the Company or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
<PAGE>
Section 2.4 Termination of Exchange Fund.
(a) Termination of Exchange Fund. Any portion of the Exchange Fund which remains
undistributed to the holders of Shares for two years after the Effective Time
shall be delivered to the Parent, upon demand, and any holders of Shares who
have not theretofore complied with this Article II shall thereafter look only to
the Parent for the shares of the Parent Common Stock and any cash in lieu of
fractional shares to which they are entitled.
(b) No Liability. Neither the Parent nor the Company shall be liable to any
holder of Shares for any such shares of the Parent Common Stock or cash
delivered to a public official pursuant to any abandoned property, escheat or
similar Law. For the purposes of this Agreement, "Law" shall mean any federal,
state or local law, statute, ordinance, rule, regulation, order, judgment or
decree.
(c) Stock Transfer Books. At the Effective Time, the stock transfer books of the
Company shall be closed and there shall be no further registration of transfers
of Shares thereafter on the records of the Company. From and after the Effective
Time, the holders of certificates representing Shares outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
Shares except as otherwise provided in this Agreement or by Law. On or after the
Effective Time, any Certificates presented to the Exchange Agent or Parent for
any reason shall be converted into shares of the Parent Common Stock and any
cash in lieu of fractional shares of the Parent Common Stock to which the
holders of the Certificates are entitled pursuant to this Agreement.
ARTICLE III REPRESENTATIONS AND WARRANTIES OF COMPANY
The Company represents and warrants to Parent and Merger Sub as follows:
Section 3.1 Organization; Subsidiaries. Each of the Company and its respective
Subsidiaries is a corporation or other organization duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation and has all requisite corporate power and corporate
authority and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as now being conducted, except where the
failure to have such power, authority, and governmental approvals would not have
a Material Adverse Effect (as defined herein) on or of the Company and its
Subsidiaries. In this Agreement, the term "Material Adverse Effect" used in
reference to the Company means any event, change or effect, which either alone
or in the aggregate with all other such events, changes or effects, is, or is
reasonably likely to be, materially adverse to the business, financial
condition, properties, assets, capitalization, stockholders' equity, liabilities
(including contingent liabilities), results of operations, licenses or
franchises of the Company and its Subsidiaries on consolidated basis. Each of
Company and its Subsidiaries is duly qualified or licensed to do business and in
good standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to be so duly
qualified or licensed and in good standing would not have a Material Adverse
Effect. Section 3.1 of the disclosure schedule delivered by the Company to
Parent on the date hereof (the "Company Disclosure Schedule") sets forth a
complete and accurate list of all jurisdictions in which Company or its
Subsidiaries is qualified to do business as a foreign corporation and sets forth
a complete and accurate list of all of its Subsidiaries (including jurisdiction
of incorporation or formation and the capitalization of each Subsidiary). All of
the outstanding shares of capital stock of Company's Subsidiaries are duly
authorized, validly issued, fully paid and nonassessable and are owned, directly
or indirectly, by the Company. Except as disclosed in Section 3.1 of the Company
Disclosure Schedule, Company does not have any Subsidiaries or, directly or
indirectly, own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
The copies of the Certificate of Incorporation and Bylaws of Company, and of the
comparable organizational documents of each of its Subsidiaries, provided to
Parent, are true and complete copies of all such documents, in each case as
amended to the date hereof and shall be as of the Effective Time. Except as
disclosed in Section 3.1, neither the Company nor any of its Subsidiaries is in
violation of its Certificate of Incorporation, Bylaws or comparable
organizational documents.
Section 3.2 Capitalization. The authorized capital stock of Company consists of:
15,000,000 shares of common stock, no par value (the "Company Common Stock"), of
which 3,887,543 shares are issued and outstanding, and 1,000,000 shares of
preferred stock, par value $.01 per share, of which none are issued and
outstanding. All of the outstanding shares of Company Common Stock are, and
immediately prior to the Effective Time the outstanding shares of the Company
Common Stock shall be, duly authorized, validly issued, fully paid and non-
assessable and free of any preemptive rights in respect thereto. Except as set
forth on Section 3.2 of the Company Disclosure Schedule, no bonds, debentures,
notes or other indebtedness having the right to vote (or convertible into
securities having the right to vote) ("Voting Debt") of Company are issued or
outstanding. Except as set forth above or in Section 3.2 of the Company
Disclosure Schedule, there are no existing options, warrants, calls,
subscriptions or other rights or other agreements or commitments of any
character relating to the issued or unissued capital stock or Voting Debt of
Company or any of its Subsidiaries or obligating Company or any of its
Subsidiaries to issue, transfer or sell or cause to be issued, transferred or
sold any shares of the respective capital stock or Voting Debt or securities
convertible into or exchangeable for such shares or equity interests or
obligating Company or any of its Subsidiaries to grant, extend or enter into any
such option, warrant, call, subscription or other right, agreement or
commitment. Company is not a party to any voting trust or other arrangement or
understanding with respect to the voting of Company Common Stock. There are no
contractual obligations of Company or its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of Company or any of its
Subsidiaries.
Section 3.3 Authority. Company has the requisite corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
and the consummation of the Merger and of the other transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Company, and no other corporate proceedings on the part of Company are
necessary to authorize this Agreement or to consummate the transactions so
contemplated hereby (other than, with respect to the Merger, the adoption of
this Agreement by the stockholders of the Company as set forth in Section 7.1
(d)). The Board of Directors of Company has duly approved this Agreement,
determined that the Merger is fair to, and in the best interest of, its
stockholders and resolved to recommend that such stockholders approve this
Agreement and the Merger, and such resolutions are in full force and effect.
Duly certified, true and correct copies of such resolutions adopted will be
provided to Parent. This Agreement has been duly executed and delivered by
Company, and this Agreement constitutes a valid and binding obligation of
Company, enforceable against Company in accordance with its terms.
Section 3.4 Consents and Approvals; No Violations. Except as disclosed in the
Company's filings pursuant to the Securities Exchange Act of 1934 (the "Exchange
Act") or as set forth in Section 3.4 of the Company Disclosure Schedule, and
except for filings, permits, authorizations, consents and approvals as may be
required under, and other applicable requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended
<PAGE>
(the "HSR Act"), the Exchange Act and Delaware Law, neither the execution,
delivery or performance of this Agreement nor the consummation by Company of the
transactions contemplated hereby nor compliance by Company with any of the
provisions hereof will (i) conflict with or result in any breach of any
provision of the Articles of Incorporation or Bylaws of Company or of the
comparable organizational documents of any of its Subsidiaries, (ii) require any
filing with, or permit, authorization, consent or approval of, any court,
arbitral tribunal, legislative body, administrative agency or commission or
other governmental or other regulatory authority or agency (a "Governmental
Entity"), (iii) result in a violation or breach of, or constitute (with notice
or lapse of time or both) a default (or give rise to any right of termination,
amendment, cancellation or acceleration) or require any authorization, consent
or approval under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, contract, agreement or other instrument or
obligation to which Company or any of its Subsidiaries is a party or by which
any of them or any of their properties or assets may be bound or (iv) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
Company or any of its Subsidiaries or any of their properties or assets, except
in the case of (ii) or (iii) for violations, breaches or defaults which would
not, and except for failures to obtain such permits, authorizations, consents or
approvals or to make such filings which would not, individually or in the
aggregate, have a Material Adverse Effect.
Section 3.5 SEC Reports. The Company has furnished to Parent a true and complete
copy of each prospectus, definitive proxy statement and report filed by the
Company with the SEC since the date of the Company's year end for fiscal year
1996 (the "SEC Reports"), including the Company's Annual Report on Form 10-K,
for the fiscal year ended March 28, 1999 (the "Form 10-K"). None of the SEC
Reports (as of their respective filing dates) contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements made therein not
misleading. The consolidated balance sheet of the Company, as of March 28, 1999,
included in SEC Reports (including the related notes and schedules), presents
fairly, in all material respects, the consolidated financial position of the
Company as of its date and the related consolidated statements of operations,
cash flows and changes in stockholders' equity included in the SEC Reports
(including any related notes and schedules) present fairly, in all material
respects, the consolidated results of operations and cash flows of the Company
for the periods set forth therein, in each case, in accordance with generally
accepted accounting principles ("GAAP"), except as otherwise specified therein
(including in the related notes).
Section 3.6 Proxy Statement/Prospectus. The combined proxy statement and Form S-
4 registration statement to be prepared jointly by the parties and filed with
the Securities and Exchange Commission for the purpose of soliciting shareholder
votes for the Merger and registering shares of the Parent to be issued to the
Company's shareholders in the Merger, respectively, is referred to herein as the
"Proxy Statement/Prospectus". The information provided by the Company for
inclusion in the Proxy Statement/Prospectus shall be true and complete, shall
not contain any untrue statement of a material fact and shall not omit to state
any material fact required to be stated therein or necessary in order to make
the statements made therein not misleading.
Section 3.7 Employee Benefits. All employment contracts, all termination
agreements with executive officers and all bonus, deferred compensation,
pension, retirement, profit sharing, severance pay, stock option, stock purchase
and other material employee benefit plans (other than medical and other similar
welfare plans made generally available to all employees of the Company or a
subsidiary of the Company) to which the Company or any of its subsidiaries is a
party are listed, summarized or otherwise described or incorporated by reference
in the SEC Reports or in Section 3.7 of the Company Disclosure Schedule.
Section 3.8 Absence of Certain Changes or Events. Since March 28, 1999, (i)
Company and Company's Subsidiaries have conducted their respective businesses
only in the ordinary and usual course of such businesses and (ii) there has not
been (A) any change, or any development of which management of Company has
knowledge, which has had or is reasonably likely to have a Material Adverse
Effect; (B) any declaration, setting aside or payment of any dividend or other
distribution with respect to the capital stock of Company other than regular
quarterly cash dividends; (C) any material change by Company in accounting
principles, practices or methods; or (D) any increase of more than $40,000 in
aggregate in the compensation payable or which could become payable by Company
and Company's Subsidiaries to their officers or key employees, or any material
amendment of any Company Benefit Plans.
Section 3.9 ERISA Compliance.
(a) Company Disclosure Schedule 3.09(a) attached hereto contains a list and
brief description of all "employee pension benefit plans" (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) (sometimes referred to herein as "Pension Plans"), all "employee
welfare benefit plans" (as defined in Section 3(1) of ERISA) and all other
bonus, pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, stock bonus, phantom stock,
retirement, vacation, severance, disability, death benefit, welfare, Christmas
bonus, hospitalization, medical or other plan, arrangement or understanding,
whether or not legally binding, providing benefits to any current or former
employee, officer or director of Company, or maintained or contributed to by
Company for the benefit of any employee, officer or director of Company
currently or within the last five years (collectively, "Benefit Plans").
(b) On or prior to the date of this Agreement, Company has delivered to Parent
true and complete copies of (i) each Benefit Plan or, in the case of any
unwritten Benefit Plans, descriptions thereof (ii) the most recent annual report
on Form 5500 filed with the IRS with respect to each Benefit Plan, if any such
report was required, (iii) the most recent summary plan description for each
Benefit Plan for which such summary plan description is required, (iv) each
trust agreement and group annuity contract relating to any Benefit Plan, (v) the
most recent actuarial report relating to any Benefit Plan, and (vi) the most
recent IRS determination letter or opinion letter for each Benefit Plan.
(c) Except as disclosed in Company Disclosure Schedule 3.09(c) attached hereto,
all Pension Plans have been the subject of determination letters from the IRS to
the effect that such Pension Plans are qualified and exempt from federal income
taxes, and no such determination letter has been revoked nor has revocation been
threatened, nor has any such Pension Plan been amended since the date of its
most recent determination letter or application therefor in any respect that
could adversely affect its qualification or increase its costs.
(d) Except as disclosed on Company Disclosure Schedule 3.09(d) attached hereto,
no Pension Plan that Company maintains, or to which Company is or was previously
obligated to contribute, had, as of the respective last annual valuation date
for each Pension Plan, any unfunded "benefit liabilities,"(as defined in Section
4001(a)(16) of ERISA) based on actuarial assumptions which have been furnished
to Parent. None of the Pension
<PAGE>
Plans has an "accumulated funding deficiency," (as defined in Section 412(a) of
the Code) whether or not waived. None of Company, any officer of Company or any
of the Benefit Plans which are subject to ERISA, including, without limitation,
the Pension Plans, or any trusts created thereunder, or, to the best knowledge
of the Company, any trustee or administrator thereof, has engaged in a
"prohibited transaction" (as defined in Section 406 of ERISA in Section 4975(c)
of the Code) or any other breach of fiduciary responsibility that could subject
Company or any officer of Company to a material amount of tax or penalty on
prohibited transactions or to any material liability under ERISA. Except as
disclosed on Company Disclosure Schedule 3.09(d) attached hereto, neither any of
such Pension Plans nor any of such trusts have been terminated, nor has there
been any "reportable event" (as defined in Section 4043(c) of ERISA) with
respect to which the 30-day notice requirement has not been waived and Company
is not aware of any other reportable events with respect thereto during the last
five years. Company has never had an obligation to contribute to a "multi-
employer plan" as defined in Section 3(37) of ERISA. No liability to the Pension
Benefit Guaranty Corporation (the "PBGC") has been or is expected to be incurred
with respect to any Benefit Plan by reason of a Benefit Plan termination. The
PBGC has not instituted proceedings to terminate any Benefit Plan. Except as
noted on Company Disclosure Schedule 3.09(d), there is no Benefit Plan to which
Title IV of ERISA applies which has terminated and whose "date of termination"
(as defined in Section 4048 of ERISA) occurred after September 1, 1974 or any
such Benefit Plan to which Title IV of ERISA applies which has partially
terminated. No event has occurred, and there exists no condition or set of
circumstance which presents a material risk of the termination or partial
termination of any such Benefit Plan, which could result in a liability on the
part of Company to the PBGC.
(e) With respect to any Benefit Plan that is an employee welfare benefit plan,
except as disclosed in Company Disclosure Schedule 3.09(e) attached hereto, (i)
no such Benefit Plan is a "welfare benefit fund", (as defined in Section 419(e)
of the Code), (ii) each such Benefit Plan that is a group health plan complies
in all material respects with the applicable requirements of the Code and the
Social Security Act and (iii) each such Benefit Plan, including, without
limitation, any such Plan covering retirees or other former employees, may be
amended or terminated without liability to Parent or Company on or at any time
after the Effective Date of the Merger.
(f) Each Benefit Plan and all related trust or other agreements conform in form
and operation to, and comply with, all applicable laws and regulations,
including, without limitation, ERISA and the Code, and all reports or
information relating to each such Benefit Plan required to be filed with any
Governmental Entity or disclosed to participants have been timely filed and
disclosed.
(g) Company has not announced a plan to create or amend, or noes it have any
legally binding commitment to create or amend, any Benefit Plan or to create any
new arrangement which would be a Benefit Plan.
(h) All insurance premiums with respect to any Benefit Plan, including, without
limitation, premiums to the PBGC, have been paid in full. Except as disclosed on
Company Disclosure Schedule 3.09(h) attached hereto, there are no retrospective
adjustments provided for under any insurance contracts maintained pursuant to
any Benefit Plan with regard to policy years or other periods ending on or
before the Effective Date of the Merger.
(i) No Benefit Plan, or the deduction of any contributions thereto by Company,
has been the subject of audit by the IRS or the Department of Labor, and no
litigation or asserted claims exist against Company or any Benefit Plan or
fiduciary with respect thereto, other than such benefit claims as are made in
the normal operation of a Benefit Plan. There are no known facts which could
give rise to any action, suit, grievance, arbitration or other claim in
connection with any Benefit Plan.
(j) With respect to any Benefit Plan which covers current or former employees,
officers or directors who are not residents of the United States of America, any
references in this Company Disclosure Schedule 3.09(j) to ERISA, the Code or any
other applicable law will be read to mean any applicable law of similar import
for the jurisdiction in which such individuals reside.
Section 3.10 Litigation. Section 3.10 of the Company Disclosure Schedule sets
forth a complete and accurate list and description of all suits, claims,
actions, proceedings and investigations which are pending or threatened against
the Company or any of its Subsidiaries, judicial, administrative or otherwise.
Section 3.11 Environmental Matters.
(a) As used in this Agreement:
"Environmental Claim" means any claim, action, cause of action,
investigation or notice (written or oral) by any person or entity alleging
potential liability (including, without limitation, potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries, or penalties)
arising out of, based on or resulting from (i) the presence, or release
into the environment, of any Materials of Environmental Concern (as
hereinafter defined) at any location, whether or not owned or operated by
Company or its Subsidiaries or (ii) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Laws (as hereinafter
defined).
"Environmental Laws" means all federal, state, local and foreign laws and
regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata), including, without
limitation, laws and regulations relating to emissions, discharges,
releases or threatened releases of Materials of Environmental Concern, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Materials of
Environmental Concern.
"Materials of Environmental Concern" means chemicals, pollutants,
contaminants, hazardous wastes, toxic substances, petroleum and petroleum
products.
(b) Except as set forth in Section 3.11 of the Company Disclosure Schedule,
Company and its Subsidiaries for their respective businesses as previously or
now being conducted are in material compliance with all applicable Environmental
Laws, which compliance includes, but is not limited to, the possession by
Company and its Subsidiaries of all permits and other governmental
authorizations required under applicable Environmental Laws, and compliance with
the terms and conditions thereof. Except as set forth in Section 3.11(b) of the
Company Disclosure Schedule, neither
<PAGE>
Company nor its Subsidiaries have received any communication (written or oral),
whether from a governmental authority, citizens group, employee or otherwise,
that alleges that Company or its Subsidiaries are not in such full compliance
and, to Company's best knowledge, there are no circumstances that may prevent or
interfere with such full compliance in the future. All material permits and
other governmental authorizations currently held by Company and its Subsidiaries
pursuant to the Environmental Laws are identified in Section 3. 11 of the
Company Disclosure Schedule.
(c) Except as set forth in Section 3.11 of the Company Disclosure Schedule,
there is no Environmental Claim pending or threatened against Company or its
Subsidiaries or, to Company's best knowledge, against any person or entity whose
liability for any Environmental Claim Company or its Subsidiaries have or may
have retained or assumed either contractually or by operation of law.
(d) Except as set forth in Section 3.11 of the Company Disclosure Schedule,
there are no past or present actions, activities, circumstances, conditions,
events or incidents, including, without limitation, the release, emission,
discharge, presence or disposal of any Material of Environmental Concern, that
could form the basis of any Environmental Claim against Company or its
Subsidiaries or, to Company's best knowledge, against any person or entity whose
liability for any Environmental Claim Company or its subsidiaries have or may
have retained or assumed either contractually or by operation of law.
(e) Without in any way limiting the generality of the foregoing to the knowledge
of the Company, (i) all on-site and off-site locations where Company or its
Subsidiaries have stored, disposed or arranged for the disposal of Materials of
Environmental Concern are identified in Section 3.11 of the Company Disclosure
Schedule, (ii) to the best knowledge of Company without having made any
inquiries to third parties with respect thereto, all underground storage tanks,
and the capacity and contents of such tanks, located on property owned or leased
by Company or its Subsidiaries are identified in Section 3.11 of the Company
Disclosure Schedule, (iii) except as set forth in Section 3.11 of the Company
Disclosure Schedule, there is no asbestos contained in or forming part of any
building, building component, structure or office space owned or leased by
Company or its Subsidiaries, and (iv) except as set forth in Section 3.11 of the
Company Disclosure Schedule, to the best knowledge of Company without having
made any inquiries to third parties with respect thereto, no polychlorinated
biphenyls (PCBIs) are used or stored at any property owned or on or within any
premises leased by Company or its Subsidiaries.
Section 3.12 Absence of Certain Practices. Neither Company nor any of its
Subsidiaries nor, to the best knowledge of Company, any director, officer,
agent, employee, or other person acting on behalf of Company or any of its
Subsidiaries, has used or received any corporate or other funds for unlawful
contributions, payments, gifts, or entertainment, or made any unlawful
expenditures relating to political activity to, or on behalf of, government
officials or others.
Section 3.13 Intellectual Property. Section 3.13 of the Company Disclosure
Schedule contains a complete and accurate list of (i) all patents, registered
trademarks, trade names and copyrights owned by Company, used or proposed to be
used by Company or any of its Subsidiaries and all applications therefor
(indicating whether or not such patent, trademark, trade name, or copyright is
owned by Company) and (ii) all agreements relating to technology, know-how or
processes which Company or any of its Subsidiaries is licensed or authorized to
use by others. Except as set forth in Section 3.13 of the Company Disclosure
Schedule, no claims have been asserted by any person challenging or questioning
the use by Company or any of its Subsidiaries of any such patents, trademarks,
trade names, copyrights, technology, or processes (the "Intellectual Property"),
with respect to Intellectual Property by Company or its subsidiaries,
challenging or questioning said ownership, or the Company's use of any know-how
owned by or used by Company or any of its Subsidiaries or challenging or
questioning the validity or effectiveness of any such license or agreement and,
to the knowledge of Company, there exists no valid basis for any such claim,
except for such claim or claims an adverse determination of which, individually
or in the aggregate, would not have a Material Adverse Effect; and to the
knowledge of the Company, the use of such Intellectual Property by Company or
any of its Subsidiaries does not infringe on the rights of any person, except
for such infringement or infringements which, individually or in the aggregate,
would not have a Material Adverse Effect on Company. For the purposes of this
Agreement, "knowledge of the Company" shall mean the actual knowledge of any of
its directors, officers, employees, investment bankers, attorneys or
accountants, and shall include any information which any of such persons could
have discovered through reasonable investigation in the ordinary course of their
duties. Except as set forth on Section 3.13 of the Company Disclosure Schedule,
the Intellectual Property registrations and patents owned by Company or any of
its Subsidiaries, and any applications therefore, are to the knowledge of the
Company subsisting and enforceable, and none has lapsed, expired, or been
abandoned, and all such registrations, patents and applications therefore are
currently standing in the name of Company or its Subsidiaries, except where any
of the aforementioned defects in such registrations, patents or applications
would not have a Material Adverse Effect. Company and each of its Subsidiaries
owns (free and clear of any lien, encumbrance or other restriction), or is
otherwise licensed or has the right to use, all Intellectual Property used in or
necessary for the conduct of its business, except where any failure to own, be
licensed to use or have the right to use would not, individually or in the
aggregate, have a Material Adverse Effect, and the consummation of the
transactions contemplated by this Agreement will not alter or impair any such
rights.
Section 3.14 Taxes. Except as disclosed in Section 3.14 of the Company
Disclosure Schedule, the Company has filed all federal, state and local tax
returns required to be filed by it and paid all taxes due thereon.
Section 3.15 No Undisclosed Liabilities. Except as and to the extent set forth
in the audited consolidated balance sheets of Company as of March 28, 1999
included in the Company Financial Statements, none of Company or Company's
Subsidiaries had as of that date any liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise, that would be required by GAAP
to be reflected on a consolidated balance sheet of Company and Company's
Subsidiaries (including the notes thereto) which constituted a Material Adverse
Effect. Except as and to the extent set forth in the interim balance sheets,
since March 28, 1999, neither Company, nor any of Company's Subsidiaries has
incurred any liabilities of any nature, whether or not accrued, contingent or
otherwise, which would have, individually or in the aggregate, a Material
Adverse Effect.
Section 3.16 Real Properties. Neither the Company nor its Subsidiaries own any
real property. The Company leases real estate under the leases listed on Section
3.16 of the Company Disclosure Schedule, all of which are in full force and
there exists no event of default under said leases by any party thereto.
<PAGE>
Section 3.17 Compliance with Applicable Law. Company and Company's Subsidiaries
hold and are in compliance with all permits, licenses, variances, exemptions,
orders and approvals of all Governmental Entities necessary for the lawful
conduct of their respective businesses (the "Company Permits"), except for
failures to hold or comply with such permits, licenses, variances, exemptions,
orders and approvals which do not, individually or in the aggregate, have a
Material Adverse Effect. To the knowledge of the Company, the businesses of
Company and Company's Subsidiaries are not being conducted in violation of any
order, writ, injunction, decree, statute, rule or regulation of any Governmental
Entity applicable to Company or any of Company's Subsidiaries.
Section 3.18 Employee Matters. Section 3.18 of the Company Disclosure Schedule
sets forth a complete and accurate list of the titles and annual compensation
(including any bonuses) of all directors and officers of Company, and all
employees of Company or any of Company's Subsidiaries whose annual base income
exceeds $50,000 (excluding any bonuses). Except as set forth in Section 3.18 of
the Company Disclosure Schedule, none of Company or any of Company's
Subsidiaries is a party to or bound by any contract, agreement or arrangement
regarding the employment, services, consulting or severance from or termination
of employment, of any director, officer or employee (past or present) (each an
"Employment Agreement"). Company and its Subsidiaries have paid in full to, or
accrued on behalf of, all of their respective employees, wages, salaries,
commissions, bonuses and other direct compensation for all services performed by
them to the date hereof and all amounts required to be reimbursed to such
employees except those which in the aggregate total less than $35,000. Company
and its Subsidiaries are in material compliance with all applicable laws and
regulations respecting employment and employment practices; there is no unfair
labor practice complaint against Company or any of its Subsidiaries pending
before any Government Entity; there is no labor strike, dispute, slowdown or
stoppage pending or, to the knowledge of the Company, threatened against or
involving Company or any of its Subsidiaries; no representation question or to
the knowledge of the Company any pending organization attempt by any collective
bargaining representative exists respecting the employees of Company or any of
its Subsidiaries. There are no collective bargaining agreements or other
employee representation agreements which exist or are currently being negotiated
by Company or any of Company's Subsidiaries.
Section 3.19 Insurance Policies. Section 3.19 of the Company Disclosure Schedule
contains a complete and accurate list of all insurance policies providing
coverage in favor of Company and Company's Subsidiaries, or relating to real
property, whether leased or owned by Company or Company's Subsidiaries,
specifying the insurer, amount of coverage and type of insurance under each and
indicating which of such policies provide for retrospective premium adjustments.
Each such policy is in full force and effect and all premiums are currently paid
or accruals provided for and no notice of cancellation or termination has been
received with respect to any such policy. Such policies are sufficient for
compliance with all material requirements of law.
Section 3.20 Contracts.
(a) Section 3.20(a)(i) of the Company Disclosure Schedule sets forth a complete
and accurate list of all contracts, agreements and other arrangements to which
Company or any of Company's Subsidiaries is a party or by which Company, any of
Company's Subsidiaries or any of their respective assets are bound (excluding
plans referred to in Sections 3.9 and 6.5 and leases referred to in Section
3.16) pursuant to which (i) any party thereto is entitled prospectively to
receive in excess of $35,000, (ii) any party thereto has the right or option
prospectively to order products or services the consideration for which would
exceed $35,000, or (iii) payments are based on the profits or revenues of
Company or any of Company's Subsidiaries (hereinafter referred to collectively
as (the "Contracts"). Each of the Contracts is in full force and effect and
enforceable in accordance with its terms. Neither Company nor Company's
Subsidiaries have received any formal or official notice (written or oral) of
cancellation or termination of, or intent to cancel or terminate, any of the
Contracts. With respect to each Contract which by its terms will terminate
within one year of the date hereof (or unless an option to extend such Contract
is exercised), neither Company nor any of Company's Subsidiaries has received
any formal or official notice (written or oral) that any such Contract will not
be so renewed or that any such extension option will not be exercised. Except as
set forth in Section 3.20(a)(ii) of the Company Disclosure Schedule, there
exists no event of default or occurrence, condition or act on the part of
Company or any of Company's Subsidiaries or, to the best knowledge of Company,
on the part of the other parties to such Contracts which constitutes or would
constitute (with notice or lapse of time or both) a breach of or default under
any of the Contracts, or cause or permit acceleration of any obligation of
Company or any of Company's Subsidiaries thereunder, which individually or in
the aggregate would have a Material Adverse Effect. Except as set forth in
Section 3.20(a) of the Company Disclosure Statement, no consent of any other
party to the Contracts is required in connection with the execution, delivery
and performance of this Agreement or in order for the Contracts to remain in
full force and effect following the Merger.
(b) None of Company nor any of Company's Subsidiaries is a party to any
agreement which materially limits the freedom of Company or any of Company's
Subsidiaries to compete in any line of business or with any person.
Section 3.21 Billed Accounts Receivable. All notes and billed accounts
receivable of Company and Company's Subsidiaries, represent sales or services
made or rendered in the ordinary course of business and represent the legal,
valid and binding obligations of the obligors thereon. The Company has reviewed
customer receivables and has established adequate reserves to provide for
doubtful accounts of, any valid counterclaims by, and allowances to, its
customers.
Section 3.22 Disclosure. No representation, warranty or statement made by
Company in this Agreement or the Company Disclosure Schedules contains or will
contain any untrue statement of a material fact, or omits or will omit to state
a material fact required to be stated herein or therein, or necessary in order
to make, in light of the circumstances under which such statements were made,
not misleading.
Section 3.23 Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of the Company Common Stock is the only vote of the
holders of any class or series of the Company's capital stock necessary to
approve this Agreement and the transactions contemplated hereby.
Section 3.24 Banks; Powers of Attorney. Section 3.24 of the Company Disclosure
Schedule sets forth (a) the names and locations of all banks, trust companies,
savings and loan associations and other financial institutions at which Company
or any of Company's Subsidiaries maintain safe deposit boxes or accounts of any
nature and the names of all persons authorized to draw thereon, make withdrawals
therefrom or have access thereto, and (b) the names of all persons to whom
Company or any of Company's Subsidiaries have granted a power of attorney,
together with a description thereof.
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to Company as follows:
Section 4.1 Organization: Parent and Subsidiaries. Each of Parent, Merger Sub
and each of the respective Subsidiaries of the Parent, is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
corporate authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as now being conducted
except where the failure to be so organized, existing and in good standing or to
have such power, authority, and governmental approvals would not have a Material
Adverse Effect on or of Parent and its Subsidiaries. In this Agreement, the term
"Material Adverse Effect" used in reference to the Parent means any event,
change or effect, which either alone or in the aggregate with all other such
events, changes or effects, is, or is reasonably likely to be, materially
adverse to the business, financial condition, properties, assets,
capitalization, stockholders' equity, liabilities (including contingent
liabilities), results of operations, licenses or franchises of the Parent and
its Subsidiaries on consolidated basis. Each of Parent and Merger Sub is duly
qualified or licensed to do business and in good standing in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary, except
where the failure to be so duly qualified or licensed and in good standing would
not have a Material Adverse Effect.
Section 4.2 Capitalization. The authorized capital stock of Parent consists of:
(i) 20,000,000 shares of Parent Common Stock, of which, as of the date hereof
7,476,922 shares are issued and outstanding and (ii) 1,000,000 shares of
preferred stock, of which, as of the date hereof no shares are issued and
outstanding. As of the date hereof, there are outstanding pursuant to Parent's
incentive and stock option plans, and other rights to purchase shares other than
under its ESPP (the "Parent Stock Plans") to purchase 1,396,000 shares of Parent
Common Stock, and warrants to purchase 268,307 shares of Parent Common Stock.
All issued shares of Parent Common Stock are duly authorized, validly issued,
fully paid and non-assessable and free of any preemptive rights in respect
thereto. As of the date hereof, the authorized capital stock of Merger Sub
consists of 1,000 shares of Common Stock, par value $1.00 per share, all of
which are validly issued, fully paid and nonassessable and are owned directly by
Parent.
Section 4.3 Parent Authority. Parent has the requisite corporate power and
authority to execute and deliver this Agreement. The execution, delivery and
performance of this Agreement and the consummation of the Merger and of the
other transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Parent and no other corporate
proceedings on the part of Parent shall be necessary to authorize this Agreement
or to consummate the transactions so contemplated other than obtaining the
requisite approval of its Shareholders. This Agreement has been duly executed
and delivered by Parent and constitutes a valid and binding obligation of Parent
enforceable against it in accordance with its terms.
Section 4.4 Merger Sub Authority. Merger Sub has the requisite corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the Merger and of the other transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Merger Sub and no -other corporate proceedings on the part of
Merger Sub are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly executed and
delivered by Merger Sub and constitutes a valid and binding obligation of Merger
Sub, enforceable against it in accordance with its terms.
Section 4.5 Consents and Approvals; No Violations. Except for filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of the Securities Act of 1933, the Exchange Act, the HSR
Act, any applicable "Blue Sky" laws and the Minnesota Law, neither the
execution, delivery or performance of this Agreement by Parent and Merger Sub
nor the consummation by Parent and Merger Sub of the transactions contemplated
hereby nor compliance by Parent and Merger Sub with any of the provisions hereof
will (i) conflict with or result in any breach of any provision of the Articles
of Incorporation or Bylaws of Parent and Merger Sub, (ii) require any filing
with, or permit, authorization, consent or approval of, any Governmental Entity,
(iii) result in a violation or breach of, or constitute (with notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) or require any authorization, consent or approval under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, lease, contract, agreement or other instrument or obligation to which
Parent or any of its Subsidiaries is a party or by which any of them or any of
their properties or assets may be bound or (iv) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Parent, any of its
Subsidiaries or any of their properties or assets, except in the case of (ii)
and (iii) for violations, breaches or defaults which would not, and except for
failures to obtain such permits, authorizations, consents or approvals or to
make such filings which would not, individually or in the aggregate, have a
Material Adverse Effect.
Section 4.6 SEC Reports and Financial Statements. Parent has filed with the SEC,
and has heretofore furnished to the Company, true and complete copies of all
forms, reports, schedules, statements and other documents required to be filed
by it and actually filed under the Exchange Act or the Securities Act of 1933,
as amended (the "Securities Act"), (as such documents have been amended since
the time of such filing for the periods since Fiscal Year 1996, collectively,
the "Parent SEC Documents"). The Parent SEC Documents, including without
limitation any financial statements or schedules included therein, at the time
filed, (a) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading and (b) complied in all material respects with the
applicable requirements of the Exchange Act and the Securities Act, as the case
may be, and the applicable rules and regulations of the SEC thereunder. The
financial statements of Parent included in the Parent SEC Documents comply as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of the unaudited statements, as permitted by
Form 10-Q of the SEC), and fairly present (subject, in the case of the unaudited
statements, to normal year-end audit adjustments) the consolidated financial
position of Parent and its consolidated subsidiaries as at the dates thereof and
the consolidated results of their operations and cash flows for the periods then
ended.
<PAGE>
Section 4.7 Proxy Statement/Prospectus. The information provided by Parent and
Merger Sub for inclusion in the Proxy Statement/Prospectus shall be true and
complete, shall not contain any untrue statement of a material fact and shall
not omit to state any material fact required to be stated therein or necessary
in order to make the statements made therein not misleading.
Section 4.8 Issuance of Shares. Upon issuance of Parent's shares to the
Company's shareholders pursuant to the Merger, such shares shall be duly
authorized, validly issued, fully paid, and nonassessable shares of Parent's
Common Stock.
Section 4.9 Operation of Merger Sub. Merger Sub is a direct, wholly-owned
subsidiary of Parent, was formed solely for the purpose of engaging in the
transactions contemplated hereby and has not engaged in any business activities
or conducted any operations other than in connection with the transactions
contemplated hereby.
Section 4.10 Litigation. There are no suits, claims, actions, proceedings and
investigations which are pending or threatened against the Parent or any of its
Subsidiaries, judicial, administrative or otherwise.
Section 4.11 No Undisclosed Liabilities. Except as and to the extent set forth
in the audited consolidated balance sheets of Parent as of June 28, 1999
included in the Parent Financial Statements, none of Parent or Parent's
Subsidiaries had as of that date any liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise, that would be required by GAAP
to be reflected on a consolidated balance sheet of Parent and Parent's
Subsidiaries (including the notes thereto) which constituted a Material Adverse
Effect. Since June 28, 1999, neither Parent, nor any of Parent's Subsidiaries
has incurred any liabilities of any nature, whether or not accrued, contingent
or otherwise, which would have, individually or in the aggregate, a Material
Adverse Effect.
Section 4.12 Compliance with Applicable Law. Parent and Parent's Subsidiaries
hold and are in compliance with all permits, licenses, variances, exemptions,
orders and approvals of all Governmental Entities necessary for the lawful
conduct of their respective businesses (the "Parent Permits"), except for
failures to hold or comply with such permits, licenses, variances, exemptions,
orders and approvals which do not, individually or in the aggregate, have a
Material Adverse Effect. To the knowledge of the Parent, the businesses of
Parent and Parent's Subsidiaries are not being conducted in violation of any
order, writ, injunction, decree, statute, rule or regulation of any Governmental
Entity applicable to Parent or any of Parent's Subsidiaries.
Section 4.13 Disclosure. No representation, warranty or statement made by Parent
or Merger Sub in this Agreement contains or will contain any untrue statement of
a material fact, or omits or will omit to state a material fact required to be
stated herein or therein, or necessary in order to make, in light of the
circumstances under which such statements were made, not misleading.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
Section 5.1 Covenants of Company. Prior to the Effective Time, except as
expressly permitted by this Agreement, or to the extent that Parent in its sole
discretion shall otherwise consent in writing:
(a) Ordinary Course. Company and its Subsidiaries shall carry on their
respective businesses in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted and use their reasonable best efforts to
preserve intact their present business organizations, preserve their working
capital, keep available the services of their present officers and employees and
preserve their relationships with customers, suppliers and others having
business dealings with them to the end that their goodwill and ongoing business
shall not be impaired in any material respect following the Merger.
(b) Dividends; Changes in Stock. The Company shall not, and shall not permit any
of its Subsidiaries to, (i) declare, set aside or pay any dividends on or make
other distributions in respect of any of its capital stock, (ii) split, combine
or reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock or (iii) directly or indirectly repurchase, redeem or otherwise
acquire, any shares of its capital stock or capital stock of any Subsidiary.
(c) Issuance of Securities. Company shall not, and shall not permit any of its
Subsidiaries to, issue, deliver or sell, pledge, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any class, any
Voting Debt or any securities convertible into or exchangeable for, or any Stock
Options and rights to acquire, any such shares or Voting Debt other than:
(i) shares of Company Common Stock issuable upon the valid exercise of
currently outstanding options (other than new options for not more than
30,000 Shares in the aggregate for new employees) under the Company's
stock option plans listed on Section 3.9 of the Company Disclosure
Schedule (the "Company Stock Option Plans");
(ii) shares of Company Common Stock issued under the Company Employee Stock
Purchase Plan (the "ESPP") on or before September 30, 1999; and
(iii) shares of Company Common Stock contractually issuable to certain
executive officers of the Company as non-cash compensation prior to the
Effective Date.
(d) Company shall not grant, issue, modify or amend any options, warrants or
other rights to acquire its equity securities including under its ESPP after
September 30, 1999.
(e) Governing Documents. Company shall not, nor shall it permit any of its
Subsidiaries to, amend their respective Certificates of Incorporation, Bylaws or
comparable organizational documents.
<PAGE>
(f) Standstill Agreement. Except as contemplated herein, for the period from the
date hereof through the earlier of the Closing or the first anniversary of the
date of this Agreement, the Company will not, and will use its best efforts to
cause each affiliate, not to (i) purchase, acquire or own, or offer or agree to
purchase, acquire or own, directly or indirectly, any Voting Securities (as
hereinafter defined) or direct or indirect rights or options to acquire Voting
Securities (or enter into any arrangements or understandings with any third
party to do any of the foregoing), or (ii) propose to enter into, directly or
indirectly, any merger or business combination involving Parent or any of its
subsidiaries, or in any way seek to control the management, policies or Board of
Directors of Parent provided that nothing contained in this clause (ii) shall
limit the right to vote as a stockholder for any merger or business combination.
For purposes of this Agreement, the term "Voting Securities" shall mean (i) any
securities which are entitled to vote generally in the election of directors of
Parent and (ii) any securities of Parent convertible into or exchangeable for
any security described in clause (i) above.
(g) No Acquisitions or Dispositions. Company shall not, and shall not permit any
of its Subsidiaries to: (x) acquire or agree to acquire by merging or
consolidating with, or by purchasing equity interests in or a portion of the
assets of, any business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to
Company and its Subsidiaries taken as a whole; (y) other than in the ordinary
course of business, sell, assign, lease, license, pledge, encumber or otherwise
dispose of, or agree to sell, assign, lease, license, encumber or otherwise
dispose of, any of its assets which are material, individually or in the
aggregate, to Company and its Subsidiaries taken as a whole, or any stock in any
Subsidiary.
(h) Indebtedness. Except as required to operate its business in the ordinary
course and after written notice to Parent, Company shall not, and shall not
permit any of its Subsidiaries to, (i) incur or assume any long-term debt or,
except in the ordinary course of business under lines of credit existing on the
date hereof, incur or assume any short-term debt; (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person except in the
ordinary course of business and consistent with past practice; or (iii) make any
loans, advances (other than advances to employees for travel and entertainment
in the ordinary course of business) or capital contributions to, or investments
in, any other person.
(i) Benefit Plans and Compensation. Company shall not, and shall not permit any
of its Subsidiaries to, terminate, adopt, amend or enter into any employment
agreements or employee benefit plans of the type set forth in Sections 3.7 and
3.9, except as may be required by applicable law or regulation, or pay benefits
not required by any existing plan or arrangement or increase in any manner the
compensation, stock options, or fringe benefits of any director, officer or
employee without the written approval of Parent;
(j) Other Matters. Other than as provided for herein, the Company shall not
permit any of Company's Subsidiaries to: (x) pay, discharge, settle or satisfy
or agree to pay, discharge, settle or satisfy, any claims, liabilities or
obligations (absolute, accrued, contingent or otherwise), other than when due in
accordance with their respective terms and other than claims, liabilities, and
obligations in an amount not in excess of $25,000 individually or $150,000 in
the aggregate, or (y) waive, release, grant or transfer any rights of value or
modify or change any existing license, lease, contract or other agreement or
arrangement which modifications or changes would have, individually or in the
aggregate, a Material Adverse Effect or (z) fail to maintain all property and
equipment useful and necessary in its business in good working order and
condition or fail to continue its maintenance programs consistent with past
practice.
(k) Affiliate Transactions. Company and its Subsidiaries shall not enter into
any contract, loan or other transaction with any of the following persons, or in
which any of the following persons have a direct or indirect impact interest:
(i) any director or officer of Company or, any Subsidiary of it;
(ii) any of the spouses, parents, siblings, children or other close
relatives of any person described in clause (i); and
(iii) any corporation, partnership, trust or other entity in which any
person described in clauses (i) or (ii) has a beneficial interest.
(l) Capital Expenditures. Except as set forth in Section 5.01(l) of the Company
Disclosure Schedule, Company shall not, and shall not permit any of Company's
Subsidiaries to, other than in the ordinary course of business and consistent
with past practice and in an amount not in excess of $50,000 in respect of any
individual project or $250,000 in the aggregate, make any capital expenditures
or commitments for capital expenditures.
(m) Tax Matters; Accounting Policies. Company shall not, and shall not permit
any of Company's Subsidiaries to, make any tax elections or settle or compromise
any income or excise tax liability or, except as required by law or applicable
accounting standards, change any accounting policies or procedures. Company
shall promptly advise Parent of any tax audit or tax adjustment or proposed or
threatened tax audit or tax adjustment with respect to Company and shall also
notify Parent of any adverse determination by any Governmental Entity with
respect to taxes.
(n) Advice of Changes; Filings. Company shall confer on a regular and frequent
basis with Parent, inform on operational matters and with respect to any
significant new contracts and promptly advise Parent orally and in writing of
any change, event or effect having, or which, insofar as can reasonably be
foreseen, could have, a Material Adverse Effect on Company and Company's
Subsidiaries taken as a whole. Company shall promptly provide Parent (or its
counsel) copies of all filings made by Company with any Governmental Entity in
connection with this Agreement and the transactions contemplated hereby.
(o) Other Actions. Company shall not, and shall not permit any of its
Subsidiaries to, agree or commit to take any action that would be prohibited by
this Section 5.1. Notwithstanding the fact that an action might otherwise be
permitted pursuant to this Section 5.1, Company shall not, and shall not permit
any of its Subsidiaries to, take any action that would or is reasonably likely
to result in any of Company's representations and warranties set forth in this
Agreement being untrue in any material respect or in any of the conditions to
the Merger set forth in Article VII not being satisfied.
<PAGE>
Section 5.2 Company's Pre-Closing Conditions. The Company shall satisfy each of
the conditions set forth below at the time specified but in no case later than
the Closing:
(a) ESPP. The Company will not make another offering or accept contributions
under the plan between September 30, 1999 and the Closing and no further rights
to purchase Shares under the ESPP will accrue between September 30, 1999 and the
Closing.
(b) The Company will rescind or modify the stock issuances and other
compensation authorized for executive officers on May 11, 1999 so that all
obligations and liabilities terminated on or before the Effective Date.
(c) Rights Plan. The Company will amend or terminate its rights plan and redeem
all rights outstanding prior to the Effective Date to the extent necessary to
permit the completion of this transaction.
(d) All options for non-employee Directors will be amended to require exercise
within six months of the Effective Date.
Section 5.3 Covenants of the Parent and Merger Sub. Prior to the effective Time,
except as expressly permitted by this Agreement, or to the extent that the
Company in its sole discretion shall otherwise consent in writing.
(a) Ordinary Course. Except as expressly noted herein, Parent and its
Subsidiaries shall carry on their respective businesses in the usual, regular
and ordinary course and in a manner which shall not materially adversely affect
the value of the Parent Common Stock issuable to the Company's stockholders as
the Shareholder Consideration.
(b) Governing Documents. Parent shall not, nor shall it permit any of its
Subsidiaries to, amend their respective Certificate of Incorporation, Bylaws or
comparable organizational documents.
(c) Dividends, Changes in Stock. Parent shall not, and shall not permit any of
its Subsidiaries to (i) declare, set aside, or pay any dividends on or make
other distributions in respect of any of its capital stock other than in the
form of Parent Common Stock, (ii) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock or
(iii) directly or indirectly repurchase, redeem or otherwise acquire, any shares
of its capital stock or capital stock of any Subsidiary.
(d) Directors. Within 30 days following the Effective Time, Parent shall cause
Sebastian J. Sicari and another person (to be designated by the Company prior to
the Effective Date) to be appointed or elected to the Board of Directors of
Parent.
(e) NASDAQ National Market. Parent shall use its reasonable best efforts to
effect the inclusion of all shares of Parent Common Stock issuable to the
Company's shareholders on the NASDAQ National Market and shall take all actions
required under applicable federal or state securities laws in connection with
the issuance of Parent Common Stock pursuant to this Agreement.
(f) Other Actions. Parent shall not, and shall not permit any of its
Subsidiaries to, agree or commit to take any action that would be prohibited by
this Section 5.3. Notwithstanding the fact that an action might otherwise be
permitted pursuant to this Section 5.3, Parent shall not, and shall not permit
any of its Subsidiaries to, take any action that would or is reasonably likely
to result in any of Parent's representations and warranties set forth in this
Agreement being untrue in any material respect or in any of the conditions to
the Merger set forth in Article VII not being satisfied.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Access to Information. Upon reasonable notice and subject to
applicable law, Company shall (and shall cause each of its Subsidiaries to)
afford to the officers, employees, accountants, counsel, and other
representatives of Parent, access, during normal business hours during the
period prior to the Effective Time, to all its properties (including its plants,
offices, warehouses and other facilities), books, contracts, commitments and
records and, during such period, subject to applicable law, the Company shall
(and shall cause each of its Subsidiaries to) furnish promptly to Parent all
information concerning its business (including financial and operating data),
properties and personnel as Parent may reasonably request. The Company will keep
Parent advised of significant developments in Company's business and of any
significant decisions concerning the operation of their business.
Parent and the Company shall each use its best efforts to preserve the
confidentiality of any proprietary, confidential or trade secret information
obtained from the other party during the negotiations of the Merger. In the
event the Merger is not completed for any reason, Parent and the Company shall
each return to the other all of such information of the other party, together
with all copies thereof, and shall not misappropriate or disclose any of such
information to any third parties.
Section 6.2 Proxy Statement/Prospectus. As soon as practicable after the
execution of this Agreement, the parties shall prepare and file with the
Securities and Exchange Commission the Proxy Statement/Prospectus, and shall use
their reasonable efforts to have the Proxy Statement/Prospectus approved as soon
as possible thereafter.
Section 6.3 Shareholders' Meetings.
(a) The Company and Parent, acting through their respective Boards,
shall, in accordance with applicable law:
(i) as promptly as practicable, duly call, give notice of, convene and
hold special meetings of their shareholders for the purpose of causing
their shareholders to consider and vote upon a proposal to approve the
Merger (the "Special Meetings");
(ii) subject to their fiduciary duties under applicable laws as advised
by counsel, include in the Proxy Statement/Prospectus the recommendation
of their Boards that shareholders of the Company and the Parent,
respectively, vote in favor of the approval of the Merger; and
<PAGE>
(iii) use all reasonable efforts to obtain and furnish the information
required to be included by them in the Proxy Statement/Prospectus, and,
after consultation with each other, respond promptly to any comments
made by the SEC with respect to the Proxy Statement/Prospectus and any
preliminary version thereof and to cause the Proxy Statement/Prospectus
to be mailed to shareholders as promptly as practicable.
(b) If at any time prior to the Special Meetings any event should occur
relating to Company, Parent or their officers or directors which should
be described in this Proxy Statement/Prospectus, the affected party will
promptly inform the other party thereof and, if the parties determine
that any such event should be described in an amendment of or a
supplement to the Proxy Statement/Prospectus, will cooperate with each
other in promptly preparing, filing and clearing with the SEC and
mailing such amendment or supplement.
Section 6.4 Closing. Upon the terms and subject to the conditions hereof, as
soon as practicable after shareholder approval of the Merger has been obtained,
Merger Sub and the Company will sign and deliver to the Secretary of State of
Delaware duly signed Certificates of Merger with respect the Merger, all in the
manner and as required by the Delaware Law, and the parties shall take all other
and further actions as may be required by law to make the Merger effective.
Section 6.5 Stock Option and Employee Stock Purchase Plans.
(a) At the Effective Time, each outstanding option to purchase
shares of Company Common Stock (each a "Company Stock Option")
under the Company Stock Option plans including the Directors'
Option Plan, whether or not exercisable, will be assumed by
Parent. Each Company Stock Option so assumed by Parent under
this Agreement will continue to have, and be subject to, terms
and conditions substantially similar to those set forth in the
applicable Company Stock Option plan immediately prior to the
Effective Time except that (i) each Company Stock Option will
be exercisable (or will become exercisable in accordance with
its terms) for that number of whole shares of Parent Common
Stock equal to the product of the number of shares of Company
Common Stock that were issuable upon exercise of such Company
Stock Option immediately prior to the Effective Time multiplied
by the Exchange Ratio and (ii) the per share exercise price for
the shares of Parent Common Stock issuable upon exercise of
such assumed Company Stock Option will be equal to the quotient
determined by dividing the exercise price per share of Company
Common Stock at which said Company Stock Option was exercisable
immediately prior to the Effective Time by the Exchange Ratio,
rounded down to the nearest whole cent. After the Effective
Time, Parent will issue to each holder of an outstanding
Company Stock Option a notice describing the foregoing
assumption of such Company Stock Option by Parent.
(b) Parent will reserve on and after the Effective Date sufficient shares of
Parent Common Stock for issuance under this Section 6.5.
Section 6.6 Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses provided
that the Parent shall pay Sixty-five Percent (65%) and Company shall pay Thirty-
five Percent (35%) of all costs and expenses for printing. The Company will use
its best efforts to not pay, incur, or become liable for, any such expenses
including, but not limited to, legal, accounting, investment banking, the
Company's share of printing costs set forth above and proxy solicitation fees
(the "Transactional Expenses") in excess of $650,000 in the aggregate (with
$150,000 payable one year after the Effective Date). If the Transactional
Expenses of the Company exceed $650,000 any excess shall reduce the Acquisition
Consideration set forth in Section 2.2.
Section 6.7 Public Announcements. Parent and the Company will consult with each
other before issuing any press release or otherwise making any public statements
and shall not issue any such press release or make any such public statement
without the consent of the other parties hereto, except as may be required by
law or by obligations pursuant to any listing agreement with NASDAQ.
Section 6.8 Notification of Certain Matters. Company shall promptly supplement
or amend the Company Disclosure Schedule with respect to any material matter
hereafter arising or discovered which, if existing or known at the date hereof,
would have been required to be disclosed in the Company Disclosure Schedule;
provided, however, that any such supplemental or amended disclosure shall not be
deemed to have been disclosed as of the date hereof.
Section 6.9 Further Assurances; Best Efforts. Subject to the terms and
conditions of this Agreement, each of Company, Parent and Merger Sub agrees to
use their best efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each of Company, Parent and
Merger Sub shall take all such necessary action.
Section 6.10 Form S-8. Parent agrees to file promptly a registration statement
on Form S-8 or, if possible, an amendment to Parent's then effective
registration statement on Form S-8, for the shares of Parent Common Stock
issuable with respect to the assumed Company Stock Options and shall keep such
registration statement effective for so long as any such options remain
outstanding.
Section 6.11 Indemnification; Directors' and Officers' Insurance.
(a) From and after the Effective Time, Parent agrees that it will indemnify
and hold harmless each current director and officer of Company (when acting
in such capacity) (each an "Indemnified Party" and, collectively, the
"Indemnified Parties"), against any costs or expenses (including, without
limitation, reasonable attorneys' fees, costs of investigation and fees of
other advisers and experts), judgments, fines, losses, claims, damages or
liabilities (collectively, "Costs") incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, including, without limitation, claims,
actions, suits, proceedings or investigations by
<PAGE>
or on behalf of any present or former shareholder of Company, arising out
of matters existing or occurring at or prior to the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time, to the
fullest extent that Parent would have been permitted under Minnesota Law
and its Articles of Incorporation or Bylaws in effect on the date hereof to
indemnify such person (and Parent shall also advance expenses as incurred
to the fullest extent permitted under applicable law; provided the person
to whom expenses are advanced provides a written affirmation of his or her
good faith belief that the standard of conduct necessary for
indemnification has been met, and an undertaking to repay such advances if
it is ultimately determined that such person is not entitled to
indemnification).
(b) Any Indemnified Party wishing to claim indemnification under paragraph
(a) of this Section 6.11, upon learning of any such claim, action, suit,
proceeding or investigation, shall promptly notify Parent thereof, but the
failure to so notify shall not relieve Parent of any liability it may have
to such Indemnified Party if such failure does not materially prejudice the
indemnifying party. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), (i) Parent shall have the right to assume the defense thereof and
Parent shall not be liable to such Indemnified Parties for any legal
expenses of other counsel or any other expenses subsequently incurred by
such Indemnified Parties in connection with the defense thereof, except
that if Parent elects not to assume such defense or counsel for the
Indemnified Parties advises that there are issues which raise conflicts of
interest between Parent and the Indemnified Parties, the Indemnified
Parties may retain counsel satisfactory to them, and Parent shall pay all
reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; provided, however, that
Parent shall be obligated pursuant to this paragraph (b) to pay for only
one firm of counsel for all Indemnified Parties in any jurisdiction unless
the use of one counsel for such Indemnified Parties would present such
counsel with a conflict of interest, (ii) the Indemnified Parties will
cooperate in the defense of any such matter and (iii) Parent shall not be
liable for any settlement effected without its prior written consent; and
provided, further, that Parent shall not have any obligation hereunder to
any Indemnified Party if and when a court of competent jurisdiction shall
ultimately determine, and such determination shall have become final and
non-appealable, that the indemnification of such Indemnified Party in the
manner contemplated hereby is prohibited by applicable law.
(c) The Parent shall maintain Company's existing officers' and directors'
liability insurance for a period of three (3) years after the Effective
Time; provided, however, that if the existing officers' and directors'
insurance expires, is terminated or canceled during such three-year period,
the Parent will obtain officers' and directors' liability insurance for the
remainder of such period of at least $3,000,000 containing terms and
conditions that are not materially less advantageous to the Indemnified
Parties and that is issued by an insurer having a claims-paying rating at
least as good as the rating of the issuer of Company's existing policy.
(d) The provisions of this Section 6.11 are intended to be for the benefit
of, and shall be enforceable by, each of the Indemnified Parties, their
heirs and their representatives. The provisions of this Section 6.11 will
be effective for a period of six (6) years after the Effective Date.
ARTICLE VII CONDITIONS
Section 7.1 Conditions of Obligations of Parent and Merger Sub. The obligations
of Parent and Merger Sub to effect the Merger are subject to the satisfaction of
the following conditions unless waived in writing by Parent and Merger Sub:
(a) Approvals. Other than the filing of Articles of Merger provided for by
Section 1.1, all authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods imposed by any
Governmental Entity, the failure of which to obtain would have a Material
Adverse Effect on Parent and its Subsidiaries or the Surviving Corporation and
its Subsidiaries, in each case taken as a whole, shall have been filed, occurred
or been obtained.
(b) Representations and Warranties. The representations and warranties of
Company set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Effective
Time as though made on and as of the Effective Time.
(c) Performance of Obligations of Company. Company shall have performed in all
material respects all obligations required to be performed by it under this
Agreement specifically including those set forth in Section 5.2 by the earlier
of the specific deadline set forth herein or at or prior to the Effective Time.
(d) Stockholder Approval. The Company shall have distributed the proxy statement
in compliance with SEC requirements. This Agreement shall have been adopted by
the affirmative vote of the holders of at least a majority of the outstanding
shares of the Company Common Stock and the Parent Common Stock.
(e) Officer's Certificates. Parent shall have received a certificate signed on
behalf of the Company by the chief executive officer and the chief financial
officer of the Company to the effect that the conditions set forth in Section
7.1 have been satisfied.
(f) Opinion. Parent shall have received an opinion from counsel to the Company
in customary form reasonably acceptable to Parent.
(g) Other Agreements.
(i) the Severance Agreement with Sebastian J. Sicari (the "CEO") shall have been
modified to effect the following changes:
A. CEO shall receive (but not before January 1, 2000) $400,000 worth of
Parent Common Stock, registered pursuant to the Securities Act of 1933, at
the Parent Stock Price, in lieu of cash. CEO shall sell such stock on the
public market within 15 days after the Effective Time, at Parent's
direction. If the net proceeds from such sale exceed $400,000, CEO shall
pay promptly such excess to Parent, and if the net proceeds are less than
$400,000, Parent shall promptly make a payment in cash to CEO equal to such
deficit.
<PAGE>
B. CEO shall exercise all stock options assumed by Parent within 18
months after the Closing, and such options will be exercised at the rate
of at least 16.66% thereof each calendar quarter after the Closing.
Notwithstanding the foregoing, if the closing price of Parent Common
Stock is less than the Parent Stock Price for at least 75% of the trading
days in any quarter, CEO may elect to defer the portion of the options
otherwise exercisable in such quarter to the next quarter and, in
addition, may on one occasion elect to defer for one quarter regardless
of price, the options otherwise exercisable in such quarter, provided
that in no event may the exercise of any portion of the options be
deferred beyond the 18th month following the Closing.
(iii) the Severance Agreement with Carl S. Archer, Jr. (the "Former Chairman")
shall have been modified to effect the following changes:
A. Former Chairman shall receive (but not before January 1, 2000) Parent Common
Stock, registered pursuant to the Securities Act of 1933, at the Parent Stock
Price, in lieu of cash, equal to any amounts payable to him under the Separation
Agreement dated August 11, 1998, less any amounts previously paid to him by the
Company (the "Severance Payment"). Former Chairman shall sell such stock on the
public market within 15 days after the Effective Time, at Parent's direction. If
the net proceeds from such sale exceed Severance Payment, Former Chairman shall
pay promptly such excess to Parent, and if the net proceeds are less than
Severance payment, Parent shall promptly make a payment in cash to Former
Chairman equal to such deficit.
B. Former Chairman shall exercise all stock options assumed by Parent within six
(6) months after the Closing, and such options must be exercised at the rate of
at least 50% of such options within the first three (3) months after Closing.
(h) Delivery of Documents. The Company shall have delivered to Parent (i)
control of all of its books and records, including but not limited to all
corporate and other records or it and any predecessors including the minute
books, stock books, stock register, deeds and title documents; and (ii) such
other documents and certificates as shall be reasonably requested by Parent.
(i) No Restraints. There shall have been no order or preliminary or permanent
injunction entered in any action or proceeding before any Governmental Entity or
other action taken, nor statute, rule, regulation, legislation, interpretation,
judgment or order enacted, entered, enforced, promulgated, amended, issued or
deemed applicable to Parent, Company or any of their Subsidiaries, or the Merger
or this Agreement by any Governmental Entity and which shall have remained in
effect or any suit, claim, action or proceeding pending before any Governmental
Entity, which, if adversely decided, would have the effect of: (i) making
illegal, materially delaying or otherwise directly or indirectly restraining or
prohibiting or making materially more costly the Merger or the consummation of
any of the other transactions contemplated by this Agreement; (ii) prohibiting
or materially limiting the ownership or operation by Parent or Company or any of
their Subsidiaries of all or any material portion of the business or assets of
Parent or Company or any of their Subsidiaries or compelling Parent or any of
its subsidiaries to dispose of or hold separate all or any material portion of
the business or assets of Parent or Company or any of its Subsidiaries, as a
result of the Merger; (iii) imposing or confirming material limitations on the
ability of the Parent or any Subsidiary of Parent effectively to exercise full
rights of ownership of any Company Common Stock, including, without limitation,
the right to vote such Company Common Stock on all matters properly presented to
the Company's stockholders; or (iv) requiring divestiture by Parent or any
Subsidiary of Parent of any Company Common Stock.
(j) Form S-4. The Form S-4 filed by the Parent with the SEC with respect to the
Merger shall have been declared effective by the SEC and no stop order
suspending the effectiveness of the Form S-4 shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
(k) Dissenting Shares. There shall not have been filed with the Company by the
holders of more than 5% of the shares of Company Common Stock before the vote on
this Agreement and the transactions contemplated hereby at the stockholders'
meeting written objection to the Merger and the intention to demand payment
contemplated by Section 262 of the Delaware Law.
(l) Delaware Anti-Takeover. The Board of Directors of the Company shall have
approved this Agreement, and the merger contemplated herein, for purposes of
Delaware Corporate Law ss. 106.
(m) Parent shall have received from its tax counsel an opinion that the merger
will qualify for federal income tax purposes as a reorganization within the
meaning of (S)(S) 368(A) of the Code, in a form reasonably acceptable to Parent.
(n) Material Adverse Changes. None of the following changes in the business of
the Company shall have occurred prior to the Effective Time:
(i) The net book value of the Company shall not have decreased by more than
$500,000 from that reflected in the balance sheet of the Company dated June 28,
1999, excluding the losses for the fiscal quarters ending in September and
December projected in the forecast provided to Parent by the Company dated June
28, 1999.
(ii) Net losses for the Company for the fiscal quarters ending in September and
December 1999 shall not exceed $600,000 and $262,500, respectively.
(iii) The Company's cash requirements remain within current working capital
financing agreement limits, and the Line of Credit with its current lender
remains in effect on its current terms until the Effective Time, and no defaults
under such Line of Credit by the Company have occurred.
(iv) The Company has gross revenue equal to $4,500,000 and $4,800,000 for the
fiscal quarters respectively ending in September and December, 1999.
<PAGE>
Section 7.2 Conditions of Obligations of Company. The obligation of Company to
effect the Merger is subject to the satisfaction of the following conditions
unless waived by the Company:
(a) Representations and Warranties. The representations and warranties of Parent
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and (except to the extent such representations
and warranties speak of an earlier date) as of the Effective Time as though made
on and as of the Effective Time.
(b) Performance of Obligations of Parent and Merger Sub. Parent and Merger Sub
shall have performed in all material respects all obligations required to be
performed by them by the earlier of the specific deadline set forth herein or
prior to Effective Time.
(c) Stockholder Approval. This Agreement shall have been adopted by the
affirmative vote of the holders of at least a majority of the outstanding shares
of each of the Company Common Stock and the Parent Common Stock respectively.
(d) No Restraints. here shall have been no order or preliminary or permanent
injunction entered in any action or proceeding before any Governmental Entity or
other action taken, nor statute, rule, regulation, legislation, interpretation,
judgment or order enacted, entered, enforced, promulgated, amended, issued or
deemed applicable to Parent or Company or any of their Subsidiaries or the
Merger or this Agreement, by any Governmental Entity which shall have remained
in effect and which shall have had the effect of making illegal, materially
delaying or otherwise directly or indirectly restraining or prohibiting the
Merger, or the consummation of any of the other transactions contemplated by
this Agreement.
(e) Form S-4. The Form S-4 filed by the Parent shall have been declared
effective and no stop order suspending the effectiveness of the Form S-4 shall
have been issued and no proceedings for that purpose shall have been initiated
or threatened by the SEC. Any and all state securities approvals for the
issuance of the Parent Common Stock pursuant to this Agreement shall have been
obtained.
(f) Officer's Certificate. The Company shall have received a certificate signed
on behalf of Parent by the chief executive officer of Parent to the effect that
the conditions set forth in Section 7.2 have been satisfied.
(g) Opinion. The Company shall have received opinion from Counsel to Parent in
customary form reasonably acceptable to the Company.
(h) Tax Opinion. Company shall have received an opinion from its tax counsel
that the merger will qualify for federal income tax purposes as a reorganization
within the meaning of ss.368(a) of the Code, in a form reasonably acceptable to
the Company.
(i) NASDAQ Listing. The Parent Common Stock issuable to the Company's
shareholders shall have been authorized for inclusion on the NASDAQ National
Market.
ARTICLE VIII TERMINATION AND AMENDMENT
Section 8.1 Termination. This Agreement may be terminated upon notice at any
time prior to the Effective Time, whether before or after adoption of this
Agreement and the Merger by the stockholders of the Company:
(a) by mutual written consent of Parent and Company;
(b) by Parent or Company if there shall have been a material breach of any
representation, warranty, covenant or agreement on the part of the other party
set forth in this Agreement which breach shall not have been cured, in the case
of a representation or warranty, prior to the Closing or, in the case of a
covenant or agreement, within 5 business days following receipt by the breaching
party of notice of such breach;
(c) by either Parent or Company if any permanent injunction or other order of a
court or other competent authority preventing the consummation of the Merger
shall have become final and non-appealable;
(d) by either Parent or Company if the Merger shall not have been consummated on
or before February 28, 2000, or if the Proxy Statement/Prospectus has not been
declared effective on or before January 31, 2000, provided however, that the
right to terminate this Agreement pursuant to this Section 8.1(d) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Merger to
have occurred on or before the aforesaid date;
(e) by Parent or Company, if the terminating party is not otherwise in breach of
this Agreement, if, in the exercise of its good faith judgment as to its
fiduciary duties under applicable corporate law, the Board of Directors of
Parent or Company determines, after consultation with the financial advisors and
counsel, and in reliance upon the written opinion of such counsel, that such
termination is required by such fiduciary duties by reason of a proposal from a
third party that either constitutes a Business Combination Transaction or may
reasonably be expected to lead to a Business Combination Transaction; provided,
that any termination of this Agreement pursuant to this Section 8.1(g) shall not
be effective until the terminating party has made payment of the full
termination fee provided for by Section 8.2(b) hereof. As used herein, the term
"Business Combination Transaction" shall mean any of the following involving the
Company or any Subsidiary or Parent or any Parent Subsidiary, as applicable: (1)
any merger, consolidation, share exchange, business combination or other similar
transaction (other than the Transactions); (2) any sale, lease, exchange,
transfer or other disposition (other than a pledge or mortgage) of 25% or more
of the assets of the Company and the Subsidiaries or Parent and the Parent
Subsidiaries, as applicable, taken as a whole, in a single transaction or series
of transactions; or (3) the acquisition by a person or entity or any "group" (as
such term is defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) of beneficial ownership of 33% or more of the shares of
Company Common Stock or Parent Common Stock, as applicable, whether by tender
offer, exchange offer or otherwise.
Section 8.2 Effect of Termination. (a) In the event of a termination of this
Agreement by either Company or Parent as provided in Section 8.1, this Agreement
shall forthwith become void and there shall be no liability or obligation on the
part of Parent, Merger Sub or Company or their respective officers or directors,
except for Sections 5.1(f), the second full paragraph of 6.1, first sentence of
6.6, 8.2(b), 8.5 and 9.2, which shall survive such termination.
<PAGE>
(b) Termination Fee. Upon termination by a party pursuant to Section 8.1(e)
above, that party shall pay to the other party, if that other party is not
otherwise in breach of this Agreement, $1,000,000 in immediately available funds
immediately upon effectiveness of the termination.
Section 8.3 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of this Agreement by the stockholders of the Company
but, after such approval, no amendment shall be made which by law requires
further approval by such stockholders without such further approval. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
Section 8.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may (i) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party.
Section 8.5 Liquidated Damages. The parties expressly agree that the damages
incurred by a non-breaching party upon breach of this Agreement by another party
would be speculative and difficult to measure. Therefore, upon the failure of
any party to proceed to completion of this transaction at the Closing, as
contemplated by this Agreement, in breach of this Agreement, the breaching party
(but not Merger Sub) shall pay to the non-breaching party (but not to Merger
Sub) $1,000,000 as liquidated damages, to compensate the non-breaching party for
expenses incurred in pursuit of the transactions contemplated by this Agreement.
Payment shall be made immediately upon such breach. The breaching party shall
not be liable to the non-breaching party for any damages, costs or expenses in
connection with such breach other than the payment required by this Section.
ARTICLE IX
MISCELLANEOUS
Section 9.0 No Solicitations. From the date hereof until the Closing, the
Company will not, and will instruct its officers, directors, employees, agents
and other representatives not to, directly or indirectly, solicit or initiate
any proposals or offers from any person relating to any acquisition or purchase
of all or a material amount of the assets off or any securities of, or any
merger, consolidation or business combination with, the Company or any of its
subsidiaries; provided, however, that the Company may furnish information to and
otherwise cooperate with, and may engage in discussions or negotiations with,
any person with respect to any of the foregoing and may waive any provision of
any confidentiality or standstill agreement to which it or any of its
representatives is a party if counsel advises the Board that failure to do so
could involve the Company's directors in a breach of their fiduciary duties and,
provided, further, that nothing herein shall prevent the Board from taking, and
disclosing to the Company's shareholders, a position contemplated by Rules 14d-9
or 14e-2 promulgated under the Exchange Act with respect to any tender offer or
making such other disclosure to the Company's shareholders as, in the judgment
of the Board, on advice of counsel, is required by applicable law. Subject to
the fiduciary duties of the Board, the Company will promptly advise Parent of,
and communicate the principal terms (other than the identity of such person) of,
any such inquiry or proposal the Company may receive.
Section 9.1 Survival of Representations and Warranties. The representations and
warranties of the Parent, Merger Sub and Company shall not survive the
termination of this Agreement or the Effective Time.
Section 9.2 Brokers or Finders. Company represents and warrants to Parent that
no broker, finder or financial advisor is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger or the transactions
contemplated by this Agreement other than Adams, Harkness & Hill, Inc.
Section 9.3 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which is
confirmed) or mailed by registered or certified mail (return receipt requested)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Parent or Merger Sub, at the address shown in its most recent SEC
filing, with copies to Best & Flanagan LLP, 4000 U.S. Bank Place, 601 Second
Avenue South, Minneapolis, MN 55402-4331, Attn: James C. Diracles, Esq.,
Telecopy No.: (612) 339-5897; and
(b) if to Company: at the address shown in its most recent SEC filing, with
copies to Choate, Hall & Stewart, Exchange Place, 53 State Street, Boston, MA
02109-2891, Attn: Robert V. Jahrling, Telecopy No.: (617) 248-4000.
Section 9.4 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
Section 9.5 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts, including facsimile
signature pages, have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
Section 9.6 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership.
This Agreement (including the documents and the instruments referred to herein)
(a) constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof except that the Confidentiality Agreement between the
parties dated July 22, 1999 shall continue in full force and effect in
accordance with its terms, and (b) is not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder.
Section 9.7 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Minnesota without regard to any
applicable conflicts of law.
<PAGE>
Section 9.8 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
parties, except that Merger Sub may assign, in its sole discretion, any or all
of its rights, interests and obligations hereunder to Parent or to any direct or
indirect wholly owned Subsidiary of Parent. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.
<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub and Company have caused this agreement to
be signed by their respective officers thereunto duly authorized as of the date
first written above.
MICRO COMPONENT TECHNOLOGY, INC.
By: /s/ Jeffrey S. Mathiesen
------------------------
Name: Jeffrey S. Mathiesen
--------------------
Title: Vice President and Chief Financial Officer
------------------------------------------
MCT ACQUISITION, INC.
By: /s/ Jeffrey S. Mathiesen
------------------------
Name: Jeffrey S. Mathiesen
--------------------
Title: Vice President and Chief Financial Officer
------------------------------------------
ASECO CORPORATION
By: /s/ Sebastian J. Sicari
-----------------------
Name: Sebastian J. Sicari
-------------------
Title: President and CEO
-----------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ASECO
CORPORATION'S FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 26, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-26-2000
<PERIOD-START> MAR-29-1999
<PERIOD-END> SEP-26-1999
<CASH> 1,652
<SECURITIES> 0
<RECEIVABLES> 7,451
<ALLOWANCES> 1,014
<INVENTORY> 5,624
<CURRENT-ASSETS> 14,043
<PP&E> 7,341
<DEPRECIATION> 5,666
<TOTAL-ASSETS> 15,842
<CURRENT-LIABILITIES> 6,729
<BONDS> 0
0
0
<COMMON> 39
<OTHER-SE> 9,074
<TOTAL-LIABILITY-AND-EQUITY> 15,842
<SALES> 10,369
<TOTAL-REVENUES> 10,369
<CGS> 6,158
<TOTAL-COSTS> 6,158
<OTHER-EXPENSES> 5,179
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50
<INCOME-PRETAX> (994)
<INCOME-TAX> 0
<INCOME-CONTINUING> (994)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (994)
<EPS-BASIC> (.26)
<EPS-DILUTED> (.26)
</TABLE>
