SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NO. 0-22166
AETRIUM INCORPORATED
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1439182
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2350 HELEN STREET
NORTH ST. PAUL, MINNESOTA 55109
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (612) 704-1800
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
$.001 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES _X_ NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
As of March 24, 1998, 8,800,153 shares of Common Stock of the Registrant
were outstanding, and the aggregate market value of the Common Stock of the
Registrant as of that date (based upon the last reported sale price of the
Common Stock on that date as reported by the Nasdaq National Market), excluding
outstanding shares beneficially owned by directors and executive officers, was
approximately $127,985,370.
DOCUMENTS INCORPORATED BY REFERENCE
Part II of this Annual Report on Form 10-K incorporates by reference
information (to the extent specific pages are referred to herein) from the
registrant's Annual Report to Shareholders for the year ended December 31, 1997
(the "1997 Annual Report"). Part III of this Annual Report on Form 10-K
incorporates by reference information (to the extent specific sections are
referred to herein) from the registrant's Proxy Statement for its 1998 Annual
Meeting to be held May 19, 1998 (the "1998 Proxy Statement").
<PAGE>
PART I
This Form 10-K contains certain forward-looking statements. For this
purpose, any statements contained in this Form 10-K that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"estimate" or "continue" or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, and actual results may differ materially depending on a
variety of factors, including those set forth in the section below entitled
"Certain Important Factors."
ITEM 1. BUSINESS.
Aetrium Incorporated ("Aetrium" or the "Company") designs, manufactures
and markets a variety of electromechanical equipment used in the handling and
testing of microelectronic components, including semiconductor devices known as
integrated circuits ("ICs") and other forms of electronic components. The
Company's primary focus is on high volume electronic component types and on the
latest package designs. Aetrium's products are purchased primarily by
semiconductor manufacturers and are used in the "back-end" of semiconductor
manufacturing processes. The Company's products automate critical functions to
improve manufacturing yield, raise quality levels, reduce manufacturing costs
and increase product reliability.
The Company has three principal product lines. The largest, in terms of
revenue, is its broad line of test handlers, which incorporate thermal
conditioning, contactor and automated handling technologies to provide automated
handling of ICs and other electronic components during production test cycles.
Test handler products are primarily produced by the Company's North St. Paul,
San Diego, and Aetrium FSA divisions. Change kits to adapt the Company's test
handlers to different IC package configurations and to upgrade installed
equipment for enhanced performance also represent a significant part of the
Company's revenue. The Company's second product line consists of its IC
Automation Products, which are produced by the North St. Paul Division. These
products are sold to original equipment manufacturers ("OEMs") to incorporate as
the automated handling components of such OEM's own proprietary equipment for a
variety of other IC processing requirements, such as marking, lead scanning, and
lead trim and form. The Company's third product line is specialty test
equipment, which include reliability test equipment and environmental test
equipment. The Company's reliability test systems provide IC manufacturers with
IC performance data to aid in the evaluation and improvement of IC designs and
manufacturing processes to increase IC yield and reliability and are produced in
North St. Paul, Minnesota. The Company's environmental test equipment products
provide burn-in testing of ICs and are produced in the Company's Lawrence
Division.
The Company's strategy has focused on revenue growth through product
line expansion and customer satisfaction. Company sales have increased at an
average annual compounded growth rate of approximately 35% during the period
from 1986 through 1997. Currently, the Company has an installed base of over
6,000 test handlers, which the Company believes is the second largest installed
base among all test handler manufacturers.
The Company's revenue growth and expansion of its product lines have
resulted from both internal product development and the acquisition of
complementary businesses, product lines and technologies. Examples of the
Company's internally developed products are the Company's IC Automation handling
modules, introduced in 1991, and the 900A Series pick-and-place test handler.
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In 1997, the Company completed two acquisitions that expanded its test
handler product lines. In April 1997, Aetrium acquired the broad line of test
handler products produced in its Aetrium FSA Division by acquiring substantially
all of the assets of Forward Systems Automation, Inc. ("FSA"). Since the date of
the acquisition, the Company has focused its efforts on developing and refining
the technologies present at the time of acquisition into a line of standard
product models. Products produced by Aetrium FSA include test handlers for ICs
as well as so-called discrete components, which are a non-semiconductor form of
electronic component. In November 1997, Aetrium acquired a product line of
pick-and-place test handlers by acquiring certain assets and assuming certain
liabilities of the Handler Division of Advantek Inc., which extended Aetrium's
product line of pick-and-place test handlers for non-memory ICs and increased
Aetrium's test handler customer base.
The Company acquired the core products of its 5050 series of gravity
feed test handlers, through its acquisition of Electro-Mechanical Systems, Inc.
("EMS") in 1988. Since then, the Company has expanded this series of products
through internal development to include a full range of thermal conditioning
capabilities, contactor change kits for a wide range of package types in the
largest segment of surface mount ICs, high performance contactors, dual test
site capability, quad test site capability, and more recently, micro small
outline package ("MSOP") test capability. Aetrium also acquired certain test
handler products from Sym-Tek Systems, Inc. ("SymTek") in November 1994, which
allowed Aetrium to enter the memory IC market with both high volume multisite
pick-and-place and extensive multisite gravity feed test handler lines. The
SymTek acquisition also extended Aetrium's line of gravity feed test handlers
for the non-memory IC market.
The Company acquired its reliability test systems product line through
the purchase of the assets of Sienna Technologies, Inc. ("Sienna Technologies")
in December 1993. At the time of the acquisition, Sienna Technologies' revenue
was declining and customer confidence was eroding due in part to product
performance and customer service issues. Since the acquisition, this product
line has been improved to address performance issues, customer service has
improved, customer confidence has been substantially restored, and gross profit
margins have increased.
Aetrium acquired environmental test products from E.J. Systems, Inc.
("EJ Systems") in December 1995, and now operates the business as its Lawrence
Division. The division manufactures and distributes environmental conditioning
chambers for burn-in testing of ICs, and provides board assembly and burn-in
testing services for third parties. Since the acquisition, the Company has
substantially increased marketing and product distribution, increased average
selling prices, and improved manufacturing efficiencies.
Aetrium emphasizes both product quality and customer service to achieve
customer satisfaction, which is reflected in the certification of its Minnesota
facility in March 1995 as the first test handler company certified under the ISO
9001 program established by the European Community. The Company has since
successfully completed recertification audits and preparations have been made
for IS0 9001 certification audits at two of Aetrium's other facilities.
The Company was incorporated in Minnesota in December 1982. The
Company's executive offices are located at 2350 Helen Street, North St. Paul,
Minnesota 55109, and its telephone number is (612) 704-1800.
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TEST HANDLER PRODUCTS
Test handlers are electromechanical systems interfaced with a tester to
form a test system designed to handle, thermally condition, contact and sort ICs
and other electronic components automatically during the testing process. The
components are loaded into the handler from tubes or trays and then typically
transported to a temperature chamber within the test handler where they are
thermally conditioned to the required testing temperature. The component is then
positioned against the test handler contactor, which provides an electrical
connection between the component and the tester. After testing, the test handler
sorts the component according to test performance.
Traditionally, test handlers used gravity to move ICs and other
components through the handler system. In order to accommodate more fragile IC
package families, gravity feed systems have incorporated various velocity
limiting techniques to reduce the speed of IC packages and minimize IC damage
upon impact with other ICs or other stopping mechanisms. More recently,
pick-and-place test handler systems have been introduced for the IC package
families most easily damaged in handling, such as quad flatpack families
("QFPs"), ball grid array packages ("BGA") and some small outline packages
("SOPs"). Pick-and-place systems move ICs electromechanically, and thus can
avoid jarring stops and the resulting lead damage. Pick-and-place systems are
typically slower and more costly than gravity feed handlers.
Test handlers are designed for either memory or nonmemory ICs, or
discrete components. Memory ICs require relatively long test times. In order to
achieve acceptable throughput rates, memory IC test handlers have been designed
to test up to 64 devices at a time. Nonmemory ICs and most forms of discrete
components require relatively short test times, and traditionally test times
have not been a limiting factor for throughput rates. Test times, however, have
increased as nonmemory ICs have become more complex and IC manufacturers have
also sought to fully utilize the capacity of their testers. Accordingly,
multisite test handlers, with as many as eight test sites, are now available for
appropriate nonmemory IC applications.
Test handlers must meet industry criteria for thermal conditioning,
contactor integrity and minimization of lead damage. Test handlers compete on
the basis of cost, throughput, versatility, reliability and the specific
application requirements of the IC manufacturer. The combination of these
factors measures the cost of ownership of the test handler per device tested.
Aetrium believes its broad line of test handlers competes favorably on the basis
of cost of ownership for a wide range of electronic component manufacturer
applications.
The Company's primary focus continues to be on the newer generation ICs
referred to as surface mount devices ("SMD") which represent the largest
volumes, the newest IC device types, and the fastest growing market in the
industry. The Company offers the broadest line of test handling products to the
microelectronics industry and, with the combination of Aetrium's North St. Paul,
San Diego and Aetrium FSA designed products, Aetrium addresses the full spectrum
of the industry, including discrete components. Aetrium's test handler products
are complementary in nature with minimal overlap of application and can be
distributed and serviced through a common organization for efficiency.
GRAVITY FEED HANDLERS
5050 SERIES. Aetrium's 5050 Series of gravity feed test handlers for
nonmemory IC applications addresses a wide range of SOP package types, which
constitute the largest segment of all surface mount ICs. These handlers compete
most favorably in high-volume applications and their high throughput rates
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are an added advantage in relatively short test time applications. Models within
this series vary on adaptability to different IC package sizes and
configurations and the temperature range available for thermal conditioning in
order to provide cost effective solutions to a wide range of customer
requirements. The Company also offers dual test site and quad test site
capability within its 5050 Series of handlers to increase productivity and
reduce testing costs in certain applications.
MODEL 4098. The Model 4098 was first sold by the Company in 1988 and is
a gravity feed handler used for dual in line packages ("DIP"), the highest
volume through-hole package type. In addition, it serves as the base handler for
a number of custom handler designs. It is designed for high volume handling and
provides ambient and hot temperature capability.
300 SERIES. The 300 Series is a gravity feed test handler which handles
a wide variety of DIP devices. It provides hot and cold thermal conditioning
with a temperature range of -60(degree)C to +150(degree)C with +/-2(degree)C
control capabilities. A menu driven CRT display allows the operator to set up
the handler's operational parameters as well as continually monitor the handler
status. The handler can be programmed to sort devices into user-defined
categories.
MODEL M4300. The Model M4300 is a gravity feed test handler that
provides parallel testing of up 32 memory devices. The quick load spool design
reduces the number of moving parts in the test environment, eliminating multiple
test site adjustments common to other systems. The Model M4300 systems are
equipped with two separate environmental chambers, independently controlled with
a cold and hot temperature range of -60(degree)C to +150(degree)C.
PICK-AND-PLACE HANDLERS
MODEL M3200. The Model M3200 test handler is a pick-and-place,
high-volume production application test handler for memory ICs. The M3200
addresses a wide range of IC package types that cannot be processed on gravity
feed test handlers without special carriers, and provides hot, ambient and cold
parallel testing with up to 32 test sites. Its horizontal tray based system
design provides package protection with input and output modules capable of
automatically loading and unloading tubes or trays.
MODEL 6400. The Model 6400 pick-and-place handler is designed for
testing 64 memory devices at a time by presenting two trays of 32 devices each
to the tester. The Model 6400 is designed to accommodate 128 devices during
testing. The Model 6400 is produced by the San Diego Division in a joint
development and manufacturing program with a German technology partner.
900A SERIES. Aetrium's 900A Series pick-and-place handler provides
gentle handling required for QFPs, BGAs, and the most difficult to handle SOPs.
The 900A Series can be quickly adapted to accept different package types and
configurations, and is well suited for engineering, preproduction and low-volume
production applications. It also competes for high volume nonmemory production
applications where long test times reduce the cost effectiveness of higher
priced production based handlers. Aetrium believes the 900A's "plunge to board"
testing technique, which utilizes temperature controlled thermal nests, gives it
a special advantage in the testing of high performance ICs most sensitive to
signal degradation. Through this technique, the 900A can place the IC under test
directly against a replicated PC board contact site, thus eliminating the test
contactor and the potential for signal degradation resulting from the
contactor's physical and electrical attributes. The 900A Series products can be
modified with change kits to accommodate nearly every IC package configuration
being manufactured in volume today.
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1000 SERIES. The 1000 Series pick-and-place test handlers, acquired by
the Company from Advantek Inc., are offered in a full range of temperature
options for thermal conditioning, and can be configured to gently handle a wide
variety of non-memory devices. They feature the Soft-Touch Probe(TM) to safely
and reliably handle the most fragile IC packages. Devices are transported with
their leads up, virtually eliminating the possibility of lead damage. The 1000
Series features "plunge to board" contacting, and offers complete electrostatic
discharge protection. The 1000 Series products can be modified with change kits,
typically within 15 minutes, to accommodate nearly every IC package
configuration being manufactured in volume today.
MODEL QT. The Model QT test handler is a bench-top sized machine
designed to accomplish small lot production runs and engineering
characterization testing. The QT can be configured for any device package
smaller than 2.5 inches wide, including ICs and discrete electronic components.
The QT input can be from metal or plastic tubes, a custom device tray, or a bulk
bowl-fed input. The QT Series products are offered with several different
options for contacting, including "plunge to board"-type contacting.
2000 SERIES. The 2000 Series of test handlers are designed for
production testing for TO-type discrete electronic components. They can be
configured for up to four test sites and a variety of options for contacting.
The 2000 Series is offered with a number of options for input, including bulk
bowl feeders or tubes. The output options include bulk, tube, and radial tape
and reel. Other options include the capability to perform vision inspection of
the coplanarity of leads and to mark individual devices with a laser marking
system.
5000 SERIES. The 5000 Series of test handlers are designed for
production testing of SOT-type discrete electronic components. They can be
configured for up to six test sites and a variety of options for contacting,
including "plunge to board"-type contacting. The 5000 Series is offered with a
bulk bowl feeder input and a variety of output options including bulk, tube, or
radial tape and reel. Tested devices can be sorted into up to 19 programmable
categories. Other options include the capability to perform vision inspection of
the coplanarity of leads and to mark individual devices with a laser marking
system.
7000 SERIES. The 7000 Series of test handlers are designed for
high-volume testing of MSOP- and TSOP-type IC packages. They have extruded,
multi-track tray input. Contacting options include standard contacts as well as
"plunge to board"-type contacting. The 7000 Series is offered with the
capability to perform visual inspection of the coplanarity of leads and to mark
individual devices with a laser marking system. Devices can be sorted into
multi-track trays or tape and reel, with up to 19 programmable sort categories.
The Model 7900 version offers a full range of temperature options for thermal
conditioning of ICs prior to testing.
CHANGE KITS, UPGRADES AND SPARE PARTS
The Company has ongoing demand for IC package change kits for its
installed test handler equipment, including test handlers no longer included in
its active product line, and it sells a variety of change kits to accommodate
the growing variety of IC packages used by the IC industry. The demand for
change kits is driven by the introduction of new IC package types and production
volume changes experienced by the Company's end customers. Also included in
change kits are upgrade kits to enhance performance of installed equipment.
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IC AUTOMATION PRODUCTS
The Company believes that the growing number and volume of fine pitch
and other delicate IC packages is driving a demand for automated equipment for
all IC manufacturing processes. Existing processing equipment often will not
accommodate these package types or the numerous tray configurations used to
transport them. Aetrium believes that its IC Automation product line offers the
most effective handling technology to automate these manufacturing processes for
increasingly difficult to handle, newer generation ICs.
The Company began the development of the IC Automation product line in
1990. This product line currently consists of a series of robotic
electromechanical handling modules, each designed to perform a specific handling
function. Together these modules perform nearly all of the handling functions
necessary for the various IC manufacturing processes. Each handling module has a
microprocessor that directs the handling module's function and communicates with
other modules through a proprietary software protocol that enables the transfer
of ICs between modules in a logical and efficient manner.
The IC Automation handling modules can be readily assembled into
systems configured to provide nearly any IC routing pattern required by an IC
processing application, and can be readily integrated as a component of the
processing equipment. This generic nature of the IC Automation handling modules
allows the Company to provide a versatile, cost effective automation solution to
IC processing equipment OEMs that overcomes the handling automation challenges
presented by more fragile IC package types. The IC Automation modules can also
be adapted to provide an automated linkage between IC manufacturing processes,
thus offering the potential for seamless automated handling of ICs from trim and
form to packaging for shipment. The Company's IC Automation modules have been
incorporated in trim and form, marking, mark curing, lead inspection, mark
inspection, lead conditioning, media transfer and prom programming equipment to
accommodate various device characteristics and media packaging.
Following are the principal automation modules in the IC Automation
product line:
PICK-AND-PLACE MODULE. The pick-and-place module provides the means to
pick up, transport and place IC packages on an individual basis. The
pick-and-place module adapts to various end effectors that perform the actual
picking and releasing of the IC package as the end effectors are moved along a
horizontal axis between fixed or user programmable locations. The pick-and-place
module can transport most IC packages from or to tray, tube or other transport
media to or from the IC process site. Standard Aetrium end effectors are
commonly purchased with the pick-and-place module, although the module can
easily accommodate customer-designed end effectors. The pick-and-place module is
currently in use by the Company's OEM customers in lead inspection, mark
inspection, mark curing, trim and form, taping, lead conditioning, media
transfer and prom programming equipment.
TRAY TRANSPORT MODULE. The tray transport module is a user programmable
IC tray handler that precisely indexes a tray of ICs row by row through a
process site. The tray transport module can accommodate a wide variety of IC
trays and tray matrix configurations including all industry standard trays.
Other customer trays can also be accommodated with the addition of appropriate
adapter kits. This module, together with the Company's pick-and-place module, is
used by the Company's OEM customers in lead inspection, mark inspection, taping,
lead conditioning, marking, media transfer and prom programming equipment.
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CONVEYOR BELT MODULE. The conveyor belt module is designed to transport
and index IC trays through a process. The transport speeds and the number and
size of the index steps are user programmable, providing a versatile transport
mechanism for those applications that require continuous, single directional
flow of IC trays to, through and from manufacturing processes. The conveyor belt
module is commonly used in conjunction with the tray stacker/unstacker modules
as an automation subsystem to provide a continuous supply of trays with minimal
operator intervention, and is currently in use by the Company's OEM customers in
lead inspection, mark inspection, trim and form, media transfer, marking and
mark curing equipment.
TRAY STACKER/UNSTACKER MODULE. The tray stacker/unstacker module
separates a single tray from a stack of up to 30 IC trays for individual
processing with no operator intervention, and operates in reverse sequence to
stack trays after processes are complete. This module, in conjunction with the
conveyor, is user programmable and precisely positions trays for further
processing and/or transport. Tray stacker/unstacker modules are currently in use
by the Company's OEM customers in lead inspection, mark inspection, marking,
mark curing, burn-in board loading, trim and form, media transfer and prom
programming equipment.
INVERTING END EFFECTOR. One of several end effector configurations,
this end effector inverts an IC 180 degrees from its previous position. This
capability is required, for example, in some inspection processes where the IC
is transported with the leads pointing down but must be inspected with the leads
pointing up and returned to the transport media with the leads pointing down.
The inverter module is used in conjunction with a programmable pick-and-place
module by the Company's OEM customers in lead inspection and mark inspection
equipment.
TAPING MODULE. The taping module provides an automated means for
indexing tape media to a position for placement of devices commonly transferred
with the pick-and-place module. A reel of tape is a medium often used to ship
ICs to customers. This module is currently used by the Company's OEM customers
in lead inspection, mark inspection and taping equipment.
RELIABILITY TEST AND ENVIRONMENTAL TEST EQUIPMENT
RELIABILITY TEST PRODUCTS
In December 1993, the Company acquired its reliability test systems
product line from Sienna Technologies. Since the acquisition the Company has
developed and improved this product line to improve performance and satisfy the
needs of its customers.
The IC industry's demand for higher performance devices with smaller
circuit geometries has led to significant technological changes in the materials
and processes used to manufacture ICs. These changes in technology, along with
IC user demand for increased reliability, have created a need for increasingly
sophisticated reliability testing of IC designs and manufacturing processes. The
reliability test equipment product line includes a variety of systems with which
IC manufacturers can force precision levels of voltage and current through ICs,
collect and analyze relevant data, and predict lifetime performance of ICs. This
equipment can be utilized to perform reliability testing of packaged and
unpackaged ICs.
The Company recently has completed its first installations of the Model
1164, a fundamentally improved design from the Company's previous reliability
test products. The Model 1164 features a modular design that allows for great
flexibility in performing reliability tests, and can test up to 4,096
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devices at a time or perform numerous simultaneous tests on smaller batches of
ICs.
ENVIRONMENTAL TEST PRODUCTS
The Company acquired its environmental test equipment product line from
EJ Systems in December 1995, which developed the line in response to a trend in
increased power dissipation in ICs. This increase in power dissipation resulted
from increased device complexity (more circuits) within smaller geometries. This
phenomenon is especially evident in high-end microprocessors. This power
dissipation led to unique thermal conditioning problems in the testing of such
devices. EJ Systems developed environmental test equipment that permitted
individual IC temperature control and used the conduction (direct contact)
method rather than the traditional convection (forced hot air) method to
thermally condition devices in a patented process called BAKPAK(TM). This
equipment also provides for the placement of ICs being tested in close proximity
to the test circuitry.
The BAKPAK technology has been designed into a series of modules
("QUBEPAK(R)") and can be mounted in equipment cabinets to provide for up to 64
devices to be burned-in and tested in parallel. Each device is under individual
thermal control and BAKPAK designs can accommodate up to 100 watts power
dissipation per device under test.
In November 1997, the Company introduced its TMU-100 Thermal Management
System at an international trade show. The TMU-100 uses the BAKPAK conductive
thermal conditioning technology to control temperature and perform thermal
conditioning during the manual testing of semiconductor devices. The Company
believes the TMU-100 provides the tightest temperature control for
characterization-type testing in the industry. The TMU-100 is easily configured
for packaged IC devices or bare die, allowing the one system to be used for
multiple requirements. The thermal operating range is 0(degree) C to 100(degree)
C.
The Company believes the BAKPAK technology will meet the needs of the
sophisticated IC requirements for environmental test applications of the future.
The Company is adapting this thermal conditioning technology for use in test
handlers.
COMPETITION
The test handler market is highly competitive. Aetrium competes with a
number of companies ranging from very small businesses to large companies, some
of which have substantially greater financial, manufacturing, marketing and
product development resources than the Company. Some of these companies
manufacture and sell both testers and test handlers. The Company believes its
test handlers are compatible with all major testers, including those
manufactured by companies that sell both testers and test handlers. The
particular companies with which the Company competes vary with the Company's
different markets, with no one company dominating the overall test handler
market. The companies with which the Company competes most directly in the
surface mount IC test handler market include Advantest Corporation, Aseco
Corporation, Cohu, Inc., Multitest Electronic Systems GmbH and Micro Component
Technology, Inc. The Company also competes with Ismeca S.A. and Tesec
Corporation in the market for test handlers configured to handle passive and
discrete electronic components.
The Company competes for test handler sales primarily on the basis of
effective handler throughput, cost of ownership, temperature accuracy, contactor
integrity and other performance characteristics of its products, the breadth of
its product lines, the effectiveness of its sales and
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distribution channels and its customer service. The Company believes that it
competes favorably on all of these factors.
The Company believes that the market for its IC Automation products is
emerging, with no clearly defined competitors offering similar automated
handling modules to the IC industry. Historically, OEMs supplying equipment for
IC manufacturing processes have developed custom or semi-custom handling
components. Many of these OEMs have internal development capability for
automated handling and many engineering companies also have automated handling
development capability. The Company believes, however, that its IC Automation
product line of generic automation modules offers OEMs the only existing,
developed solution for their new automated handling requirements. In addition,
the Company believes it offers standard generic handling modules to its OEM
customers at a price difficult for its OEM customers to achieve from competitors
or by developing internal capabilities, because of the greater product volumes
the Company can reach through multiple customers and applications. The Company
believes the economics, the current availability and the effectiveness of its IC
Automation products provide strong incentives to the Company's OEM customers to
forego new product development and to use Aetrium's IC Automation handling
modules.
The market for the Company's reliability test systems also is
competitive and the Company's competitors include QualiTau, Ltd. and Micro
Instruments, Inc.
There are also a number of companies that manufacture and sell
conventional burn-in equipment in the United States, which compete with the
Company's environmental test equipment product line, including Aehr Test
Systems, Inc. and Reliability, Inc. The Company is not aware of any competitors
who provide burn-in equipment that addresses the combined needs of high-power
dissipation and high-performance while maintaining sufficiently accurate thermal
conditioning.
MANUFACTURING AND SUPPLIES
The Company manufactures test handlers, reliability test equipment, and
its automation modules in North St. Paul, Minnesota; certain of its test handler
products at its facilities in San Diego, California, and Dallas, Texas; and its
environmental test equipment in Lawrence, Massachusetts. The Company's
manufacturing operations consist of procurement and inspection of components and
subassemblies, assembly and extensive testing of finished products. Quality and
reliability are emphasized in both the design and manufacture of the Company's
products. This emphasis is reflected in the certification of the Company's North
St. Paul facility in March 1995 under the ISO 9001 certification criteria
established by the European Community for the standardization of manufacturing
documentation and processes. The Company has also commenced a program to become
ISO 9001 certified at its San Diego and Lawrence facilities.
All components and subassemblies are inspected for mechanical and
electrical compliance to Company specifications. All finished products are
tested against Company and customer specifications, and fully assembled test
handler products are tested at all temperatures for which they are designed and
with all the IC packages to be accommodated. Where appropriate, the Company's
handler products are shipped in custom engineered protective packaging to
minimize potential damage during shipment.
A significant portion of the components and subassemblies of the
Company's products, including PC boards, refrigeration systems, vacuum pumps and
contactor elements, are manufactured by third parties on a subcontract basis. As
a part of Aetrium's total quality management program, the Company has an ongoing
supplier quality program under which it selects, monitors and rates its
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suppliers, and recognizes suppliers for outstanding performance.
Certain components are currently available only from sole sources, and
certain other components are available from only a limited number of sources.
Aetrium believes it can replace any of its suppliers within a time period
consistent with its business requirements. The Company also attempts to keep an
adequate supply of critical components in its inventory to minimize any
significant impact the loss of a supplier may cause.
SALES AND MARKETING
The Company markets its test handler products, environmental test
equipment and reliability test systems through a combination of direct
salespeople and independent manufacturers' representatives and distributors.
Aetrium sells its IC Automation Products directly to OEM customers through its
internal sales force. As of December 31, 1997, the Company had 12 United States
manufacturers' representatives with an average of 3 salespeople each located
throughout the U.S. and Canada in areas critical to the Company's success.
International distributors are located in the United Kingdom, France, Germany,
Switzerland, Holland, Sweden, Japan, Taiwan, Thailand, Malaysia, Korea,
Singapore, Hong Kong, China and the Philippines.
Aetrium's direct sales organization, comprised of 14 salespeople,
coordinates the activities of the Company's manufacturers' representatives and
distributors and actively participates with them in selling efforts. This
enables the Company to establish strong direct ties with its customers. The
Company provides sales and technical support to its manufacturers'
representatives and distributors through the Company's sales and service
locations in North St. Paul, Minnesota; San Diego and Santa Clara, California;
Landisville, Pennsylvania; Austin and Grand Prairie, Texas; and Saugus and
Lawrence, Massachusetts.
Aetrium's marketing efforts include advertising in trade and business
publications, participation in industry trade shows and production of product
literature and sales support tools. These efforts are designed to generate sales
leads for the Company's manufacturers' representatives, distributors and direct
salespeople.
International shipments accounted for 47%, 28% and 30% of the Company's
net sales in 1995, 1996, and 1997, respectively. In addition, it is not uncommon
for U.S. customers to take delivery of products in the U.S. for immediate
shipment to international sites, particularly IC Automation products, which
products are sold on an OEM basis. Most of the Company's international shipments
are made to international sites of U.S. electronic component manufacturers,
although there is a growing foreign customer base included in the Company's
international sales.
All of Aetrium's international sales are invoiced in U.S. dollars and,
accordingly, have not historically been subject to fluctuating currency exchange
rates. Credit limits have been established from time to time on the Company's
international distributors, who purchase test handlers from the Company and
resell to end users. Irrevocable letters of credit are often used to minimize
credit risk and to simplify the purchasing/payment cycle.
RESEARCH AND DEVELOPMENT
Aetrium believes it must continue to enhance, broaden and modify its
existing product lines to meet the constantly evolving needs of the test handler
market. To date, the Company has relied both on
<PAGE>
internal development and acquisitions of technology and product lines to extend
its product lines, increase its customer base, avoid reliance on any single test
handler market segment and develop its IC Automation generic handling modules.
The IC Automation product line required development of a software protocol that
plays an important role in the success of that product. Software is a critical
element in the Company's reliability test equipment and software development
continues to play an increasingly important role in test handling products. The
Company intends to bring additional resources to this area as required.
Product development expenses are typically split approximately 50% for
new product development and 50% for continuation engineering. In 1996, Aetrium
completed development of the 5050MSOP which handles a small, new package type
called the MSOP. Other new products include the Model 1164 Reliability Test
System and a version of the Model 900A tester handler that features mechanical
refrigeration. In 1997 the Company continued to refine the Model 1164, and
completed development of several models each in the 5000 Series and the 7000
Series of test handlers. The Company completed and has introduced the TMU-100
Thermal Management System. The Company completed development of an upgraded
Model 5050QTS to increase throughput and reliability and commenced redesign of
its Model M3200 to reduce its footprint, increase its sort capability, and
improve functionality. The Company substantially completed the development of an
all-new software command and control program and new electronics for the IC
Automation product line. The Company's continuing engineering efforts include
development of additional change kits to meet the expanding families of IC
package types, advancement of contactor technologies to meet the challenges of
high performance ICs, enhancement of the M3200 to increase throughput and
reliability, and enhancement of the command and control features of the 5050
product line.
The Company expenses all research and development costs, including for
software development as incurred. In 1995, 1996 and 1997, the Company's expenses
relating to research and development were approximately $5.0 million, $7.6
million and $10.5 million, respectively. The Company's objective is to invest
approximately 13% to 15% of its net sales in research and development each year.
The Company employed 119 engineering personnel as of December 31, 1997.
INTELLECTUAL PROPERTY RIGHTS
Aetrium attempts to protect the proprietary aspects of its products
with patents, copyrights, trade secret law and internal nondisclosure
safeguards. The Company currently holds several U.S. patents covering certain
features of its handling systems and IC Automation modules and the contactor
elements incorporated in certain of its test handlers and for elements of its
environmental conditioning chambers. The source code for the software contained
in the Company's products is considered proprietary and is not furnished to
customers. Some OEM customers have signed non-compete agreements with the
Company that deter them from direct competition with the IC Automation product
line. The Company has also entered into confidentiality agreements with each of
its key employees. Despite these restrictions, it may be possible for
competitors or users to copy aspects of the Company's products or to obtain
information that the Company regards as a trade secret.
Because of the rapid pace of technological changes in the
microelectronics industry, the Company believes that patent, trade secret and
copyright protection are less significant to its competitive position than
factors such as the knowledge, ability, and experience of the Company's
personnel, new product development, frequent product enhancements, name
recognition and ongoing, reliable product maintenance and support.
<PAGE>
BACKLOG
The Company's backlog, which consists of customer purchase orders that
the Company expects to fill within the next 12 months from December 31, 1997,
was approximately $32.5 million as of such date. Because all purchase orders are
subject to cancellation or delay by customers with limited or no penalty, the
Company's backlog is not necessarily indicative of future revenue or earnings.
EMPLOYEES
As of December 31, 1997 the Company had 445 employees, including 226 in
manufacturing, 119 in engineering and product development, 58 in sales,
marketing and customer service, and 42 in general administration and finance.
None of the Company's employees is represented by a labor union or is subject to
any collective bargaining agreement. The Company has never experienced a work
stoppage and believes that its employee relations are satisfactory.
CERTAIN IMPORTANT FACTORS
In addition to the factors identified above, there are several
important factors that could cause the Company's actual results to differ
materially from those anticipated by the Company or which are reflected in any
forward-looking statements of the Company. These factors, and their impact on
the success of the Company's operations and its ability to achieve its goals,
include the following:
1. the Company's dependence on the microelectronics market and
the capital expenditures of electronic component
manufacturers;
2. the ability of the Company to manage its growth and to
integrate and assimilate recent and future acquisitions;
3. new product development cycles and market acceptance of new
products;
4. potential fluctuations in the Company's operating results
based on factors such as cancellation or rescheduling of
orders, seasonal fluctuations in business activity, and
product announcements by the Company or by competitors;
5. the impact of competition in the test handler, reliability
test equipment and environmental test equipment markets;
6. the effect of customer concentration and the loss of any
significant customer on the Company's sales; and
7. volatility of the Company's stock price based on factors
including developments in the microelectronics industry and
high-technology industries generally, as well as fluctuations
in the Company's quarterly operating results.
<PAGE>
ITEM 2. PROPERTIES.
The Company's primary administrative, manufacturing, product
development, sales, marketing and field service operations are located in North
St. Paul, Minnesota, where the Company currently occupies approximately 45,000
square feet under a lease which expires in March 2006, with an annual rent of
approximately $240,000. The lease includes an option to the Company, exercisable
at any time during the initial lease term, to require construction of an
additional approximately 45,000 square feet for lease at the same rental rate.
The Company has moved its corporate staff to an adjacent facility and is in the
process of negotiating the terms of a lease for such facility.
The Company's manufacturing, product development, and certain sales and
marketing activities of its Aetrium FSA Division occupy approximately 26,600
square feet in Grand Prairie, Texas. The facility is leased from a partnership
controlled by an officer of the Company, under a lease that expires in 2003,
with an annual rent of $146,000. The Company believes the lease terms obtained
at this facility approximate the rates that could be obtained at comparable
properties in that area.
The Company's manufacturing, product development and certain sales and
marketing activities for its San Diego Division are conducted in facilities with
approximately 42,000 square feet located in San Diego, California under a lease
that expires in July 1999, with an annual rent of approximately $275,000. The
Company also leases and occupies approximately 3,000 square feet of space in
Santa Clara, California under a lease that expires in March 1998, with a monthly
rent of approximately $3,700. The Company uses this space for sales and field
service operations.
The Company's Lawrence Division is located in Lawrence, Massachusetts,
and conducts its manufacturing and product development activities for its line
of environmental test equipment in facilities with approximately 61,500 square
feet under a sublease that expires in December 1999, at an annual rent of
approximately $332,000.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal, governmental, administrative or
other proceedings to which the Company is a party or of which any of its
property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of fiscal 1997.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company, their ages and the offices held,
as of February 21, 1998 are as follows:
NAME AGE POSITION
- ---- --- --------
Joseph C. Levesque 53 Chairman of the Board, President and Chief
Executive Officer
Darnell L. Boehm 49 Chief Financial Officer, Secretary and
Director
Douglas L. Hemer 51 President - San Diego Division
<PAGE>
Daniel M. Koch 44 Vice President - Worldwide Sales
Gerald C. Clemens 46 Vice President - Reliability Test Products
James E. Serley 51 Vice President and General Manager - IC
Handling Products
Kenneth R. Lee 52 President - Lawrence Division
Farid J. Sabounchi 40 President - Aetrium FSA Division
John J. Pollock 38 General Manager - Arden Hills Division
Lee A. Schafer 37 Vice President - Corporate Planning
Paul H. Askegaard 46 Treasurer
Mr. Levesque has served as President, Chief Executive Officer and
Chairman of the Board of Directors of the Company since 1986. From 1973 to 1986,
Mr. Levesque served in various capacities and most recently as Executive Vice
President of Micro Component Technology, Inc., a manufacturer of integrated
circuit testers and test handlers. Mr. Levesque was also a director of Arden
Industrial Products, Inc., a public company, until it was acquired in August
1997. Mr. Levesque is also a director of TSI Inc., a publicly held maker of
measurement and instrumentation equipment, and serves on its compensation
committee.
Mr. Boehm has served as Chief Financial Officer, Secretary and as a
director of the Company since 1986. From December 1994 until July 1995, Mr.
Boehm had also assumed executive management responsibilities for the Company's
San Diego Division. Mr. Boehm is also the principal of Darnell L. Boehm &
Associates, a management consulting firm. From October 1988 to March 1993, Mr.
Boehm served as the Acting President of Genesis Labs, Inc., a manufacturer of
medical diagnostic products. Mr. Boehm is also a director of Rochester Medical
Corporation, a public company, and serves on the audit and compensation
committees of such company. Mr. Boehm is also a director of Versa Companies, a
privately-held company and serves on its compensation and audit committees.
Mr. Hemer has served as a director of the Company since 1986, and has
served as the President of the San Diego Division since February 1, 1997. From
May 1, 1996 until February 1, 1997, Mr. Hemer served as the Company's Chief
Administrative Officer. Mr. Hemer was a partner in the law firm of Oppenheimer
Wolff & Donnelly for over 15 years before joining the Company. Oppenheimer Wolff
& Donnelly has provided and is expected to continue to provide legal services to
the Company.
Mr. Koch has served as the Company's Vice President-Worldwide Sales
since March 1991. From March 1990 to March 1991, Mr. Koch served as the Vice
President of Sales of Summation, Inc., a company involved with the testing of
integrated circuit boards. From December 1973 to March 1990, Mr. Koch served in
various sales positions and most recently as Vice President of Sales of Micro
Component Technology, Inc.
Mr. Clemens has served as the Company's Vice President-Reliability Test
Products since July 1995. From September 1993 to July 1995, Mr. Clemens served
as Vice President-Engineering. Mr. Clemens is also the principal of Clemens
Associates, a consulting firm. From August 1991 to September
<PAGE>
1992, Mr. Clemens was a Vice President at Vectorvision, Inc., a software
company. From June 1990 to April 1991, Mr. Clemens was a Vice President at Elke
Corporation, a software company.
Mr. Serley has served as the Company's Vice President and General
Manager, IC Handling Products since April 1996. From June 1995 to April 1996,
Mr. Serley served as Vice President-Versatus Business Unit. From July 1990 to
January 1995, Mr. Serley was Vice President of Operations at Rosemount Aerospace
Inc., a supplier of measurement/instrumentation products to the aerospace
industry. Mr. Serley has resigned from the Company effective March 31, 1998.
Mr. Lee has served as President of the Lawrence Division since April
1997, and had served in executive management with that division as a consultant
since January 1996. Mr. Lee previously was a principal of Marlboro Associates, a
consulting practice. Mr. Lee was a co-founder of Aseco Corporation and served in
a number of capacities at Aseco from 1982 to 1994, most recently as Vice
President of Engineering.
Mr. Sabounchi has served as the President of the Aetrium FSA Division
since April 1, 1997, when Aetrium completed its acquisition of FSA. Mr.
Sabounchi founded FSA in 1990 and served as its President and CEO until it was
acquired by the Company. Prior to founding FSA, Mr. Sabounchi served in various
engineering and engineering management roles in the semiconductor process
equipment group of Teccor Electronics Inc.
Mr. Pollock has served as the General Manager of the Arden Hills
Division since the Company's acquisition of Handler Division of Advantek Inc.,
which became the Company's Arden Hills Division upon the closing of the
transaction in November 1997. From September 1996 to September 1997, Mr. Pollock
was the Business Unit Manager of the IC Automation Products Group. From
September 1995 to September 1996, Mr. Pollock was a product director within the
Company's IC Automation Products group. From 1985 to 1995 Mr. Pollock was
employed in various product engineering and product marketing positions at
Rosemount Aerospace Inc., a supplier of measurement and instrumentation products
to the aerospace industry.
Mr. Schafer has served as the Vice President - Corporate Planning since
August 1997. From August 1996 to August 1997, Mr. Schafer served as the
Company's Director of Investor Relations. From June 1990 to July 1996, Mr.
Schafer was senior editor and financial columnist for CORPORATE REPORT
MINNESOTA, a monthly business magazine published in Minneapolis, Minnesota.
Mr. Askegaard has served as the Company's Treasurer since February
1992. From October 1986 to February 1992, Mr. Askegaard served as the Company's
Corporate Controller.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The information under the caption "Price Range of the Company's Common
Stock" on page 28 of the Company's 1997 Annual Report is incorporated herein by
reference. The prices reflected in the table presented in the 1997 Annual Report
do not include adjustments for retail mark-ups, mark-downs or commissions.
The Company did not have any unregistered sales of equity securities
during the fourth quarter of 1997.
ITEM 6. SELECTED FINANCIAL DATA.
The information under the caption "Selected Consolidated Financial
Data" on page 28 of the 1997 Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on pages 14 through 17 of the
Company's 1997 Annual Report is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following Consolidated Financial Statements of the Company and the
Independent Auditor's Report thereon are incorporated herein by reference from
the pages indicated in the Company's 1997 Annual Report:
Report of Independent Accountants--page 17.
Consolidated Statements of Income for the years ended December 31,
1997, 1996 and 1995--page 18.
Consolidated Balance Sheets as of December 31, 1997 and 1996--page 19.
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 1997, 1996 and 1995--page 20.
<PAGE>
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995--page 21.
Notes to Consolidated Financial Statements--pages 22 to 27.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information under the captions "Election of Directors--Information
About Nominees" and "Election of Directors--Other Information About Nominees" in
the Company's 1998 Proxy Statement is incorporated herein by reference.
The information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's 1998 Proxy Statement is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information under the captions "Election of Directors--Compensation
of Directors" and "Executive Compensation and Other Benefits" in the Company's
1998 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the caption "Principal Shareholders and
Beneficial Ownership of Management" in the Company's 1998 Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS OF REGISTRANT.
The following Consolidated Financial Statements of the Company and the
Independent Auditor's Report thereon are incorporated herein by reference from
the pages indicated in the Company's 1997 Annual Report:
Report of Independent Accountants--page 17.
Consolidated Statements of Income for the years ended December 31,
1997, 1996 and 1995--page 18.
Consolidated Balance Sheets as of December 31, 1997 and 1996--page 19.
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 1997, 1996 and 1995--page 20.
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995--page 21.
Notes to Consolidated Financial Statements--pages 22 to 27.
(a) 2. FINANCIAL STATEMENT SCHEDULES OF REGISTRANT.
The following financial statement schedule is included herein and
should be read in conjunction with the financial statements referred to above:
Financial Statement Schedule:
II. Valuation and Qualifying Accounts
All other schedules are omitted as the required information is
inapplicable or the information is presented in the financial statements or
related notes.
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors
of Aetrium Incorporated
Our audits of the consolidated financial statements referred to in our report
dated January 30, 1998, appearing on page 17 of the 1997 Annual Report to
Shareholders of Aetrium Incorporated (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, such Financial Statement Schedule presents
fairly, in all material respects, the information set
<PAGE>
forth therein when read in conjunction with the related consolidated financial
statements.
/s/ Price Waterhouse LLP
Minneapolis, Minnesota
January 30, 1998
Schedule II
AETRIUM INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
<TABLE>
<CAPTION>
ADDITIONS
--------------------------
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND ACQUISITION BALANCE AT
DESCRIPTION PERIOD EXPENSES RELATED (1) DEDUCTIONS END OF PERIOD
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
1995 235,700 45,337 25,668 (19,505) 287,200
1996 287,200 515,467 0 (3,267) 799,400
1997 799,400 0 50,000 (589,800) 259,600
INVENTORY OBSOLESCENCE RESERVE:
1995 2,703,000 429,000 726,457 (550,713) 3,307,744
1996 3,307,744 488,000 0 (1,780,611) 2,015,133
1997 2,015,133 1,076,296 10,000 (1,116,329) 1,985,100
WARRANTY RESERVE:
1995 803,000 361,781 25,000 (604,781) 585,000
1996 585,000 631,535 0 (605,959) 610,576
1997 610,576 25,000 235,000 (308,376) 562,200
</TABLE>
(1) Reserve increases related to the inclusion of newly acquired businesses.
(a) 3. EXHIBITS.
The exhibits to this Report are listed in the Exhibit Index attached
hereto.
A copy of any of the exhibits listed or referred to above will be
furnished at a reasonable cost to any person who was a shareholder of the
Company as of March 26, 1998, upon receipt from any such person of a written
request for any such exhibit. Such request should be sent to Aetrium
Incorporated, 2350 Helen Street, North St. Paul, Minnesota 55109; Attn.:
Shareholder Relations.
The following is a list of each management contract or compensatory
plan or arrangement required to be filed as an exhibit to this Annual Report on
Form 10-K pursuant to Item 14(a)(3):
1. Form of Incentive Stock Option Agreement (incorporated by
reference to Exhibit 10.6 to the Company's Form 10-KSB for the
year ended December 31, 1993) (File No. 0-22166).
<PAGE>
2. Form of Non-Statutory Stock Option Agreement (incorporated by
reference to Exhibit 10.7 to the Company's Form 10-KSB for the
year ended December 31, 1993) (File No. 0-22166).
3. 1993 Stock Incentive Plan, as amended (filed herewith
electronically).
4. Salary Savings Plan (incorporated by reference to Exhibit 10.3
to the Company's Registration Statement on Form SB-2 (File No.
33-64962C)).
5. Employee Stock Purchase Plan (incorporated by reference to
Exhibit 99.1 to the Company's Registration Statement on Form
S-8 (File No. 33-74616)).
6. Employment Agreement dated April 1, 1986 between Joseph C.
Levesque and the Company (incorporated by reference to Exhibit
10.6 to the Company's Registration Statement on Form SB-2
(File No. 33-64962C)).
(b) REPORTS ON FORM 8-K.
The Company did not file any Current Reports on Form 8-K during the
fourth quarter of 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AETRIUM INCORPORATED
Date: March 28, 1998 By: /s/ Joseph C. Levesque
-------------------------------------
Joseph C. Levesque
Chief Executive Officer and President
(principal executive officer)
By: /s/ Darnell L. Boehm
-------------------------------------
Darnell L. Boehm
Chief Financial Officer and Secretary
(principal financial and accounting
officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 28, 1998 by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Signature Title
- --------- -----
/s/ Joseph C. Levesque Chairman of the Board
- ---------------------------
Joseph C. Levesque
/s/ Darnell L. Boehm Director
- ---------------------------
Darnell L. Boehm
/s/ Terrence W. Glarner Director
- ---------------------------
Terrence W. Glarner
/s/ Andrew J. Greenshields Director
- ---------------------------
Andrew J. Greenshields
/s/ Douglas L. Hemer Director
- ---------------------------
Douglas L. Hemer
Director
- ---------------------------
Terrance J. Nagel
<PAGE>
AETRIUM INCORPORATED
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
ITEM NO. ITEM METHOD OF FILING
- -------- ---- ----------------
<S> <C> <C>
3.1 The Company's Restated Articles of Incorporated by reference to Exhibit 3.1 to the
Incorporation, as amended. Company's Registration Statement on Form SB-2 (File
No. 33-64962C).
3.2 The Company's Bylaws, as amended. Incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form SB-2 (File
No. 33-64962C).
4.1 Specimen Form of the Company's Common Stock Incorporated by reference to Exhibit 4.1 to the
Certificate. Company's Registration Statement on Form SB-2 (File
No. 33-64962C).
10.1 1987 Non-Statutory Stock Option Plan. Incorporated by reference to Exhibit 10.1 to the
Company's Registration Statement on Form SB-2 (File
No. 33-64962C).
10.2 1993 Stock Incentive Plan, as amended. Filed herewith electronically.
10.3 Salary Savings Plan. Incorporated by reference to Exhibit 10.3 to the
Company's Registration Statement on Form SB-2 (File
No. 33-64962C).
10.4 Form of Incentive Stock Option Agreement. Incorporated by reference to Exhibit 10.6 to the
Company's Annual Report on Form 10-KSB for the year
ended December 31, 1993 (File No. 0-22166).
10.5 Form of Non-Statutory Option Agreement. Incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-KSB for the year
ended December 31, 1993 (File No. 0-22166).
10.6 Employment Agreement dated April 1, 1986, Incorporated by reference to Exhibit 10.6 to the
between the Company and Joseph C. Levesque. Company's Registration Statement on Form SB-2 (File
No. 33-64962C).
10.7 Credit Agreement dated August 11, 1989, Incorporated by reference to Exhibit 10.7 to the
between Harris Bank and the Company. Company's Registration Statement on Form SB-2 (File
No. 33-64962C).
10.8 Lease Agreement, dated July 19, 1995, between Incorporated by reference to Exhibit 10.12 to the
KAMKO Investments and the Company Company's Registration Statement on Form SB-2 (File
No. 33-98040).
10.9 Amendment to Lease Agreement, dated Incorporated by reference to Exhibit 10.13 to the
September 26, 1995, between KAMKO Company's Registration Statement on Form SB-2
Investments and the Company (File No. 33-98040).
10.10 Industrial Lease Agreement between Parken Incorporated by reference to Exhibit 10.14 to the
Investment Company No. One N.V. and Sym-Tek Company's Registration Statement on Form SB-2 (File
Systems, Inc., dated as of July 7, 1994 No. 33-98040).
<PAGE>
ITEM NO. ITEM METHOD OF FILING
- -------- ---- ----------------
10.11 First Amendment to Industrial Lease dated July Incorporated by reference to Exhibit 10.15 to the
7, 1994 by and between Parken Investment Co. Company's Registration Statement on Form SB-2 (File
No. One N.V. c/o CBS Investment Realty Inc. No. 33-98040).
and Aetrium Incorporated
10.12 Asset Purchase Agreement, dated as of December Incorporated by reference to Exhibit 2.1 to the
29, 1995, between Aetrium Incorporated and Company's Current Report on Form 8-K dated January
E.J. Systems, Inc. 16, 1996 (File No. 0-22166).
10.13 Amendment No. 1 to Asset Purchase Agreement, Incorporated by reference to Exhibit 2.2 to the
dated as of December 29, 1995, between Aetrium Company's Current Report on Form 8-K dated January
Incorporated and E.J. Systems, Inc. 16, 1996 (File No. 0-22166).
10.14 Employee Stock Purchase Plan. Incorporated by reference to Exhibit 99.1 to the
Company's Registration Statement on Form S-8 (File
No. 33-74616).
10.15 Agreement of Sublease, dated January 16, 1990, Incorporated by reference to Exhibit 10.19 to the
by and between General Signal Technology Company's Annual Report on Form 10-KSB for year
Corporation and E.J. Systems, Inc. ended December 31, 1995 (File No. 0-22166).
10.16 Asset Purchase Agreement, dated as of March Filed herewith electronically.
28, 1997, between Aetrium Incorporated and
Forward Systems Automation, Inc.
10.17 Asset Purchase Agreement, dated as of November Filed herewith electronically.
3, 1997, between Aetrium Incorporated and
Advantek Inc.
13.1 Excerpts from 1997 Annual Report to Filed herewith electronically.
Shareholders.
21.1 Subsidiaries of the Registrant. Filed herewith electronically.
23.1 Independent Auditors' Consent. Filed herewith electronically.
27.1 Financial Data Schedule. Filed herewith electronically.
</TABLE>
AETRIUM INCORPORATED
1993 STOCK INCENTIVE PLAN
(AS AMENDED EFFECTIVE MARCH 24, 1997)
1. Purpose of Plan.
The purpose of the Aetrium Incorporated 1993 Stock Incentive Plan (the
"Plan") is to advance the interests of Aetrium Incorporated (the "Company") and
its shareholders by enabling the Company and its Subsidiaries (as defined
herein) to attract and retain persons of ability to perform services for the
Company and its Subsidiaries by providing an incentive to such individuals
through equity participation in the Company and by rewarding such individuals
who contribute to the achievement by the Company of its economic objectives.
2. Definitions.
The following terms will have the meanings set forth below, unless the
context clearly otherwise requires:
2.1 "Board" means the Board of Directors of the Company.
2.2 "Broker Exercise Notice" means a written notice pursuant to which a
Participant, upon exercise of an Option, irrevocably instructs a broker or
dealer to sell a sufficient number of shares or loan a sufficient amount of
money to pay all or a portion of the exercise price of the Option and/or any
related withholding tax obligations and remit such sums to the Company and
directs the Company to deliver stock certificates to be issued upon such
exercise directly to such broker or dealer.
2.3 "Change in Control" means an event described in Section 13.1 of the
Plan.
2.4 "Code" means the Internal Revenue Code of 1986, as amended.
2.5 "Committee" means the group of individuals administering the Plan,
as provided in Section 3 of the Plan.
2.6 "Committee Member" means any member of a committee of the Board
delegated responsibility for administration of the Plan as provided in Section
3.1 of the Plan.
2.7 "Common Stock" means the common stock of the Company, par value
$.001 per share, or the number and kind of shares of stock or other securities
into which such Common Stock may be changed in accordance with Section 4.3 of
the Plan.
2.8 "Disability" means the disability of the Participant such as would
entitle the Participant to receive disability income benefits pursuant to the
long-term disability plan of the Company or Subsidiary then covering the
Participant or, if no such plan exists or is applicable to the Participant, the
permanent and total disability of the Participant within the meaning of Section
22(e)(3) of the Code.
<PAGE>
2.9 "Eligible Recipients" means all employees, officers and directors
of the Company or any Subsidiary and any non-employee consultants and
independent contractors of the Company or any Subsidiary.
2.10 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.11 "Fair Market Value" means, with respect to the Common Stock, as of
any date (or, if no shares were traded or quoted on such date, as of the next
preceding date on which there was such a trade or quote), the following:
(a) If the Common Stock is listed or admitted to unlisted
trading privileges on any national securities exchange or is not so
listed or admitted but transactions in the Common Stock are reported on
the Nasdaq National Market, the mean between the reported high and low
sale prices of the Common Stock on such exchange or by the Nasdaq
National Market.
(b) If the Common Stock is not so listed or admitted to
unlisted trading privileges or reported on the Nasdaq National Market,
but bid and asked prices in the over-the-counter market are reported by
the System or the Nasdaq National Quotation Bureau, Inc. (or any
comparable reporting service), the mean of the closing bid and asked
prices.
(c) If the Common Stock is not so listed or admitted to
unlisted trading privileges or reported on the Nasdaq National Market,
and such bid and asked prices are not so reported by a reporting
service, such price as the Committee determines in good faith in the
exercise of its reasonable discretion.
2.12 "Incentive Award" means an Option, Stock Appreciation Right,
Restricted Stock Award, Performance Unit or Stock Bonus granted to an Eligible
Recipient pursuant to the Plan.
2.13 "Incentive Stock Option" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan that
qualifies as an "incentive stock option" within the meaning of Section 422 of
the Code.
2.14 "Non-Statutory Stock Option" means a right to purchase Common
Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan that
does not qualify as an Incentive Stock Option.
2.15 "Option" means an Incentive Stock Option or a Non-Statutory Stock
Option.
2.16 "Participant" means an Eligible Recipient who receives one or more
Incentive Awards under the Plan.
2.17 "Performance Unit" means a right granted to an Eligible Recipient
pursuant to Section 9 of the Plan to receive a payment from the Company, in the
form of stock, cash or a combination of both, upon the achievement of
established performance goals.
2.18 "Previously Acquired Shares" means shares of Common Stock that are
already owned by the Participant or, with respect to any Incentive Award, that
are to be issued upon the grant, exercise or vesting of such Incentive Award.
<PAGE>
2.19 "Restricted Stock Award" means an award of Common Stock granted to
an Eligible Recipient pursuant to Section 8 of the Plan that is subject to the
restrictions on transferability and the risk of forfeiture imposed by the
provisions of such Section 8.
2.20 "Retirement" means termination of employment or service pursuant
to and in accordance with the regular (or, if approved by the Board for purposes
of the Plan, early) retirement/pension plan or practice of the Company or
Subsidiary then covering the Participant, provided that if the Participant is
not covered by any such plan or practice, the Participant will be deemed to be
covered by the Company's plan or practice for purposes of this determination.
2.21 "Securities Act" means the Securities Act of 1933, as amended.
2.22 "Stock Appreciation Right" means a right granted to an Eligible
Recipient pursuant to Section 7 of the Plan to receive a payment from the
Company, in the form of stock, cash or a combination of both, equal to the
difference between the Fair Market Value of one or more shares of Common Stock
and the exercise price of such shares under the terms of such Stock Appreciation
Right.
2.23 "Stock Bonus" means an award of Common Stock granted to an
Eligible Recipient pursuant to Section 10 of the Plan.
2.24 "Subsidiary" means any entity that is directly or indirectly
controlled by the Company or any entity in which the Company has a significant
equity interest, as determined by the Committee.
2.25 "Tax Date" means the date any withholding tax obligation arises
under the Code for a Participant with respect to an Incentive Award.
3. Plan Administration.
3.1 The Committee. The Plan will be administered by the Board or by a
committee of the Board. So long as the Company has a class of its equity
securities registered under Section 12 of the Exchange Act, any committee
administering the Plan will consist solely of two or more members of the Board
who are "non-employee directors" within the meaning of Rule 16b-3 under the
Exchange Act and, if the Board so determines in its sole discretion, who are
"outside directors" within the meaning of Section 162(m) of the Code. As used in
this Plan, the term "Committee" will refer to the Board or to such a committee,
if established; provided, however, that with respect to the grant of any
Incentive Award to a Participant who is then a Committee Member, and to any
action that may be taken hereunder by the Committee regarding any such Incentive
Award for so long as such Participant is a Committee Member, such action may be
taken only by the Board. To the extent consistent with corporate law, the
Committee may delegate to any officers of the Company the duties, power and
authority of the Committee under the Plan pursuant to such conditions or
limitations as the Committee may establish; provided, however, that only the
Committee may exercise such duties, power and authority with respect to Eligible
Recipients who are subject to Section 16 of the Exchange Act. Each
determination, interpretation or other action made or taken by the Committee
pursuant to the provisions of the Plan will be conclusive and binding for all
purposes and on all persons, and no member of the Committee will be liable for
any action or determination made in good faith with respect to the Plan or any
Incentive Award granted under the Plan.
<PAGE>
3.2 Authority of the Committee.
(a) In accordance with and subject to the provisions of the
Plan, the Committee will have the authority to determine all provisions
of Incentive Awards as the Committee may deem necessary or desirable
and as consistent with the terms of the Plan, including, without
limitation, the following: (i) the Eligible Recipients to be selected
as Participants; (ii) the nature and extent of the Incentive Awards to
be made to each Participant (including the number of shares of Common
Stock to be subject to each Incentive Award, any exercise price, the
manner in which Incentive Awards will vest or become exercisable and
whether Incentive Awards will be granted in tandem with other Incentive
Awards) and the form of written agreement, if any, evidencing such
Incentive Award; (iii) the time or times when Incentive Awards will be
granted; (iv) the duration of each Incentive Award; and (v) the
restrictions and other conditions to which the payment, vesting or
transfer of Incentive Awards may be subject. In addition, the Committee
will have the authority under the Plan in its sole discretion to pay
the economic value of any Incentive Award in the form of cash, Common
Stock or any combination of both.
(b) The Committee will have the authority under the Plan to
amend or modify the terms of any outstanding Incentive Award in any
manner, including, without limitation, the authority to modify the
number of shares or other terms and conditions of an Incentive Award,
extend the term of an Incentive Award, accelerate the exercisability or
vesting or otherwise terminate any restrictions relating to an
Incentive Award, accept the surrender of any outstanding Incentive
Award or, to the extent not previously exercised or vested, authorize
the grant of new Incentive Awards in substitution for surrendered
Incentive Awards; provided, however that the amended or modified terms
are permitted by the Plan as then in effect and that any Participant
adversely affected by such amended or modified terms has consented to
such amendment or modification. No amendment or modification to an
Incentive Award, however, whether pursuant to this Section 3.2 or any
other provisions of the Plan, will be deemed to be a regrant of such
Incentive Award for purposes of this Plan.
(c) In the event of (i) any reorganization, merger,
consolidation, recapitalization, liquidation, reclassification, stock
dividend, stock split, combination of shares, rights offering,
extraordinary dividend or divestiture (including a spin-off) or any
other change in corporate structure or shares, (ii) any purchase,
acquisition, sale or disposition of a significant amount of assets or a
significant business, (iii) any change in accounting principles or
practices, or (iv) any other similar change, in each case with respect
to the Company or any other entity whose performance is relevant to the
grant or vesting of an Incentive Award, the Committee (or, if the
Company is not the surviving corporation in any such transaction, the
board of directors of the surviving corporation) may, without the
consent of any affected Participant, amend or modify the vesting
criteria of any outstanding Incentive Award that is based in whole or
in part on the financial performance of the Company (or any Subsidiary
or division thereof) or such other entity so as equitably to reflect
such event, with the desired result that the criteria for evaluating
such financial performance of the Company or such other entity will be
substantially the same (in the sole discretion of the Committee or the
board of directors of the surviving corporation) following such event
as prior to such event; provided, however, that the amended or modified
terms are permitted by the Plan as then in effect.
4. Shares Available for Issuance.
<PAGE>
4.1 Maximum Number of Shares Available. The maximum number of shares of
Common Stock for which Options may be granted on any date in the aggregate is
equal to seventeen and one-half percent (17.5%) of the aggregate number of
shares of Common Stock outstanding on such date less the aggregate number of
shares of Common Stock then issuable (as if all vesting and other conditions to
issuance were then met) either (a) upon conversion of convertible securities of
the Company outstanding on such date, or (b) upon exercise of Options and other
rights to purchase Common Stock outstanding on such date (exclusive of Options
to be granted on such date); provided, that without limiting the foregoing but
subject to adjustment as provided in Section 4.3 of the Plan, the maximum number
of shares of Common Stock that will be available for issuance upon exercise of
Incentive Stock Options is 700,000. Notwithstanding any other provisions of the
Plan to the contrary, no Participant in the Plan may be granted any Options with
a value based solely on an increase in the value of the Common Stock after the
date of grant relating to more than 200,000 shares of Common Stock in the
aggregate in any fiscal year of the Company (subject to adjustment as provided
in Section 4.3 of the Plan); provided, however, that a Participant who is first
appointed or elected as an officer, hired as an employee or retained as a
consultant by the Company or who receives a promotion that results in an
increase in responsibilities or duties may be granted, during the fiscal year of
such appointment, election, hiring, retention or promotion, Options relating to
up to 400,000 shares of Common Stock (subject to adjustment as provided in
Section 4.3 of the Plan).
4.2 Accounting for Incentive Awards. Shares of Common Stock that are
issued under the Plan or that are subject to outstanding Incentive Awards will
be applied to reduce the maximum number of shares of Common Stock remaining
available for issuance under the Plan. Any shares of Common Stock that are
subject to an Incentive Award that lapses, expires, is forfeited or for any
reason is terminated unexercised or unvested and any shares of Common Stock that
are subject to an Incentive Award that is settled or paid in cash or any form
other than shares of Common Stock will automatically again become available for
issuance under the Plan. Any shares of Common Stock that constitute the
forfeited portion of a Restricted Stock Award, however, will not become
available for further issuance under the Plan.
4.3 Adjustments to Shares and Incentive Awards. In the event of any
reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares, rights
offering, divestiture or extraordinary dividend (including a spin-off) or any
other change in the corporate structure or shares of the Company, the Committee
(or, if the Company is not the surviving corporation in any such transaction,
the board of directors of the surviving corporation) will make appropriate
adjustment (which determination will be conclusive) as to the number and kind of
securities available for issuance under the Plan and, in order to prevent
dilution or enlargement of the rights of Participants, the number, kind and,
where applicable, exercise price of securities subject to outstanding Incentive
Awards.
5. Participation.
Participants in the Plan will be those Eligible Recipients who, in the
judgment of the Committee, have contributed, are contributing or are expected to
contribute to the achievement of economic objectives of the Company or its
Subsidiaries. Eligible Recipients may be granted from time to time one or more
Incentive Awards, singly or in combination or in tandem with other Incentive
Awards, as may be determined by the Committee in its sole discretion. Incentive
Awards will be deemed to be granted as of the date specified in the grant
resolution of the Committee, which date will be the date of any related
agreement with the Participant.
<PAGE>
6. Options.
6.1 Grant. An Eligible Recipient may be granted one or more Options
under the Plan, and such Options will be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by the
Committee in its sole discretion. The Committee may designate whether an Option
is to be considered an Incentive Stock Option or a Non-Statutory Stock Option.
6.2 Exercise Price. The per share price to be paid by a Participant
upon exercise of an Option will be determined by the Committee in its discretion
at the time of the Option grant, provided that (a) such price will not be less
than 100% of the Fair Market Value of one share of Common Stock on the day
preceding the date of grant with respect to an Incentive Stock Option (110% of
the Fair Market Value if, at the time the Incentive Stock Option is granted, the
Participant owns, directly or indirectly, more than 10% of the total combined
voting power of all classes of stock of the Company or any parent or subsidiary
corporation of the Company), and (b) such price will not be less than 85% of the
Fair Market Value of one share of Common Stock on the day preceding the date of
grant with respect to a Non-Statutory Stock Option.
6.3 Exercisability and Duration. An Option will become exercisable at
such times and in such installments as may be determined by the Committee in its
sole discretion at the time of grant; provided, however, that no Option may be
exercisable after 10 years from its date of grant.
6.4 Payment of Exercise Price. The total purchase price of the shares
to be purchased upon exercise of an Option will be paid entirely in cash
(including check, bank draft or money order); provided, however, (a) that the
Committee, in its sole discretion and upon terms and conditions established by
the Committee, may allow such payments to be made, in whole or in part, by
tender of a Broker Exercise Notice, Previously Acquired Shares or by a
combination of such methods; and (b) that if such payments are made by tender of
a Broker Exercise Notice or Previously Acquired Shares, or by a combination of
such methods, the Fair Market Value on the day preceding the date of exercise
will be used for the purpose of valuing the tendered shares of Common Stock.
6.5 Manner of Exercise. An Option may be exercised by a Participant in
whole or in part from time to time, subject to the conditions contained in the
Plan and in the agreement evidencing such Option, by delivery in person, by
facsimile or electronic transmission or through the mail of written notice of
exercise to the Company (Attention: Chief Financial Officer) at its principal
executive office in North St. Paul, Minnesota and by paying in full the total
exercise price for the shares of Common Stock to be purchased in accordance with
Section 6.4 of the Plan.
6.6 Aggregate Limitation of Stock Subject to Incentive Stock Options.
To the extent that the aggregate Fair Market Value (determined as of the day
preceding the date an Incentive Stock Option is granted) of the shares of Common
Stock with respect to which incentive stock options (within the meaning of
Section 422 of the Code) are exercisable for the first time by a Participant
during any calendar year (under the Plan and any other incentive stock option
plans of the Company or any subsidiary or parent corporation of the Company
(within the meaning of the Code)) exceeds $100,000 (or such other amount as may
be prescribed by the Code from time to time), such excess Options will be
treated as Non-Statutory Stock Options. The determination will be made by taking
incentive stock options into account in the order in which they were granted. If
such excess only applies to a portion of an incentive stock option, the
Committee, in its discretion, will designate which shares will be treated as
shares to be acquired upon exercise of an incentive stock option.
<PAGE>
7. Stock Appreciation Rights.
7.1 Grant. An Eligible Recipient may be granted one or more Stock
Appreciation Rights under the Plan, and such Stock Appreciation Rights will be
subject to such terms and conditions, consistent with the other provisions of
the Plan, as may be determined by the Committee in its sole discretion.
7.2 Exercise Price. The exercise price of a Stock Appreciation Right
will be determined by the Committee, in its discretion, at the date of grant but
will not be less than 100% of the Fair Market Value of one share of Common Stock
on the day preceding the date of grant.
7.3 Exercisability and Duration. A Stock Appreciation Right will become
exercisable at such time and in such installments as may be determined by the
Committee in its sole discretion at the time of grant; provided, however, that
no Stock Appreciation Right may be exercisable after 10 years from its date of
grant. A Stock Appreciation Right will be exercised by giving notice in the same
manner as for Options, as set forth in Sections 6.4 and 6.5 of the Plan.
8. Restricted Stock Awards.
8.1 Grant. An Eligible Recipient may be granted one or more Restricted
Stock Awards under the Plan, and such Restricted Stock Awards will be subject to
such terms and conditions, consistent with the other provisions of the Plan, as
may be determined by the Committee in its sole discretion. The Committee may
impose such restrictions or conditions, not inconsistent with the provisions of
the Plan, to the vesting of such Restricted Stock Awards as it deems
appropriate, including, without limitation, that the Participant remain in the
continuous employ or service of the Company or a Subsidiary for a certain period
or that the Participant or the Company (or any Subsidiary or division thereof)
satisfy certain performance goals or criteria.
8.2 Rights as a Shareholder; Transferability. Except as provided in
Sections 8.1, 8.3 and 14.3 of the Plan, a Participant will have all voting,
dividend, liquidation and other rights with respect to shares of Common Stock
issued to the Participant as a Restricted Stock Award under this Section 8 upon
the Participant becoming the holder of record of such shares as if such
Participant were a holder of record of shares of unrestricted Common Stock.
8.3 Dividends and Distributions. Unless the Committee determines
otherwise in its sole discretion (either in the agreement evidencing the
Restricted Stock Award at the time of grant or at any time after the grant of
the Restricted Stock Award), any dividends or distributions (including regular
quarterly cash dividends) paid with respect to shares of Common Stock subject to
the unvested portion of a Restricted Stock Award will be subject to the same
restrictions as the shares to which such dividends or distributions relate. In
the event the Committee determines not to pay such dividends or distributions
currently, the Committee will determine in its sole discretion whether any
interest will be paid on such dividends or distributions. In addition, the
Committee in its sole discretion may require such dividends and distributions to
be reinvested (and in such case the Participants consent to such reinvestment)
in shares of Common Stock that will be subject to the same restrictions as the
shares to which such dividends or distributions relate.
8.4 Enforcement of Restrictions. To enforce the restrictions referred
to in this Section 8, the Committee may place a legend on the stock certificates
referring to such restrictions and may require the Participant, until the
restrictions have lapsed, to keep the stock certificates, together with duly
endorsed stock powers, in the custody of the Company or its transfer agent or to
maintain evidence of stock
<PAGE>
ownership, together with duly endorsed stock powers, in a certificateless
book-entry stock account with the Company's transfer agent.
9. Performance Units.
An Eligible Recipient may be granted one or more Performance Units
under the Plan, and such Performance Units will be subject to such terms and
conditions, consistent with the other provisions of the Plan, as may be
determined by the Committee in its sole discretion. The Committee may impose
such restrictions or conditions, not inconsistent with the provisions of the
Plan, to the vesting of such Performance Units as it deems appropriate,
including, without limitation, that the Participant remain in the continuous
employ or service of the Company or any Subsidiary for a certain period or that
the Participant or the Company (or any Subsidiary or division thereof) satisfy
certain performance goals or criteria. The Committee will have the sole
discretion either to determine the form in which payment of the economic value
of vested Performance Units will be made to the Participant (i.e., cash, Common
Stock or any combination thereof) or to consent to or disapprove the election by
the Participant of the form of such payment.
10. Stock Bonuses.
An Eligible Recipient may be granted one or more Stock Bonuses under
the Plan, and such Stock Bonuses will be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by the
Committee in its sole discretion. The Participant will have all voting,
dividend, liquidation and other rights with respect to the shares of Common
Stock issued to a Participant as a Stock Bonus under this Section 10 upon the
Participant becoming the holder of record of such shares; provided, however,
that the Committee may impose such restrictions on the assignment or transfer of
a Stock Bonus as it deems appropriate.
11. Effect of Termination of Employment or Other Service.
11.1 Termination Due to Death, Disability or Retirement. In the event a
Participant's employment or other service with the Company and all Subsidiaries
is terminated by reason of death, Disability or Retirement:
(a) All outstanding Options and Stock Appreciation Rights then
held by the Participant will remain exercisable to the extent
exercisable as of such termination for a period of one year (three
months in the case of Retirement) after such termination (but in no
event after the expiration date of any such Option or Stock
Appreciation Right);
(b) All Restricted Stock Awards then held by the Participant
that have not vested will be terminated and forfeited; and
(c) All Performance Units and Stock Bonuses then held by the
Participant will vest and/or continue to vest in the manner determined
by the Committee and set forth in the agreement evidencing such
Performance Units or Stock Bonuses.
11.2 Termination for Reasons Other than Death, Disability or
Retirement.
(a) In the event a Participant's employment or other service
is terminated with the Company and all Subsidiaries for any reason
other than death, Disability or Retirement, or a
<PAGE>
Participant is in the employ or service of a Subsidiary and the
Subsidiary ceases to be a Subsidiary of the Company (unless the
Participant continues in the employ or service of the Company or
another Subsidiary), all rights of the Participant under the Plan and
any agreements evidencing an Incentive Award will immediately terminate
without notice of any kind, and no Options or Stock Appreciation Rights
then held by the Participant will thereafter be exercisable, all
Restricted Stock Awards then held by the Participant that have not
vested will be terminated and forfeited, and all Performance Units and
Stock Bonuses then held by the Participant will vest and/or continue to
vest in the manner determined by the Committee and set forth in the
agreement evidencing such Performance Units or Stock Bonuses; provided,
however, that if such termination is due to any reason other than
termination by the Company or any Subsidiary for "cause," all
outstanding Options and Stock Appreciation Rights then held by such
Participant will remain exercisable to the extent exercisable as of
such termination for a period of three months after such termination
(but in no event after the expiration date of any such Option or Stock
Appreciation Right).
(b) For purposes of this Section 11.2, "cause" (as determined
by the Committee) will be as defined in any employment or other
agreement or policy applicable to the Participant or, if no such
agreement or policy exists, will mean (i) dishonesty, fraud,
misrepresentation, embezzlement or deliberate injury or attempted
injury, in each case related to the Company or any Subsidiary, (ii) any
unlawful or criminal activity of a serious nature, (iii) any
intentional and deliberate breach of a duty or duties that,
individually or in the aggregate, are material in relation to the
Participant's overall duties, or (iv) any material breach of any
employment, service, confidentiality or noncompete agreement entered
into with the Company or any Subsidiary.
11.3 Modification of Rights Upon Termination. Notwithstanding the other
provisions of this Section 11, upon a Participant's termination of employment or
other service with the Company and all Subsidiaries, the Committee may, in its
sole discretion (which may be exercised at any time on or after the date of
grant, including following such termination), cause Options and Stock
Appreciation Rights (or any part thereof) then held by such Participant to
become or continue to become exercisable and/or remain exercisable following
such termination of employment or service and Restricted Stock Awards,
Performance Units and Stock Bonuses then held by such Participant to vest and/or
continue to vest or become free of transfer restrictions, as the case may be,
following such termination of employment or service, in each case in the manner
determined by the Committee; provided, however, that no Option may remain
exercisable beyond its expiration date.
11.4 Breach of Confidentiality or Noncompete Agreements.
Notwithstanding anything in this Plan to the contrary, in the event that a
Participant materially breaches the terms of any confidentiality or noncompete
agreement entered into with the Company or any Subsidiary, whether such breach
occurs before or after termination of such Participant's employment or other
service with the Company or any Subsidiary, the Committee in its sole discretion
may immediately terminate all rights of the Participant under the Plan and any
agreements evidencing an Incentive Award then held by the Participant without
notice of any kind.
11.5 Date of Termination of Employment or Other Service. Unless the
Committee otherwise determines in its sole discretion, a Participant's
employment or other service will, for purposes of the Plan, be deemed to have
terminated on the date recorded on the personnel or other records of the Company
or the Subsidiary for which the Participant provides employment or other
service, as determined by the Committee in its sole discretion based upon such
records.
<PAGE>
12. Payment of Withholding Taxes.
12.1 General Rules. The Company is entitled to (a) withhold and deduct
from future wages of the Participant (or from other amounts that may be due and
owing to the Participant from the Company or a Subsidiary), or make other
arrangements for the collection of, all legally required amounts necessary to
satisfy any and all federal, state and local withholding and employment-related
tax requirements attributable to an Incentive Award, including, without
limitation, the grant, exercise or vesting of, or payment of dividends with
respect to, an Incentive Award or a disqualifying disposition of stock received
upon exercise of an Incentive Stock Option, or (b) require the Participant
promptly to remit the amount of such withholding to the Company before taking
any action, including issuing any shares of Common Stock, with respect to an
Incentive Award.
12.2 Special Rules. The Committee may, in its sole discretion and upon
terms and conditions established by the Committee, permit or require a
Participant to satisfy, in whole or in part, any withholding or
employment-related tax obligation described in Section 12.1 of the Plan by
electing to tender Previously Acquired Shares or a Broker Exercise Notice, or by
a combination of such methods; provided that if such payments are made by tender
of a Broker Exercise Notice or Previously Acquired Shares, or by a combination
of such methods, the Fair Market Value on the day preceding the date of exercise
will be used for the purpose of valuing the tendered shares of Common Stock.
13. Change in Control.
13.1 Change in Control. For purposes of this Section 13.1, a "Change in
Control" of the Company will mean (a) the sale, lease, exchange or other
transfer of substantially all of the assets of the Company (in one transaction
or in a series of related transaction) to a person or entity that is not
controlled, directly or indirectly, by the Company, (b) a merger or
consolidation to which the Company is a party if the shareholders of the Company
immediately prior to effective date of such merger or consolidation do not have
"beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act)
immediately following the effective date of such merger or consolidation of more
than 80% of the combined voting power of the surviving corporation's outstanding
securities ordinarily having the right to vote at elections of directors, or (c)
a change in control of the Company of a nature that would be required to be
reported pursuant to Section 13 or 15(d) of the Exchange Act, whether or not the
Company is then subject to such reporting requirements, including, without
limitation, such time as (i) any person becomes, after the effective date of the
Plan, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of 40% or more of the combined voting power of the
Company's outstanding securities ordinarily having the right to vote at
elections of directors, or (ii) individuals who constitute the Board on the
effective date of the Plan cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the effective date of the Plan whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority of the
directors comprising the Board on the effective date of the Plan will, for
purposes of this clause (ii), be considered as though such persons were a member
of the Board on the effective date of the Plan.
13.2 Acceleration of Vesting. Without limiting the authority of the
Committee under Section 3.2 of the Plan, if a Change in Control of the Company
occurs, then, if approved by the Committee in its sole discretion either in an
agreement evidencing an Incentive Award at the time of grant or at any time
after the grant of an Incentive Award, (a) all Options and Stock Appreciation
Rights will become immediately exercisable in full and will remain exercisable
for the remainder of their terms, regardless of whether the Participants to whom
such Options or Stock Appreciation Rights have been granted remain in the employ
or service of the Company or any Subsidiary; (b) all outstanding Restricted
Stock Awards
<PAGE>
will become immediately fully vested; and (c) all Performance Units and Stock
Bonuses then held by the Participant will vest and/or continue to vest in the
manner determined by the Committee and set forth in the agreement evidencing
such Performance Units or Stock Bonuses.
13.3 Cash Payment for Options. If a Change in Control of the Company
occurs, then the Committee, if approved by the Committee in its sole discretion
either in an agreement evidencing an Incentive Award at the time of grant or at
any time after the grant of an Incentive Award, and without the consent of any
Participant effected thereby, may determine that some or all Participants
holding outstanding Options will receive, with respect to and in lieu of some or
all of the shares of Common Stock subject to such Options, as of the effective
date of any such Change in Control of the Company, cash in an amount equal to
the excess of the Fair Market Value of such shares immediately prior to the
effective date of such Change in Control of the Company over the exercise price
per share of such Options.
13.4 Limitation on Change in Control Payments. Notwithstanding anything
in Section 13.2 or 13.3 of the Plan to the contrary, if, with respect to a
Participant, the acceleration of the vesting of an Incentive Award as provided
in Section 13.2 or the payment of cash in exchange for all or part of an
Incentive Award as provided in Section 13.3 (which acceleration or payment could
be deemed a "payment" within the meaning of Section 280G(b)(2) of the Code),
together with any other payments which such Participant has the right to receive
from the Company or any corporation that is a member of an "affiliated group"
(as defined in Section 1504(a) of the Code without regard to Section 1504(b) of
the Code) of which the Company is a member, would constitute a "parachute
payment" (as defined in Section 280G(b)(2) of the Code), then the payments to
such Participant pursuant to Section 13.2 or 13.3 will be reduced to the largest
amount as will result in no portion of such payments being subject to the excise
tax imposed by Section 4999 of the Code; provided, however, that if such
Participant is subject to a separate agreement with the Company or a Subsidiary
that expressly addresses the potential application of Sections 280G or 4999 of
the Code (including without limitation that "payments" under such agrement or
otherwise will be reduced, that such payments will not be reduced or that the
Participant will have the discretion to determine which "payments" will be
reduced), then this Section 13.4 will not apply, and any "payments" to a
Participant pursuant to Section 13.2 or 13.3 of the Plan will be treated as
"payments" arising under such separate agreement.
14. Rights of Eligible Recipients and Participants; Transferability.
14.1 Employment or Service. Nothing in the Plan will interfere with or
limit in any way the right of the Company or any Subsidiary to terminate the
employment or service of any Eligible Recipient or Participant at any time, nor
confer upon any Eligible Recipient or Participant any right to continue in the
employ or service of the Company or any Subsidiary.
14.2 Rights as a Shareholder. As a holder of Incentive Awards (other
than Restricted Stock Awards), a Participant will have no rights as a
shareholder unless and until such Incentive Awards are exercised for, or paid in
the form of, shares of Common Stock and the Participant becomes the holder of
record of such shares. Except as otherwise provided in the Plan, no adjustment
will be made for dividends or distributions with respect to such Incentive
Awards as to which there is a record date preceding the date the Participant
becomes the holder of record of such shares, except as the Committee may
determine in its discretion.
14.3 Restrictions on Transfer. Except pursuant to testamentary will or
the laws of descent and distribution or as otherwise expressly permitted by the
Plan, unless approved by the Committee in its sole discretion, no right or
interest of any Participant in an Incentive Award prior to the exercise or
vesting of
<PAGE>
such Incentive Award will be assignable or transferable, or subjected to any
lien, during the lifetime of the Participant, either voluntarily or
involuntarily, directly or indirectly, by operation of law or otherwise. A
Participant will, however, be entitled to designate a beneficiary to receive an
Incentive Award upon such Participant's death, and in the event of a
Participant's death, payment of any amounts due under the Plan will be made to,
and exercise of any Options (to the extent permitted pursuant to Section 11 of
the Plan) may be made by, the Participant's legal representatives, heirs and
legatees.
14.4 Non-Exclusivity of the Plan. Nothing contained in the Plan is
intended to modify or rescind any previously approved compensation plans or
programs of the Company or create any limitations on the power or authority of
the Board to adopt such additional or other compensation arrangements as the
Board may deem necessary or desirable.
15. Securities Law and Other Restrictions.
Notwithstanding any other provision of the Plan or any agreements
entered into pursuant to the Plan, the Company will not be required to issue any
shares of Common Stock under this Plan, and a Participant may not sell, assign,
transfer or otherwise dispose of shares of Common Stock issued pursuant to
Incentive Awards granted under the Plan, unless (a) there is in effect with
respect to such shares a registration statement under the Securities Act and any
applicable state securities laws or an exemption from such registration under
the Securities Act and applicable state securities laws, and (b) there has been
obtained any other consent, approval or permit from any other regulatory body
which the Committee, in its sole discretion, deems necessary or advisable. The
Company may condition such issuance, sale or transfer upon the receipt of any
representations or agreements from the parties involved, and the placement of
any legends on certificates representing shares of Common Stock, as may be
deemed necessary or advisable by the Company in order to comply with such
securities law or other restrictions.
16. Plan Amendment, Modification and Termination
The Board may suspend or terminate the Plan or any portion thereof at
any time, and may amend the Plan from time to time in such respects as the Board
may deem advisable in order that Incentive Awards under the Plan will conform to
any change in applicable laws or regulations or in any other respect the Board
may deem to be in the best interests of the Company; provided, however, that no
amendments to the Plan will be effective without approval of the stockholders of
the Company if stockholder approval of the amendment is then required pursuant
to Section 422 of the Code or the rules of the National Association of
Securities Dealers, Inc. No termination, suspension or amendment of the Plan may
adversely affect any outstanding Incentive Award without the consent of the
affected Participant; provided, however, that this sentence will not impair the
right of the Committee to take whatever action it deems appropriate under
Sections 4.3 and 13 of the Plan.
17. Effective Date and Duration of the Plan
The Plan is effective as of June 9, 1993, the date it was adopted by
the Board. The Plan will terminate at midnight on June 8, 2003, and may be
terminated prior to such time to by Board action, and no Incentive Award will be
granted after such termination. Incentive Awards outstanding upon termination of
the Plan may continue to be exercised, or become free of restrictions, in
accordance with their terms.
18. Miscellaneous
<PAGE>
18.1 Governing Law. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and actions
relating to the Plan will be governed by and construed exclusively in accordance
with the laws of the State of Minnesota.
18.2 Successors and Assigns. The Plan will be binding upon and inure to
the benefit of the successors and permitted assigns of the Company and the
Participants.
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ASSET PURCHASE AGREEMENT
BY AND BETWEEN
AETRIUM INCORPORATED
AND
FORWARD SYSTEMS AUTOMATION, INC.
DATED AS OF MARCH 28, 1997
-----------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
SALE AND PURCHASE OF ASSETS....................................................1
1.1 Transfer of Assets...........................................1
1.2 Excluded Assets..............................................3
1.3 Obtaining Permits and Licenses...............................3
1.4 Assumed Liabilities of Buyer.................................3
1.5 Liabilities Not Assumed......................................4
1.6 Assignments Requiring Consents...............................4
1.7 Purchase Price...............................................5
1.8 Payment of Purchase Price....................................5
1.9 Allocation of Purchase Price.................................6
ARTICLE II
CLOSING........................................................................7
2.1 The Closing..................................................7
2.2 Deliveries of Seller.........................................7
2.3 Deliveries of Buyer..........................................7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER.......................................8
3.1 Corporate Organization.......................................8
3.2 Authorization................................................8
3.3 Non-Contravention............................................9
3.4 Consents and Approvals.......................................9
3.5 Financial Statements.........................................9
3.6 Absence of Certain Changes or Events........................10
3.7 Title to Assets.............................................10
3.8 Real Properties.............................................11
3.9 Machinery, Equipment, Vehicles and Personal Property........11
3.10 Inventories.................................................11
3.11 Warranty and Product Defect or Return Claims................11
3.12 Accounts Receivable.........................................12
3.13 Bank Accounts; Powers of Attorney...........................12
3.14 Insurance...................................................12
3.15 Intellectual Property Rights................................12
3.16 Commitments.................................................13
<PAGE>
3.17 Taxes.......................................................13
3.18 Employee Benefit Plans......................................14
3.19 Labor Matters...............................................15
3.20 Permits and Other Operating Rights..........................15
3.21 Compliance with Laws........................................15
3.22 Environment.................................................15
3.23 Litigation..................................................16
3.24 Business Generally..........................................17
3.25 Absence of Certain Business Practices.......................17
3.26 Brokers.....................................................17
3.27 Accuracy of Information.....................................17
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER.......................................17
4.1 Buyer's Organization........................................17
4.2 Due Authorization, Execution and Delivery; Effect of
Agreement................................................18
4.3 Non-Contravention...........................................18
4.4 Consents....................................................18
4.5 Litigation..................................................18
ARTICLE V
COVENANTS OF SELLER...........................................................18
5.1 Cooperation and Assignments.................................18
5.2 Conduct of Business.........................................19
5.3 Access......................................................19
5.4 No Solicitation.............................................19
5.5 Termination of 401(k) Plan..................................19
5.6 Name Change.................................................19
6.1 Cooperation and Assumption..................................20
ARTICLE VII
ADDITIONAL COVENANTS..........................................................20
7.1 Books and Records; Personnel................................20
7.2 Further Assurances..........................................21
7.3 Confidentiality Agreement of Seller After Closing...........21
7.4 Registration Rights.........................................22
ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS.............................................23
<PAGE>
8.1 Representations, Warranties and Covenants of Seller.........24
8.2 No Prohibition..............................................24
8.3 Sabounchi Employment........................................24
8.4 Lease Amendment.............................................24
8.5 Further Action..............................................24
8.6 Deliveries..................................................24
ARTICLE IX
CONDITIONS TO SELLER'S OBLIGATIONS............................................24
9.1 Representations, Warranties and Covenants of Buyer..........24
9.2 No Prohibition..............................................25
9.3 Sabounchi Employment........................................25
9.4 Further Action..............................................25
9.5 Deliveries..................................................25
ARTICLE X
INDEMNIFICATION AND RELATED MATTERS...........................................25
10.1 Indemnification by Seller...................................25
10.2 Indemnification by Buyer....................................25
10.3 Notice of Indemnification...................................26
10.4 Indemnification Procedure for Third-Party Claims............26
10.5 Right of Offset.............................................26
ARTICLE XI
TERMINATION PRIOR TO CLOSING..................................................27
11.1 Termination.................................................27
11.2 Effect on Obligations.......................................27
ARTICLE XII
MISCELLANEOUS.................................................................27
12.1 Entire Agreement............................................27
12.2 Successors and Assigns......................................27
12.3 Counterparts................................................28
12.4 Headings....................................................28
12.5 Modifications and Waivers...................................28
12.6 Broker's Fees...............................................28
12.7 Expenses....................................................28
12.8 Notices.....................................................29
12.9 Arbitration.................................................30
<PAGE>
12.10 Governing Law; Consent to Jurisdiction......................30
12.11 Confidentiality.............................................30
12.12 Public Announcements........................................31
12.13 Severability................................................32
12.14 Disclosure Schedule; Buyer's Knowledge; Effect on Seller
Representations and Warranties; Effect of Materiality Qualification..32
12.15 No Third Party Beneficiaries................................32
12.16 Rule of Construction........................................32
EXHIBITS
A - Closing Balance Sheet Instructions
B - Form of Opinion of Counsel for Seller
C - Form of Opinion of Counsel for Buyer
D - Form of Lease Amendment and Assumption
<PAGE>
DEFINITIONS
Defined Term Page
- ------------ ----
Accounts Receivable............................................................2
Affiliate(s)...................................................................6
Allocation Schedule............................................................6
Alternative Transaction.......................................................19
Arbitrator Accountants.........................................................5
Assets.........................................................................1
Assumed Liabilities............................................................3
Authorit(y)(ies)...............................................................9
Black-Out Period..............................................................22
Board.........................................................................22
Business.......................................................................1
Business Confidential Information.............................................21
Buyer..........................................................................1
Buyer Accountants..............................................................5
Cash Consideration.............................................................5
Closing........................................................................7
Closing Balance Sheet..........................................................5
Closing Date...................................................................7
Closing Net Worth..............................................................5
Code..........................................................................13
Commission....................................................................22
Commitment(s).................................................................13
Consent(s).....................................................................9
Derivatives....................................................................6
Disclosure Schedule............................................................1
Disposal......................................................................15
Disposed Of...................................................................15
Employee Benefit Plans........................................................14
Encumbrances...................................................................1
Environmental Laws............................................................16
Environmentally Regulated Materials...........................................16
Equipment......................................................................1
ERISA.........................................................................14
Excluded Assets................................................................3
Financial Statements...........................................................9
Forfeiture Event...............................................................6
Form S-3......................................................................22
Former Real Property..........................................................15
<PAGE>
GAAP...........................................................................5
Indebtedness..................................................................33
Indemnitee....................................................................26
Indemnitor....................................................................26
Intellectual Property Rights..................................................12
Interests......................................................................4
Latest Balance Sheet...........................................................9
Law(s).........................................................................9
Liabilities....................................................................9
Litigation....................................................................16
Loss..........................................................................25
Material Adverse Effect........................................................8
Purchase Price.................................................................5
Real Property..................................................................1
Release.......................................................................15
Released......................................................................15
Representatives...............................................................30
Sabounchi......................................................................6
Securities Act................................................................22
Seller.........................................................................1
Seller Accountants.............................................................5
Seller Confidential Information...............................................30
Shares.........................................................................5
Shares Designee(s).............................................................6
Tax Returns...................................................................13
Taxes.........................................................................13
<PAGE>
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, made and entered into this 28th day of March, 1997, is
by and between Forward Systems Automation, Inc., a Texas corporation ("SELLER"),
and Aetrium Incorporated, a Minnesota corporation ("BUYER").
RECITALS:
FIRST, Seller is primarily engaged in the business of development,
manufacture and distribution of production equipment for the electronic
component industry (the "BUSINESS"); and
SECOND, Buyer desires to purchase and Seller desires to sell
substantially all of the assets of Seller;
NOW, THEREFORE, in consideration of the recitals and the mutual
representations, warranties, covenants and agreements contained herein, and upon
the terms and subject to the conditions hereinafter set forth, the parties
hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS
1.1 Transfer of Assets. Subject to the terms and conditions of this
Agreement, and except as otherwise provided in Sections 1.2 and 1.6 hereof, on
the Closing Date (as hereinafter defined), Seller will sell, assign, transfer,
and convey to Buyer, and Buyer will purchase, acquire and accept from Seller,
all of Seller's right, title and interest in and to all of the assets,
properties, rights, contracts and claims employed in connection with the
Business, wherever located, whether tangible or intangible, real, personal or
mixed, as the same exist at the Closing (as hereinafter defined) (collectively,
the "ASSETS"), free and clear of all liens, security interests, or other
encumbrances of any character whatsoever ("ENCUMBRANCES"), except as set forth
in the disclosure schedule delivered by Seller to Buyer in connection herewith
(the "DISCLOSURE SCHEDULE"). The Assets include, without limitation, the assets,
properties, rights, contracts and claims described in the following paragraphs
(a) through (l):
(a) all cash, depository accounts, certificates of deposit and
securities;
(b) Seller's leasehold interests in the real property leased
by Seller and described in the Disclosure Schedule ("REAL PROPERTY");
(c) title to, or Seller's leasehold interests in, all the
furnishings, furniture, office supplies, vehicles, spare parts, tools, machinery
and equipment that are used in the operation of the Business (the "EQUIPMENT");
<PAGE>
(d) title to, or Seller's leasehold interests in, all fixed
assets, other than the Equipment, that are used in connection with the Business;
(e) all quantities of inventory, including without limitation
raw materials, work-in-process, finished goods and supplies, used in connection
with the Business;
(f) all accounts receivable and all notes receivable (whether
short-term or long-term) from third parties arising out of the operation of the
Business, together with any unpaid interest accrued thereon and any security or
collateral therefor, including without limitation recoverable deposits (the
"ACCOUNTS RECEIVABLE");
(g) all rights of Seller under or pursuant to all warranties,
representations and guarantees made by suppliers, manufacturers and contractors
in connection with products or services of the Business, or affecting the
Assets;
(h) all rights and interests of Seller in and to patents and
patent applications owned by Seller or licensed to Seller by third parties and
used in connection with the Business, including without limitation those that
are listed in the Disclosure Schedule, and all rights and interests of Seller in
and to research, development and commercially practiced processes, trade
secrets, know-how, inventions and manufacturing, engineering and other technical
information, whether owned by Seller or licensed from third parties by Seller,
which are used in connection with the Business;
(i) all rights and interests of Seller in and to Seller's name
and all trademarks, trade names and service marks, and registrations and
applications for such trademarks, trade names and service marks, used in
connection with the Business, including without limitation those that are listed
in the Disclosure Schedule, and all rights and interests of Seller in and to
copyrights, and registrations and applications for such copyrights, used in
connection with the Business, including without limitation those that are listed
in the Disclosure Schedule;
(j) all contracts, agreements, arrangements and/or commitments
of any kind which relate to the Business or the Assets, including without
limitation those contracts listed in the Disclosure Schedule, exclusive,
however, of those contracts Buyer elects not to assume pursuant to Section 1.6
hereof;
(k) all customer and vendor lists relating to the Business,
and all files and documents (including credit information) relating to such
customers and vendors, and other business and financial records, files, books
and documents relating to the Assets and/or the Business, including without
limitation computer programs (including computer modeling programs), manuals and
data, sales and advertising materials, sales, distribution and purchase
correspondence and trade association memberships relating to the Assets and/or
the Business; and
<PAGE>
(l) all prepaid charges, sums and fees and all rights to
refunds pertaining to the Business, including without limitation tax refunds and
prepaid casualty insurance premiums.
1.2 Excluded Assets. Notwithstanding any other terms contained herein,
Seller is not hereunder selling, assigning, transferring or conveying to Buyer
the following assets, rights and properties (the "EXCLUDED ASSETS"):
(a) any policies of liability insurance relating to the
Business or the Assets or any rights thereunder;
(b) 1994 Jeep Cherokee VIN #1J4FX58S1RC264083;
(c) cash equal to uncontributed payroll deductions to Seller's
401(k) plan;
(d) except as otherwise set forth in the last sentence of
Section 1.6 hereof, any right, title and interest under all leases, contracts,
agreements, licenses, permits, exemptions, franchises, variances, waivers,
consents, approvals and other authorizations which are not transferable without
consent (unless such consent has been obtained);
(e) Seller's Asset Purchase Account #1018011447 at Overton
Bank & Trust, with zero balance immediately preceding Closing; and
(f) minute books, stock record books and corporate
certificates of authority.
1.3 Obtaining Permits and Licenses. Seller will assign, transfer or
convey to Buyer at the Closing those governmental permits and licenses described
in the Disclosure Schedule which are held or used by Seller in connection with
the Business and with respect to which any necessary third party consents to
assignment have been obtained or which can be assigned without having to obtain
the consent of any third party. Subsequent to the Closing, to the extent
permitted by law, Seller will have the right to cancel any permits or licenses
and any bonds, guarantees or undertakings by Seller now applicable to the Assets
or the Business to the extent such is not so assigned or transferred to Buyer
pursuant to this Section 1.3 and is not subject to Seller's continuing
obligations under Section 1.6 hereof.
1.4 Assumed Liabilities of Buyer. Subject to Section 1.6 hereof, Buyer
will assume and pay, perform and discharge as and when due the following
liabilities and obligations, whether known, unknown, contingent, absolute,
determined, indeterminable or otherwise on the Closing Date and whether incurred
or accruing prior to, on or after the Closing Date, to the extent relating to or
arising from the Business ("ASSUMED LIABILITIES"):
(a) all liabilities and obligations of Seller not performed or
satisfied as of the Closing Date under all of the contracts, agreements and
commitments listed on Schedule 3.16 of the Disclosure Schedule;
<PAGE>
(b) all liabilities of Seller disclosed in the Disclosure
Schedule; and
(c) all other liabilities of Seller reflected or reserved
against in the Latest Balance Sheet (as hereinafter defined) or incurred since
December 31, 1996 in the ordinary course of business and consistent with past
practice (exclusive of liabilities for income Taxes (as hereinafter defined)
incurred on the sale of Assets contemplated hereby, and liabilities incurred by
Seller in connection with the negotiation and consummation of this Agreement as
set forth in Section 12.7(a) hereof);
provided that, notwithstanding the foregoing, Buyer will not assume and will not
be liable for Retail Installment Contract 112367*RC264083 dated March 3, 1994 in
the stated principal amount of Twenty-Five Thousand Five Hundred Twenty-Two and
43/100 Dollars ($25,522.43) payable to NationsBank of Texas, N.A. or sponsorship
of Seller's 401(k) plan or any liabilities in connection therewith.
1.5 Liabilities Not Assumed. Except as specifically set forth in
Section 1.4 hereof, Buyer will not assume and will not be liable for any
liabilities or obligations of Seller, whether known, unknown, contingent,
absolute, determined, indeterminable or otherwise on the Closing Date, whether
incurred or accruing prior to, on or after the Closing Date, and whether or not
relating to or arising from the Business.
1.6 Assignments Requiring Consents. Seller will use reasonable efforts,
and Buyer will cooperate with Seller, to obtain all non-governmental approvals,
consents or waivers necessary to assign to Buyer all leases, contracts,
licenses, agreements, sales or purchase orders, commitments, property interests,
qualifications or other assets described in Section 1.1 hereof or any claim,
right or benefit arising thereunder or resulting therefrom (the "INTERESTS") as
soon as practicable; provided, however, that neither Seller nor Buyer will be
obligated to pay any consideration therefor (except for filing fees and other
ordinary administrative charges which will be paid by Buyer) to the third party
from whom such approval, consent or waiver is requested.
To the extent any of the approvals, consents or waivers referred to
above have not been obtained by Seller as of the Closing, Buyer may elect by
written notice to Seller to exclude the applicable Interests and liabilities in
connection therewith from the Assets and the Assumed Liabilities. In the event
Buyer does not make such election, and without limiting the rights of Buyer
under this Agreement, Seller will (a) take all reasonable steps necessary to
obtain the consent of any such third party, (b) cooperate with Buyer in any
reasonable and lawful arrangements designed to provide the benefits of such
Interests to Buyer so long as Buyer fully cooperates with Seller in such
arrangements and promptly reimburses Seller for all payments, charges or other
liabilities made or suffered by Seller in connection therewith, and (c) enforce,
at the request of Buyer and at the expense and for the account of Buyer, any
rights of Seller arising from such Interests against such issuer thereof or the
other party or parties thereto (including the right to elect to terminate any
such Interests in accordance with the terms thereof upon the written advice of
Buyer). To the extent that Seller enters into lawful arrangements designed to
provide the benefits of any Interests as set forth
<PAGE>
in clause (b) above, such Interests will be deemed to have been assigned to
Buyer for purposes of Section 1.1 hereof.
1.7 Purchase Price. The aggregate consideration to be paid by Buyer to
Seller for the Assets (the "PURCHASE PRICE") will be Four Million Dollars
($4,000,000) (the "CASH CONSIDERATION") and one hundred eighty-six thousand
(186,000) shares of the common stock of Aetrium Incorporated (the "SHARES"),
subject to reduction pursuant to the remainder of this Section 1.7 or Section
1.8(b) hereof:
(a) In the event Buyer elects to proceed under Section 1.7(b)
hereof, the Cash Consideration will be reduced on a dollar-for-dollar basis by
the amount, if any, by which Seller's Closing Net Worth (as hereinafter defined)
on Closing is less than the sum of Two Hundred Fifty- Five Thousand Dollars
($255,000) plus an amount equal to fifty percent (50%) of the excess, if any, of
gross revenues of Seller for the period January 1, 1997 through the Closing
Date, exclusive of revenues from the sale of Assets hereunder, over Nine Hundred
Two Thousand Dollars ($902,000).
(b) In the event Buyer elects to proceed under this Section
1.7(b) by written notice to Seller within thirty (30) days after Closing,
promptly thereafter, Buyer and Seller will cooperate to prepare a balance sheet
of Seller as of Closing in accordance with United States generally accepted
accounting principles ("GAAP") on a basis consistent with the Latest Balance
Sheet (as hereinafter defined), provided that such balance sheet will be
prepared in accordance with the instructions listed on Exhibit A hereto
regardless of whether such instructions conform to GAAP or are consistent with
the Latest Balance Sheet. Such balance sheet will be prepared by Buyer, and
Seller and Seller's representatives will be provided access to review the
workpapers of Buyer and full opportunity to raise with Buyer any issues Seller
may have with respect to such balance sheet. In the event any such issues raised
by Seller are not resolved by mutual agreement of the parties, such unresolved
issues will be submitted to Ernst & Young, Minneapolis office (the "ARBITRATOR
ACCOUNTANTS"), whose decision on any such issues will be final and binding on
the parties. The "CLOSING BALANCE SHEET" means such balance sheet after
resolution as hereinabove provided of all issues raised by Seller with respect
thereto. "CLOSING NET WORTH" means Seller's stockholder's equity as of Closing
as reported on the Closing Balance Sheet. The Closing Net Worth as so determined
will be binding upon the parties. Buyer and Seller will use their best efforts
to cause the Closing Balance Sheet to be completed and the Closing Net Worth to
be determined within ninety (90) days after Closing. Buyer and Seller will each
bear their respective costs and will share equally any fees of the Accountant
Arbitrator incurred in the preparation of the Closing Balance Sheet and
determination of the Closing Net Worth as hereinabove provided.
1.8 Payment of Purchase Price. The Purchase Price will be payable as
follows:
(a) The Cash Consideration will be paid at Closing to Seller
by wire transfer of immediately available funds to accounts designated by Seller
prior to Closing.
<PAGE>
(b) On each of the first three (3) anniversary dates of the
Closing Date, sixty-two thousand (62,000) Shares, together with all securities
and other property which would have been issued thereon or in exchange therefor
or on or for any thereof if such Shares had been issued on the Closing Date (any
of the same with respect to any Shares hereinafter "DERIVATIVES"), will be
issued in the names of Seller or Farid Sabounchi ("SABOUNCHI"), as designated by
Seller in writing to Buyer prior to the applicable issuance date (individually
and collectively, the "SHARES DESIGNEE(s)"), unless with respect to each such
anniversary date a Forfeiture Event (as hereinafter defined) has occurred
thereon or prior thereto. "FORFEITURE EVENT" means the voluntary termination by
Sabounchi or termination for Cause of Sabounchi's employment with Buyer and any
other corporation or other business entity directly or indirectly controlling,
controlled by, or under common control with Buyer (individually and
collectively, the "AFFILIATE(s)"). "CAUSE" means any willful and intentional
tortious or felonious act or omission of Sabounchi materially and adversely
affecting the Business or Buyer or any Affiliate, or any willful and intentional
breach by Sabounchi of any employment, service, confidentiality or
noncompetition agreement entered into with Buyer or any Affiliate. Upon any
Forfeiture Event, all Shares not then issued, together with all Derivatives with
respect thereto, will be forfeited to Aetrium Incorporated. Notwithstanding the
foregoing, in the event Sabounchi's employment with Buyer or an Affiliate
terminates because of Sabounchi's death or permanent disability, all Shares not
then issued or forfeited will be immediately issued to the Shares Designees, or
the legal representative or estate thereof if applicable. No interest in the
Shares or the Derivatives may be assigned prior to the issuance thereof except
to a Shares Designee, and any attempted such transfer will be null and void and
of no force or effect.
(c) Immediately upon final determination of the Closing
Balance Sheet, any adjustment to the Cash Consideration pursuant to Section
1.7(a) hereof will be reimbursed by Seller to Buyer in immediately available
funds. In the event of any delay in the payment of such amount, such amount will
bear interest from the due date until paid in full at the annual rate of
thirteen percent (13%).
1.9 Allocation of Purchase Price.
(a) Buyer will prepare (or cause to be prepared) an allocation
(the "ALLOCATION SCHEDULE") of the Purchase Price (plus Assumed Liabilities and
Buyer's expenses of the transaction) among the Assets. Such allocation will be
made in accordance with Code (as hereinafter defined) Section 1060 and any
applicable rules or regulations thereunder. Seller will have the right to review
and reasonably approve the Allocation Schedule, and Seller and Buyer will
consult and resolve in good faith any issues arising as a result of Seller's
review of such Allocation Schedule. Seller and Buyer agree that the fair market
value of each category of Assets as categorized on the Latest Balance Sheet is
not more than the book value thereof.
(b) Seller and Buyer (1) will be bound by the allocation
contained in the Allocation Schedule for purposes of determining any and all
consequences with respect to Taxes of the transactions contemplated herein, (2)
will prepare and file all tax returns to be filed with any tax authority in a
manner consistent with such Allocation Schedule (including Form 8594, "Asset
<PAGE>
Acquisition Statement"), and (3) will take no position inconsistent with such
Allocation Schedule in any tax return, any discussion with or proceeding before
any tax authority, or otherwise. In the event that such Allocation Schedule is
disputed by any tax authority, the party receiving notice of such dispute will
promptly notify the other party thereof.
ARTICLE II
CLOSING
2.1 The Closing. The closing of the transactions contemplated hereby
(the "CLOSING") will take place at the offices of Oppenheimer Wolff & Donnelly,
Minneapolis, Minnesota, at 10:00 a.m. on April 1,1997 or, if later, two (2)
business days following the satisfaction or waiver of all of the conditions to
the parties' obligations set forth in Articles VIII and IX, unless the parties
otherwise mutually agree (the "CLOSING DATE"). All matters at the Closing will
be considered to take place simultaneously effective immediately prior to the
beginning of business on March 31, 1997 and no delivery of any document will be
deemed complete until all transactions and deliveries of documents are
completed.
2.2 Deliveries of Seller. At the Closing, Seller will deliver the
following documents to Buyer:
(a) such bills of sale, endorsements, assignments (together
with any necessary consents), deeds and other good and sufficient instruments of
conveyance and transfer, in form and substance reasonably satisfactory to Buyer
and its counsel, to vest in Buyer valid legal title to the Assets;
(b) resolutions of the board of directors and shareholders of
Seller authorizing the execution, delivery and performance of this Agreement and
consummation of the transactions contemplated hereby by Seller certified by the
Secretary of Seller to be complete, correct and as in effect as of the Closing
Date;
(c) the certificate required of Seller pursuant to Section 8.1
hereof;
(d) an opinion of counsel for Seller, substantially in the
form of Exhibit B attached hereto; and
(e) any other documents reasonably requested by Buyer, to
confirm the accuracy of the representations and warranties and the performance
of the agreements of Seller hereunder.
2.3 Deliveries of Buyer. At the Closing, Buyer will deliver to Seller
the following:
(a) the Cash Consideration in accordance with Section 1.8(a)
hereof;
<PAGE>
(b) resolutions of the board of directors of Buyer authorizing
the execution, delivery and performance of this Agreement and consummation of
the transactions contemplated hereby by Buyer, certified by the Secretary of
Buyer to be complete, correct and as in effect as of the Closing Date;
(c) the certificate required of Buyer pursuant to in Section
9.1 hereof;
(d) the opinion of counsel for Buyer, in the form of Exhibit C
attached hereto; and
(e) any other documents reasonably requested by Seller, to
confirm the accuracy of the representations and warranties and the performance
of the agreements of Buyer hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that:
3.1 Corporate Organization. Seller is a corporation duly organized,
validly existing and in good standing under the Laws (as hereinafter defined) of
the state of Texas, has full corporate power and authority to carry on its
business as it is now being conducted and to own, lease and operate its
properties and assets, and is duly qualified or licensed to do business as a
foreign corporation in good standing in every other jurisdiction in which the
character or location of the properties and assets owned, leased or operated by
it or the conduct of its business requires such qualification or licensing,
except in such jurisdictions in which the failure to be so qualified or licensed
and in good standing would not, individually or in the aggregate, have a
material adverse effect on the condition (financial or otherwise), working
capital, assets, properties, liabilities, obligations, reserves, businesses,
prospects, customers, customer relations, goodwill or going concern value
("MATERIAL ADVERSE EFFECT") with respect to Seller. Schedule 3.1 of the
Disclosure Schedule contains for Seller a list of all jurisdictions in which it
is qualified or licensed to do business. The charter, bylaws, minute books,
stock transfer books and other corporate records of Seller, all of which have
been made available to Buyer, are complete and correct in all material respects,
have been maintained in accordance with reasonable business practices, and
contain accurate and complete records of all formal meetings held of, and
corporate actions taken by, the shareholders, board of directors and committees
of the board of directors of Seller. Seller does not own or control, directly or
indirectly, fifty percent (50%) or more of the voting securities or other voting
interests, or the equity interests, in any other corporation or other business
entity.
3.2 Authorization. Seller has all requisite corporate power and
authority to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance by
Seller of this Agreement and the consummation by Seller of the transactions
contemplated hereby have been duly authorized by all necessary corporate action.
This Agreement has been duly and validly executed by Seller and constitutes the
valid and binding
<PAGE>
legal obligation of Seller, enforceable against Seller in accordance with its
terms, except to the extent that such enforceability (a) may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditors' rights generally, and (b) is subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
3.3 Non-Contravention. Except as set forth in Schedule 3.3 of the
Disclosure Schedule, neither the execution, delivery and performance of this
Agreement nor the consummation of the transactions contemplated hereby will (a)
violate or be in conflict with any provision of the articles or certificates of
incorporation or bylaws of Seller, or (b) be in conflict with, or constitute a
default, however defined (or an event which, with the giving of due notice or
lapse of time, or both, would constitute such a default), under, or cause or
permit the acceleration of the maturity of, or give rise to any right of
termination, cancellation or imposition of fees or penalties under, any debt,
instrument, agreement, permit or other obligation, commitment or authorization
to which Seller is a party or by which Seller or any of Seller's properties or
assets is or may be bound, or (c) result in the creation or imposition of any
Encumbrance upon any property or assets of Seller, or (d) violate any treaty,
law, rule, regulation, order, judgment or decree (individually and collectively,
"LAW(s)") of any foreign, federal, state or local governmental or
quasi-governmental administrative, regulatory or judicial court, department,
commission, agency, board, bureau, instrumentality or other authority
(individually and collectively, "AUTHORIT(Y)(ies)") to which Seller is subject.
3.4 Consents and Approvals. Except as set forth in Schedule 3.4 of the
Disclosure Schedule, with respect to Seller, no consent, approval, order or
authorization of or from, or registration, notification, declaration or filing
with, any Authority or any individual or other private entity (individually and
collectively, "CONSENT(s)") is required in connection with the execution,
delivery or performance of this Agreement by Seller or the consummation by
Seller of the transactions contemplated hereby.
3.5 Financial Statements. Seller has furnished to Buyer its unaudited
balance sheets as of December 31, 1994, 1995 and 1996 (the December 31, 1996
balance sheet is hereinafter referred to as the "LATEST BALANCE SHEET") and
related statements of operations and retained earnings and cash flows for the
years then ended respectively (together, the "FINANCIAL STATEMENTS"). Except as
set forth in Schedule 3.5 of the Disclosure Schedule, the Financial Statements
are in accordance with the books and records of Seller, have been prepared in
conformity with GAAP consistently applied throughout the periods (except as
stated therein or in the notes thereto), and are true, complete and accurate in
all material respects and fairly present the financial position of Seller as of
the respective dates thereof, and the operations and retained earnings and cash
flows for the periods then ended. Except as set forth in Schedule 3.5 of the
Disclosure Schedule, Seller has no liabilities or other obligations (whether
fixed, absolute or contingent, accrued or unaccrued, matured or unmatured, known
or unknown, direct or indirect, joint or several, or otherwise) ("LIABILITIES")
except (a) Liabilities which are reflected or reserved against in the Latest
Balance Sheet, which reserves reflected therein are appropriate and reasonable,
and (b) Liabilities incurred in the ordinary course of business and consistent
with past practice since the date of the Latest Balance Sheet and not
<PAGE>
resulting from, arising out of, relating to, in the nature of or caused by any
breach of contract, tort, infringement of third party rights, violation of Law
or application of doctrines of strict liability.
3.6 Absence of Certain Changes or Events. Except as set forth in
Schedule 3.6 of the Disclosure Schedule, since the date of the Latest Balance
Sheet, Seller has not (a) suffered any damage, destruction or casualty loss
resulting in any Material Adverse Effect with respect to Seller or experienced
any event or failed to take any action which reasonably could be expected to
result in a Material Adverse Effect with respect to Seller, (b) discharged or
incurred any material obligation or liability with respect to the Business,
except in the ordinary course of business, (c) entered into any transaction with
respect to the Business not in the ordinary course of its business, except as
permitted in or contemplated by other Sections of this Agreement, (d) suffered
any loss of key employees, sales representatives, distributors, customers or
suppliers or other favorable business relationships, (e) declared, set aside or
paid any dividend or other distribution (whether in cash, stock, property or any
combination thereof) in respect of its capital stock, or redeemed or acquired
any of its capital stock, (f)(1) increased the rate or terms of compensation
payable or to become payable to any director, officer or employee of Seller or
modified or entered into any Employee Benefit Plan (as hereinafter defined) to
increase any bonus, insurance, pension or other employee benefit for any such
directors, officers or employees, except increases in compensation or benefits
and new hires of employees occurring in the ordinary course of business in
accordance with its customary practices (which includes normal periodic
performance reviews and related compensation and benefit increases) or (2) paid,
lent or advanced any amount to, or sold, transferred or leased any properties or
assets (real, personal or mixed, tangible or intangible) to, or entered into any
agreement or arrangement with any such directors, officers or employees, other
than the regular payment of salaries and travel advances in the ordinary course
of business and consistent with past practice, (g) sold, otherwise disposed of
or encumbered any asset, except sales and other dispositions in the ordinary
course of business consistent with past practice of inventory or of other
tangible property that has been replaced with property of at least equivalent
usefulness to the operation of the Business or that was not material to the
operation of the Business, (h) entered into any commitment for capital
expenditures for additions to plant, property or equipment, or (i) incurred or
guaranteed any indebtedness for borrowed money.
3.7 Title to Assets. Seller has good title or a valid lease with
respect to all Assets (including without limitation all assets reflected on the
Latest Balance Sheet, except for such assets sold, consumed or otherwise
disposed of in the ordinary course of business since the date of the Latest
Balance Sheet), free and clear of all Encumbrances, except (a) as set forth in
Schedule 3.7 of the Disclosure Schedule, and (b) mechanics', carriers', workers'
or other like liens arising in the ordinary course of the Business with respect
to obligations not yet due and payable, liens for current Taxes (as hereinafter
defined) not yet due and payable, and other Encumbrances which, individually or
in the aggregate, do not have a Material Adverse Effect with respect to Seller.
<PAGE>
3.8 Real Properties.
(a) Seller has no ownership interest in any real property.
Schedule 3.8 of the Disclosure Schedule sets forth a list of all Real Property
in which Seller has a leasehold interest, and a list of each lease of each Real
Property to which Seller is a party or is bound.
(b) Except as set forth in Schedule 3.8 of the Disclosure
Schedule, each Real Property is free from structural defects, in good operating
condition and repair, with no material maintenance, repair or replacement having
been deferred or neglected, suitable for the intended use and free from other
material defects.
(c) With respect to each Real Property, except as set forth in
Schedule 3.8 of the Disclosure Schedule, (1) all certificates of occupancy,
permits and licenses of all Authorities having jurisdiction over the Real
Property required to have been issued to Seller to enable the Real Property to
be lawfully occupied and used for all of the principal purposes for which it is
currently occupied and used have been lawfully issued and are, as of the date
hereof, in effect, (2) such Real Property and its present use conform in all
respects to all occupational, safety, health, zoning, planning, subdivision,
platting and similar Laws, (3) all public utilities necessary for the use and
operation of such Real Property and the facilities located thereon are available
for use or access at such Real Property, and (4) there is no legal or physical
impairment to free ingress to or egress from such Real Property.
(d) With respect to each Real Property, except as set forth in
Schedule 3.8 of the Disclosure Schedule, Seller has not received any written
notice of any pending, threatened or contemplated condemnation proceeding
affecting such Real Property or any part thereof, or of any sale or other
disposition of such Real Property or any part thereof in lieu of condemnation.
3.9 Machinery, Equipment, Vehicles and Personal Property. Except as set
forth in Schedule 3.9 of the Disclosure Schedule, to Seller's knowledge all
items of Equipment which are necessary to the conduct of the Business are in
good operating condition and repair and fit for the intended purposes thereof
and no material maintenance, replacement or repair has been deferred or
neglected. Schedule 3.9 of the Disclosure Schedule sets forth a list of all
Equipment leased by or to Seller and each lease thereof.
3.10 Inventories. Except as set forth in Schedule 3.10 of the
Disclosure Schedule, all inventory of Seller consists of a quality and quantity
usable and salable in the ordinary course of business consistent with past
practice, and the present quantities of all inventory of Seller are reasonable
in the present circumstances of the Business as currently conducted.
3.11 Warranty and Product Defect or Return Claims. Schedule 3.11 of the
Disclosure Schedule sets forth a list of all pending warranty and other product
defect or return claims against Seller which individually exceed $5,000 in cost
of remedy. Except for those so listed, all pending
<PAGE>
warranty and other product defect or return claims against Seller do not exceed
in the aggregate $5,000 in cost of remedy.
3.12 Accounts Receivable. Except as set forth in Schedule 3.12 of the
Disclosure Schedule, all Accounts Receivable have arisen only from bona fide
transactions in the ordinary and regular course of business and, to Seller's
knowledge, are collectible in the aggregate amounts thereof through the
continuation of existing collection procedures, after allowance for credits in
the ordinary course of business and subject to bad debt reserves established by
Seller consistent with past practice, and there are no known claims, refusals to
pay or other rights of set-off against any thereof. All Accounts Receivable due
from Seller's employees are subject to payroll deduction arrangements referenced
on Schedule 3.12 of the Disclosure Schedule, which arrangements are valid and
binding on the applicable employee and will be enforceable by Buyer in
accordance with their terms.
3.13 Bank Accounts; Powers of Attorney. Schedule 3.13 of the Disclosure
Schedule sets forth (a) the names of all financial institutions, investment
banking and brokerage houses, and other similar institutions at which Seller
maintains accounts, deposits, safe deposit boxes of any nature, the names of all
persons authorized to draw thereon or make withdrawals therefrom, and any
limitations or restrictions as to use, withdrawal or otherwise, and (b) the
names of all persons or entities holding general or special powers of attorney
from Seller and a summary of the terms thereof.
3.14 Insurance. Schedule 3.14 of the Disclosure Schedule contains an
accurate and complete list of all policies of fire and other casualty, general
liability, theft, life, workers' compensation, health, directors and officers,
business interruption and other forms of insurance owned or held by Seller,
specifying the insurer, the policy number, the term of the coverage and, in the
case of any "occurrence" coverage, the same information as to predecessor
policies since Seller's inception. All present policies are in full force and
effect and all premiums with respect thereto have been paid. Seller has not been
denied any form of insurance and no policy of insurance has been revoked or
rescinded since Seller's inception, except as described on Schedule 3.14 of the
Disclosure Schedule. Schedule 3.14 also describes all third party administered
self-insurance arrangements, if any, that Seller has.
3.15 Intellectual Property Rights. Except as disclosed in Schedule 3.15
of the Disclosure Schedule, (a) Seller owns or possesses adequate licenses or
other valid rights to use all patents, patent rights, trademarks, service marks,
trade names, copyrights, applications for any thereof, trade secrets, know-how
and other intellectual property ("INTELLECTUAL PROPERTY RIGHTS") used in or
necessary for the conduct of the Business, (b) the conduct of the Business does
not conflict with or infringe on any valid Intellectual Property Rights of
others in any way which might result in a Material Adverse Effect with respect
to Seller, and (c) to Seller's knowledge no third party has come into conflict
with or infringed on any Intellectual Property Rights of Seller. Schedule 3.15
of the Disclosure Schedule sets forth a list of all material United States and
foreign patents, trademarks, service marks, trade names and registered
copyrights, and applications for any thereof, used by Seller
<PAGE>
in the conduct of the Business and all licenses to or by Seller of Intellectual
Property Rights which Seller owns or uses in the conduct of the Business.
3.16 Commitments. Schedule 3.16 of the Disclosure Schedule contains a
list of or cross references to other applicable Schedules of the Disclosure
Schedule with respect to all contracts, agreements and other commitments to
which Seller is a party or by which Seller or any of its properties is bound and
which are individually material to the Business (individually and collectively,
the "COMMITMENT(s)"). Except as disclosed in Schedule 3.16 of the Disclosure
Schedule, (a) all Commitments are valid and in full force and effect and
enforceable against Seller and any other party thereto in accordance with their
terms (subject to bankruptcy, insolvency, creditors' rights, equitable
considerations and public policy, and except that no representation or warranty
is given concerning the availability of specific performance or other equitable
remedies), and (b) neither Seller nor to Seller's knowledge any other party
thereto is in material default thereunder, nor are there circumstances which
with the giving of notice or passing of time or both would constitute a material
default thereunder by Seller or to Seller's knowledge any other party thereto,
nor has Seller received any notice claiming any such default or circumstance.
3.17 Taxes.
(a) Except as set forth in Schedule 3.17 of the Disclosure
Schedule, (1) Seller and its shareholders have duly and timely filed (and until
the Closing Date will duly and timely file or obtain valid extensions to file)
all tax and information reports, returns, declarations, statements and related
documents required to be filed by them with any Authority ("TAX RETURNS") with
respect to net or gross income, profits, windfall profits, franchise, gross
receipts, premium, sales, use, ad valorem, service, service use, license, lease,
occupation, employment, withholding, excise, transfer, real and personal
property, customs, duties and other taxes, charges and levies relating to
Seller's operations and all interest, penalties, assessments and deficiencies
with respect thereto ("TAXES") and have duly paid, or made adequate provision
for the due and timely payment of, all such Taxes due or claimed to be due from
them by any Authority, (2) all Tax Returns were (or will be) true, correct and
complete in all material respects when filed for all periods ending on or before
the Closing Date, (3) no deficiencies for any Taxes for which Seller or any
shareholder of Seller may be liable have been asserted in writing or assessed
against Seller or any such shareholder or former subsidiary for which Seller or
any such shareholder may be liable which remain unpaid nor has Seller or any
such shareholder received notification of any pending or proposed examination by
any taxing Authority, (4) there are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any such Tax Returns
for any period, and (5) for purposes of computing Taxes and the filing of Tax
Returns, Seller and its shareholders have not failed to treat as an "employee"
any individual providing services to Seller who would be classified as an
"employee" under the applicable rules or regulations of any Authority with
respect to such classification.
(b) Seller is not a foreign person within the meaning of
Section 1445(b)(2) of the Internal Revenue Code of 1986, as amended (the
"CODE").
<PAGE>
(c) Seller has had in effect a valid election under Code
Section 1362 to be treated as an "S corporation" for each of its taxable years
ended after December 31, 1990. Seller has not taken any action to revoke such
election. Seller is not aware of any basis or the existence of any facts that
would permit the Internal Revenue Service to revoke such election for any period
prior to the Closing Date. Except as described on Schedule 3.17 of the
Disclosure Schedule, since the effective date of its election as an S
corporation to and including the Closing Date, Seller will not have incurred or
become liable for the payment of any corporate-level income tax, or any related
penalties or interest.
3.18 Employee Benefit Plans. Schedule 3.18 of the Disclosure Schedule
sets forth a true and complete list of each "employee benefit plan" (as that
term is defined under Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) and any other plan, practice, policy,
procedure, program, arrangement or agreement that is maintained by Seller
related to the employment of any present or former director, officer or employee
of Seller under which Seller has any present or future obligation or liability
(the "EMPLOYEE BENEFIT PLANS"). With respect to each such Employee Benefit Plan,
Seller has delivered or made available to Buyer copies of and has scheduled on
Schedule 3.18 of the Disclosure Schedule all (a) plans and related trust
documents and other instruments under which the applicable Employee Benefit Plan
is established or operated, (b) the most recent summary plan description and any
summary of material modifications thereto, (c) the three (3) most recent annual
reports on Treasury Form 5500, including all schedules and attachments thereto,
with respect to any Employee Benefit Plan for which such report is required, and
(d) the most recent determination letter received from the Internal Revenue
Service and the full and complete application therefor submitted to the Internal
Revenue Service. No event has occurred for which, and there exists no condition
or set of circumstances under which, Seller could, directly or indirectly, be
subject to any liability under ERISA Section 502(i) or Code Section 4975, or to
any other material tax or penalty under ERISA or the Code. No Employee Benefit
Plan is subject to Section 302 or Title IV of ERISA or to Code Section 412. With
respect to each Employee Benefit Plan, except as set forth in Schedule 3.18 of
the Disclosure Schedule, (1) Seller is in compliance with the requirements
prescribed by all applicable Laws, including without limitation ERISA and the
Code, (2) each Pension Plan intended to qualify under Code Section 401(a) has
received a favorable determination letter from the Internal Revenue Service with
respect to such qualification, its related trust has been determined to be
exempt from taxation under Code Section 501(a), and nothing has occurred since
the date of such letter that would adversely affect such qualification or
exemption, and (3) there are no actions or proceedings (other than routine
claims for benefits) pending with respect to any Employee Benefit Plan or
against the assets of any Employee Benefit Plan. With respect to each Employee
Benefit Plan that is a "group health plan" within the meaning of ERISA Section
601(a) and that is subject to Code Section 4980B, including but not limited to
any medical plan, dental plan, health care reimbursement plan or employee
assistance program, Seller has operated such plans in material compliance with
the continuation coverage requirements of those provisions and Part 6 of Title I
of ERISA and any applicable comparable state Laws, and no Employee Benefit Plan
provides for medical, health, life or other welfare benefits for present or
future terminated employees or their spouses or dependents in excess of those
required to be provided under such Laws. Seller has timely made all
contributions or payments of any kind
<PAGE>
required pursuant to any Employee Benefit Plan or to maintain in full force and
effect any insurance policy maintained in connection with any such Employee
Benefit Plan. The transactions contemplated herein will not result in the
acceleration of accrual, vesting, funding or payment of any contribution or
benefit under any Employee Benefit Plan. No action or omission of Seller or any
director, officer, employee, or agent thereof in any way restricts, impairs or
prohibits Seller or any successor thereof from amending, merging, or terminating
any Employee Benefit Plan in accordance with the express terms thereof and
applicable Laws. Neither Seller nor any former subsidiary has taken any action
which has or could result in any liability to Seller under the Worker Adjustment
and Retraining Notification Act.
3.19 Labor Matters. Except as set forth in Schedule 3.19 of the
Disclosure Schedule, (a) Seller is not obligated by or subject to any collective
bargaining agreement or collective bargaining obligation, (b) there are no
strikes, slowdowns or picketing against Seller previously experienced or
pending, or to Seller's knowledge threatened, nor are there nor have there been
any efforts, to Seller's knowledge, to organize any unions or employee
associations at the Business, and (c) there are no pending, or to Seller's
knowledge threatened, grievances or unfair labor charges.
3.20 Permits and Other Operating Rights. Except as set forth in
Schedule 3.20 of the Disclosure Schedule, Seller does not require the Consent of
any Authority to permit it to operate in the manner in which it presently is
being operated, and possesses and is in compliance with the requirements of all
permits, licenses and other authorizations from all Authorities presently
required necessary to permit it to operate the Business in the manner in which
it presently is conducted. Each of such permits, licenses and other
authorizations is scheduled on Schedule 3.20 of the Disclosure Schedule, and no
action is pending to revoke, terminate, modify or restrict any thereof.
3.21 Compliance with Laws. Except as set forth in Schedule 3.21 of the
Disclosure Schedule, Seller has operated and is operating the Business in
compliance with all Laws applicable to the Business the failure to comply with
which could have, either individually or in the aggregate, a Material Adverse
Effect with respect to Seller.
3.22 Environment.
(a) Schedule 3.22 of the Disclosure Schedule lists all
environmental studies made by or furnished to Seller relating to any Real
Property or any other property formerly owned, leased or operated by Seller or
any former subsidiary (individually and collectively, "FORMER REAL PROPERTY"),
each of which studies has been delivered or made available to Buyer.
(b) Except as set forth in Schedule 3.22 of the Disclosure
Schedule, Seller nor any former subsidiary nor any prior or current other owner
or lessee has generated, handled, manufactured, treated, stored, used,
transported, or discharged, leaked, pumped, injected, spilled, emitted,
dispersed, leached, migrated or otherwise released ("RELEASED" and any thereof
being a "RELEASE"), or deposited, placed, buried, dumped or otherwise disposed
of ("DISPOSED OF" and any thereof being a "DISPOSAL"), any Environmentally
Regulated Materials (as defined below) on,
<PAGE>
beneath, to, from or about any Real Property or Former Real Property or been
responsible therefor, except for the generation, handling, manufacture,
treatment, storage, use, transportation, Release and Disposal, in compliance
with all applicable Environmental Laws (as defined below) and other applicable
Laws, of such substances used in the ordinary course of the Business.
(c) Except as set forth in Schedule 3.22 of the Disclosure
Schedule, no Environmentally Regulated Material has been generated, handled,
manufactured, treated, stored, used, transported, Released or Disposed Of on,
from or off any Real Property or Former Real Property which may give rise to a
clean-up responsibility, personal injury liability or property damage claim
against Seller, or give rise to Seller being named a potentially responsible
party for any such clean-up costs, personal injuries or property damage, or
create any cause of action by any third party against Seller under any
Environmental Laws.
(d) Except as set forth in Schedule 3.22 of the Disclosure
Schedule, Seller has not received any notices or claims of any inquiries,
evaluations, investigations, remediations, violations or liabilities relating to
Environmentally Regulated Materials or Environmental Laws involving Seller, any
former subsidiary, or any Real Property or Former Real Property.
(e) Except as set forth in Schedule 3.22 of the Disclosure
Schedule, no Real Property or to Seller's knowledge Former Real Property
contains any (1) underground or aboveground storage tanks, (2) asbestos, (3)
equipment using PCBs, (4) underground injection wells, or (5) septic tanks into
which process waste water or any Environmentally Regulated Materials have been
Disposed Of or Released.
(f) The term "ENVIRONMENTALLY REGULATED MATERIALS" means any
element, compound pollutant, contaminant, substance, material or waste, or any
mixture thereof, designated, listed, referenced, regulated or identified
pursuant to any Environmental Laws. The term "ENVIRONMENTAL LAWS" means the
National Environmental Policy Act, 42 U.S.C. ss.ss. 4321 et seq., the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
ss.ss. 9601 et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
ss.ss. 6901 et seq., the Federal Water Pollution Control Act, 33 U.S.C. ss.ss.
1251 et seq., the Federal Clean Air Act, 42 U.S.C. ss.ss. 7401 et seq., the
Toxic Substances Control Act, 15 U.S.C. ss.ss. 2601 et seq., the Emergency
Planning and Community Right to Know Act, 42 U.S.C. (paragraph). 11001, the
Hazard Communication Act ss.ss. 651 et seq., and the Federal Insecticide,
Fungicide and Rodenticide Act, 7 U.S.C. ss. 136, each as amended, and the
regulations thereunder and applicable state and local counterparts.
3.23 Litigation. Except as set forth in Schedule 3.23 of the Disclosure
Schedule, there is no action, order or proceeding, or to Seller's knowledge
investigation, in, before or by any court or other Authority or before or by any
arbitrator or mediator ("LITIGATION") pending, or to Seller's knowledge
threatened, (a) by or against or involving Seller or any of its properties or
any of its officers, directors, agents or employees (but only in such
capacities) or the Business, or (b) which seeks to enjoin or obtain damages in
respect of the consummation of the transactions contemplated hereby, nor to
Seller's knowledge is there any basis therefor.
<PAGE>
3.24 Business Generally. Except as set forth in Schedule 3.24 of the
Disclosure Schedule, there has been no event, transaction or information which
has come to the attention of Seller which, as it relates directly to the
Business, could, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect with respect to the Business.
3.25 Absence of Certain Business Practices. Neither Seller nor any
officer, employee or agent of any thereof, nor any other person acting on behalf
of any thereof, has, directly or indirectly, within the past three (3) years
given or agreed to give any gift or similar benefit to any customer, supplier,
governmental employee or other person who is or may be in a position to help or
hinder the Business (or assist Seller in connection with any actual or proposed
transaction) which (a) might subject Seller or Buyer to any damage or penalty in
any civil, criminal or governmental litigation proceeding, (b) if not given in
the past, might have resulted in a Material Adverse Effect with respect to
Seller, or (c) if not continued in the future, might have a Material Adverse
Effect with respect to Seller or Buyer, or subject Seller or Buyer to suit or
penalty in any private or governmental litigation or proceeding.
3.26 Brokers. Except as set forth in Schedule 3.26 of the Disclosure
Schedule, neither Seller nor any directors, officers or employees thereof, nor
any other person acting on behalf of any thereof, has employed any broker,
finder or financial advisor or incurred any liability for any brokerage fee or
commission, finder's fee or financial advisory fee in connection with the
transactions contemplated hereby, nor is there any basis known to Seller for any
such fee or commission to be claimed by any person or entity.
3.27 Accuracy of Information. No representation or warranty made by
Seller in this Agreement, the Disclosure Schedule or any agreement, instrument,
document, certificate, statement or letter furnished or to be furnished to Buyer
at the Closing by or on behalf of Seller in connection with any of the
transactions contemplated by this Agreement contains or will contain any untrue
statement of material fact or omits or will omit to state any material fact
necessary in order to make the statements herein or therein not misleading in
light of the circumstances in which they are made, and all of the foregoing do
or will when made completely and correctly present the information required or
purported to be set forth herein or therein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 Buyer's Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the Laws of the state of Minnesota,
and has all requisite corporate power and authority to carry on its business as
it is now being conducted, and to execute, deliver and perform this Agreement
and to consummate the transactions contemplated hereby.
<PAGE>
4.2 Due Authorization, Execution and Delivery; Effect of Agreement. The
execution, delivery and performance by Buyer of this Agreement and the
consummation by Buyer of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Buyer. This
Agreement has been duly and validly executed and delivered by Buyer and
constitutes the valid and binding legal obligations of Buyer, enforceable
against it in accordance with its terms, except to the extent that such
enforceability (a) may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors' rights generally, and
(b) is subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
4.3 Non-Contravention. Neither the execution, delivery and performance
of this Agreement nor the consummation of the transactions contemplated hereby
will (a) violate or be in conflict with any provision of the articles of
incorporation or bylaws of Buyer, or (b) be in conflict with, or constitute a
default, however defined (or an event which, with the giving of due notice or
lapse of time, or both, would constitute such a default), under, or cause or
permit the acceleration of the maturity of, or give rise to any right of
termination, cancellation or imposition of fees or penalties under, any debt,
instrument, commitment, contract or other agreement or obligation to which Buyer
is a party or by which Buyer or any of its properties or assets is or may be
bound, or (c) result in the creation or imposition of any Encumbrance upon any
property or assets of Buyer, or (d) violate any Laws of any Authority to which
Buyer is subject.
4.4 Consents. No Consent from any Authority or any individual or other
private entity is required in connection with the execution, delivery or
performance by Buyer of this Agreement or the taking of any other action
contemplated hereby.
4.5 Litigation. There is no Litigation pending or, to Buyer's
knowledge, threatened which seeks to enjoin or obtain damages in respect of the
consummation of the transactions contemplated hereby.
ARTICLE V
COVENANTS OF SELLER
From and after the date hereof and until the Closing Date, Seller
hereby covenants and agrees with Buyer as follows:
5.1 Cooperation and Assignments. Seller will use its best efforts, and
will cooperate with Buyer, to secure all necessary consents, approvals,
authorizations, exemptions and waivers from third parties as are required in
order to enable Seller to effect the transactions contemplated hereby, and
otherwise will use its best efforts to cause the consummation of such
transactions in accordance with the terms and conditions hereof, provided that
Seller will not be obligated to incur any liability
<PAGE>
or expense in connection therewith, except the cost and expense of its
employees, agents and representatives engaged in such efforts or as otherwise
expressly set forth herein.
5.2 Conduct of Business. Except as otherwise may be contemplated by
this Agreement or any of the documents listed in the Disclosure Schedule and
except as Buyer otherwise may consent to in writing (which consent will not be
unreasonably withheld), in consultation with Buyer Seller will (a) operate the
Business in the ordinary course in all material respects, (b) use its best
efforts to preserve the Business as a whole intact, (c) use its best efforts to
continue in effect all material existing policies of insurance (or comparable
insurance) with third-party carriers of or relating to the Business, (d) use its
best efforts to keep available the services of the present officers, employees
and agents of the Business, (e) use its best efforts to preserve its
relationships with its material suppliers, customers, licensors and licensees
and others having material business dealings with it such that the Business will
not be substantially impaired, and (f) not take any action which would result in
a breach of the representations and warranties contained in Section 3.6 or
otherwise contained in Article III as though made on and as of the Closing Date.
5.3 Access. Seller will provide Buyer with such information as Buyer
from time to time reasonably may request with respect to the Business and to
personnel of Seller and the transactions contemplated by this Agreement, and
will permit Buyer and its representatives reasonable access, during regular
business hours and upon reasonable notice, to the properties, books and records
of the Business and to personnel of Seller, as Buyer from time to time
reasonably may request.
5.4 No Solicitation. Seller will not and will cause its directors,
officers, employees, agents and representatives not to encourage, solicit,
initiate or enter into, directly or indirectly, any discussions or negotiations
concerning any disposition (through a sale of assets, sale of stock, merger,
consolidation, exchange or otherwise) of all or substantially all of the assets
or capital stock of Seller (other than pursuant to this Agreement), or any
proposal therefor, or furnish or cause to be furnished any nonpublic information
concerning the Business or the assets or capital stock of Seller to any third
party in connection with any transaction or proposed transaction involving the
acquisition of the assets or capital stock of Seller by any third party (any
such proposed disposition being hereinafter referred to as an "ALTERNATIVE
TRANSACTION"). Seller will promptly inform Buyer of any inquiry (including the
terms and the identity of the third party making such inquiry) which it receives
in respect of an Alternative Transaction and furnish to Buyer a copy of any such
written inquiry.
5.5 Termination of 401(k) Plan. Prior to Closing Seller will take all
actions necessary to terminate its 401(k) plan in accordance with the
requirements of ERISA.
5.6 Name Change. On or before Closing Seller will change its name to a
name substantially dissimilar from Forward Automation Systems and FSA.
<PAGE>
ARTICLE VI
COVENANTS OF BUYER
From and after the date hereof and until the Closing Date, Buyer hereby
covenants and agrees with Seller as follows:
6.1 Cooperation and Assumption. Buyer will use its best efforts, and
will cooperate with Seller, to secure all necessary consents, approvals,
authorizations, exemptions and waivers from third parties as are required in
order to enable Buyer to effect the transactions contemplated hereby, and will
otherwise use its best efforts to cause the consummation of the transactions
contemplated hereby in accordance with the terms and conditions hereof, provided
that Buyer will not be obligated to incur any liability or expense in connection
therewith, except the cost and expense of its employees and representatives
engaged in such efforts or as otherwise expressly set forth herein.
ARTICLE VII
ADDITIONAL COVENANTS
7.1 Books and Records; Personnel. For a period of five (5) years after
the Closing (or such longer period as may be required by any governmental agency
or ongoing Litigation or in connection with any administrative proceeding):
(a) Buyer will not dispose of or destroy any of the business
records and files of the Business. If Buyer wishes to dispose of or destroy such
records and files after that time, it will first give thirty (30) days' prior
written notice to Seller and Seller will have the right, at its option and
expense, upon prior written notice to Buyer within such thirty (30) day period,
to take possession of the records and files within sixty (60) days after the
date of Seller's notice to Buyer.
(b) Buyer will allow Seller and its representatives access,
when there is a legitimate business purpose not injurious to Buyer, to all
business records and files of the Business which are transferred to Buyer in
connection herewith, during regular business hours and upon reasonable notice at
Buyer's principal place of business or at any location where such records are
stored, and Seller will have the right, at their own expense, to make copies of
any such records and files; provided, however, that any such access or copying
will be had or done in such a manner so as not to interfere with the normal
conduct of Buyer's business or operations.
(c) Buyer will make available to Seller, upon written request
and at Seller's expense personnel of the Business to assist Seller in locating
and obtaining records and files of the Business or whose assistance or
participation is reasonably required by Seller in anticipation of, or
preparation for, existing or future Litigation, tax return preparation or other
matters in which Seller or any of its affiliates are involved and which is
related to the Business, provided that Buyer will not
<PAGE>
be obligated to provide such personnel to the extent that Buyer, in its
reasonable discretion, believes that such assistance would adversely affect the
operations of the Business.
7.2 Further Assurances. At any time or from time to time after the
Closing Date, either party will, at the request of the other party and at such
other party's expense, execute and deliver any further instruments or documents
and take all such further action as such party reasonably may request in order
to consummate and make effective the transactions contemplated by this
Agreement.
7.3 Confidentiality Agreement of Seller After Closing.
(a) From and after the Closing Date, except as otherwise
consented to by Buyer in writing, (1) Seller will not directly or indirectly
disclose or use in a manner adverse to Buyer any Business Confidential
Information (as defined below) except as required by the terms of a valid and
effective subpoena or order issued by a court of competent jurisdiction or by a
governmental body, (2) Business Confidential Information will be the exclusive
property of Buyer and, any time on or after the Closing Date, if requested by
Buyer, Seller will promptly deliver to Buyer all Business Confidential
Information, including all copies thereof, which are in the possession, or under
the control, of Seller or any of its agents or representatives, without making
or retaining any copies or extracts thereof, and (3) if Seller or any of its
agents or representatives receive a request to disclose all or any part of
Business Confidential Information, Seller will (A) immediately notify Buyer of
the existence, terms and circumstances surrounding such request, (B) consult
with Buyer on the advisability of taking legally available steps to resist or
narrow such request, and (C) if disclosure of such information is required, and
at Buyer's cost and expense, exercise its best efforts to obtain an order or
other reliable assurance that confidential treatment will be accorded such
portion of the disclosed information which Buyer so designates.
(b) "BUSINESS CONFIDENTIAL INFORMATION" means any and all
information relating to the management, operations, finances, products, trade
secrets, technology or services of Seller, including but not limited to any and
all financial data, computer programs and systems, computer based information,
plans, projections, existing and proposed and contemplated projects or
investments, formulae, processes, methods, products, manuals, drawings, supplier
lists, customer lists, purchase and sales records, marketing information,
commitments, correspondence and other information relating to the Business,
whether written, oral or computer generated, other than such information from
and after such time as it may be or become lawfully available to the general
public through no fault of Seller.
(c) The covenants and undertakings contained in this Section
7.3 relate to matters which may be of a special, unique and extraordinary
character and a violation of any of the terms of this Section 7.3 may cause
irreparable injury to Buyer, the amount of which may be impossible to estimate
or determine and for which adequate compensation may not be available.
Therefore, Buyer may be entitled to an injunction, restraining order or other
equitable relief from a court of competent jurisdiction, restraining any
violation or threatened violation of any such terms by Seller and such other
persons as the court orders.
<PAGE>
7.4 Registration Rights.
(a) In the event that Rule 144 under the Securities Act of
1933 (the "SECURITIES ACT"), or any successor rule providing for the public sale
of unregistered securities promulgated by the Securities and Exchange Commission
(the "COMMISSION"), is unavailable to a Shares Designee with respect to Shares
issued to such Shares Designee pursuant to Section 1.8(b) hereof, such Shares
Designee may by written notice to Aetrium Incorporated require Aetrium
Incorporated to prepare and file a registration statement under the Securities
Act on Form S-3 or any successor form promulgated by the Commission ("FORM S-3")
covering such Shares. Aetrium Incorporated may delay the filing of any such
registration statement for not more than sixty (60) days if (1) in the good
faith judgment of Aetrium Incorporated's Board of Directors (the "BOARD"), there
is a material development relating to the condition (financial or other) of
Aetrium Incorporated that has not been disclosed to the general public and the
Board determines that, under such circumstances, it would be in Aetrium
Incorporated's best interests to delay such registration, or (2) in the good
faith judgment of the Board or Aetrium Incorporated's principal investment
banker, if an investment banker is involved, such delay is necessary in order
not to affect adversely financing efforts underway at Aetrium Incorporated.
Aetrium Incorporated will also take reasonable measures to qualify the Shares
included in any registration statement pursuant to this Section 7.4 for sale
under applicable blue sky laws of such states as Aetrium Incorporated determines
are reasonably necessary for the sale of the Shares. Aetrium Incorporated will
use its best efforts to cause such registration statement to remain effective
for such period as may reasonably be necessary to effect the sale of the Shares
but in no event beyond the date after which all Shares covered by such
registration statement could be sold pursuant to Rule 144 under the Securities
Act . The costs and expenses of the offering, including but not limited to legal
fees, special audit fees, printing expenses, filing fees, fees and expenses
relating to qualifications under state securities or blue sky laws and the
premiums for insurance, if any, incurred by Aetrium Incorporated in connection
with any such Form S-3 registration made pursuant to this Section 7.4 will be
borne by Aetrium Incorporated; provided, however, that a Shares Designee
participating in such registration will bear his or its own underwriting
discounts and commissions and the fees and expenses of his or its own counsel or
accountants in connection with any such registration.
(b) In the event that the Board determines in good faith that
compliance by Aetrium Incorporated with its disclosure obligations under such
registration statement would require disclosure of material information that
Aetrium Incorporated has a bona fide business purpose for preserving as
confidential, Shares Designees included as part of the registration statement
will not be entitled to sell the included Shares pursuant to such registration
statement, and Aetrium Incorporated will not be obligated to supplement or amend
such registration statement or the prospectus forming a part thereof, for a
period (the "BLACK-OUT PERIOD") expiring on the earlier to occur of (1) the date
on which such material information is disclosed to the public or ceases to be
material or Aetrium Incorporated is otherwise able to comply with its disclosure
obligations, or (2) sixty (60) days after the Board makes such good faith
determination. Aetrium Incorporated will give prompt written notice to each
Shares Designee included as a part of the registration statement
<PAGE>
of the commencement of the Black-Out Period. Each such Shares Designee will keep
the fact and subject matter of such notice confidential and refrain from any
further sales or other transfers of Shares pursuant to the registration
statement until the Shares Designee receives either copies of a supplemented or
amended prospectus or a notice from Aetrium Incorporated advising the Shares
Designee that the use of the existing prospectus may be resumed.
(c) Upon the exercise of registration rights pursuant to this
Section 7.4, and as a condition to participation in any such registration, each
participating Shares Designee will supply Aetrium Incorporated with such
information as may be required by Aetrium Incorporated to register or qualify
the applicable Shares. By participating in any such registration, each
participating Shares Designee will have agreed to indemnify Aetrium
Incorporated, its officers and directors, and each person, if any, who controls
Aetrium Incorporated within the meaning of Section 15 of the Securities Act,
with respect to losses, claims, damages and liabilities caused by any untrue
statement or omission made in reliance upon and in conformity with any such
information furnished by such Shares Designee to Aetrium Incorporated expressly
for use in such registration statement or prospectus, provided that the
obligation of each Shares Designee hereunder will not exceed the amount of
proceeds received by such Shares Designee from the sale of Shares under this
Section 7.4.
(d) In the event of any registration of Shares pursuant to
this Section 7.4, Aetrium Incorporated will indemnify each Shares Designee
participating in such registration, and the officers and directors and each
person, if any, who controls Seller as such a Shares Designee within the meaning
of Section 15 of the Securities Act, against all losses, claims, damages and
liabilities caused by any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus (and as
amended or supplemented) relating to such registration, or caused by any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances under which they are made unless such statement or omission
was made in reliance upon and in conformity with information furnished in
writing to Aetrium Incorporated by such Shares Designee expressly for use
therein.
(e) The registration rights granted hereby are exercisable
only by a Shares Designee, and with respect to any Share, only for the first
transfer. Such registration rights may not be transferred, and will not inure to
the benefit of, any subsequent holder of Shares.
ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer to consummate the purchase of the Assets under
this Agreement will be subject to the satisfaction (or waiver by Buyer) on or
prior to the Closing Date of all of the following conditions:
<PAGE>
8.1 Representations, Warranties and Covenants of Seller. Seller will
have complied in all material respects with all of their agreements and
covenants contained herein to be performed at or prior to the Closing Date, and
all the representations and warranties of Seller contained herein will be true
in all material respects on and as of the Closing Date with the same effect as
though made on and as of the Closing Date, except (a) as otherwise contemplated
hereby, and (b) to the extent that such representations and warranties were made
as of a specified date (and as to such representations and warranties the same
continue on the Closing Date to have been true as of the specified date). Buyer
will have received a certificate of Seller, dated as of the Closing Date and
signed by the chief executive officer of Seller, certifying as to the
fulfillment of the conditions set forth in this Section 8.1.
8.2 No Prohibition. No statute, rule or regulation or order of any
court or other Authority will be in effect which prohibits Buyer from
consummating the transactions contemplated hereby.
8.3 Sabounchi Employment. Sabounchi will have accepted employment with
Buyer or an Affiliate as President of the Business reporting directly to the
President of Aetrium Incorporated, effective the Closing Date.
8.4 Lease Amendment. Seller and the lessor under the lease of the Real
Property will have entered into a Lease Amendment and Assumption in the form of
Exhibit D hereto.
8.5 Further Action. All consents, approvals, authorizations, exemptions
and waivers from third parties that are required in order to enable Buyer to
consummate the transactions contemplated hereby will have been obtained (except
where the failure to obtain any such consents, approvals, authorizations,
exemptions and waivers would not have a Material Adverse Effect with respect to
the Business).
8.6 Deliveries. Seller will have made or caused to be made delivery to
Buyer of the items set forth in Section 2.2 hereof.
ARTICLE IX
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller to consummate the sale of the Assets under
this Agreement will be subject to the satisfaction (or waiver by Seller) on or
prior to the Closing Date of all of the following conditions:
9.1 Representations, Warranties and Covenants of Buyer. Buyer will have
complied in all material respects with all of its agreements and covenants
contained herein to be performed at or prior to the Closing Date, and all of the
representations and warranties of Buyer contained herein will be true in all
material respects on and as of the Closing Date with the same effect as though
made on and as of the Closing Date, except (a) as otherwise contemplated hereby,
and (b) to the extent that
<PAGE>
such representations and warranties were made as of a specified date (and as to
such representations and warranties the same continue on the Closing Date to
have been true as of the specified date). Seller will have received a
certificate of Buyer, dated as of the Closing Date and signed by an officer of
Buyer reasonably acceptable to Seller, certifying as to the fulfillment of the
conditions set forth in this Section 9.1.
9.2 No Prohibition. No statute, rule or regulation or order of any
court or other Authority will be in effect which prohibits Seller from
consummating the transactions contemplated hereby.
9.3 Sabounchi Employment. Sabounchi will have been offered employment
with Buyer or an Affiliate as President of the Business reporting directly to
the President of Aetrium Incorporated, effective the Closing Date, which offer
is made open for acceptance to the Closing Date.
9.4 Further Action. All consents, approvals, authorizations, exemptions
and waivers from third parties that are required in order to enable Seller to
consummate the transactions contemplated hereby will have been obtained (except
where the failure to obtain any such actions, consents, approvals,
authorizations, exemptions and waivers would not have a Material Adverse Effect
with respect to the Business).
9.5 Deliveries. Buyer will have made or caused to be made delivery to
Seller of the items set forth in Section 2.3 hereof.
ARTICLE X
INDEMNIFICATION AND RELATED MATTERS
10.1 Indemnification by Seller. Subject to the provisions of this
Article X, Seller will indemnify and hold harmless Buyer and each director,
officer, employee, stockholder, partner or affiliate thereof from and against
any and all damages, loss, cost or expense (including reasonable attorney's fees
and expenses actually incurred) (collectively, "LOSS") suffered by reason of,
arising out of or resulting from (a) any misrepresentation or breach of warranty
made by Seller in or pursuant to this Agreement (other than, with respect to any
such director, officer, stockholder, affiliate or employee who is an officer or
director of Seller on the date of this Agreement, any such misrepresentation or
breach of warranty known to such officer or director on the Closing Date), (b)
any failure by Seller to fulfill any covenants or agreements under this
Agreement, or (c) any and all liabilities of Seller not expressly assumed by
Buyer hereunder, or third party claims therefor.
10.2 Indemnification by Buyer. Buyer will indemnify and hold harmless
Seller and its officers and directors from and against any and all Loss suffered
by reason of, arising out of or resulting from (a) any material
misrepresentation or breach of warranty made by Buyer in or pursuant to this
Agreement, (b) any failure by Buyer to fulfill any covenants or agreements under
this Agreement, or (c) any and all Assumed Liabilities, or third party claims
therefor.
<PAGE>
10.3 Notice of Indemnification. In the event any legal proceeding is
threatened or instituted or any claim or demand is asserted by any person
(including a party hereto) in respect of which payment may be sought by one
party hereto from the other party under the provisions of this Article X, the
party seeking indemnification (the "INDEMNITEE") will promptly cause written
notice of the assertion of any such claim of which it has knowledge which is
covered by this indemnity to be forwarded to the other party (the "INDEMNITOR").
Any notice of a claim by reason of any of the representations, warranties or
covenants contained in this Agreement will state specifically the
representation, warranty or covenant with respect to which the claim is made,
the facts giving rise to an alleged basis for the claim, and the amount of the
liability asserted against the Indemnitor by reason of the claim.
10.4 Indemnification Procedure for Third-Party Claims. In the event of
the initiation of any legal proceeding against an Indemnitee by a third party,
the Indemnitor will have the absolute right after the receipt of notice, at its
option and at its own expense, to be represented by counsel of its choice, and
to defend against, negotiate, settle or otherwise deal with any proceeding,
claim, or demand which relates to any loss, liability or damage indemnified
against hereunder; provided, however, that the Indemnitee may participate in any
such proceeding with counsel of its choice and at its expense. The parties will
cooperate fully with each other in connection with the defense, negotiation or
settlement of any such legal proceeding, claim or demand. To the extent the
Indemnitor elects not to defend such proceeding, claim or demand, and the
Indemnitee defends against or otherwise deals with any such proceeding, claim or
demand, the Indemnitee may retain counsel, at the expense of the Indemnitor, and
control the defense of such proceeding. Neither the Indemnitor nor the
Indemnitee may settle any such proceeding without the consent of the other
party, such consent not to be unreasonably withheld. After any final judgment or
award has been rendered by a court, arbitration board or administrative agency
of competent jurisdiction and the time in which to appeal therefrom has expired,
or a settlement has been consummated, or the Indemnitee and the Indemnitor have
arrived at a mutually binding agreement with respect to each separate matter
alleged to be indemnified by the Indemnitor hereunder, the Indemnitee will
forward to the Indemnitor notice of any sums due and owing by it with respect to
such matter and the Indemnitor will pay all of the sums so owing to the
Indemnitee by wire transfer, certified or bank cashier's check within thirty
(30) days after the date of such notice.
10.5 Right of Offset. Buyer will have the right to offset against
Shares and Derivatives held or issuable by Aetrium Incorporated hereunder any
liability of Seller to Buyer hereunder. In the event any proceeding is commenced
on any claim of Buyer against Seller hereunder, and in addition to all other
rights and remedies of Buyer hereunder or at law, Buyer may deposit in such
proceeding any Shares or Derivatives otherwise to be released hereunder for
purposes of offset in the event such claim is adjudicated in Buyer's favor.
<PAGE>
ARTICLE XI
TERMINATION PRIOR TO CLOSING
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by the mutual written consent of Buyer and Seller; or
(b) by either Seller or Buyer in writing (provided the
conditions to such party's obligations stated in the applicable sections of
Article VIII or IX are not then satisfied or waived) if the Closing has not
occurred on or before May 1, 1997; or
(c) by either Seller or Buyer in writing, if there is in
effect a non-appealable order of a court of competent jurisdiction prohibiting
the consummation of the transactions contemplated hereby.
11.2 Effect on Obligations. Termination of this Agreement pursuant to
this Article will terminate all obligations of the parties hereunder, provided,
however, that termination pursuant to clause (b) of Section 11.1 hereof will not
relieve any defaulting or breaching party from any liability to the other party
hereto, and provided, further, that the provisions of this Section 11.2 and
Article XII will survive termination of this Agreement.
ARTICLE XII
MISCELLANEOUS
12.1 Entire Agreement. This Agreement (including the Exhibits and the
Disclosure Schedule delivered pursuant hereto) constitutes the entire agreement
of the parties with respect to the matters provided for herein and supersedes
all prior and contemporaneous agreements, understandings, negotiations and
discussions, whether oral or written, of the parties. No amendment, modification
or alteration of the terms or provisions of this Agreement will be binding
unless the same is in writing and duly executed by the parties hereto.
12.2 Successors and Assigns. The terms and conditions of this Agreement
will inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties hereto. This Agreement may not be assigned by
either party without the prior written consent of the other party hereto, except
that Buyer may, at its election, assign its rights under this Agreement to any
direct or indirect wholly-owned business entity. Notwithstanding the foregoing,
no assignment of this Agreement or any of the rights or obligations hereof by
Buyer will relieve Buyer of its obligations under this Agreement to Seller and,
upon any such assignment, the representations, warranties, covenants and
agreements contained in this Agreement will be deemed to have been made by
Buyer's assignee as well as by Buyer. Further notwithstanding the foregoing,
Aetrium Incorporated may not assign its obligations under Sections 1.8(b) and
7.4. Any attempted
<PAGE>
assignment of this Agreement contrary to the terms hereof will be null and void
and of no force or effect.
12.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will for all purposes be deemed to be an original
and all of which will constitute the same instrument.
12.4 Headings. The headings of the articles and sections of this
Agreement are included for convenience only and will not be deemed to constitute
part of this Agreement or to affect the construction hereof.
12.5 Modifications and Waivers. No waiver of any of the terms or
conditions of this Agreement or any right hereunder will be effective unless
given in a signed writing by the party entitled to the benefits thereof. No
waiver of any of the provisions of this Agreement or any rights hereunder will
be deemed to or will constitute a waiver of any other provisions hereof or
rights hereunder (whether or not similar). No failure or delay on the part of a
party in exercising any right hereunder will operate as a waiver of, or impair,
any such right. No single or partial exercise of any such right will preclude
any other or further exercise thereof or the exercise of any other right.
12.6 Broker's Fees. Each of the parties hereto represents and warrants
to the other that it has had no dealings with any broker or finder in connection
with the transactions contemplated by this Agreement. Seller will indemnify and
hold harmless Buyer from and against any and all liability to which Buyer may be
subjected by reason of any broker's or finder's fee with respect to the
transactions contemplated hereby to the extent such fee is attributable to any
action undertaken by or on behalf of Seller. Buyer will indemnify and hold
harmless Seller from and against any and all liability to which Seller may be
subjected by reason of any broker's or finder's fee with respect to the
transaction contemplated hereby to the extent such fee is attributable to any
action undertaken by or on behalf of Buyer.
12.7 Expenses.
(a) Seller will pay all costs and expenses incurred by or on
behalf of Seller, and Buyer will pay all costs and expenses incurred by or on
behalf of it, in connection with this Agreement, the negotiations in connection
herewith, and the transactions contemplated hereby, including without limitation
fees and expenses of their respective brokers, finders, financial consultants,
accountants and counsel.
(b) If any dispute between Seller and Buyer, either occurring
under, relating to or in connection with any of the provisions of this
Agreement, is submitted to a court, arbitrator or other appropriate tribunal,
then all costs and expenses of the parties (including tribunal costs and
reasonable attorneys' fees) will be paid by the party against whom a
determination by such court, arbitrator or other tribunal is made or, in the
absence of a determination wholly against one party, as such court, arbitrator
or other tribunal directs.
<PAGE>
12.8 Notices. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party will be in writing and
delivered personally or by telephonic facsimile transmission or sent by
registered or certified mail, postage prepaid (and if by telephonic facsimile
transmission with a copy sent by mail),
if to Seller to:
Forward Automation Systems, Inc.
734 West North Carrier Parkway
Grand Prairie, Texas 75050
Attn: Farid Sabounchi
Facsimile No.: (972) 623-2435
with a copy to:
Shustak Jalil & Heller
545 Madison Avenue
New York, New York 10022
Attn: Richard Heller
Facsimile No.: (212) 688-6151
if to Buyer to:
Aetrium Incorporated
2350 Helen Street
North St. Paul, Minnesota 55109
Attn: Joseph C. Levesque
Facsimile No.: (612) 773-4263
with a copy to:
Oppenheimer Wolff & Donnelly
3400 Plaza VII Building
45 South Seventh Street
Minneapolis, Minnesota 55402
Attn: Thomas C. Thomas
Facsimile No.: (612) 344-9376
or at such other address for a party as may be specified by like notice. Any
notice which is delivered personally or by telephonic facsimile transmission in
the manner provided herein will be deemed to have been duly given to the party
to whom it is directed upon actual receipt by such party (or its agent for
notices hereunder). Any notice which is addressed and mailed in the manner
herein
<PAGE>
provided will be conclusively presumed to have been duly given to the party to
which it is addressed at the close of business, local time of the recipient, on
the third day after the day it is so placed in the mail.
12.9 Arbitration. Subject to the last sentence of this Section, any
controversy or claim arising out of or relating to any provisions of this
Agreement or the breach hereof, unless resolved by mutual agreement of the
parties, will be finally settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association in effect
on the effective date of this Agreement by a single arbitrator appointed in
accordance with said Rules. The determination of the arbitrator will be final
and binding upon the parties to the arbitration and judgment upon the award
rendered by the arbitrator will be entered in any court of competent
jurisdiction. The place of arbitration will be St. Paul, Minnesota.
Notwithstanding the foregoing, either party may seek injunctive relief with
respect to any controversy or claim arising out of or relating to any provisions
of this Agreement in any court of competent jurisdiction.
12.10 Governing Law; Consent to Jurisdiction. This Agreement will be
construed in accordance with and governed by the laws of the State of Minnesota
applicable to agreements made and to be performed in such jurisdiction without
reference to conflicts of law principles. Each of Buyer and Seller irrevocably
consents that any legal action or proceeding against it under, arising out of or
in any manner relating to this Agreement or any other agreement, document or
instrument arising out of or executed in connection with this Agreement may be
brought only in an arbitration proceeding as provided in Section 12.9 or in a
court of the State of Minnesota or in the United States District Court for the
District of Minnesota. Each of Buyer and Seller by the execution and delivery of
this Agreement, expressly and irrevocably assents and submits to the personal
jurisdiction of the arbitrators selected pursuant to Section 12.9 or any of such
courts in any such action or proceeding. Each of Buyer and Seller further
irrevocably consents to the service of any complaint, summons, notice or other
process relating to any such action or proceeding by delivery thereof to it by
hand or by mail in the manner provided for in Section 12.8 hereof. Each of Buyer
and Seller hereby expressly and irrevocably waives any claim or defense in any
action or proceeding based on any alleged lack of personal jurisdiction,
improper venue or forum non conveniens or any similar basis.
12.11 Confidentiality.
(a) "SELLER CONFIDENTIAL INFORMATION" means information
received by Buyer or any of its agents, directors, officers, employees, counsel,
consultants, affiliates or advisors ("REPRESENTATIVES") from Seller or its
Representatives in the course of Buyer's investigation of Seller and negotiation
and performance of this Agreement, including without limitation trade secret and
other proprietary technical, financial and other information relating to the
Business or Seller's products, whether past, present or anticipated, including
information about Seller's research, development, manufacturing, purchasing,
accounting, engineering, marketing, selling or servicing, and any analyses,
compilations, studies, materials, memoranda, data, notes or documents prepared
by Buyer or its Representatives and concerning such information received by
Buyer or its Representatives.
<PAGE>
(b) The Seller Confidential Information will be kept
confidential and will not, without the prior written consent of Seller, be
disclosed by Buyer or its Representatives in any manner whatsoever, in whole or
in part, and will not be used by Buyer or its Representatives other than in
connection with the transactions contemplated hereunder. The Seller Confidential
Information will be disclosed by Buyer and its Representatives only to Buyer's
Representatives who have a "need to know" such Seller Confidential Information
and who have been informed by Buyer of the confidential nature of the Seller
Confidential Information and who have first agreed to be bound by the terms and
conditions of this Section 12.11.
(c) Immediately upon termination of this Agreement, the Seller
Confidential Information which consists of analyses, compilations, studies,
material, memoranda, data, notes or other documents prepared by Buyer or its
Representatives in that capacity will be destroyed and such destruction will be
certified in writing to Seller by an authorized officer supervising such
destruction, and all other Seller Confidential Information will be returned to
Seller without Buyer retaining any copies thereof.
(d) In the event that Buyer or anyone to whom Buyer transmits
the Seller Confidential Information pursuant to the provisions of this Section
12.11 becomes legally compelled to disclose any of the Seller Confidential
Information, Buyer will provide Seller with prompt notice before such Seller
Confidential Information is disclosed so that Seller may seek a protective order
or other appropriate remedy and/or waive compliance with the provisions of this
Section 12.11. In the event that such protective order or other remedy is not
obtained, Buyer will furnish only that portion of the Seller Confidential
Information which Buyer is advised by written reasonable opinion of counsel is
legally required and will exercise Buyer's best efforts to assist Seller in
obtaining a protective order or other reliable assurance that confidential
treatment will be accorded to the Seller Confidential Information that is
disclosed.
(e) Nothing contained in this Section 12.11 will in any way
restrict or impair Buyer's right to use, disclose or otherwise deal with (1)
Seller Confidential Information which at the time of its disclosure is, or which
thereafter becomes through no fault of Buyer or its Representatives, part of the
public domain by publication or otherwise, and (2) Seller Confidential
Information which Buyer can show was in Buyer's possession or the possession of
one or more of its Representatives at the time of disclosure, and was not
acquired, directly or indirectly, under any secrecy obligation to Seller or
another party.
(f) The provisions of this Section 12.11 will lapse and be of
no further force or effect upon Closing.
12.12 Public Announcements. Neither Seller (nor any of its affiliates)
nor Buyer (nor any of its affiliates) will make any public statements, including
without limitation any press releases, with respect to this Agreement and the
transactions contemplated hereby without the prior written consent of the other
party (which consent may not be unreasonably withheld), except as may be
<PAGE>
required by law and except that the party required to make such announcement
will, whenever practicable, consult with the other party concerning the timing
and content of such announcement before such announcement is made.
12.13 Severability. If any provision hereof is held by any court of
competent jurisdiction to be illegal, void or unenforceable, such provision will
be of no force and effect, but the illegality or unenforceability will have no
effect upon and will not impair the enforceability of any other provision of
this Agreement.
12.14 Disclosure Schedule; Buyer's Knowledge; Effect on Seller
Representations and Warranties; Effect of Materiality Qualification. Nothing in
the Disclosure Schedule will be deemed adequate to disclose an exception to a
representation or warranty of Seller made herein, unless the Disclosure Schedule
identifies the exception with reasonable particularity and describes the
relevant facts in reasonable detail. Without limiting the generality of the
foregoing, the mere listing (or inclusion of a copy) of a document or other item
will not be deemed adequate to disclose an exception to a representation or
warranty made herein (unless the representation or warranty has to do with the
existence of the document or other item itself). Disclosures in any schedule of
the Disclosure Schedule will constitute disclosure only for purposes of such
schedule's counterpart section herein, and will not constitute disclosure for
purposes of any other section of this Agreement or any exhibit to or other
writing which is designated herein as being part of this Agreement. No
disclosure whatsoever during Buyer's due diligence investigation of Seller will
constitute an enlargement or restriction of the warranties or representations of
Seller hereunder or exceptions thereto beyond those specifically set forth in
this Agreement and the Disclosure Schedule. No representation or warranty of
Seller will be deemed waived in whole or part, and no Loss resulting from the
breach thereof will be reduced, by reason of the fact that Buyer or its
representatives knew or should have known on or before the Closing Date that
such representation or warranty is or might be inaccurate in any respect. If any
representation or warranty of Seller that is qualified by materiality (including
a Material Adverse Effect) is breached after giving effect to such materiality
qualification, then Loss resulting from such breach includes all Loss resulting
from such breach from first dollar as if there were no such materiality
qualification.
12.15 No Third Party Beneficiaries. Except as expressly permitted by
this Agreement, nothing in this Agreement will confer any rights upon any person
or entity which is not a party or permitted assignee of a party to this
Agreement.
12.16 Rule of Construction. The parties hereto acknowledge and agree
that each has negotiated and reviewed the terms of this Agreement, assisted by
such legal and tax counsel as they desired, and has contributed to its
revisions. The parties further agree that the rule of construction that any
ambiguities are resolved against the drafting party will be subordinated to the
principle that the terms and provisions of this Agreement will be construed
fairly as to all parties and not in favor of or against any party.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf as of the date first above written.
AETRIUM INCORPORATED
By (illegible signature)
---------------------------------
Its President
FORWARD SYSTEMS AUTOMATION, INC.
By /s/ Farid Sabounchi
---------------------------------
Its President
GUARANTY AND COVENANT
The undersigned absolutely, irrevocably and unconditionally guarantees to Buyer
the payment and performance when due of all liabilities and obligations of
Seller under Section 10.1 of this Agreement ("INDEBTEDNESS"). Buyer may at any
time and from time to time, without the consent of or notice to the undersigned,
without incurring responsibility to the undersigned, without releasing,
impairing or affecting the liability of the undersigned hereunder, upon or
without any terms or conditions and in whole or in part: (a) sell, pledge,
surrender, compromise, settle, release, renew, subordinate, extend, substitute,
exchange, change, or otherwise dispose or deal with in any manner and in any
order any Indebtedness, any evidence thereof, or any security therefor, (b)
accept any security for or other guarantors of any Indebtedness, (c) fail,
neglect or omit to obtain, realize upon or protect any Indebtedness or any
security therefor, to exercise any lien upon or right to any money, credit or
property toward the liquidation of the Indebtedness, or to exercise any other
right against Seller, the undersigned or any other person, and (d) apply any
payments and credits to the Indebtedness in any manner and in any order. No act
or thing, except full payment and discharge of the Indebtedness, which but for
this provision could act as a release or impairment of the liability of the
undersigned hereunder, will in any way release, impair or affect the liability
of the undersigned hereunder. The undersigned will have the benefit of any and
all defenses of Seller pertaining to the Indebtedness, excluding discharge
pursuant to bankruptcy or similar proceedings. This guaranty is a primary
obligation of the undersigned and Buyer will not be required to first resort for
payment of the Indebtedness to Seller or any other person, their properties or
estates, or any security or other rights or remedies whatsoever. If any payment
applied by Buyer to the
<PAGE>
Indebtedness is thereafter set aside, recovered, rescinded or required to be
returned for any reason (including without limitation the bankruptcy, insolvency
or reorganization of Seller or any other person), the Indebtedness to which such
payment was applied will for the purposes of this guaranty be deemed to have
continued in existence, notwithstanding such application, and this guaranty will
be enforceable as to such Indebtedness as fully as if such application had never
been made. The undersigned waives presentment, protest, demand for payment,
notice of dishonor, notice of nonpayment, and all other demands and notices to
the undersigned or any other person and all other actions to establish the
liability of the undersigned hereunder. Any claim under this guaranty may be
brought only pursuant to the provisions of Section 12.9 of this Agreement, and
the undersigned will be bound by the provisions of Sections 10.5, 12.7(b), 12.9
and 12.10 of this Agreement as fully as if a party thereto, the undersigned's
service address for purposes thereof being that of Seller pursuant to Section
12.8 of this Agreement. During the undersigned's employment with Buyer or any
Affiliate until all Shares are released or forfeited, the undersigned will
devote his full employment time to such employment.
/s/ Farid Sabounchi
-----------------------
Farid Sabounchi
<PAGE>
Exhibit A
CLOSING BALANCE SHEET INSTRUCTIONS
The Closing Balance Sheet will be prepared in accordance with GAAP on a basis
consistent with the Latest Balance Sheet, provided that such balance sheet will
be prepared in accordance with the following instructions regardless of whether
such instructions conform to GAAP or are consistent with the Latest Balance
Sheet:
1. No inventory write-down will be made from amounts included on the
Latest Balance Sheet for MSOP handler 1107 or SOT handler 1102A.
2. No accounts receivable write-down or bad debt reserve accrual will be
made for the Account Receivable from Maxim in the amount of $143,444
from amounts with respect thereto included on the Latest Balance Sheet.
3. No accrual will be included for vacation, payroll and related taxes,
commissions or warranty reserve.
4. No liability will be included for building finish-out under the lease
of Seller's Real Property.
<PAGE>
Exhibit B
FORM OF OPINION OF COUNSEL FOR SELLER
At the Closing, Buyer will receive an opinion from counsel for Seller,
dated the Closing Date and substantially to the effect that]:
(a) Seller is a corporation duly organized, validly existing
and in good standing under the Laws of the state of Texas, has full
corporate power and authority to carry on its business as it is now
being conducted and to own, lease and operate its properties and
assets, and is duly qualified or licensed to do business as a foreign
corporation in good standing in every other jurisdiction in which the
character or location of the properties and assets owned, leased or
operated by it or the conduct of its business requires such
qualification or licensing, except in such jurisdictions in which the
failure to be so qualified or licensed and in good standing would not,
individually or in the aggregate, result in a Material Adverse Effect
with respect to Seller. Schedule 3.1 of the Disclosure Schedule
contains for Seller a list of all jurisdictions in which it is
qualified or licensed to do business. To such counsel's knowledge, the
minute books, stock transfer books and other corporate records of
Seller have all been made available to Buyer, are complete and correct
in all material respects, have been maintained in accordance with
reasonable business practices, and contain accurate and complete
records of all formal meetings held of, and corporate actions taken by,
the shareholders, board of directors and committees of the board of
directors of Seller. Seller does not own or control, directly or
indirectly, fifty percent (50%) or more of the voting securities or
other voting interests, or the equity interests, in any other
corporation or other business entity.
(b) Seller has all requisite corporate power and authority to
execute, deliver and perform the Agreement and to consummate the
transactions contemplated thereby. The execution, delivery and
performance by Seller of the Agreement and the consummation by Seller
of the transactions contemplated thereby have been duly authorized by
all necessary corporate action. The Agreement has been duly and validly
executed by Seller and constitutes the valid and binding legal
obligation of Seller, enforceable against Seller in accordance with its
terms, except to the extent that such enforceability (1) may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditors' rights generally, and (2) is subject to
general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
(c) Except as set forth in the Schedule 3.3 of the Disclosure
Schedule, neither the execution, delivery and performance of the
Agreement nor the consummation of the transactions contemplated thereby
will (1) violate or be in conflict with any provision of the articles
or certificates of incorporation or bylaws of Seller, or (2) be in
conflict with, or constitute a default, however defined (or an event
which, with the giving of due notice or
<PAGE>
lapse of time, or both, would constitute such a default), under, or
cause or permit the acceleration of the maturity of, or give rise to
any right of termination, cancellation, imposition of fees or penalties
under, any debt, instrument, agreement, permit or other obligation,
commitment or authorization known to such counsel to which Seller is a
party or by which Seller or any of Seller's properties or assets is or
may be bound, or (3) to such counsel's knowledge result in the creation
or imposition of any Encumbrance upon any property or assets of Seller,
or (4) violate any treaty, law, rule or regulation, or any order,
judgment or decree known to such counsel, of any Authority to which
Seller is subject.
(d) Except as set forth in Schedule 3.4 of the Disclosure
Schedule, with respect to Seller, no Consent of any Authority, or to
such counsel's knowledge any individual or other private entity, is
required in connection with the execution, delivery or performance of
the Agreement by Seller or the consummation by Seller of the
transactions contemplated thereby.
(e) To such counsel's knowledge, except as set forth in
Schedule 3.23 of the Disclosure Schedule, there is no Litigation
pending or threatened (1) by or against or involving Seller or any of
its properties or any of its officers, directors, agents or employees
(but only in such capacities) or the Business, or (2) which seeks to
enjoin or obtain damages in respect of the consummation of the
transactions contemplated by the Agreement.
<PAGE>
Exhibit C
FORM OF OPINION OF COUNSEL FOR BUYER
At the Closing, Seller will receive an opinion from counsel for Buyer,
dated the Closing Date and substantially to the effect that:
(a) Buyer is a corporation duly organized, validly existing
and in good standing under the Laws of the state of Minnesota, and has
all requisite corporate power and authority to carry on its business as
it is now being conducted, and to execute, deliver and perform the
Agreement and to consummate the transactions contemplated thereby.
(b) The execution, delivery and performance by Buyer of the
Agreement and the Note and the consummation by Buyer of the
transactions contemplated thereby have been duly authorized by all
necessary corporate action on the part of Buyer. The Agreement and the
Note have been duly and validly executed and delivered by Buyer and
constitute the valid and binding legal obligations of Buyer,
enforceable against it in accordance with their terms, except to the
extent that such enforceability (1) may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating
to creditors' rights generally, and (2) is subject to general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(c) Neither the execution, delivery and performance of the
Agreement or the Note nor the consummation of the transactions
contemplated thereby will (1) violate or be in conflict with any
provision of the articles of incorporation or bylaws of Buyer, or (2)
be in conflict with, or constitute a default, however defined (or an
event which, with the giving of due notice or lapse of time, or both,
would constitute such a default), under, or cause or permit the
acceleration of the maturity of, or give rise to any right of
termination, cancellation, imposition of fees or penalties under, any
debt, instrument, commitment, contract or other agreement or obligation
known to such counsel to which Buyer is a party or by which Buyer or
any of its properties or assets is or may be bound, or (3) to such
counsel's knowledge result in the creation or imposition of any
Encumbrance upon any property or assets of Buyer, or (4) violate any
treaty, law, rule or regulation, or any order, judgment or decree known
to such counsel, of any Authority to which Buyer is subject.
(d) No Consent from any Authority, or to such counsel's
knowledge any individual or other private entity, is required in
connection with the execution, delivery or performance by Buyer of the
Agreement or the taking of any other action contemplated thereby.
(e) To such counsel's knowledge, there is no Litigation
pending or threatened which seeks to enjoin or obtain damages in
respect of the consummation of the transactions contemplated by the
Agreement.
<PAGE>
Exhibit D
LEASE AMENDMENT AND ASSUMPTION
THIS LEASE AMENDMENT AND ASSUMPTION, dated effective March 31, 1997, by
and between Damavand, Ltd., a Texas limited partnership ("LANDLORD"), Forward
Systems Automation, Inc., a Texas corporation ("TENANT") and _____________
("ASSIGNEE"), is to that certain Lease Agreement dated June 26, 1996 by and
between Landlord and Tenant with respect to property located at 734 W. North
Carrier Parkway, Grand Prairie, Texas (the "LEASE").
RECITALS:
FIRST, concurrently with execution hereof, Assignee is acquiring
substantially all of the assets of Tenant, and as a part thereof is assuming
certain liabilities and obligations Tenant, including without limitation the
liabilities and obligations of Tenant under the Lease; and
SECOND, Landlord and Assignee wish to make certain representations,
warranties and/or covenants with respect to the Lease and wish to make certain
amendments to the Lease;
NOW, THEREFORE, in consideration of the premises and the mutual
promises and covenants contained herein, the parties agree as follows:
1. Landlord represents and warrants to Assignee that (a) the Lease is
valid and in full force and effect and enforceable against Landlord in
accordance with its terms (subject to bankruptcy, insolvency, creditors' rights,
equitable considerations and public policy, and except that no representation or
warranty is given concerning the availability of specific performance or other
equitable remedies) and has not been amended except as hereinafter provided, (b)
neither Landlord nor Tenant is in default thereunder, nor are there
circumstances which with the giving of notice or passing of time or both would
constitute a default thereunder by Landlord or Tenant, (c) Landlord holds the
Security Deposit (as defined under the Lease), and (d) all liabilities of Tenant
under the Lease accruing through March 1997 have been paid, except that (1)
Tenant is responsible for the costs of repair of the air compressor for the air
conditioning unit for the Premises (as defined in the Lease), and (2) Tenant is
responsible for Sixty Thousand Dollars ($60,000) of building finish-out costs
under Section 2.3 of the Lease.
2. Tenant hereby sells, assigns, transfers and conveys to Assignee, its
successors and assigns, forever, all right, title and interest in, to and under
the Lease, and Tenant hereby assigns to Assignee and Assignee hereby irrevocably
assumes and agrees to pay, perform and discharge, as the same become due and
payable or when required to be performed, all of the liabilities and obligations
of Tenant under the Lease, whether known, unknown, contingent, absolute,
determined, indeterminable or otherwise on the date hereof and whether incurred
or occurring prior to, on or after the date hereof.
<PAGE>
3. Landlord and Assignee hereby agree to the following amendments to
the Lease:
(a) Section 1.1(i) is hereby amended to read as follows:
"Term": The period of eighty-three (83) months
beginning on the Commencement Date and ending on the
Expiration Date.
(b) Section 5.4 is hereby amended by adding to the end
thereof:
Notwithstanding the foregoing, Tenant may contest in
good faith the validity or amount of any taxes,
assessments or governmental charges on the Premises,
provided that no such contest involves the
possibility of forfeiture, sale or disturbance of
Landlord's interest in the Premises. So long as a
contest stays Landlord's obligation to pay any tax,
assessment or governmental charge, Tenant's
obligation hereunder to pay the same shall also be
stayed, provided that upon final determination of any
such contest, Tenant shall immediately pay its
portion of such contested tax, assessment or
governmental charge as finally determined.
IN WITNESS WHEREOF, the parties have executed this Lease Amendment and
Assumption effective the date first above written.
DAMAVAND, LTD., a Texas limited partnership
By: Octavo Enterprises, Inc., General Partner
By:
---------------------------------
Its President
FORWARD SYSTEMS AUTOMATION, INC.
By:
---------------------------------
Its President
By:
---------------------------------
Its Chief Executive Officer
-----------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
AETRIUM INCORPORATED
AND
ADVANTEK INC.
DATED AS OF NOVEMBER 3, 1997
- -----------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
SALE AND PURCHASE OF ASSETS....................................................1
1.1 Transfer of Assets...........................................1
1.2 Excluded Assets..............................................3
1.3 Obtaining Permits and Licenses...............................3
1.4 Assumed Liabilities of Buyer.................................4
1.5 Liabilities Not Assumed......................................4
1.6 Assignments Requiring Consents...............................5
1.7 Purchase Price...............................................5
1.8 Payment of Purchase Price....................................6
1.9 Allocation of Purchase Price.................................6
ARTICLE II
CLOSING........................................................................7
2.1 The Closing..................................................7
2.2 Deliveries of Seller.........................................7
2.3 Deliveries of Buyer..........................................8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER.......................................8
3.1 Corporate Organization.......................................8
3.2 Authorization................................................9
3.3 Non-Contravention............................................9
3.4 Consents and Approvals.......................................9
3.5 Financial Statements.........................................9
3.6 Absence of Certain Changes or Events........................10
3.7 Title to Assets.............................................10
3.8 Real Properties.............................................10
3.9 Machinery, Equipment, Vehicles and Personal Property........11
3.10 Inventories.................................................11
3.11 Warranty and Product Defect or Return Claims................11
3.12 Accounts Receivable.........................................11
3.13 Insurance...................................................12
3.14 Intellectual Property Rights................................12
3.15 Commitments.................................................12
3.16 Taxes.......................................................13
<PAGE>
3.17 Employee Benefit Plans......................................13
3.18 Labor Matters...............................................13
3.19 Permits and Other Operating Rights..........................13
3.20 Compliance with Laws........................................13
3.21 Environment.................................................14
3.22 Litigation..................................................15
3.23 Business Generally..........................................15
3.24 Brokers.....................................................15
3.25 Accuracy of Information.....................................15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER.......................................16
4.1 Buyer's Organization........................................16
4.2 Due Authorization, Execution and Delivery; Effect of
Agreement...................................................16
4.3 Non-Contravention...........................................16
4.4 Consents....................................................16
4.5 Litigation..................................................16
ARTICLE V
COVENANTS OF SELLER...........................................................17
5.1 Cooperation and Assignments.................................17
5.2 Conduct of Business.........................................17
5.3 Access......................................................17
5.4 No Solicitation.............................................17
ARTICLE VI
COVENANTS OF BUYER............................................................18
6.1 Cooperation and Assumption..................................18
ARTICLE VII
ADDITIONAL COVENANTS..........................................................18
7.1 Books and Records; Personnel................................18
7.2 Further Assurances..........................................19
7.3 Confidentiality Agreement and Noncompetition Covenant of
Seller After Closing........................................19
7.4 Tax Indemnities.............................................20
7.5 Payment of Retained Liabilities.............................20
7.6 Seller's Continued Use of the Real Property.................20
7.7 MRP Support.................................................21
<PAGE>
7.8 Customer Deposit Return.....................................21
7.9 Use of Seller Personnel.....................................21
ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS.............................................21
8.1 Representations, Warranties and Covenants of Seller.........21
8.2 No Prohibition..............................................21
8.3 Further Action..............................................22
8.4 Deliveries..................................................22
ARTICLE IX
CONDITIONS TO SELLER'S OBLIGATIONS............................................22
9.1 Representations, Warranties and Covenants of Buyer..........22
9.2 No Prohibition..............................................22
9.3 Further Action..............................................22
9.4 Deliveries..................................................22
ARTICLE X
INDEMNIFICATION AND RELATED MATTERS...........................................23
10.1 Indemnification by Seller...................................23
10.2 Indemnification by Buyer....................................23
10.3 Notice of Indemnification...................................23
10.4 Indemnification Procedure for Third-Party Claims............23
10.5 Limitation on Indemnification Liabilities...................24
10.6 Survival of Representations, Warranties and Covenants.......24
10.7 Exclusive Remedy............................................24
ARTICLE XI
TERMINATION PRIOR TO CLOSING..................................................24
11.1 Termination.................................................24
11.2 Effect on Obligations.......................................25
ARTICLE XII
MISCELLANEOUS.................................................................25
12.1 Entire Agreement............................................25
12.2 Successors and Assigns......................................25
12.3 Counterparts................................................25
12.4 Headings....................................................25
<PAGE>
12.5 Modifications and Waivers...................................25
12.6 Broker's Fees...............................................26
12.7 Expenses....................................................26
12.8 Notices.....................................................26
12.9 Governing Law; Consent to Jurisdiction......................27
12.10 Confidentiality Agreement...................................28
12.11 Severability................................................28
12.12 Definition of Seller's Knowledge............................28
12.13 Disclosure Schedule; Buyer's Knowledge; Effect on Seller
Representations and Warranties; Effect of Materiality
Qualification...............................................28
12.14 No Third Party Beneficiaries................................29
12.15 Rule of Construction........................................29
EXHIBITS
A - Form of Smith Agreement
B - Form of Leases Agreement
C - Closing Balance Sheet Instructions
D - Form of Opinion of Counsel for Seller E - Form of Opinion of
Counsel for Buyer
<PAGE>
DEFINITIONS
Defined Term Page
- ------------ ----
Allocation Schedule............................................................6
Alternative Transaction.......................................................17
Arbitrator Accountants.........................................................6
Assets.........................................................................1
Assumed Liabilities............................................................4
Authorit(y)(ies)...............................................................9
Business.......................................................................1
Business Confidential Information.............................................19
Buyer..........................................................................1
Closing........................................................................7
Closing Date...................................................................7
Closing Net Asset Value Schedule...............................................6
Code..........................................................................13
Commitment(s).................................................................12
Confidentiality Agreement.....................................................28
Consent(s).....................................................................9
Disclosure Schedule............................................................1
Disposal......................................................................14
Disposed Of...................................................................14
Division.......................................................................1
Effective Date.................................................................2
Employee Benefit Plans........................................................13
Encumbrances...................................................................1
Environmental Laws............................................................15
Environmentally Regulated Materials...........................................14
Equipment......................................................................1
ERISA.........................................................................13
Excluded Assets................................................................3
Financial Statements..........................................................10
Former Real Property..........................................................14
Indemnitee....................................................................23
Indemnitor....................................................................23
Intellectual Property Rights..................................................12
Interests......................................................................5
Inventory......................................................................2
knowledge.....................................................................28
Latest Balance Sheet...........................................................9
Law(s).........................................................................9
<PAGE>
Leases Agreement...............................................................4
Litigation....................................................................15
Loss..........................................................................23
Material Adverse Effect........................................................9
Maximum Amount................................................................24
Net Asset Value................................................................6
Prepaid Expenses...............................................................2
Purchase Price.................................................................5
Real Property..................................................................1
Release.......................................................................14
Released......................................................................14
Seller.........................................................................1
Smith Agreement................................................................3
Tax Returns...................................................................20
Taxes.........................................................................20
Threshold Amount..............................................................24
<PAGE>
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, made and entered into this 3rd day of November, 1997,
is by and between Advantek Inc., a Missouri corporation ("SELLER"), and Aetrium
Incorporated, a Minnesota corporation ("BUYER").
RECITALS:
FIRST, Seller is engaged through its test handler division (the
"DIVISION") in the business of development, manufacture and distribution of test
handlers used in the semiconductor industry (the "BUSINESS"); and
SECOND, Buyer desires to purchase and Seller desires to sell
substantially all of the assets of the Division;
NOW, THEREFORE, in consideration of the recitals and the mutual
representations, warranties, covenants and agreements contained herein, and upon
the terms and subject to the conditions hereinafter set forth, the parties
hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS
1.1 Transfer of Assets. Subject to the terms and conditions of this
Agreement, and except as otherwise provided in Sections 1.2 and 1.6 hereof, on
the Closing Date (as hereinafter defined), Seller will sell, assign, transfer,
and convey to Buyer, and Buyer will purchase, acquire and accept from Seller,
all of Seller's right, title and interest in and to all of the assets,
properties, rights, contracts and claims to the extent the same are used in
connection with the Business, wherever located, whether tangible or intangible,
real, personal or mixed, as the same exist at the Closing (as hereinafter
defined) (collectively, the "ASSETS"), free and clear of all liens, security
interests, or other encumbrances of any character whatsoever ("ENCUMBRANCES"),
except as set forth in the disclosure schedule delivered by Seller to Buyer in
connection herewith (the "DISCLOSURE SCHEDULE"). The Assets include, without
limitation, the assets, properties, rights, contracts and claims described in
the following paragraphs (a) through (k) to the extent the same are used in
connection with the Business:
(a) Seller's leasehold interests in the real property leased
by Seller and operated by the Division, as described in Schedule 3.8 of the
Disclosure Schedule (the "REAL PROPERTY");
(b) title to, or Seller's leasehold interests in, all the
furnishings, furniture, office supplies, vehicles, spare parts, tools, machinery
and equipment that are used in the operation of the Business (the "EQUIPMENT");
<PAGE>
(c) title to, or Seller's leasehold interests in, all fixed
assets, other than the Equipment, that are used in connection with the Business;
(d) all quantities of inventory, including without limitation
raw materials, work-in-process, finished goods, evaluation and leased product
and supplies, used in connection with the Business (the "INVENTORY");
(e) all accounts receivable accrued in the ordinary course of
the Business after October 31, 1997 (the "EFFECTIVE DATE");
(f) all rights of Seller under or pursuant to all warranties,
representations and guarantees made by suppliers, manufacturers and contractors
in connection with products or services of the Business, or affecting the
Assets;
(g) all rights and interests of Seller in and to patents and
patent applications owned by Seller or licensed to Seller by third parties and
used in connection with the Business, as listed in the Disclosure Schedule, and
all rights and interests of Seller in and to research, development and
commercially practiced processes, trade secrets, know-how, inventions and
manufacturing, engineering and other technical information, whether owned by
Seller or licensed from third parties by Seller, which are used in connection
with the Business;
(h) all rights and interests of Seller in and to all
trademarks, trade names and service marks (other than Seller's name), and
registrations and applications for such trademarks, trade names and service
marks, used in connection with the Business, as listed in the Disclosure
Schedule, and all rights and interests of Seller in and to copyrights, and
registrations and applications for such copyrights, used in connection with the
Business, as listed in the Disclosure Schedule;
(i) all contracts, agreements, arrangements and/or commitments
of any kind which relate to the Business or the Assets, including without
limitation those contracts listed in the Disclosure Schedule, exclusive,
however, of those contracts Buyer elects not to assume pursuant to Section 1.6
hereof;
(j) all customer and vendor lists relating to the Business,
and all files and documents (including credit information) relating to such
customers and vendors, and other business and financial records, files, books
and documents relating to the Assets and/or the Business, including without
limitation computer programs (including computer modeling programs), manuals and
data, sales and advertising materials, sales, distribution and purchase
correspondence and trade association memberships relating to the Assets and/or
the Business; and
(k) all prepaid charges, sums and fees and all rights to
refunds pertaining to the Business ("PREPAID EXPENSES").
<PAGE>
1.2 Excluded Assets. Notwithstanding any other terms contained herein,
Seller is not hereunder selling, assigning, transferring or conveying to Buyer
the following assets, rights and properties (the "EXCLUDED ASSETS"):
(a) any cash, depository accounts, certificates of deposit or
securities;
(b) any accounts or notes receivable accrued on or before the
Effective Date;
(c) any rights or interest in or to Seller's name;
(d) any policies of insurance relating to the Business or the
Assets or any rights thereunder;
(e) any refunds for income Taxes (as hereinafter defined);
(f) the Bridgeport Series 1 machine #2014482J81395-2 with
power feed #46486, two (2) hardness testers, one (1) black and white scanner, a
DSUCSU hub and related router for telecommunications, and the personal computers
and related peripherals currently used by Craig Drake and Mark Blockey;
(g) the clean room and all related equipment located therein
and the HVAC unit and compressor dedicated thereto;
(h) rights to be retained by Seller under the Nathan R. Smith
Restrictive Covenant, as amended, as provided under the Assignment and
Assumption of Restrictive Covenant Agreement in the form of Exhibit A hereto to
be entered into and delivered by the parties at Closing (the "SMITH AGREEMENT");
(i) all assets, rights and/or properties related to any
Employee Benefit Plan (as hereinafter defined);
(j) except as otherwise set forth in the last sentence of
Section 1.6 hereof, any right, title and interest under all leases, contracts,
agreements, licenses, permits, exemptions, franchises, variances, waivers,
consents, approvals and other authorizations which are not transferable without
consent (unless such consent has been obtained); and
(k) minute books, stock record books and corporate
certificates of authority.
1.3 Obtaining Permits and Licenses. Seller will assign, transfer or
convey to Buyer at the Closing those governmental permits and licenses described
in the Disclosure Schedule which are held or used by Seller in connection with
the Business and with respect to which any necessary third party consents to
assignment have been obtained or which can be assigned without having to obtain
the consent of any third party. Subsequent to the Closing, to the extent
permitted by law, Seller will
<PAGE>
have the right to cancel any permits or licenses and any bonds, guarantees or
undertakings by Seller now applicable to the Assets or the Business to the
extent such is not so assigned or transferred to Buyer pursuant to this Section
1.3 and is not subject to Seller's continuing obligations under Section 1.6
hereof.
1.4 Assumed Liabilities of Buyer. Subject to Section 1.6 hereof, Buyer
will assume and pay, perform and discharge as and when due the following
liabilities and obligations, whether known, unknown, contingent, absolute,
determined, indeterminable or otherwise on the Closing Date and whether incurred
or accruing prior to, on or after the Closing Date, to the extent relating to or
arising from the Business ("ASSUMED LIABILITIES"):
(a) all liabilities and obligations of Seller not accrued or
due for performance as of the Closing Date under all of the Commitments (as
hereinafter defined) listed on Schedule 3.15 of the Disclosure Schedule and not
excluded under Section 1.5 hereof;
(b) all employee vacation and customer deposits and service
prepayments related to the Business and accrued and outstanding at Closing and
included in the Closing Net Asset Value Schedule (as hereinafter defined);
(c) all trade and commission payables accrued in the ordinary
course of the Business after the Effective Date and as of the Closing Date;
(d) all liabilities and obligations accruing after the
Effective Date and to be assumed by Buyer under the Smith Agreement or under the
Assignment and Assumption of Leases Agreement in the form of Exhibit B hereto to
be entered into and delivered by the parties at Closing (the "LEASES
AGREEMENT"); and
(e) all warranty and other product liability claims relating
to products of the Division and disclosed in the Disclosure Schedule or within
the aggregate of up to $10,000 of warranty and other product defect or return
claims not required to be disclosed in the Disclosure Schedule or not known to
Seller as of the Closing.
1.5 Liabilities Not Assumed. Except as specifically set forth in
Section 1.4 hereof, Buyer will not assume and will not be liable for any
liabilities or obligations of Seller, whether known, unknown, contingent,
absolute, determined, indeterminable or otherwise on the Closing Date, whether
incurred or accruing prior to, on or after the Closing Date, and whether or not
relating to or arising from the Business. Specifically but without limiting the
scope of the preceding sentence, Buyer will not assume and will not be liable
for any of the following liabilities or obligations of Seller:
(a) any liability or obligation under any Employee Benefit
Plans (other than for employee vacation accrued and outstanding as of Closing,
as provided under Section 1.4(b) hereof);
<PAGE>
(b) any liability or obligation to be retained by Seller and
against which Seller will indemnify Buyer under the Leases Agreement;
(c) any liability or obligation under the Sales Representative
Agreement dated November 1, 1996 with AIM HIGH-KOREA.
1.6 Assignments Requiring Consents. Seller will use reasonable efforts,
and Buyer will cooperate with Seller, to obtain all non-governmental approvals,
consents or waivers necessary to assign to Buyer all leases, contracts,
licenses, agreements, sales or purchase orders, commitments, property interests,
qualifications or other assets described in Section 1.1 hereof or any claim,
right or benefit arising thereunder or resulting therefrom (the "INTERESTS") as
soon as practicable; provided, however, that neither Seller nor Buyer will be
obligated to pay any consideration therefor (except for filing fees and other
ordinary administrative charges which will be paid by Buyer) to the third party
from whom such approval, consent or waiver is requested.
To the extent any of the approvals, consents or waivers referred to
above have not been obtained by Seller as of the Closing, Buyer may elect by
written notice to Seller to exclude the applicable Interests and liabilities in
connection therewith from the Assets and the Assumed Liabilities. In the event
Buyer does not make such election, and without limiting the rights of Buyer
under this Agreement, Seller will (a) take all reasonable steps necessary to
obtain the consent of any such third party, (b) cooperate with Buyer in any
reasonable and lawful arrangements designed to provide the benefits of such
Interests to Buyer so long as Buyer fully cooperates with Seller in such
arrangements and promptly reimburses Seller for all payments, charges or other
liabilities made or suffered by Seller in connection therewith (provided that
nothing herein will require Buyer to make any payment or reimbursement of any
consideration for third party consent not agreed to by Buyer (other than filing
fees and other ordinary administrative charges)), and (c) enforce, at the
request of Buyer and at the expense and for the account of Buyer, any rights of
Seller arising from such Interests against such issuer thereof or the other
party or parties thereto (including the right to elect to terminate any such
Interests in accordance with the terms thereof upon the written advice of
Buyer). To the extent that Seller enters into lawful arrangements designed to
provide the benefits of any Interests as set forth in clause (b) above, such
Interests will be deemed to have been assigned to Buyer for purposes of Section
1.1 hereof.
1.7 Purchase Price. The aggregate purchase price to be paid by Buyer to
Seller for the Assets (the "PURCHASE PRICE") will be Two Million One Hundred
Thirty Thousand Dollars ($2,130,000) plus the Net Asset Value determined as
follows. Promptly after Closing, Buyer and Seller will cooperate to prepare a
balance sheet as of the Closing Date of the following: (a) debits will consist
of: Prepaid Expenses, Inventory, Equipment and other fixed assets (net of
accumulated depreciation), an amount equal to Inventory and Equipment and other
fixed assets received after the Effective Date valued at cost, operating
expenses accrued in the ordinary course of the Business after the Effective
Date, determined consistent with the determination of operating expenses for
purposes of the Financial Statements (as hereinafter defined) but exclusive of
rent, real estate taxes, accrued vacation, amortization of intangibles,
depreciation and the Inventory portion of cost of goods; and
<PAGE>
(b) credits will consist of accrued and outstanding employee vacation and
customer deposits and service prepayments assumed by Buyer hereunder, aggregate
payments received by Seller on the sale or other transfer of property or
services of the Division after the Effective Date, trade and commission payables
assumed by Buyer hereunder, payroll and payroll taxes paid by Buyer on Seller's
behalf and the warranty reserve provided for under Exhibit C hereto. Such
balance sheet will be prepared in accordance with the instructions listed on
Exhibit C hereto regardless of whether such instructions conform to generally
accepted accounting principles or are consistent with Seller's latest annual
audited financial statements. Such balance sheet will be prepared by Seller, and
Buyer and Buyer's representatives will be provided access to review the
workpapers of Seller and full opportunity to raise with Seller any issues Buyer
may have with respect to such balance sheet. In the event any such issues raised
by Buyer are not resolved by mutual agreement of the parties, such unresolved
issues will be submitted to independent certified public accountants mutually
acceptable to the parties (the "ARBITRATOR ACCOUNTANTS"), whose decision on any
such issues will be final and binding on the parties. The "CLOSING NET ASSET
VALUE SCHEDULE" means such balance sheet after resolution as hereinabove
provided of all issues raised by Seller with respect thereto. "NET ASSET VALUE"
means the net value as of Closing as reported on the Closing Net Asset Value
Schedule of the Assets included thereon less the Assumed Liabilities and
warranty reserve included thereon. The Net Asset Value as so determined will be
binding upon the parties. Buyer and Seller will use their best efforts to cause
the Closing Net Asset Value Schedule to be completed and the Net Asset Value to
be determined within thirty (30) days after Closing. Buyer and Seller will each
bear their respective costs and will share equally any fees of the Accountant
Arbitrator incurred in the preparation of the Closing Net Asset Value Schedule
and determination of the Net Asset Value as hereinabove provided.
1.8 Payment of Purchase Price. The Purchase Price will be payable as
follows:
(a) Three Million Two Hundred Fifty Thousand Dollars
($3,250,000) will be paid at Closing to Seller by wire transfer of immediately
available funds to accounts designated by Seller prior to Closing.
(b) The remainder of the Purchase Price will be paid to Seller
by wire transfer of immediately available funds to accounts designated by Seller
prior to Closing promptly upon final determination of the Net Asset Value. In
the event of any delay in the payment of such remaining Purchase Price, such
amount will bear interest from three (3) business days after such date of final
determination of the Net Asset Value until paid in full at the annual rate of
twelve percent (12%).
1.9 Allocation of Purchase Price.
(a) Buyer will prepare (or cause to be prepared) an allocation
(the "ALLOCATION SCHEDULE") of the Purchase Price (plus Assumed Liabilities and
Buyer's expenses of the transaction) among the Assets. Such allocation will be
made in accordance with Code (as hereinafter defined) Section 1060 and any
applicable rules or regulations thereunder. Seller will have the right to review
and reasonably approve the Allocation Schedule, and Seller and Buyer will
consult and resolve in
<PAGE>
good faith any issues arising as a result of Seller's review of such Allocation
Schedule. Seller and Buyer agree that the fair market value of Equipment and
other fixed Assets is not less than the book value thereof for tax purposes, or
if less, the book value thereof as determined in accordance with generally
accepted accounting principles applied consistent with Seller's past practices.
(b) Seller and Buyer (1) will be bound by the allocation
contained in the Allocation Schedule for purposes of determining any and all
consequences with respect to Taxes of the transactions contemplated herein, (2)
will prepare and file all Tax Returns (as hereinafter defined) in a manner
consistent with such Allocation Schedule (including Form 8594, "Asset
Acquisition Statement"), and (3) will take no position inconsistent with such
Allocation Schedule in any Tax Return, any discussion with or proceeding before
any tax Authority (as hereinafter defined), or otherwise. In the event that such
Allocation Schedule is disputed by any tax Authority, the party receiving notice
of such dispute will promptly notify the other party thereof.
ARTICLE II
CLOSING
2.1 The Closing. The closing of the transactions contemplated hereby
(the "CLOSING") will take place at the offices of Oppenheimer Wolff & Donnelly,
Minneapolis, Minnesota, at 10:00 a.m. on November 7,1997 or, if later, two (2)
business days following the satisfaction or waiver of all of the conditions to
the parties' obligations set forth in Articles VIII and IX, unless the parties
otherwise mutually agree (the "CLOSING DATE"). Transfers, assignments and
assumptions under the Smith and Leases Agreements will be deemed effective
immediately after the close of business on the Effective Date. All other matters
at the Closing will be considered to take place simultaneously effective
immediately after the close of business on the Closing Date and no delivery of
any document will be deemed complete until all transactions and deliveries of
documents are completed.
2.2 Deliveries of Seller. At the Closing, Seller will deliver the
following documents to Buyer:
(a) such bills of sale, endorsements, assignments (together
with any necessary consents), deeds and other good and sufficient instruments of
conveyance and transfer, including without limitation the Smith Agreement and
the Leases Agreement, in form and substance reasonably satisfactory to Buyer and
its counsel, to vest in Buyer valid legal title to the Assets;
(b) resolutions of the board of directors and shareholders of
Seller authorizing the execution, delivery and performance of this Agreement and
consummation of the transactions contemplated hereby by Seller certified by the
Secretary of Seller to be complete, correct and as in effect as of the Closing
Date;
(c) an affidavit to the effect of Section 3.16(b);
<PAGE>
(d) the certificate required of Seller pursuant to Section 8.1
hereof;
(e) an opinion of counsel for Seller, substantially in the
form of Exhibit D attached hereto; and
(f) any other documents reasonably requested by Buyer, to
confirm the accuracy of the representations and warranties and the performance
of the agreements of Seller hereunder.
2.3 Deliveries of Buyer. At the Closing, Buyer will deliver to Seller
the following:
(a) the Purchase Price to be paid at Closing in accordance
with Section 1.8 hereof;
(b) such instruments of assumption, including without
limitation the Smith Agreement and the Leases Agreement, in form and substance
reasonably satisfactory to Seller and its counsel, to constitute an assumption
by Buyer of all Assumed Liabilities;
(c) resolutions of the board of directors of Buyer authorizing
the execution, delivery and performance of this Agreement and consummation of
the transactions contemplated hereby by Buyer, certified by the Secretary of
Buyer to be complete, correct and as in effect as of the Closing Date;
(d) the certificate required of Buyer pursuant to in Section
9.1 hereof;
(e) applicable state sales and use tax resale and exemption
certificates;
(f) the opinion of counsel for Buyer, in the form of Exhibit E
attached hereto; and
(g) any other documents reasonably requested by Seller, to
confirm the accuracy of the representations and warranties and the performance
of the agreements of Buyer hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that:
3.1 Corporate Organization. Seller is a corporation duly organized,
validly existing and in good standing under the Laws (as hereinafter defined) of
the state of Missouri, has full corporate power and authority to carry on its
business as it is now being conducted and to own, lease and operate its
properties and assets, and is duly qualified or licensed to conduct business as
a foreign corporation in good standing in every other jurisdiction in which the
character or location of the properties and assets owned, leased or operated by
the Division or the conduct of the Business requires such qualification or
licensing, except in such jurisdictions in which the failure to be so
<PAGE>
qualified or licensed and in good standing would not, individually or in the
aggregate, have a material adverse effect on the condition (financial or
otherwise), working capital, assets, properties, liabilities, obligations,
reserves, businesses, prospects, customers, customer relations, goodwill or
going concern value ("MATERIAL ADVERSE EFFECT") with respect to Seller. Schedule
3.1 of the Disclosure Schedule contains a list of all jurisdictions in which
Seller is qualified or licensed to conduct business and in which the character
or location of the properties and assets owned, leased or operated by the
Division or the conduct of the Business requires such qualification or
licensing.
3.2 Authorization. Seller has all requisite corporate power and
authority to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance by
Seller of this Agreement and the consummation by Seller of the transactions
contemplated hereby have been duly authorized by all necessary corporate action.
This Agreement has been duly and validly executed by Seller and constitutes the
valid and binding legal obligation of Seller, enforceable against Seller in
accordance with its terms, except to the extent that such enforceability (a) may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to creditors' rights generally, and (b) is subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
3.3 Non-Contravention. Except as set forth in Schedule 3.3 of the
Disclosure Schedule, neither the execution, delivery and performance of this
Agreement nor the consummation of the transactions contemplated hereby will (a)
violate or be in conflict with any provision of the articles or certificates of
incorporation or bylaws of Seller, or (b) be in conflict with, or constitute a
default, however defined (or an event which, with the giving of due notice or
lapse of time, or both, would constitute such a default), under, or cause or
permit the acceleration of the maturity of, or give rise to any right of
termination, cancellation or imposition of fees or penalties under, any debt,
instrument, agreement, permit or other obligation, commitment or authorization
to which Seller is a party or by which Seller or any of Seller's properties or
assets used in the Business is or may be bound, or (c) result in the creation or
imposition of any Encumbrance upon any property or assets of Seller used in the
Business, or (d) violate any treaty, law, rule, regulation, order, judgment or
decree (individually and collectively, "LAW(s)") of any foreign, federal, state
or local governmental or quasi-governmental administrative, regulatory or
judicial court, department, commission, agency, board, bureau, instrumentality
or other authority (individually and collectively, "AUTHORIT(Y)(ies)") to which
Seller is subject.
3.4 Consents and Approvals. Except as set forth in Schedule 3.4 of the
Disclosure Schedule, with respect to Seller, no consent, approval, order or
authorization of or from, or registration, notification, declaration or filing
with, any Authority or any individual or other private entity (individually and
collectively, "CONSENT(s)") is required in connection with the execution,
delivery or performance of this Agreement by Seller or the consummation by
Seller of the transactions contemplated hereby.
3.5 Financial Statements. Schedule 3.5 of the Disclosure Schedule
includes the unaudited balance sheet of the Division as of July 31, 1997 (the
"LATEST BALANCE SHEET") and related
<PAGE>
statements of operations of the Division for the five (5) years then ended
(together, the "FINANCIAL STATEMENTS"). The Financial Statements are in
accordance with the books and records of Seller pursuant to past practice, and
to the belief of Seller fairly represent the balance sheet accounts which are
included in the Latest Balance Sheet and the operations for the periods included
in the Financial Statements.
3.6 Absence of Certain Changes or Events. Except as set forth in
Schedule 3.6 of the Disclosure Schedule, since July 31, 1997, Seller has not (a)
suffered any damage, destruction or casualty loss resulting in any Material
Adverse Effect with respect to the Division, the Business or the Assets or
experienced any event or failed to take any action which reasonably could be
expected to result in a Material Adverse Effect with respect to the Division,
the Business or the Assets, (b) discharged or incurred any material obligation
or liability with respect to the Business, except in the ordinary course of
business, (c) entered into any transaction with respect to the Business not in
the ordinary course of its business, except as permitted in or contemplated by
other Sections of this Agreement, (d) suffered any loss of key employees, sales
representatives, distributors, customers, suppliers or other favorable business
relationships of the Division, (e) increased the rate or terms of compensation
payable or to become payable to any employee of the Division or modified or
entered into any Employee Benefit Plan (as hereinafter defined) to increase any
bonus, insurance, pension or other employee benefit for any such directors,
officers or employees, except increases in compensation or benefits and new
hires of employees occurring in the ordinary course of business in accordance
with its customary practices (which includes normal periodic performance reviews
and related compensation and benefit increases), or (f) sold, otherwise disposed
of or encumbered any asset, except sales and other dispositions in the ordinary
course of business consistent with past practice of inventory or of other
tangible property that has been replaced with property of at least equivalent
usefulness to the operation of the Business or that was not material to the
operation of the Business.
3.7 Title to Assets. Seller has good title or a valid lease or license
with respect to all Assets (including without limitation all assets reflected on
the Latest Balance Sheet, except for such assets consumed or Inventory disposed
of in the ordinary course of business since the date of the Latest Balance
Sheet), free and clear of all Encumbrances, except (a) as set forth in Schedule
3.7 of the Disclosure Schedule, and (b) mechanics', carriers', workers' or other
like liens arising in the ordinary course of the Business with respect to
obligations not yet due and payable, liens for current Taxes (as hereinafter
defined) not yet due and payable, and other Encumbrances which, individually or
in the aggregate, do not have a Material Adverse Effect with respect to the
Division, the Business or the Assets.
3.8 Real Properties.
(a) The Real Property is the only real property utilized by
the Division. Schedule 3.8 of the Disclosure Schedule sets forth the lease
agreements on the Real Property to which Seller is a party or is bound.
<PAGE>
(b) Except as set forth in Schedule 3.8 of the Disclosure
Schedule, to Seller's knowledge the Real Property is in good operating condition
and repair, with no material maintenance, repair or replacement having been
deferred or neglected, suitable for the intended use and free from other
material defects.
(c) Except as set forth in Schedule 3.8 of the Disclosure
Schedule, (1) all certificates of occupancy, permits and licenses of all
Authorities having jurisdiction over the Real Property required to have been
issued to Seller to enable the Real Property to be lawfully occupied and used
for all of the principal purposes for which it is currently occupied and used
have been lawfully issued and are, as of the date hereof, in effect, (2) to
Seller's knowledge the Real Property and its present use conform in all respects
to all occupational, safety, health, zoning, planning, subdivision, platting and
similar Laws, (3) all public utilities necessary for the use and operation of
the Real Property and the facilities located thereon to conduct the Business as
currently conducted are available for use or access at the Real Property, and
(4) to Seller's knowledge there is no legal or physical impairment to free
ingress to or egress from the Real Property.
(d) Except as set forth in Schedule 3.8 of the Disclosure
Schedule, Seller has not received any written notice of any pending, threatened
or contemplated condemnation proceeding affecting the Real Property or any part
thereof, or of any sale or other disposition of the Real Property or any part
thereof in lieu of condemnation.
3.9 Machinery, Equipment, Vehicles and Personal Property. Except as set
forth in Schedule 3.9 of the Disclosure Schedule, to Seller's knowledge all
items of Equipment which are necessary to the conduct of the Business as
currently conducted are in good operating condition and repair and fit for the
intended purposes thereof and no material maintenance, replacement or repair has
been deferred or neglected. Schedule 3.9 of the Disclosure Schedule sets forth a
list of all Equipment leased by or to Seller and each lease thereof.
3.10 Inventories. Except as set forth in Schedule 3.10 of the
Disclosure Schedule, to Seller's knowledge the quality and quantity of all
Inventory is consistent with past practice, and the present quantities of all
Inventory are in Seller's good faith belief reasonable in the present
circumstances of the Business as currently conducted.
3.11 Warranty and Product Defect or Return Claims. Schedule 3.11 of the
Disclosure Schedule sets forth a list of all known pending warranty and other
known product defect or return claims against Seller which pertain to the
Business and which individually exceed $5,000 in cost of repair parts. Except
for those so listed, all known pending warranty and other known product defect
or return claims against Seller which pertain to the Business do not exceed in
the aggregate $10,000 in cost of repair parts as estimated by Seller in good
faith.
3.12 Accounts Receivable. Schedule 3.12 of the Disclosure Schedule sets
forth a list which Seller believes includes all accounts and notes receivable of
the Division as of a date within fifteen (15) days of the Closing Date,
including balances, aging and information with respect to
<PAGE>
material amounts in dispute. Seller makes no representation or warranty
regarding the creditworthiness of any Division customer.
3.13 Insurance. Seller maintains fire and other casualty, general
liability, theft and workers' compensation insurance coverage related to the
Division. Seller has not been denied any form of insurance and no policy of
insurance has been revoked or rescinded during the past five (5) years, except
as described on Schedule 3.13 of the Disclosure Schedule.
3.14 Intellectual Property Rights. Except as disclosed in Schedule 3.14
of the Disclosure Schedule, (a) Seller owns or possesses adequate licenses or
other valid rights to use all patents, patent rights, trademarks, service marks,
trade names, copyrights, applications for any thereof, trade secrets, know-how
and other intellectual property ("INTELLECTUAL PROPERTY RIGHTS") to the extent
used in or necessary for the conduct of the Business, (b) to Seller's knowledge
the conduct of the Business does not conflict with or infringe on any valid
Intellectual Property Rights of others in any way which might result in a
Material Adverse Effect with respect to the Division, the Business or the
Assets, and (c) to Seller's knowledge no third party has come into conflict with
or infringed on any Intellectual Property Rights of Seller related to the
Division or the Business. Schedule 3.14 of the Disclosure Schedule sets forth a
list of all material United States and foreign patents, trademarks, service
marks, trade names and registered copyrights, and applications for any thereof,
used by Seller in the conduct of the Business and all licenses to or by Seller
of Intellectual Property Rights to the extent Seller uses the same in the
conduct of the Business.
3.15 Commitments. Schedule 3.15 of the Disclosure Schedule contains a
list of or cross references to other applicable Schedules of the Disclosure
Schedule with respect to all contracts, agreements and other commitments
(excluding Excluded Assets) to which Seller is a party or by which Seller or any
of its properties is bound and which are individually material to the Business
(individually and collectively, the "COMMITMENT(s)"). Schedule 3.15 of the
Disclosure Schedule includes a list of all open purchase orders in excess of
$5,000 to suppliers of the Division as of a date within fifteen (15) days of the
Closing Date, and a list of all open purchase orders and deposits in excess of
$5,000 from customers of the Division as of a date within fifteen (15) days from
the Closing Date. Except as disclosed in Schedule 3.15 of the Disclosure
Schedule, (a) all Commitments are valid and in full force and effect and
enforceable against Seller and any other party thereto in accordance with their
terms (subject to bankruptcy, insolvency, creditors' rights, equitable
considerations and public policy, and except that no representation or warranty
is given concerning the availability of specific performance or other equitable
remedies), and (b) neither Seller nor to Seller's knowledge any other party
thereto is in material default thereunder, nor are there circumstances which
with the giving of notice or passing of time or both would constitute a material
default thereunder by Seller or any other party thereto, nor has Seller received
any notice claiming any such default or circumstance.
<PAGE>
3.16 Taxes.
(a) Except as set forth in Schedule 3.16 of the Disclosure
Schedule, for purposes of computing Taxes and the filing of Tax Returns, Seller
has not failed to treat as "employees" any individual providing services to the
Division who would be classified as an "employee" under the applicable rules or
regulations of any Authority with respect to such classification.
(b) Seller is not a foreign person within the meaning of
Section 1445(b)(2) of the Internal Revenue Code of 1986, as amended (the
"CODE").
3.17 Employee Benefit Plans. Schedule 3.17 of the Disclosure Schedule
sets forth a true and complete list of each "employee benefit plan" (as that
term is defined under Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) and any other plan, practice, policy,
procedure, program, arrangement or agreement that is maintained by Seller
related to the employment of any present or former director, officer or employee
of Seller under which Seller has any present or future obligation or liability
(the "EMPLOYEE BENEFIT PLANS"). There has been no act or omission with respect
to any Employee Benefit Plan that could result in any liability to Buyer except
for employee vacation accrued as of Closing. Neither Seller nor any existing or
former subsidiary of Seller has taken any action related to the Division which
has or could result in any liability to Buyer under the Worker Adjustment and
Retraining Notification Act.
3.18 Labor Matters. Except as set forth in Schedule 3.18 of the
Disclosure Schedule, with respect to the Division: (a) Seller is not obligated
by or subject to any collective bargaining agreement or collective bargaining
obligation, (b) there are no strikes, slowdowns or picketing against Seller
previously experienced or pending, or to Seller's knowledge threatened, nor are
there nor have there been any efforts, to Seller's knowledge, to organize any
unions or employee associations at the Business, and (c) there are no pending,
or to Seller's knowledge threatened, grievances or unfair labor charges.
3.19 Permits and Other Operating Rights. Except as set forth in
Schedule 3.19 of the Disclosure Schedule, Seller does not require the Consent of
any Authority to permit it to operate in the manner in which the Division
presently is being operated, and possesses and is in compliance with the
requirements of all permits, licenses and other authorizations from all
Authorities presently required necessary to permit it to operate the Business in
the manner in which it presently is conducted. Each of such permits, licenses
and other authorizations is scheduled on Schedule 3.19 of the Disclosure
Schedule, and no action is pending to revoke, terminate, modify or restrict any
thereof.
3.20 Compliance with Laws. Except as set forth in Schedule 3.20 of the
Disclosure Schedule, to Seller's knowledge Seller has operated and is operating
the Business in compliance with all Laws applicable to the Business the failure
to comply with which could have, either individually or in the aggregate, a
Material Adverse Effect with respect to the Division, the Business or the
Assets.
<PAGE>
3.21 Environment.
(a) Schedule 3.21 of the Disclosure Schedule lists all
environmental studies made by or furnished to Seller relating to the Real
Property or any other property formerly owned, leased or operated in connection
with the Business by Seller or by any other business entity currently or
formerly directly or indirectly controlling, controlled by or under common
control with Seller (individually and collectively, "FORMER REAL PROPERTY"),
each of which studies has been delivered or made available to Buyer.
(b) Except as set forth in Schedule 3.21 of the Disclosure
Schedule, neither Seller nor any other business entity currently or formerly
directly or indirectly controlling, controlled by or under common control with
Seller nor any prior or current other owner or lessee has generated, handled,
manufactured, treated, stored, used, transported, or discharged, leaked, pumped,
injected, spilled, emitted, dispersed, leached, migrated or otherwise released
("RELEASED" and any thereof being a "RELEASE"), or deposited, placed, buried,
dumped or otherwise disposed of ("DISPOSED OF" and any thereof being a
"DISPOSAL"), any Environmentally Regulated Materials (as defined below) on,
beneath, to, from or about the Real Property or any Former Real Property or been
responsible therefor, except for the generation, handling, manufacture,
treatment, storage, use, transportation, Release and Disposal, in compliance
with all applicable Environmental Laws (as defined below) and other applicable
Laws, of such substances used in the ordinary course of the Business.
(c) Except as set forth in Schedule 3.21 of the Disclosure
Schedule, no Environmentally Regulated Material has been generated, handled,
manufactured, treated, stored, used, transported, Released or Disposed Of on,
from or off the Real Property or any Former Real Property which may give rise to
a clean-up responsibility, personal injury liability or property damage claim
against Buyer, or give rise to Buyer being named a potentially responsible party
for any such clean-up costs, personal injuries or property damage, or create any
cause of action by any third party against Buyer under any Environmental Laws.
(d) Except as set forth in Schedule 3.21 of the Disclosure
Schedule, Seller has not received any notices or claims of any inquiries,
evaluations, investigations, remediations, violations or liabilities relating to
Environmentally Regulated Materials or Environmental Laws involving the Real
Property or any Former Real Property.
(e) Except as set forth in Schedule 3.21 of the Disclosure
Schedule, neither the Real Property nor to Seller's knowledge any Former Real
Property contains any (1) underground or aboveground storage tanks, (2)
asbestos, (3) equipment using PCBs, (4) underground injection wells, or (5)
septic tanks into which process waste water or any Environmentally Regulated
Materials have been Disposed Of or Released.
(f) The term "ENVIRONMENTALLY REGULATED MATERIALS" means any
element, compound pollutant, contaminant, substance, material or waste, or any
mixture thereof, designated,
<PAGE>
listed, referenced, regulated or identified pursuant to any Environmental Laws.
The term "ENVIRONMENTAL LAWS" means the National Environmental Policy Act, 42
U.S.C. ss.ss. 4321 et seq., the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss.ss. 9601 et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. ss.ss. 6901 et seq., the Federal Water
Pollution Control Act, 33 U.S.C. ss.ss. 1251 et seq., the Federal Clean Air Act,
42 U.S.C. ss.ss. 7401 et seq., the Toxic Substances Control Act, 15 U.S.C.
ss.ss. 2601 et seq., the Emergency Planning and Community Right to Know Act, 42
U.S.C. (paragraph). 11001, the Hazard Communication Act ss.ss. 651 et seq., and
the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. ss. 136, each
as amended, and the regulations thereunder and applicable state and local
counterparts.
3.22 Litigation. Except as set forth in Schedule 3.22 of the Disclosure
Schedule, there is no action, order or proceeding, or to Seller's knowledge
investigation, in, before or by any court or other Authority or before or by any
arbitrator or mediator ("LITIGATION") pending, or to Seller's knowledge
threatened, (a) by or against or involving Seller or any of its properties or
any of its officers, directors, agents or employees (but only in such
capacities) related to the Business, or (b) which seeks to enjoin or obtain
damages in respect of the consummation of the transactions contemplated hereby,
nor to Seller's knowledge is there any basis therefor.
3.23 Business Generally. Except as set forth in Schedule 3.23 of the
Disclosure Schedule, there has been no event, transaction or information which
has come to the attention of Seller which, as it relates directly to the
Business, could, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect with respect to the Business.
3.24 Brokers. Except as set forth in Schedule 3.24 of the Disclosure
Schedule, neither Seller nor any directors, officers or employees thereof, nor
any other person acting on behalf of any thereof, has employed any broker,
finder or financial advisor or incurred any liability for any brokerage fee or
commission, finder's fee or financial advisory fee in connection with the
transactions contemplated hereby, nor is there any basis for any such fee or
commission to be claimed by any person or entity.
3.25 Accuracy of Information. No representation or warranty made by
Seller in this Agreement, the Disclosure Schedule or any agreement, instrument,
document, certificate, statement or letter furnished or to be furnished to Buyer
at the Closing by or on behalf of Seller in connection with any of the
transactions contemplated by this Agreement contains or will contain any untrue
statement of material fact or omits or will omit to state any material fact
necessary in order to make the statements herein or therein not misleading in
light of the circumstances in which they are made, and all of the foregoing do
or will when made completely and correctly present the information required or
purported to be set forth herein or therein.
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 Buyer's Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the Laws of the state of Minnesota,
and has all requisite corporate power and authority to carry on its business as
it is now being conducted, and to execute, deliver and perform this Agreement
and to consummate the transactions contemplated hereby.
4.2 Due Authorization, Execution and Delivery; Effect of Agreement. The
execution, delivery and performance by Buyer of this Agreement and the
consummation by Buyer of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Buyer. This
Agreement has been duly and validly executed and delivered by Buyer and
constitutes the valid and binding legal obligations of Buyer, enforceable
against it in accordance with its terms, except to the extent that such
enforceability (a) may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors' rights generally, and
(b) is subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
4.3 Non-Contravention. Neither the execution, delivery and performance
of this Agreement nor the consummation of the transactions contemplated hereby
will (a) violate or be in conflict with any provision of the articles of
incorporation or bylaws of Buyer, or (b) be in conflict with, or constitute a
default, however defined (or an event which, with the giving of due notice or
lapse of time, or both, would constitute such a default), under, or cause or
permit the acceleration of the maturity of, or give rise to any right of
termination, cancellation or imposition of fees or penalties under, any debt,
instrument, commitment, contract or other agreement or obligation to which Buyer
is a party or by which Buyer or any of its properties or assets is or may be
bound, or (c) result in the creation or imposition of any Encumbrance upon any
property or assets of Buyer, or (d) violate any Laws of any Authority to which
Buyer is subject.
4.4 Consents. No Consent from any Authority or any individual or other
private entity is required in connection with the execution, delivery or
performance by Buyer of this Agreement or the taking of any other action
contemplated hereby.
4.5 Litigation. There is no Litigation pending or, to Buyer's
knowledge, threatened which seeks to enjoin or obtain damages in respect of the
consummation of the transactions contemplated hereby.
<PAGE>
ARTICLE V
COVENANTS OF SELLER
From and after the date hereof and until the Closing Date, Seller
hereby covenants and agrees with Buyer as follows:
5.1 Cooperation and Assignments. Seller will use its reasonable
efforts, and will cooperate with Buyer, to secure all necessary consents,
approvals, authorizations, exemptions and waivers from third parties as are
required in order to enable Seller to effect the transactions contemplated
hereby, and otherwise will use its reasonable efforts to cause the consummation
of such transactions in accordance with the terms and conditions hereof,
provided that Seller will not be obligated to incur any liability or expense in
connection therewith, except the cost and expense of its employees, agents and
representatives engaged in such efforts or as otherwise expressly set forth
herein.
5.2 Conduct of Business. Except as otherwise may be contemplated by
this Agreement or any of the documents listed in the Disclosure Schedule and
except as Buyer otherwise may consent to in writing (which consent will not be
unreasonably withheld), in consultation with Buyer Seller will (a) operate the
Business in the ordinary course in all material respects, (b) use its reasonable
efforts to preserve the Business as a whole intact, (c) use its reasonable
efforts to continue in effect all material existing policies of insurance (or
comparable insurance) with third-party carriers of or relating to the Business,
(d) use its reasonable efforts to keep available the services of the present
officers, employees and agents of the Business, (e) use its reasonable efforts
to preserve its relationships with its material suppliers, customers, licensors
and licensees and others having material business dealings with it such that the
Business will not be substantially impaired, and (f) not take any action which
would result in a breach of the representations and warranties contained in
Section 3.6 or otherwise contained in Article III as though made on and as of
the Closing Date.
5.3 Access. Seller will provide Buyer with such information as Buyer
from time to time reasonably may request with respect to the Business and to
personnel of Seller and the transactions contemplated by this Agreement, and
will permit Buyer and its representatives reasonable access, during regular
business hours and upon reasonable notice, to the properties, books and records
of the Business and to personnel of Seller, as Buyer from time to time
reasonably may request.
5.4 No Solicitation. Seller will not and will cause its directors,
officers, employees, agents and representatives not to encourage, solicit,
initiate or enter into, directly or indirectly, any discussions or negotiations
concerning any disposition (through a sale of assets, sale of stock, merger,
consolidation, exchange or otherwise) of all or substantially all of the assets
or capital stock of Seller or the Division (other than pursuant to this
Agreement), or any proposal therefor, or furnish or cause to be furnished any
nonpublic information concerning the Business or the assets or capital stock of
Seller to any third party in connection with any transaction or proposed
transaction involving the acquisition of the assets or capital stock of Seller
or the Division by any third party (any such proposed disposition being
hereinafter referred to as an "ALTERNATIVE TRANSACTION").
<PAGE>
ARTICLE VI
COVENANTS OF BUYER
From and after the date hereof and until the Closing Date, Buyer hereby
covenants and agrees with Seller as follows:
6.1 Cooperation and Assumption. Buyer will use its reasonable efforts,
and will cooperate with Seller, to secure all necessary consents, approvals,
authorizations, exemptions and waivers from third parties as are required in
order to enable Buyer to effect the transactions contemplated hereby, and will
otherwise use its reasonable efforts to cause the consummation of the
transactions contemplated hereby in accordance with the terms and conditions
hereof, provided that Buyer will not be obligated to incur any liability or
expense in connection therewith, except the cost and expense of its employees
and representatives engaged in such efforts or as otherwise expressly set forth
herein.
ARTICLE VII
ADDITIONAL COVENANTS
7.1 Books and Records; Personnel. For a period of seven (7) years after
the Closing (or such longer period as may be required by any governmental agency
or ongoing Litigation or in connection with any administrative proceeding):
(a) Buyer will not dispose of or destroy any of the business
records and files of the Business. If Buyer wishes to dispose of or destroy such
records and files after that time, it will first give thirty (30) days' prior
written notice to Seller and Seller will have the right, at its option and
expense, upon prior written notice to Buyer within such thirty (30) day period,
to take possession of the records and files within sixty (60) days after the
date of Seller's notice to Buyer.
(b) Buyer will allow Seller and its representatives access,
when there is a legitimate business purpose not injurious to Buyer, to all
business records and files of the Business which are transferred to Buyer in
connection herewith, during regular business hours and upon reasonable notice at
Buyer's principal place of business or at any location where such records are
stored, and Seller will have the right, at its own expense, to make copies of
any such records and files; provided, however, that any such access or copying
will be had or done in such a manner so as not to interfere with the normal
conduct of Buyer's business or operations.
(c) Buyer will make available to Seller, upon written request
and at Seller's expense, personnel of the Business to assist Seller in locating
and obtaining records and files of the Business or whose assistance or
participation is reasonably required by Seller in anticipation of, or
preparation for, existing or future Litigation, tax return preparation or other
matters in which Seller or any of its affiliates are involved and which is
related to the Business, provided that Buyer will not
<PAGE>
be obligated to provide such personnel to the extent that Buyer, in its
reasonable discretion, believes that such assistance would adversely affect the
operations of the Business.
7.2 Further Assurances. At any time or from time to time after the
Closing Date, either party will, at the request of the other party and at such
other party's expense, execute and deliver any further instruments or documents
and take all such further action as such party reasonably may request in order
to consummate and make effective the transactions contemplated by this
Agreement.
7.3 Confidentiality Agreement and Noncompetition Covenant of Seller
After Closing.
(a) From and after the Closing Date, except as otherwise
consented to by Buyer in writing, (1) Seller will not directly or indirectly
disclose or use in a manner adverse to Buyer any Business Confidential
Information (as defined below) except as required by the terms of a valid and
effective subpoena or order issued by a court of competent jurisdiction or by a
governmental body, (2) Business Confidential Information will be the exclusive
property of Buyer and, any time on or after the Closing Date, if requested by
Buyer, Seller will promptly deliver to Buyer all Business Confidential
Information, including all copies thereof, which are in the possession, or under
the control, of Seller or any of its agents or representatives, without making
or retaining any copies or extracts thereof, and (3) if Seller or any of its
agents or representatives receives a request to disclose all or any part of
Business Confidential Information, Seller will (A) immediately notify Buyer of
the existence, terms and circumstances surrounding such request, (B) consult
with Buyer on the advisability of taking legally available steps to resist or
narrow such request, and (C) if disclosure of such information is required, and
at Buyer's cost and expense, exercise its best efforts to obtain an order or
other reliable assurance that confidential treatment will be accorded such
portion of the disclosed information which Buyer so designates.
(b) "BUSINESS CONFIDENTIAL INFORMATION" means any and all
information solely relating to the management, operations, finances, products,
trade secrets, technology or services of the Business, including but not limited
to any and all financial data, computer programs and systems, computer based
information, plans, projections, existing and proposed and contemplated projects
or investments, formulae, processes, methods, products, manuals, drawings,
supplier lists, customer lists, purchase and sales records, marketing
information, commitments, correspondence and other information solely relating
to the Business, whether written, oral or computer generated, other than such
information from and after such time as it may be or become lawfully available
to the general public through no fault of Seller or lawfully received by Seller
from a third party having rights to disseminate such information without
restriction..
(c) Seller covenants that for a period of five (5) years after
Closing, it will not, and will cause each of its affiliates not to, directly or
indirectly, as an owner, operator, employee, agent, consultant or otherwise, be
involved in any business which competes with the Business or which solicits the
employment of any personnel employed by the Division on or within six (6) months
prior to the Closing Date, other than those individuals listed in Schedule 7.3
of the Disclosure Schedule. Buyer covenants that for a period of five (5) years
after Closing, it will not,
<PAGE>
and will cause each of its affiliates not to, directly or indirectly, as an
owner, operator, employee, agent, consultant or otherwise, be involved in any
business which solicits the employment of any individual listed in Schedule 7.3
of the Disclosure Schedule.
(d) The covenants and undertakings contained in this Section
7.3 relate to matters which may be of a special, unique and extraordinary
character and a violation of any of the terms of this Section 7.3 may cause
irreparable injury to Buyer, the amount of which may be impossible to estimate
or determine and for which adequate compensation may not be available.
Therefore, Buyer may be entitled to an injunction, restraining order or other
equitable relief from a court of competent jurisdiction, restraining any
violation or threatened violation of any such terms by Seller and such other
persons as the court orders.
7.4 Tax Indemnities. Seller will indemnify and hold harmless Buyer from
and against any and all claims with respect to net or gross income, profits,
windfall profits, franchise, gross receipts, premium, sales, use, ad valorem,
service, service use, license, lease, occupation, employment, withholding,
excise, transfer, real and personal property, customs, duties and other taxes,
charges and levies and all interest, penalties, assessments and deficiencies
with respect thereto ("TAXES") relating to the Division, the Business or the
Assets for all periods ending on or before Closing, and for any period including
Closing with respect to that portion of such period ending on Closing, including
without limitation with respect to all tax and information reports, returns,
declarations, statements and related documents required to be filed with any
Authority ("TAX RETURNS") by it regarding such Taxes, exclusive only of any
sales or use Taxes that may become due on the sale of Assets hereunder. Buyer
will indemnify and hold harmless Seller from and against any and all claims with
respect to any sales or use Taxes that may become due on the sale of Assets
hereunder.
7.5 Payment of Retained Liabilities. Seller will pay all liabilities
and obligations related to the Business and not assumed by Buyer, including
without limitation trade payables, commissions, royalties and employee payroll
and payroll Taxes, promptly when due consistent with past practice of the
Division, provided that such liabilities and obligations will not be included in
the calculation of Net Asset Value.
7.6 Seller's Continued Use of the Real Property. As provided in Exhibit
B hereto, Seller will be allowed continued use of the clean room and adequate
space for continued packaging activity in the Real Property for the remainder of
the current lease term of the Real Property ending March 31, 1998 free of
charge, provided that Seller will be responsible at its cost for any damage or
injury resulting from the acts or omissions of Seller, its employees, agents or
invitees, to maintain the clean room in the manner required under the lease of
the Real Property and to surrender the clean room and related area in the
condition required under the lease of the Real Property, including without
limitation any necessary repairs resulting from Seller's removal of clean room
and related equipment retained by Seller hereunder, in order to avoid any charge
to Buyer as a result of such condition.
<PAGE>
7.7 MRP Support. Seller will provide or cause to be provided to Buyer,
free of charge, system support no more than one (1) day per week, inclusive of
both telephone and on site support, for the continued operation of the
Division's ProLogic MRP system until March 31, 1998. Seller will take all
necessary action, at Seller's expense and free of charge to Buyer, for Buyer to
receive a license to the ProLogic MRP system for the twelve (12) months
immediately following Closing, subject to a fifteen (15) user limitation and
other conditions as set forth in Schedule 3.4(a) of the Disclosure Schedule.
7.8 Customer Deposit Return. In the event that Buyer does not receive a
firm purchase order from Elmos Elektronik GmbH for a 1000 Series or 3000 Series
test handler by November 1, 1998, Buyer will promptly thereupon pay to Seller
$76,800 as an adjustment to the Purchase Price to reverse the customer deposit
in such amount included as a liability on the Closing Net Asset Value Schedule.
In the event Buyer makes such payment to Seller, Seller will thereafter be
liable for and will indemnify Buyer against any claim by Elmos Elektronik GmbH
for any deposit made with respect to the Business on or before the Closing Date.
7.9 Use of Seller Personnel. In addition to the covenants under Section
7.2, Seller will make Craig Drake and Mark Blockey available to Buyer for
consulting on the Business two (2) days per week each, at mutually agreeable
times, for each of the first four (4) weeks following Closing. Additional
consulting time from such individuals reasonably requested by Buyer will be
provided by Seller, at mutually agreeable times, at a rate of $100 per hour.
ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer to consummate the purchase of the Assets under
this Agreement will be subject to the satisfaction (or waiver by Buyer) on or
prior to the Closing Date of all of the following conditions:
8.1 Representations, Warranties and Covenants of Seller. Seller will
have complied in all material respects with all of their agreements and
covenants contained herein to be performed at or prior to the Closing Date, and
all the representations and warranties of Seller contained herein will be true
in all material respects on and as of the Closing Date with the same effect as
though made on and as of the Closing Date, except (a) as otherwise contemplated
hereby, and (b) to the extent that such representations and warranties were made
as of a specified date (and as to such representations and warranties the same
continue on the Closing Date to have been true as of the specified date). Buyer
will have received a certificate of Seller, dated as of the Closing Date and
signed by each of Seller's personnel named in Section 12.12 hereof, certifying
as to the fulfillment of the conditions set forth in this Section 8.1.
8.2 No Prohibition. No statute, rule or regulation or order of any
court or other Authority will be in effect which prohibits Buyer from
consummating the transactions contemplated hereby.
<PAGE>
8.3 Further Action. All consents, approvals, authorizations, exemptions
and waivers from third parties that are required in order to enable Buyer to
consummate the transactions contemplated hereby will have been obtained (except
where the failure to obtain any such consents, approvals, authorizations,
exemptions and waivers would not have a Material Adverse Effect with respect to
the Business).
8.4 Deliveries. Seller will have made or caused to be made delivery to
Buyer of the items set forth in Section 2.2 hereof.
ARTICLE IX
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller to consummate the sale of the Assets under
this Agreement will be subject to the satisfaction (or waiver by Seller) on or
prior to the Closing Date of all of the following conditions:
9.1 Representations, Warranties and Covenants of Buyer. Buyer will have
complied in all material respects with all of its agreements and covenants
contained herein to be performed at or prior to the Closing Date, and all of the
representations and warranties of Buyer contained herein will be true in all
material respects on and as of the Closing Date with the same effect as though
made on and as of the Closing Date, except (a) as otherwise contemplated hereby,
and (b) to the extent that such representations and warranties were made as of a
specified date (and as to such representations and warranties the same continue
on the Closing Date to have been true as of the specified date). Seller will
have received a certificate of Buyer, dated as of the Closing Date and signed by
an officer of Buyer, certifying as to the fulfillment of the conditions set
forth in this Section 9.1.
9.2 No Prohibition. No statute, rule or regulation or order of any
court or other Authority will be in effect which prohibits Seller from
consummating the transactions contemplated hereby.
9.3 Further Action. All consents, approvals, authorizations, exemptions
and waivers from third parties that are required in order to enable Seller to
consummate the transactions contemplated hereby will have been obtained (except
where the failure to obtain any such actions, consents, approvals,
authorizations, exemptions and waivers would not have a Material Adverse Effect
with respect to the Business).
9.4 Deliveries. Buyer will have made or caused to be made delivery to
Seller of the items set forth in Section 2.3 hereof.
<PAGE>
ARTICLE X
INDEMNIFICATION AND RELATED MATTERS
10.1 Indemnification by Seller. Subject to the provisions of this
Article X, Seller will indemnify and hold harmless Buyer and each director,
officer, employee, stockholder, partner or affiliate thereof from and against
any and all damages, loss, cost or expense (including reasonable attorney's fees
and expenses actually incurred) (collectively, "LOSS") suffered by reason of,
arising out of or resulting from (a) any misrepresentation or breach of warranty
made by Seller in or pursuant to this Agreement (other than, with respect to any
such director, officer or employee who is an officer or director of Seller on
the date of this Agreement, any such misrepresentation or breach of warranty
known to such officer or director on the Closing Date), (b) any failure by
Seller to fulfill any covenants or agreements under this Agreement, or (c) any
and all liabilities of Seller not expressly assumed by Buyer hereunder, or third
party claims therefor.
10.2 Indemnification by Buyer. Buyer will indemnify and hold harmless
Seller and its officers and directors from and against any and all Loss suffered
by reason of, arising out of or resulting from (a) any misrepresentation or
breach of warranty made by Buyer in or pursuant to this Agreement, (b) any
failure by Buyer to fulfill any covenants or agreements under this Agreement, or
(c) any and all Assumed Liabilities, or third party claims therefor.
10.3 Notice of Indemnification. In the event any legal proceeding is
threatened or instituted or any claim or demand is asserted by any person
(including a party hereto) in respect of which payment may be sought by one
party hereto from the other party under the provisions of this Article X, the
party seeking indemnification (the "INDEMNITEE") will promptly cause written
notice of the assertion of any such claim of which it has knowledge which is
covered by this indemnity to be forwarded to the other party (the "INDEMNITOR").
Any notice of a claim by reason of any of the representations, warranties or
covenants contained in this Agreement will state specifically the
representation, warranty or covenant with respect to which the claim is made,
the facts giving rise to an alleged basis for the claim, and the amount of the
liability asserted against the Indemnitor by reason of the claim.
10.4 Indemnification Procedure for Third-Party Claims. In the event of
the initiation of any legal proceeding against an Indemnitee by a third party,
the Indemnitor will have the absolute right after the receipt of notice, at its
option and at its own expense, to be represented by counsel of its choice, and
to defend against, negotiate, settle or otherwise deal with any proceeding,
claim, or demand which relates to any loss, liability or damage indemnified
against hereunder; provided, however, that the Indemnitee may participate in any
such proceeding with counsel of its choice and at its expense. The parties will
cooperate fully with each other in connection with the defense, negotiation or
settlement of any such legal proceeding, claim or demand. To the extent the
Indemnitor elects not to defend such proceeding, claim or demand, and the
Indemnitee defends against or otherwise deals with any such proceeding, claim or
demand, the Indemnitee may retain counsel, at the expense of the Indemnitor, and
control the defense of such proceeding. Neither the Indemnitor nor the
Indemnitee may settle any such proceeding without the consent of the other
party,
<PAGE>
such consent not to be unreasonably withheld. After any final judgment or award
has been rendered by a court, arbitration board or administrative agency of
competent jurisdiction and the time in which to appeal therefrom has expired, or
a settlement has been consummated, or the Indemnitee and the Indemnitor have
arrived at a mutually binding agreement with respect to each separate matter
alleged to be indemnified by the Indemnitor hereunder, the Indemnitee will
forward to the Indemnitor notice of any sums due and owing by it with respect to
such matter and the Indemnitor will pay all of the sums so owing to the
Indemnitee by wire transfer, certified or bank cashier's check within thirty
(30) days after the date of such notice.
10.5 Limitation on Indemnification Liabilities. The indemnifications in
favor of Buyer contained in Section 10.1(a) hereof will not be effective until
the aggregate dollar amount of all losses, liabilities, damages or expenses
(including reasonable attorneys' fees) indemnified against under such Section
exceeds Two Hundred Thousand Dollars ($200,000) (the "THRESHOLD AMOUNT"), and
then only to the extent such aggregate amount exceeds the Threshold Amount;
provided, however, that indemnifications with respect to representations and
warranties of Seller under Sections 3.7 and 3.21 are not subject to the
foregoing restriction and will not be aggregated against the Threshold Amount.
The aggregate liability of Seller under Section 10.1(a) hereof is limited to
Four Hundred Thousand Dollars ($400,000) (the "MAXIMUM AMOUNT"); provided,
however, that indemnifications with respect to representations and warranties of
Seller under Sections 3.7 and 3.21 are not subject to the foregoing restriction
and will not be aggregated against the Maximum Amount.
10.6 Survival of Representations, Warranties and Covenants. The
representations and warranties made in this Agreement and the covenants and
agreements contained herein to be performed or complied with at or prior to the
Closing Date will survive for twelve (12) months after the Closing Date, and no
legal action or arbitration proceeding may be commenced thereafter with respect
to any alleged breach thereof.
10.7 Exclusive Remedy. Except for equitable relief as provided under
Section 7.3, the exclusive remedy available to a party hereto in respect of the
matters covered by Section 10.1 or Section 10.2 hereof is to proceed in the
manner and subject to the limitations contained in this Article X.
ARTICLE XI
TERMINATION PRIOR TO CLOSING
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by the mutual written consent of Buyer and Seller; or
(b) by either Seller or Buyer in writing (provided the
conditions to such party's obligations stated in the applicable sections of
Article VIII or IX are not then satisfied or waived) if the Closing has not
occurred on or before November 7, 1997; or
<PAGE>
(c) by either Seller or Buyer in writing, if there is in
effect a non-appealable order of a court of competent jurisdiction prohibiting
the consummation of the transactions contemplated hereby.
11.2 Effect on Obligations. Termination of this Agreement pursuant to
this Article will terminate all obligations of the parties hereunder, provided,
however, that termination pursuant to clause (b) of Section 11.1 hereof will not
relieve any defaulting or breaching party from any liability to the other party
hereto, and provided, further, that the provisions of this Section 11.2 and
Article XII will survive termination of this Agreement.
ARTICLE XII
MISCELLANEOUS
12.1 Entire Agreement. This Agreement (including the Exhibits and the
Disclosure Schedule delivered pursuant hereto) constitutes the entire agreement
of the parties with respect to the matters provided for herein and supersedes
all prior and contemporaneous agreements, understandings, negotiations and
discussions, whether oral or written, of the parties. No amendment, modification
or alteration of the terms or provisions of this Agreement will be binding
unless the same is in writing and duly executed by the parties hereto.
12.2 Successors and Assigns. The terms and conditions of this Agreement
will inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties hereto. This Agreement may not be assigned by
any party without the prior written consent of the other party hereto, except
that Buyer may, at its election, assign its rights under this Agreement to any
direct or indirect wholly-owned subsidiary. Notwithstanding the foregoing, no
assignment of this Agreement or any of the rights or obligations hereof by Buyer
will relieve Buyer of its obligations under this Agreement to Seller and, upon
any such assignment, the representations, warranties, covenants and agreements
contained in this Agreement will be deemed to have been made by Buyer's assignee
as well as by Buyer. Any attempted assignment of this Agreement contrary to the
terms hereof will be null and void and of no force or effect.
12.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will for all purposes be deemed to be an original
and all of which will constitute the same instrument.
12.4 Headings. The headings of the articles and sections of this
Agreement are included for convenience only and will not be deemed to constitute
part of this Agreement or to affect the construction hereof.
12.5 Modifications and Waivers. No waiver of any of the terms or
conditions of this Agreement or any right hereunder will be effective unless
given in a signed writing by the party
<PAGE>
entitled to the benefits thereof. No waiver of any of the provisions of this
Agreement or any rights hereunder will be deemed to or will constitute a waiver
of any other provisions hereof or rights hereunder (whether or not similar). No
failure or delay on the part of a party in exercising any right hereunder will
operate as a waiver of, or impair, any such right. No single or partial exercise
of any such right will preclude any other or further exercise thereof or the
exercise of any other right.
12.6 Broker's Fees. Each of the parties hereto represents and warrants
to the other that it has had no dealings with any broker or finder in connection
with the transactions contemplated by this Agreement. Seller will indemnify and
hold harmless Buyer from and against any and all liability to which Buyer may be
subjected by reason of any broker's or finder's fee with respect to the
transactions contemplated hereby to the extent such fee is attributable to any
action undertaken by or on behalf of Seller. Buyer will indemnify and hold
harmless Seller from and against any and all liability to which Seller may be
subjected by reason of any broker's or finder's fee with respect to the
transaction contemplated hereby to the extent such fee is attributable to any
action undertaken by or on behalf of Buyer.
12.7 Expenses. Seller will pay all costs and expenses incurred by or on
behalf of Seller, and Buyer will pay all costs and expenses incurred by or on
behalf of it, in connection with this Agreement, the negotiations in connection
herewith, and the transactions contemplated hereby, including without limitation
fees and expenses of their respective brokers, finders, financial consultants,
accountants and counsel.
12.8 Notices. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party will be in writing and
delivered personally or by telephonic facsimile transmission or sent by
registered or certified mail, postage prepaid (and if by telephonic facsimile
transmission with a copy sent by mail),
if to Seller to:
Advantek Inc.
5801 Clearwater Drive
Minnetonka, Minnesota 55343
Attn: Tim Cowen
Facsimile No.: (612) 938-0724
with a copy to:
Siegel-Robert, Inc.
12837 Flushing Meadows Drive
St. Louis, Missouri 63131
Attn: Halvor B. Anderson
Facsimile No.: (314) 965-2452
<PAGE>
if to Buyer to:
Aetrium Incorporated
2350 Helen Street
North St. Paul, Minnesota 55109
Attn: Joseph C. Levesque
Facsimile No.: (612) 773-4263
with a copy to:
Oppenheimer Wolff & Donnelly
3400 Plaza VII Building
45 South Seventh Street
Minneapolis, Minnesota 55402
Attn: Thomas C. Thomas
Facsimile No.: (612) 344-9376
or at such other address for a party as may be specified by like notice. Any
notice which is delivered personally or by telephonic facsimile transmission in
the manner provided herein will be deemed to have been duly given to the party
to whom it is directed upon actual receipt by such party (or its agent for
notices hereunder). Any notice which is addressed and mailed in the manner
herein provided will be conclusively presumed to have been duly given to the
party to which it is addressed at the close of business, local time of the
recipient, on the third day after the day it is so placed in the mail.
12.9 Governing Law; Consent to Jurisdiction. This Agreement will be
construed in accordance with and governed by the laws of the state of Minnesota
applicable to agreements made and to be performed in such jurisdiction without
reference to conflicts of law principles. Each of Buyer and Seller irrevocably
consents that any legal action or proceeding against it under, arising out of or
in any manner relating to this Agreement or any other agreement, document or
instrument arising out of or executed in connection with this Agreement may be
brought only in a court of the state of Minnesota or in the United States
District Court for the District of Minnesota. Each of Buyer and Seller by the
execution and delivery of this Agreement, expressly and irrevocably assents and
submits to the personal jurisdiction of any of such courts in any such action or
proceeding. Each of Buyer and Seller further irrevocably consents to the service
of any complaint, summons, notice or other process relating to any such action
or proceeding by delivery thereof to it by hand or by mail in the manner
provided for in Section 12.8 hereof. Each of Buyer and Seller hereby expressly
and irrevocably waives any claim or defense in any action or proceeding based on
any alleged lack of personal jurisdiction, improper venue or forum non
conveniens or any similar basis.
<PAGE>
12.10 Confidentiality Agreement.
(a) Buyer and Seller have entered into a Confidentiality
Agreement dated August 27, 1997 (the "CONFIDENTIALITY AGREEMENT"), which
Confidentiality Agreement is incorporated herein by reference.
(b) The provisions of the Confidentiality Agreement will lapse
and be of no further force or effect upon Closing.
12.11 Severability. If any provision hereof is held by any court of
competent jurisdiction to be illegal, void or unenforceable, such provision will
be of no force and effect, but the illegality or unenforceability will have no
effect upon and will not impair the enforceability of any other provision of
this Agreement.
12.12 Definition of Seller's Knowledge. For purposes of this Agreement,
"KNOWLEDGE" of Seller means knowledge actually possessed by Tim Cowen, Howard
Marschel, Craig Drake or Mark Blockey and such knowledge as would have or should
have come to the attention of said individuals in the course of reasonable
inquiry and the preparation and negotiation of this Agreement and related
Disclosure Schedule.
12.13 Disclosure Schedule; Buyer's Knowledge; Effect on Seller
Representations and Warranties; Effect of Materiality Qualification. Nothing in
the Disclosure Schedule will be deemed adequate to disclose an exception to a
representation or warranty of Seller made herein, unless the Disclosure Schedule
identifies the exception with reasonable particularity and describes the
relevant facts in reasonable detail. Without limiting the generality of the
foregoing, the mere listing (or inclusion of a copy) of a document or other item
will not be deemed adequate to disclose an exception to a representation or
warranty made herein (unless the representation or warranty has to do with the
existence of the document or other item itself). Disclosures in any schedule of
the Disclosure Schedule will constitute disclosure only for purposes of such
schedule's counterpart section herein, and will not constitute disclosure for
purposes of any other section of this Agreement or any exhibit to or other
writing which is designated herein as being part of this Agreement. No
disclosure whatsoever during Buyer's due diligence investigation of Seller will
constitute an enlargement or restriction of the warranties or representations of
Seller hereunder or exceptions thereto beyond those specifically set forth in
this Agreement and the Disclosure Schedule. No representation or warranty of
Seller will be deemed waived in whole or part, and no Loss resulting from the
breach thereof will be reduced, by reason of the fact that Buyer or its
representatives knew or should have known on or before the Closing Date that
such representation or warranty is or might be inaccurate in any respect. If any
representation or warranty of Seller that is qualified by materiality (including
a Material Adverse Effect) is breached after giving effect to such materiality
qualification, then Loss resulting from such breach includes all Loss resulting
from such breach from first dollar as if there were no such materiality
qualification.
<PAGE>
12.14 No Third Party Beneficiaries. Except as expressly permitted by
this Agreement, nothing in this Agreement will confer any rights upon any person
or entity which is not a party or permitted assignee of a party to this
Agreement.
12.15 Rule of Construction. The parties hereto acknowledge and agree
that each has negotiated and reviewed the terms of this Agreement, assisted by
such legal and tax counsel as they desired, and has contributed to its
revisions. The parties further agree that the rule of construction that any
ambiguities are resolved against the drafting party will be subordinated to the
principle that the terms and provisions of this Agreement will be construed
fairly as to all parties and not in favor of or against any party.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf as of the date first above written.
AETRIUM INCORPORATED
By (illegible signature)
-----------------------------------
Its President
ADVANTEK INC.
By (illegible signature)
-----------------------------------
Its President
<PAGE>
COVENANT
The undersigned hereby agrees to be bound by and comply with, and to cause each
business entity directly or indirectly under its control to be bound by and
comply with, the provisions of Section 7.3 of this Agreement as if the
undersigned and each such other business entity were the Seller thereunder. Any
claim under this covenant may be brought only pursuant to the provisions of
Section 12.9 of this Agreement, and the undersigned will be bound by the
provisions of Section 10.7 and 12.9 of this Agreement as fully as if a party
thereto, the undersigned's service address for purposes thereof being that of
Seller pursuant to Section 12.8 of this Agreement.
SIEGEL-ROBERT, INC.
By: (illegible signature)
--------------------------------------
Its: CEO
--------------------------------------
<PAGE>
Exhibit A
ASSIGNMENT AND ASSUMPTION OF RESTRICTIVE COVENANT
AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION OF RESTRICTIVE COVENANT AGREEMENT,
dated effective October 31, 1997, is by and between Advantek Inc. ("SELLER") and
Aetrium Incorporated ("BUYER") pursuant to an Asset Purchase Agreement dated as
of October __, 1997 by and between such parties (the "PURCHASE AGREEMENT").
In consideration of their mutual covenants and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Definitions. All capitalized terms used in this Agreement which are not
otherwise defined herein have the respective meanings ascribed to such terms in
the Purchase Agreement.
2. Assignment and Assumption. Seller hereby assigns to Buyer all of Seller's
rights accruing after the date hereof, and Buyer hereby assumes and agrees to
pay and perform all of Seller's liabilities and obligations accruing or becoming
due for performance after the date hereof, in, to and under that certain
Restrictive Covenant Not To Compete dated September 21, 1992 by and between
Seller and Nathan R. Smith, as amended by that certain First Amendment to
Restrictive Covenant Not To Compete dated October 27, 1994 (together, the
"RESTRICTIVE COVENANT"), subject to the following provisions:
a. Neither party will have any right to waive or otherwise affect the
rights of the other party with respect to the Restrictive Covenant. Specifically
but without limitation, Seller will have no right to waive or otherwise affect
the rights of Buyer with respect to any breach of the Restrictive Covenant by
Nathan R. Smith after the date hereof or the rights of Buyer not to make
payments under the Restrictive Covenant as a result of any breach of the
Restrictive Covenant by Nathan R. Smith on or before the date hereof, and Buyer
will have no right to waive or otherwise affect the rights of Seller, including
without limitation for recovery of amounts paid by Seller under the Restrictive
Covenant or the rights of Seller not to make payments under the Restrictive
Covenant or for liquidated damages, as a result of any breach of the Restrictive
Covenant by Nathan R. Smith.
b. In the event any claim under the Restrictive Covenant is commenced
in any court or before any arbitrator by or against either party, such party
will notify the other party of such claim, keep the other party informed of such
proceeding, and at the other party's election give such party an opportunity to
join in such proceeding.
3. Further Assistance. At any time and from time to time, the parties hereto
will promptly execute and deliver any and all further instruments and documents
and will take such further action or actions as either of them may reasonably
deem necessary to effect the purposes of this Agreement.
<PAGE>
4. No Rights in Third Parties. Nothing in this Agreement is intended to confer
upon any person other than Seller and Buyer, or their permitted successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
5. Amendment. No amendment or waiver of any provision of this Agreement will be
effective unless the same is in writing and executed by both of the parties
hereto.
6. Binding Effect. This Agreement will be binding upon, and will inure to the
benefit of, Seller and Buyer, and their respective successors and assigns.
7. No Additional Representations or Warranties. The Purchase Agreement includes
all representations and warranties with respect to the Restrictive Covenant made
by Seller to Buyer, and no further such representations or warranties are made
hereunder.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed as of the date first above written.
ADVANTEK INC.
By:
---------------------------------
Its President
AETRIUM INCORPORATED
By:
---------------------------------
Its Chief Executive Officer
<PAGE>
Exhibit B
ASSIGNMENT AND ASSUMPTION OF LEASES AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION OF AGREEMENT, dated effective October 31, 1997,
is by and between Advantek Inc. ("SELLER") and Aetrium Incorporated ("BUYER")
pursuant to an Asset Purchase Agreement dated as of October __, 1997 by and
between such parties (the "PURCHASE AGREEMENT").
In consideration of their mutual covenants and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Definitions. All capitalized terms used in this Agreement which are not
otherwise defined herein have the respective meanings ascribed to such terms in
the Purchase Agreement.
2. Assignment and Assumption. Seller hereby assigns to Buyer all of Seller's
rights accruing after the date hereof, and Buyer hereby assumes and agrees to
pay and perform all of Seller's liabilities and obligations accruing or becoming
due for performance after the date hereof, in, to and under that certain
Sublease dated December 16, 1996 by and between Ceridian Corporation
("CERIDIAN") as sublessor and Seller as sublessee, as amended by Amendment to
Sublease dated December 12, 1996 by and between such parties (the "SUBLEASE"),
the Sublease being made under that certain Indenture of Lease dated April 9,
1993 by and between St. Paul Properties, Inc. ("ST. PAUL PROPERTIES") as lessor
and Ceridian as lessee (the "LEASE"), and in, to and under that certain Sub-
Sublease dated January 1, 1997 by and between Seller as sub-sublessor and
Specialty Lab, Inc. as sub-sublessee (the "SUB-SUBLEASE"), subject to the
following provisions:
a. Buyer's obligations under Article 6 of the Lease for "the
maintenance, repair and replacement, if necessary, of heating, air conditioning
fixtures, equipment, and systems, all lighting and plumbing fixtures and
equipment, fixtures, motors and machinery, all interior walls, partitions, doors
and windows, including the regular painting thereof, all exterior entrances,
windows, doors and docks" (the referenced Article 6 obligation hereinafter
referred to as the "MAINTENANCE OBLIGATION") will be limited to (1) ordinary
periodic maintenance, exclusive of painting, repairs or replacements (other than
replacement of consumables), (2) maintenance, repair and/or replacement
necessitated by the negligent or wilfully wrongful acts or omissions of Buyer,
its employees, agents or invitees, and (3) maintenance, repair and/or
replacement to the extent covered under any Buyer insurance policy. All other
obligations under the Maintenance Obligation will be retained by Seller and
Seller will indemnify and hold harmless Buyer from any claims with respect
thereto, including without limitation any claims under Article 29 of the Lease
resulting from the failure to perform such obligations.
b. All obligations under Article 41 of the Lease will be retained by
Seller and Seller will indemnify and hold harmless Buyer from any claims with
respect thereto, including without
<PAGE>
limitation any claims under Article 29 of the Lease resulting from the failure
to perform such obligations.
c. Seller will be allowed continued use of the clean room and adequate
space for continued packaging activity in the premises demised under the Lease
and Sublease for the remainder of the current lease term of the Sublease ending
March 31, 1998 free of charge, provided that Seller will be responsible at its
cost for any damage or injury resulting from the acts or omissions of Seller,
its employees, agents or invitees, to maintain the clean room in the manner
required under the Lease and to surrender the clean room and related area in the
condition required under Article 29 of the Lease, including without limitation
any necessary repairs resulting from Seller's removal of clean room and related
equipment retained by Seller under the Purchase Agreement, in order to avoid any
charge to Buyer as a result of such condition.
3. Further Assistance. At any time and from time to time, the parties hereto
will promptly execute and deliver any and all further instruments and documents
and will take such further action or actions as either of them may reasonably
deem necessary to effect the purposes of this Agreement.
4. No Rights in Third Parties. Nothing in this Agreement is intended to confer
upon any person other than Seller and Buyer, or their permitted successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
5. Amendment. No amendment or waiver of any provision of this Agreement will be
effective unless the same is in writing and executed by both of the parties
hereto.
6. Binding Effect. This Agreement will be binding upon, and will inure to the
benefit of, Seller and Buyer, and their respective successors and assigns.
7. No Additional Representations or Warranties. The Purchase Agreement includes
all representations and warranties with respect to the Lease, the Sublease and
the Sub-Sublease and the premises demised thereunder made by Seller to Buyer,
and no further such representations or warranties are made hereunder.
8. Assignment of Sublease. The parties have entered into an Assignment of
Sublease on this date with St. Paul Properties, Inc. and Ceridian (the
"ASSIGNMENT") to facilitate the consent of St. Paul Properties and Ceridian to
the assignment of the Sublease to Buyer. To the extent that the terms of this
Agreement and the Assignment vary, the terms of this Agreement govern as between
Seller and Buyer.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed as of the date first above written.
ADVANTEK INC.
By:
---------------------------------
Its President
AETRIUM INCORPORATED
By:
---------------------------------
Its Chief Executive Officer
<PAGE>
Exhibit C
CLOSING NET ASSET VALUE SCHEDULE INSTRUCTIONS
The Closing Net Asset Value Schedule will be prepared in accordance with the
following instructions regardless of whether such instructions conform to
generally accepted accounting principles or are consistent with Seller's latest
annual audited financial statements:
1. A physical inventory of Inventory will be taken by Seller with Buyer's
participation as of the Effective Date. In the event the physical
inventory does not correspond with the Effective Date, the parties will
agree on appropriate procedures to bring the physical inventory forward
or back to the Effective Date. Except as otherwise provided herein,
Inventory will be valued at the lower of cost or market as of the
Effective Date.
2. The M-1000T, #1015 handler in the engineering lab returned from
National will be valued at $40,000.
3. The TR-1000T, #1029 handler under lease to Phillips will be valued at
an amount that would result in a 50% gross margin against selling price
net of lease payment credit if sold to Phillips on the Effective Date.
Any prepaid lease payments as of the Effective Date will be included as
an Assumed Liability on the Closing Net Asset Value Schedule.
4. The original 3000 handler prototype will be valued at the lower of cost
or market of the camera system included in the handler as of the
Effective Date.
5. Work in process and finished goods handlers will be valued at: (a)
material at lower of cost or market as of the Effective Date, plus (b)
actual direct labor as of the Effective Date (not to exceed $10,000
multiplied by percentage completion for TR-1000 and M-1000, and $12,000
multiplied by percentage completion for TR-1400), plus (c) overhead
equal to the direct labor value determined under (b).
6. Engineering lab parts will be valued at cost as of the Effective Date.
7. The two 3000 handlers in the engineering lab will be valued at amounts
respectively that would result in 50% gross margins at probable selling
price as mutually determined by the parties, multiplied by percentage
of completion as of the Effective Date.
8. Prepaid services under the maintenance contract with Level One
Communications, Inc. will be valued as an Assumed Liability of
$2,587.50.
9. Prepaid Expenses will consist of prepaid rent as of the Effective Date.
<PAGE>
10. The warranty reserve to be included as a liability on the Closing Net
Asset Value Schedule will be $50,000.
11. Equipment and other fixed Assets will be valued at their depreciated
net book value as of the Effective Date in accordance with GAAP on a
basis consistent with Seller's latest annual audited financial
statements.
12. The Elmos Elektronik GmbH customer deposit will be valued at $76,800.
13. Accrued vacation will be the aggregate of the number of vacation days
payable to Division employees to be employed by Buyer multiplied by the
applicable current pay rate of such employees, determined on the basis
as if such employees terminated employment with Seller on the Closing
Date.
<PAGE>
Exhibit D
FORM OF OPINION OF COUNSEL FOR SELLER
At the Closing, Buyer will receive an opinion from counsel for Seller,
dated the Closing Date and substantially to the effect that:
(a) Seller is a corporation duly organized, validly existing
and in good standing under the Laws (as hereinafter defined) of the
state of Missouri, has full corporate power and authority to carry on
its business as it is now being conducted and to own, lease and operate
its properties and assets, and is duly qualified or licensed to do
business as a foreign corporation in good standing in every other
jurisdiction in which the character or location of the properties and
assets owned, leased or operated by the Division or the conduct of the
Business requires such qualification or licensing, except in such
jurisdictions in which the failure to be so qualified or licensed and
in good standing would not, individually or in the aggregate, have a
Material Adverse Effect with respect to Seller. Schedule 3.1 of the
Disclosure Schedule contains a list of all jurisdictions in which
Seller is qualified or licensed to do business and in which the
character or location of the properties and assets owned, leased or
operated by the Division or the conduct of the Business requires such
qualification or licensing.
(b) Seller has all requisite corporate power and authority to
execute, deliver and perform the Agreement and to consummate the
transactions contemplated thereby. The execution, delivery and
performance by Seller of the Agreement and the consummation by Seller
of the transactions contemplated thereby have been duly authorized by
all necessary corporate action. The Agreement has been duly and validly
executed by Seller and constitutes the valid and binding legal
obligation of Seller, enforceable against Seller in accordance with its
terms, except to the extent that such enforceability (1) may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditors' rights generally, and (2) is subject to
general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
(c) Except as set forth in the Schedule 3.3 of the Disclosure
Schedule, neither the execution, delivery and performance of the
Agreement nor the consummation of the transactions contemplated thereby
will (1) violate or be in conflict with any provision of the articles
or certificates of incorporation or bylaws of Seller, or (2) be in
conflict with, or constitute a default, however defined (or an event
which, with the giving of due notice or lapse of time, or both, would
constitute such a default), under, or cause or permit the acceleration
of the maturity of, or give rise to any right of termination,
cancellation, imposition of fees or penalties under, any debt,
instrument, agreement, permit or other obligation, commitment or
authorization known to such counsel to which Seller is a party or by
which Seller or any of Seller's properties or assets is or may be
bound, or (3) to such
<PAGE>
counsel's knowledge result in the creation or imposition of any
Encumbrance upon any property or assets of Seller, or (4) violate any
treaty, law, rule or regulation, or any order, judgment or decree known
to such counsel, of any Authority to which Seller is subject.
(d) Except as set forth in Schedule 3.4 of the Disclosure
Schedule, with respect to Seller, no Consent of any Authority, or to
such counsel's knowledge any individual or other private entity, is
required in connection with the execution, delivery or performance of
the Agreement by Seller or the consummation by Seller of the
transactions contemplated thereby.
(e) To such counsel's knowledge, except as set forth in
Schedule 3.22 of the Disclosure Schedule, there is no Litigation
pending or threatened (1) by or against or involving Seller or any of
its properties or any of its officers, directors, agents or employees
(but only in such capacities) related to the Business, or (2) which
seeks to enjoin or obtain damages in respect of the consummation of the
transactions contemplated by the Agreement.
<PAGE>
Exhibit E
FORM OF OPINION OF COUNSEL FOR BUYER
At the Closing, Seller will receive an opinion from counsel for Buyer,
dated the Closing Date and substantially to the effect that:
(a) Buyer is a corporation duly organized, validly existing
and in good standing under the Laws of the state of Minnesota, and has
all requisite corporate power and authority to carry on its business as
it is now being conducted, and to execute, deliver and perform the
Agreement and to consummate the transactions contemplated thereby.
(b) The execution, delivery and performance by Buyer of the
Agreement and the consummation by Buyer of the transactions
contemplated thereby have been duly authorized by all necessary
corporate action on the part of Buyer. The Agreement has been duly and
validly executed and delivered by Buyer and constitutes the valid and
binding legal obligations of Buyer, enforceable against it in
accordance with its terms, except to the extent that such
enforceability (1) may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors'
rights generally, and (2) is subject to general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(c) Neither the execution, delivery and performance of the
Agreement nor the consummation of the transactions contemplated thereby
will (1) violate or be in conflict with any provision of the articles
of incorporation or bylaws of Buyer, or (2) be in conflict with, or
constitute a default, however defined (or an event which, with the
giving of due notice or lapse of time, or both, would constitute such a
default), under, or cause or permit the acceleration of the maturity
of, or give rise to any right of termination, cancellation, imposition
of fees or penalties under, any debt, instrument, commitment, contract
or other agreement or obligation known to such counsel to which Buyer
is a party or by which Buyer or any of its properties or assets is or
may be bound, or (3) to such counsel's knowledge result in the creation
or imposition of any Encumbrance upon any property or assets of Buyer,
or (4) violate any treaty, law, rule or regulation, or any order,
judgment or decree known to such counsel, of any Authority to which
Buyer is subject.
(d) No Consent from any Authority, or to such counsel's
knowledge any individual or other private entity, is required in
connection with the execution, delivery or performance by Buyer of the
Agreement or the taking of any other action contemplated thereby.
(e) To such counsel's knowledge, there is no Litigation
pending or threatened which seeks to enjoin or obtain damages in
respect of the consummation of the transactions contemplated by the
Agreement.
FINANCIAL HIGHLIGHTS
In thousands except for per share amounts 1997 1996
- --------------------------------------------------------------------------------
FOR THE YEAR
Net sales $ 67,575 $ 58,387
Research and development expenses 10,492 7,631
Operating income* 9,843 12,376
Net income:
Net income before unusual items* 7,851 9,242
Net income 1,229 9,242
Per common share (diluted):
Net income before unusual items* .88 1.08
Net income $ .14 $ 1.08
Weighted average shares outstanding (diluted) 8,923 8,591
- --------------------------------------------------------------------------------
AT YEAR END
Cash and short-term investments $ 27,584 $ 35,784
Total assets 70,894 61,718
Shareholders' equity $ 62,492 $ 57,980
*EXCLUDES ACQUISITION-RELATED CHARGES IN 1997
1997 HIGHLIGHTS
* Another year of record annual revenue, despite poor industry conditions.
* Completed the acquisition of Forward Systems Automation Inc., which
strengthened Aetrium's technology platform for handling very small integrated
circuits and entered Aetrium into the market for test handlers designed for
discrete electronic components.
* Completed the acquisition of the Handler Division of Advantek Inc., which
added a complementary product line and several new customers.
* Recruited industry veteran Kenneth R. Lee as president of the Lawrence
Division and further strengthened the Lawrence management team by adding
divisional vice presidents for marketing and engineering.
* Booked the largest single order in Aetrium's 16-year history, for the M3200
test handler produced by the San Diego Division.
* Launched five new test handler products, a thermal conditioning and control
product and completed the first installations of Aetrium's new Model 1164
Reliability Test System.
* Added 12 new customers.
REVENUE COMPONENTS: 1997 GEOGRAPHIC DISTRIBUTION OF REVENUE: 1997
[PIE CHART] [PIE CHART]
Test Handlers 54% North America 70%
- --------------------------- ---------------------------
Change Kits & Spares 12%
- --------------------------- Europe 11%
Reliability & ---------------------------
Environmental Test 10% North Asia 5%
- --------------------------- ---------------------------
IC Automation 24% SE Asia 14%
- --------------------------- ---------------------------
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS:
The following table sets forth certain statements of income items as a
percentage of net sales for 1997, 1996 and 1995:
1997 1996 1995
- --------------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 48.7 44.9 42.9
- --------------------------------------------------------------------------------
Gross profit 51.3 55.1 57.1
- --------------------------------------------------------------------------------
Operating expenses:
Selling, general and administrative 21.2 20.8 24.2
Research and development 15.5 13.1 10.4
Acquisition-related charges 14.0 -- 13.3
- --------------------------------------------------------------------------------
Total operating expenses 50.7 33.9 47.9
- --------------------------------------------------------------------------------
Income from operations .6 21.2 9.2
Other income, net 1.7 1.9 .9
- --------------------------------------------------------------------------------
Income before income taxes 2.3 23.1 10.1
Provision for income taxes (.4) (7.3) (3.0)
- --------------------------------------------------------------------------------
Net income 1.9% 15.8% 7.1%
- --------------------------------------------------------------------------------
NET SALES:
The following table sets forth the various components of net sales by product
line as a percentage of total sales:
1997 1996 1995
- --------------------------------------------------------------------------------
Test handlers 54% 59% 53%
Automation modules 24 15 18
Reliability and environmental test products 10 13 6
Change kits and spare parts 12 13 23
- --------------------------------------------------------------------------------
100% 100% 100%
- --------------------------------------------------------------------------------
Net sales increased 16% to $67.6 million in 1997, compared with $58.4
million in 1996 and $47.6 million in 1995. Equipment sales increased in 1997 due
to strong sales of test handlers and automation modules, in spite of poor
industry conditions during the first part of 1997. Test handler sales increased
during the three-year period due to higher unit volume, increased average
selling prices and new customer penetration. The acquisition of the test handler
product lines produced by Forward Systems Automation Inc. (FSA) in April 1997
contributed to the sales growth of test handler products during the last three
quarters of 1997. The increase in IC automation modules sales was due to strong
demand from original equipment manufacturers (OEMs) that supply machine vision
inspection equipment, as well as increased selling prices and greater account
penetration. The acquisition in December 1995 of the environmental test
equipment product line located in Lawrence, Mass. was the primary contributor to
the increase in sales of reliability and environmental test equipment in 1996.
However, sales of environmental and reliability test equipment declined slightly
in 1997.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Sales of change kits and spare parts increased significantly in 1995
primarily due to the inclusion of the San Diego Division results, which were at
particularly high levels in 1995 as a result of a focused effort to shorten lead
times on spares orders and reduce the elevated past due backlog which existed at
the time of the acquisition in late 1994. Sales of change kits and spare parts
declined in 1996 as spare parts sales at the San Diego Division decreased to
normal levels. Sales of change kits and spare parts increased in 1997 due to an
increase in the company's installed base and an overall improvement in market
conditions during the year.
GROSS PROFIT:
Gross profit increased 8% to approximately $34.7 million in 1997, compared with
$32.2 million in 1996 and $27.2 million in 1995. As a percentage of net sales,
gross profits were 51.3%, 55.1% and 57.1% in 1997, 1996 and 1995, respectively.
Gross profit margins for the North St. Paul Division decreased slightly in 1997
due to a product mix shift to significantly more IC automation modules, which
are generally sold at lower gross margins than the North St. Paul test handler
products. The San Diego Division's gross margin declined somewhat in 1997 due to
a shift in product mix to relatively more pick-and-place test handlers, which
are typically lower margin products than gravity-feed test handlers. The
consolidated gross margin declined in the fourth quarter of 1997 due to the
inclusion of lower margin shipments from the Advantek Handler Division, which
was acquired in November 1997. As a result of these factors, the consolidated
gross margin declined in 1997 to 51.3%, compared with 55.1% for 1996. The North
St. Paul Division's margin improvement in 1996 was offset by a full year of
improving but lower margin shipments from the Lawrence Division. Although the
gross profit margins at Lawrence improved further during 1997, the company
believes that shipments from this division and from the product line acquired in
the acquisition of the Advantek Handler Division in November 1997 will continue
to dilute the company's overall gross profit margin for the foreseeable future.
SELLING, GENERAL AND ADMINISTRATIVE:
Selling, general and administrative expenses increased 18% to $14.3 million in
1997, compared with $12.2 million in 1996 and $11.5 million in 1995. The
increase is primarily attributable to higher general and administrative expenses
to support the FSA and Advantek Handler Division business units, both of which
were acquired in 1997. Selling expenses increased in 1997 due to higher
commissions and other expenses associated with increased orders and shipments.
Expenses increased modestly in 1996, compared with 1995, primarily to support
the Lawrence Division, which was acquired in December 1995. As a percentage of
net sales, selling, general and administrative expenses were 21.2%, 20.8% and
24.2% in 1997, 1996 and 1995, respectively.
RESEARCH AND DEVELOPMENT:
Research and development expenses increased 38% to $10.5 million in 1997,
compared with $7.6 million in 1996 and $5.0 million in 1995. The increase in
1997 is attributable to the inclusion of the Aetrium FSA Division, which was
acquired in April, and includes the cost of completing certain development
projects that were in process at the time of the acquisition. The increase is
due also to generally higher levels of product development activity at each of
the other operating units. The company has also spent heavily in 1997 to provide
new or significantly enhanced test handlers and IC automation modules configured
to accommodate new and emerging semiconductor package types. The increase in
1996 is primarily attributable to the inclusion of the Lawrence Division, which
was acquired in December 1995. As a percentage of net sales, research and
development expenses amounted to 15.5%, 13.1% and 10.4% in 1997, 1996 and 1995,
respectively. Over time, the company expects that research and development
spending will generally average between 13% and 15% of net sales.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ACQUISITION-RELATED CHARGES:
Effective October 31, 1997, the company acquired certain assets and assumed
certain liabilities of the Handler Division of Advantek Inc. Effective April 1,
1997, the company acquired substantially all of the assets and assumed certain
liabilities of Forward Systems Automation Inc. (FSA). Effective December 29,
1995, the company acquired substantially all of the assets and assumed certain
liabilities of EJ Systems, Inc. (EJ), based in Lawrence, Mass. In each
acquisition, a portion of the purchase price was allocated to research and
development activities that were in-process at the time of the acquisition and
had not yet reached technological feasibility. The amounts allocated to
in-process research and development amounted to $2.3 million for the Advantek
Handler Division acquisition, $7.2 million for the FSA acquisition and $6.3
million for the EJ acquisition. These amounts are reflected in the accompanying
consolidated statements of income under the item "acquisition-related charges".
See Note 6 to the Consolidated Financial Statements.
OTHER INCOME, NET:
Other income, net, was unchanged in 1997 at $1.1 million. Other income, net, was
$400,000 in 1995. The increase in 1996 compared with 1995 is attributable to
increased interest income earned on higher invested cash balances resulting from
the proceeds of a stock offering completed in late 1995.
INCOME TAXES:
The company's effective income tax rate compares favorably with federal and
state statutory rates primarily due to benefits associated with the company's
foreign sales corporation, research tax credits and the investment of excess
funds in tax-exempt securities. The effective tax rate was 19.7% in 1997, 31.5%
in 1996 and 30.0% in 1995. The rate was lower in 1997 compared with 1996 because
pre-tax income dropped significantly due to acquisition-related charges, while
the tax benefits associated with foreign sales, tax credits and tax-exempt
interest income remained relatively stable. The tax rate was relatively higher
in 1996 because a portion of earnings were subject to the highest federal rate
of 35% and tax credit benefits were lower because the Federal Research Credit
expired during portions of 1995 and 1996.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES:
Cash and short-term investments decreased by approximately $8.2 million in 1997
to $27.6 million. The decrease was primarily the result of the $8.2 million used
to acquire FSA in April 1997 and the Advantek Handler Division in November 1997.
Cash generated from 1997 operations was $4.4 million. Approximately $1.7 million
was used for capital expenditures in 1997. As of December 31, 1997, there was no
long-term debt. Accounts receivable increased 58% to $12.7 million at December
31, 1997, compared with $8.0 million at December 31, 1996 primarily because 1997
fourth quarter net sales were 100% greater than fourth quarter 1996 net sales.
Inventories increased from $10.3 million at December 31, 1996 to $16.8 million
at December 31, 1997, as a result of sales increasing throughout 1997 and as a
result of purchasing relatively high levels of inventory in the Advantek Handler
Division acquisition in November 1997. The company has a $5.0 million line of
credit agreement with Harris Trust and Savings Bank of Chicago, Illinois.
Borrowings under this agreement are secured by receivables, inventory and
general intangibles. Borrowing is limited to a percentage of eligible
receivables and inventory. There were no line of credit advances outstanding as
of December 31, 1997 or 1996.
The company believes its cash and short-term investments of $27.6 million
at December 31, 1997, funds generated from operations and borrowings available
under its credit facility will be sufficient to meet capital expenditure and
working capital needs for at least 24 months. The company may acquire other
companies, product lines or technologies that are complementary to the company's
business and the company's working capital needs may change as a result of such
acquisitions.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
BUSINESS RISKS AND UNCERTAINTIES:
A number of risks and uncertainties exist which could impact the company's
future operating results. These uncertainties include, but are not limited to,
general economic conditions, competition, changes in rates of capital spending
by semiconductor manufacturers, the company's success in developing new products
and technologies, market acceptance of new products, unanticipated costs
associated with integrating acquired companies or businesses, and other factors,
including those set forth in the company's SEC filings, including its current
report on Form 10-K for the year ended December 31, 1997.
YEAR 2000 ISSUES:
Many existing computer programs use only two digits to identify a year in the
date field, with the result that data referring to the year 2000 and subsequent
years may be misinterpreted by these programs. If present in the computer
applications of the company or its suppliers and not corrected, this problem
could cause computer applications to fail or to create erroneous results and
could cause a disruption in operations and have an adverse effect on the
company's business and results of operations. The company has evaluated its
principal computer systems and has determined that they are substantially Year
2000 compliant. The company has initiated discussions with its key suppliers to
determine whether they have any Year 2000 issues. The company has not incurred
any material expenses to date in connection with this evaluation, and does not
anticipate material expenses in the future, depending upon the status of its key
suppliers with respect to this issue.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Aetrium Incorporated:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Aetrium Incorporated and its subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Minneapolis, Minnesota
January 30, 1998
17
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 67,574,834 $ 58,387,108 $ 47,630,639
Cost of goods sold 32,916,692 26,218,862 20,450,299
- ------------------------------------------------------------------------------------------
GROSS PROFIT 34,658,142 32,168,246 27,180,340
- ------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling, general and administrative 14,323,138 12,161,441 11,509,977
Research and development 10,492,301 7,630,572 4,972,762
Acquisition-related charges 9,459,351 -- 6,338,590
- ------------------------------------------------------------------------------------------
Total operating expenses 34,274,790 19,792,013 22,821,329
- ------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 383,352 12,376,233 4,359,011
Other income, net 1,146,594 1,116,197 434,734
- ------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,529,946 13,492,430 4,793,745
Provision for income taxes (301,000) (4,250,000) (1,438,000)
- ------------------------------------------------------------------------------------------
NET INCOME $ 1,228,946 $ 9,242,430 $ 3,355,745
==========================================================================================
NET INCOME PER COMMON SHARE:
Basic $ .14 $ 1.10 $ .48
Diluted $ .14 $ 1.08 $ .46
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 8,668,000 8,370,000 7,062,000
Diluted 8,923,000 8,591,000 7,353,000
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 27,584,416 $ 34,756,218
Short-term investments -- 1,028,201
Accounts receivable, net of allowance for doubtful
accounts of $259,600 and $799,400 respectively 12,709,266 8,032,064
Inventories 16,785,448 10,332,048
Deferred taxes 783,814 1,009,545
Other current assets 614,447 354,266
- -------------------------------------------------------------------------------------------------------
Total current assets 58,477,391 55,512,342
- -------------------------------------------------------------------------------------------------------
Property and equipment:
Furniture and fixtures 1,351,206 851,559
Equipment 5,282,002 3,683,434
- -------------------------------------------------------------------------------------------------------
6,633,208 4,534,993
Less accumulated depreciation and amortization (2,989,995) (2,275,700)
- -------------------------------------------------------------------------------------------------------
Property and equipment, net 3,643,213 2,259,293
- -------------------------------------------------------------------------------------------------------
Noncurrent deferred taxes 4,950,500 2,518,769
Intangible and other assets, net 3,823,110 1,427,577
- -------------------------------------------------------------------------------------------------------
Total assets $ 70,894,214 $ 61,717,981
=======================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 2,610,525 $ 1,040,760
Accrued compensation and commissions 2,250,027 1,515,069
Other accrued expenses 2,807,152 1,181,896
Income taxes payable 734,509 --
- -------------------------------------------------------------------------------------------------------
Total current liabilities 8,402,213 3,737,725
- -------------------------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity:
Common stock, $.001 par value; 16,000,000 shares authorized;
8,786,740 and 8,449,420 shares issued and outstanding, respectively 8,787 8,449
Additional paid-in capital 46,561,805 43,279,344
Retained earnings 15,921,409 14,692,463
- -------------------------------------------------------------------------------------------------------
Total shareholders' equity 62,492,001 57,980,256
- -------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 70,894,214 $ 61,717,981
=======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Total
------------------------- Additional Retained Shareholders'
Shares Amount Paid-in Capital Earnings Equity
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE DEC. 31, 1994 6,805,110 $ 6,805 $ 19,221,546 $ 2,094,288 $ 21,322,639
Exercise of stock options 290,726 291 1,364,376 -- 1,364,667
Exercise of stock warrants 135,000 135 944,865 -- 945,000
Repurchase of common
stock in connection
with exercise of stock rights (193,004) (193) (3,200,153) -- (3,200,346)
Tax benefit related to
exercise of stock options -- -- 997,433 -- 997,433
Purchase of
fractional shares (22) -- (392) -- (392)
Common stock issued
in stock offering,
including exercise of
over-allotment option,
net of expenses 1,265,000 1,265 23,635,289 -- 23,636,554
Net income -- -- -- 3,355,745 3,355,745
- -----------------------------------------------------------------------------------------------------------------
BALANCE DEC. 31, 1995 8,302,810 8,303 42,962,964 5,450,033 48,421,300
Exercise of stock options 289,071 289 1,703,584 -- 1,703,873
Repurchase of common
stock in connection
with exercise of stock options (142,461) (143) (2,398,173) -- (2,398,316)
Tax benefit related to
exercise of stock options -- -- 1,010,969 -- 1,010,969
Net income -- -- -- 9,242,430 9,242,430
- -----------------------------------------------------------------------------------------------------------------
BALANCE DEC. 31, 1996 8,449,420 8,449 43,279,344 14,692,463 57,980,256
Exercise of stock options 285,998 286 2,274,890 -- 2,275,176
Repurchase of common
stock in connection
with exercise of stock options (134,678) (134) (2,697,355) -- (2,697,489)
Common stock issued in
connection with the
purchase of a business 186,000 186 2,499,654 -- 2,499,840
Tax benefit related to
exercise of stock options -- -- 1,205,272 -- 1,205,272
Net income -- -- -- 1,228,946 1,228,946
- -----------------------------------------------------------------------------------------------------------------
BALANCE DEC. 31, 1997 8,786,740 $ 8,787 $ 46,561,805 $ 15,921,409 $ 62,492,001
=================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,228,946 $ 9,242,430 $ 3,355,745
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,183,792 903,992 727,741
Acquisition related charges 9,459,351 -- 6,338,590
Deferred taxes (2,206,000) 80,000 (1,804,000)
Changes in assets and liabilities, net of affect of
acquired businesses:
Accounts receivable, net (4,393,864) 2,410,107 (3,457,934)
Inventories (4,240,752) (1,671,245) (3,199,674)
Other current assets (244,221) 85,224 (183,886)
Intangible and other assets 45,992 2,484 184,288
Trade accounts payable 1,169,205 (691,521) 808,824
Accrued compensation and commissions 580,248 (310,817) 332,773
Other accrued expenses (320,177) (323,613) (634,405)
Income taxes payable 2,140,485 358,594 1,549,809
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,403,005 10,085,635 4,017,871
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of businesses and technology, net of cash acquired (9,167,763) -- --
Payment of acquisition related indebtedness -- (7,287,323) --
Purchase of property and equipment (1,720,537) (1,435,583) (660,999)
Sale (purchase) of short-term investments 1,028,201 (1,028,201) --
- ------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (9,860,099) (9,751,107) (660,999)
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 785,780 355,724 23,819,675
Repurchase of common stock related to exercise of stock options (1,208,093) (1,050,167) (1,074,192)
Principal payments on debt (1,292,395) (175,067) --
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (1,714,708) (869,510) 22,745,483
- ------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,171,802) (534,982) 26,102,355
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 34,756,218 35,291,200 9,188,845
- ------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 27,584,416 $ 34,756,218 $ 35,291,200
==================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BUSINESS DESCRIPTION
The company specializes in the design, development, manufacturing and marketing
of a variety of electromechanical equipment used by the semiconductor industry
to handle and test integrated circuits.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the company and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
RECLASSIFICATIONS:
Certain prior year amounts have been reclassified to conform with the current
year presentation.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:
Short-term investments include highly liquid investments purchased with an
original maturity greater than three months and less than one year and are
stated at cost which approximates market value. Short-term investments which
have a maturity of three months or less at the time of purchase are considered
cash equivalents.
INVENTORIES:
Inventories are valued at the lower of cost or market, with cost determined on a
first-in, first-out basis.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation and amortization are
generally computed for financial statement and tax purposes using accelerated
methods over the shorter of the estimated useful lives or the applicable lease
terms. Maintenance and repairs are charged to expense as incurred.
INTANGIBLES:
Goodwill, representing the excess of purchase price over the fair value of net
assets of acquired businesses, is amortized on a straight-line basis over 15
years. Costs associated with the purchase of product and patent rights and other
intangibles are capitalized and amortized on a straight-line basis over their
respective useful lives.
The company assesses the potential impairment of its intangible assets based
on anticipated undiscounted cash flows from operations. At December 31, 1997 and
1996, no impairment was indicated.
WARRANTY COSTS:
Estimated product warranty costs are accrued at the time of shipment.
REVENUE RECOGNITION:
Revenue is recognized upon the shipment of products.
RESEARCH AND DEVELOPMENT:
Expenditures for research and development, including software development, are
expensed as incurred.
INCOME TAXES:
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards (FAS) No. 109, "Accounting for Income Taxes". Deferred tax
assets are recognized for deductible temporary differences and tax credit
carryforwards and deferred tax liabilities are recognized for taxable temporary
differences. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized.
NET INCOME PER COMMON SHARE:
Basic net income per share is computed by dividing net income by the weighted
average number of common shares outstanding during each year. Diluted net income
per share is computed by dividing net income by the weighted average number of
common shares and common stock equivalent shares outstanding during each year.
Common stock equivalents include stock options and warrants using the treasury
stock method.
NOTE 3: SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest and income taxes were as follows:
Year Ended Dec. 31, 1997 1996 1995
- -------------------------------------------------------
Interest paid $ 18,314 $ 13,871 $ 10,044
Income taxes paid $ 114,453 $ 4,063,286 $ 1,619,976
- -------------------------------------------------------
During the years ended December 31, 1997, 1996 and 1995 employees surrendered
73,636 ($1,489,396 fair market value), 79,310 ($1,348,149 fair market value),
and 73,796 ($1,181,154 fair market value) shares of Common Stock, respectively,
as payment for the exercise prices of stock options.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: INVENTORIES
A summary of the composition of inventories is as follows:
December 31, 1997 1996
- ------------------------------------------------------
Purchased parts and
completed subassemblies $ 9,306,685 $ 7,330,388
Work-in-process 5,488,399 2,105,037
Finished goods 1,990,364 896,623
- ------------------------------------------------------
Total inventories $16,785,448 $ 10,332,048
======================================================
NOTE 5: INTANGIBLE AND OTHER ASSETS
Intangible and other assets comprise the following:
December 31, 1997 1996
- -----------------------------------------------------
Goodwill $ 1,269,937 $ 1,269,937
Acquisition-related
intangibles 3,673,339 917,035
Other 37,225 60,154
- -----------------------------------------------------
4,980,501 2,247,126
Accumulated amortization (1,157,391) (819,549)
- -----------------------------------------------------
Total intangible and
other assets, net $ 3,823,110 $ 1,427,577
=====================================================
Acquisition-related intangibles include amounts capitalized in connection
with the acquisitions of businesses and product lines, including trained
workforces, product technology and patents.
Amortization expense related to intangibles amounted to $337,842, $145,799
and $119,131 for 1997, 1996 and 1995, respectively.
NOTE 6: ACQUISITIONS
HANDLER DIVISION OF ADVANTEK, INC.:
Effective October 31, 1997, the company acquired certain assets and assumed
certain liabilities of the Handler Division of Advantek, Inc. The Handler
Division's products include integrated circuit test handlers which utilize
"pick-and-place" technology. The purchase price totaled $4,565,298 including
$4,170,298 of cash and $395,000 of acquisition-related costs. The acquisition
was accounted for as a purchase and, accordingly, the net assets acquired were
recorded at their estimated fair values at the effective date of the
acquisition.
The acquisition included $2,268,542 related to in-process research and
development, as determined by a third party appraisal, which was charged against
income in 1997 as the underlying research and development projects had not yet
reached technological feasibility.
FORWARD SYSTEMS AUTOMATION:
On April 1, 1997, the company acquired substantially all of the assets and
assumed certain liabilities of Forward Systems Automation, Inc. (FSA), a
privately held manufacturer of equipment for the semiconductor and electronic
component industries. The purchase price totaled $6,749,840 including $4,000,000
of cash, 186,000 shares of the company's common stock valued at $2,499,840 and
$250,000 of acquisition-related costs. The acquisition was accounted for as a
purchase and, accordingly, the net assets acquired were recorded at their
estimated fair values at the effective date of the acquisition.
The acquisition included $7,190,809 related to in-process research and
development, as determined by a third party appraisal, which was charged against
income in 1997 as the underlying research and development projects had not yet
reached technological feasibility.
EJ SYSTEMS:
Effective December 29, 1995, the company acquired substantially all of the
assets and assumed certain liabilities of EJ Systems, Inc. (EJ), a manufacturer
of environmental test products. The purchase price totaled $7,507,323 including
$7,287,323 of cash and $220,000 of acquisition-related costs. The acquisition
was accounted for as a purchase and, accordingly, the net assets acquired were
recorded at their estimated fair values at the effective date of the
acquisition.
The acquisition included $6,338,590 related to in-process research and
development, as determined by a third party appraisal, which was charged against
income in 1995 as the underlying research and development projects had not yet
reached technological feasibility.
In connection with the purchase of the EJ business, the company entered into
a product development contract with the previous principal owner of the
business, which provided for potential future payments up to a cumulative
$2,000,000 based upon the successful completion of certain product developments.
During 1997, $1,500,000 was earned in connection with these product developments
and was capitalized as acquired technology. Of this amount, $1,000,000 was paid
during 1997 and $500,000 was paid in February 1998.
PRO FORMA INFORMATION:
The company's consolidated financial statements include the results of the
Advantek Handler Division operations since October 31, 1997; FSA operations
since April 1, 1997; and EJ operations since December 29, 1995. The following
table presents the consolidated results of operations of the compa-
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ny on an unaudited pro forma basis as if the acquisitions had taken place at the
beginning of each year (in thousands, except per share data):
Unaudited pro forma 1997 1996 1995
- -------------------------------------------------------
Net sales $71,652 $64,594 $ 55,257
Net income 6,881 7,694 7,261
Pro forma net
income per share
(diluted) $ .77 $ .88 $ .96
- -------------------------------------------------------
Reported net income
per share before
acquisition-related
charges (diluted) $ .88 $ 1.08 $ 1.06
- -------------------------------------------------------
The acquisition charges for in-process research and development are not
reflected in the pro forma results presented above. The unaudited pro forma
results of operations are for comparative purposes only and do not necessarily
reflect the results that would have occurred had the acquisitions occurred at
the beginning of the periods presented or the results which may occur in the
future.
NOTE 7: LONG-TERM DEBT AND CREDIT AGREEMENT
As of December 31, 1997, the company had no outstanding long-term debt. In
connection with the FSA acquisition, the company assumed certain FSA notes
payable obligations of $1,292,395 which were paid on April 1, 1997 concurrent
with the closing of the acquisition.
The company has a line of credit with a bank which provides for borrowings up
to the lesser of $5,000,000, or 80% of eligible accounts receivables and 50% of
eligible inventory. The line of credit is secured by receivables, inventory and
general intangibles. There were no line of credit advances outstanding as of
December 31, 1997 and 1996.
NOTE 8: LEASE OBLIGATIONS
The company leases its North St. Paul, Minn. facility from a partnership
controlled by certain shareholders of the company. The lease agreement expires
in February 2006. None of the shareholders in the partnership are either
directors or officers of the company. The company leases its Dallas, Texas
facility from a partnership controlled by an officer shareholder. The company
believes the terms of these leases are 24 competitive with comparable
local properties. The company also leases certain equipment and other facilities
under various operating leases. Rent expense under all operating leases was as
follows:
Year Ended Dec. 31, 1997 1996 1995
- --------------------------------------------------------
Paid to shareholders $ 336,927 $ 231,575 $ 185,284
Paid to others 631,069 457,501 353,286
- --------------------------------------------------------
Total rent expense $ 967,996 $ 689,076 $ 538,570
========================================================
Future minimum annual lease payments under operating leases are as follows:
- ------------------------------------------------------
1998 $ 935,000
1999 911,000
2000 768,000
2001 386,000
2002 386,000
Thereafter 1,052,000
- ------------------------------------------------------
Total minimum lease payments $ 4,438,000
======================================================
NOTE 9: COMMON STOCK
On July 24, 1995, the company's board of directors approved a 3-for-2 stock
split. Accordingly, all historical financial data and per share amounts included
in the financial statements and footnotes have been restated to reflect the
stock split.
NOTE 10: STOCK OPTIONS
In 1993, the company's shareholders approved the adoption of the 1993 Stock
Incentive Plan (the Plan). Employees, officers, directors, consultants and
independent contractors providing services to the company are eligible to
receive awards under the Plan. The number of shares available for issuance under
the Plan is equal to 17.5% of the aggregate number of shares of common stock
outstanding less the total number of shares of common stock issuable upon the
exercise or conversion of any stock options, warrants or other stock rights. The
Plan is administered by the Compensation Committee of the Board of Directors and
provides for the granting of: (a) stock options; (b) stock appreciation rights;
(c) restricted stock; (d) performance awards; and (e) stock awards valued in
whole or in part by reference to or otherwise based upon the company's stock.
Options granted under the Plan may be incentive stock options or nonqualified
stock options. The Plan will terminate on June 8, 2003.
As required, the company adopted Statement of Financial Accounting Standards
(FAS) No. 123, "Accounting for Stock-Based Compensation" in 1996. As permitted
by FAS No. 123, the company applies APB Opinion No. 25 and related
interpretations in accounting for its stock option
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
plans and, accordingly, does not recognize compensation expense related thereto.
If the company had elected to recognize compensation expense based on the fair
value of the options granted at grant date as prescribed by FAS No. 123, net
income and net income per share would have been reduced to the pro forma amounts
indicated in the following table ($ in thousands, except per share amounts):
1997 1996 1995
- ------------------------------------------------------
Net income - as reported $1,229 $ 9,242 $ 3,356
Net income - pro forma $ 389 $ 8,662 $ 3,315
Net income per share -
as reported (diluted) $ .14 $ 1.08 $ .46
Net income per share -
pro forma (diluted) $ .04 $ 1.01 $ .45
- ------------------------------------------------------
The fair value of options granted in 1997, 1996 and 1995 were estimated on the
date of grant using the Black-Scholes option-pricing model with the following
assumptions:
1997 1996 1995
- ----------------------------------------------------------------
Expected dividend level 0% 0% 0%
Expected stock price volatility 42% 44% 44%
Risk-free interest rate 6.2% 6.0% 6.0%
Expected life of options 3.5 years 3.5 years 3.5 years
- ----------------------------------------------------------------
The following table summarizes activity under the company's stock option plans:
<TABLE>
<CAPTION>
Outstanding Options
--------------------------------------------
Weighted Average
Number of Shares Exercise Prices Exercise Price
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1994 957,100 $ 1.39 to 7.83 $ 5.83
Options granted 525,725 10.25 to 16.50 11.27
Options exercised (290,726) 1.39 to 6.67 4.69
Options canceled (46,407) 1.39 to 6.50 6.34
- ----------------------------------------------------------------------------------------------
Balance, December 31, 1995 1,145,692 1.39 to 16.50 8.59
Options granted 172,500 10.25 to 18.81 12.46
Options exercised (289,071) 1.39 to 11.50 5.89
Options canceled (29,939) 11.50 to 16.50 15.51
- ----------------------------------------------------------------------------------------------
Balance, December 31, 1996 999,182 1.39 to 18.81 9.59
Options granted 360,000 16.63 to 17.19 16.71
Options exercised (285,998) 1.39 to 10.25 7.96
Options canceled (22,840) 6.58 to 10.25 8.33
- ----------------------------------------------------------------------------------------------
Balance, December 31, 1997 1,050,344 $ 6.58 to 18.81 $ 12.50
==============================================================================================
Options exercisable as of December 31, 1997 357,770 $ 6.58 to 18.81 $ 10.36
==============================================================================================
</TABLE>
The following table summarizes information related to stock options outstanding
at December 31, 1997, all of which are nonqualified options which become
exercisable over a four- to five-year period and expire five years after the
grant date:
Options Outstanding
- -----------------------------------------------------------------------------
Number Weighted
Range of Outstanding Average Remaining Weighted Average
Exercise Prices at 12/31/97 Contractual Life Exercise Price
- -----------------------------------------------------------------------------
$ 6.58 to 7.83 137,474 1.2 years $ 6.77
10.25 to 18.81 912,870 4.1 years 13.36
- -----------------------------------------------------------------------------
$ 6.58 to 18.81 1,050,344 3.7 years $12.50
=============================================================================
Options Exercisable
- ----------------------------------------------
Number Weighted
Exercisable Average
at 12/31/97 Exercise Price
- ----------------------------------------------
111,693 $ 6.72
246,077 12.02
- ----------------------------------------------
357,770 $10.36
==============================================
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the years ended December 31, 1997, 1996 and 1995 in connection with
certain stock option exercises, employees surrendered 134,678 ($2,697,489 fair
market value), 142,461 ($2,398,316 fair market value), and 146,269 ($2,255,346
fair market value) shares of common stock as payment for the exercise prices of
such options and related withholding tax obligations.
The company recorded a tax benefit of $1,205,272, $1,010,969 and $997,433 for
the years ending December 31, 1997, 1996 and 1995, respectively, related to the
exercise of nonqualified stock options, which amounts have been credited to
Additional Paid-in Capital.
NOTE 11: EMPLOYEE SAVINGS 401(k) AND STOCK PURCHASE PLANS
The company has a 401(k) employee savings plan which covers all employees who
are at least 21 years of age and have at least three months of service. Company
contributions to the plan were $312,803, $271,190 and $240,376 in 1997, 1996 and
1995, respectively.
The company has a nonqualified employee stock purchase plan. Full-time
eligible employees may purchase shares of common stock by contributing to the
plan through payroll deductions. Employee contributions to the plan are limited
to 10% of each employee's base compensation. The plan purchases shares on the
open market at fair market value. At its discretion, the company may choose to
contribute to the plan. The company contributed $10,444, $14,966 and $3,637 to
the plan in 1997, 1996 and 1995, respectively.
NOTE 12: INCOME TAXES
The provision for income taxes is made up of the following components:
Year ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------
Current tax provision:
Federal $ 2,205,000 $ 3,585,000 $ 2,821,000
State 302,000 585,000 421,000
- ---------------------------------------------------------------------------
Total current provision 2,507,000 4,170,000 3,242,000
- ---------------------------------------------------------------------------
Deferred tax provision:
Federal (1,941,000) 69,000 (1,570,000)
State (265,000) 11,000 (234,000)
- ---------------------------------------------------------------------------
Total deferred provision (2,206,000) 80,000 (1,804,000)
- ---------------------------------------------------------------------------
Total provision for income taxes $ 301,000 $ 4,250,000 $ 1,438,000
===========================================================================
An analysis of the effective tax rate on earnings and a reconciliation from the
expected statutory rate are as follows:
Year ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------
Income before income taxes $1,529,946 $13,492,430 $4,793,745
Statutory federal tax rate 34% 35% 34%
Tax computed at federal statutory rate $ 520,182 $ 4,722,351 $1,629,873
State taxes, net of federal benefit 24,420 387,400 123,420
Increase (decrease) in tax from:
Goodwill amortization 19,368 19,938 19,368
Foreign sales corporation benefit (204,000) (315,000) (244,800)
Tax-exempt interest income (313,480) (388,909) (154,484)
Tax credits (253,460) (198,750) (234,300)
Other 507,970 22,970 298,923
- ------------------------------------------------------------------------------
Provision for income taxes $ 301,000 $ 4,250,000 $1,438,000
==============================================================================
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets (liabilities) comprise the following:
<TABLE>
<CAPTION>
December 31, 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accounts receivable, principally due to allowances for returns and doubtful accounts $ 88,271 $ 287,784
Inventories, principally due to reserves for obsolescence and additional costs inventoried
for tax purposes pursuant to the Tax Reform Act of 1986 341,352 318,552
Employee compensation and benefits accrued for financial reporting purposes 135,496 69,093
Purchased research and development 5,595,033 2,928,326
Tax credit carryforwards 104,867 104,867
Other (530,705) (180,308)
- -----------------------------------------------------------------------------------------------------------------------
Net deferred tax asset $ 5,734,314 $ 3,528,314
=======================================================================================================================
</TABLE>
NOTE 13: BUSINESS SEGMENT, GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION, AND
CONCENTRATION OF CREDIT RISK
The company operates in one industry segment supplying electromechanical
equipment to the semiconductor and electronic component industries. Foreign
sales from the United States were as follows:
Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------
Asia $11,990,000 $12,552,000 $18,021,000
Europe 7,720,000 3,597,000 4,364,000
Other 50,000 8,000 7,000
- -------------------------------------------------------------
$19,760,000 $16,157,000 $22,392,000
=============================================================
Sales to a distributor customer represented 11.8%, 10.0% and 19.5% of total
net sales in 1997, 1996 and 1995, respectively. Sales to a second customer
represented 18.2% and 16.0% of total net sales in 1997 and 1996, respectively.
Sales to a third customer represented 14.0% and 11.6% of total net sales in 1997
and 1995, respectively. Sales to a fourth customer represented 10.1% and 16.3%
of total net sales in 1997 and 1995, respectively.
The company sells its products principally to manufacturers of integrated
circuits and semiconductor equipment. Its accounts receivable balance is
concentrated with customers principally in one industry; however, the company
regularly monitors the creditworthiness of its customers and credit losses have
historically been minimal.
27
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
FIVE YEAR SUMMARY
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income statement data:
Net sales $67,575 $58,387 $47,631 $26,091 $20,900
Income from operations 383 12,376 4,359 1,238 4,810
Net income 1,229 9,242 3,356 1,131 4,584*
Net income per share (diluted) .14 1.08 .46 .16 .85*
- -----------------------------------------------------------------------------------------
* INCLUDES $1,315 ($.25 PER SHARE) NET GAIN FROM UNUSUAL ITEMS.
December 31, 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------
Balance sheet data:
Total assets $70,894 $61,718 $61,600 $25,210 $22,896
Long-term debt, less current portion -- -- 135 -- 410
- -----------------------------------------------------------------------------------------
</TABLE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per share data) First Second Third Fourth
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 Net sales $ 11,936 $ 14,921 $ 18,683 $ 22,035
Gross profit 6,118 7,626 9,858 11,056
Income from operations before unusual items 1,274 1,928(1) 3,041 3,600(1)
Net income before unusual items 1,110 1,594(1) 2,344 2,803(1)
Net income per share before unusual items (diluted) .13 .18(1) .26 .31(1)
Net income (loss) 1,110 (3,440) 2,344 1,215
Net income (loss) per share (diluted) .13 (.40) .26 .13
- ------------------------------------------------------------------------------------------------------
1996 Net sales $ 17,049 $ 17,271 $ 13,048 $ 11,019
Gross profit 9,563 9,817 6,991 5,797
Income from operations 4,145 4,451 2,320 1,460
Net income 3,001 3,203 1,781 1,257
Net income per share (diluted) .35 .37 .21 .15
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Before acquisition-related charges.
PRICE RANGE OF THE COMPANY'S COMMON STOCK
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------
1997 HIGH $ 16.25 $ 19.50 $ 26.25 $ 28.25
LOW $ 12.88 $ 12.50 $ 18.50 $ 15.13
- --------------------------------------------------------------------------
1996 High $ 20.75 $ 22.00 $ 18.00 $ 14.50
Low $ 13.25 $ 14.75 $ 8.38 $ 10.00
- --------------------------------------------------------------------------
As of March 13, 1998 there were approximately 200 shareholders of record. The
company estimates that an additional 6,200 shareholders own stock held for their
accounts at brokerage firms and financial institutions.
DIVIDENDS
The company has never paid cash dividends on common stock. The company currently
intends to retain any earnings for use in its operations and does not anticipate
paying cash dividends in the foreseeable future.
28
EXHIBIT 21.1
Subsidiaries of Aetrium Incorporated
1. Aetrium Corporation, organized under the laws of Minnesota
2. Aetrium Foreign Sales Corporation, organized under the laws of Barbados
3. Sym-Tek Incorporated of Minnesota, organized under the laws of
Minnesota
4. Aetrium-EJ Inc., organized under the laws of Minnesota
5. Aetrium-AI Inc., organized under the laws of Minnesota
6. Aetrium-FSA Texas Inc., organized under the laws of Minnesota
7. Aetrium-FSA, LP, organized under the laws of Texas
8. Aetrium-WEB Technology Inc., organized under the laws of Minnesota
9. Aetrium-WEB Technology, LP, organized under the laws of Texas
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Numbers 33-72656 and 33-74616) of Aetrium Incorporated
of our report dated January 30, 1998 appearing on page 17 of the Annual Report
to Shareholders which is incorporated in this Annual Report on Form 10-K. We
also consent to incorporation by reference of our report on the Financial
Statement Schedule, which appears on page 19 of this Form 10-K.
/S/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 27,584
<SECURITIES> 0
<RECEIVABLES> 12,709
<ALLOWANCES> 0
<INVENTORY> 16,785
<CURRENT-ASSETS> 58,477
<PP&E> 6,633
<DEPRECIATION> 2,990
<TOTAL-ASSETS> 70,894
<CURRENT-LIABILITIES> 8,402
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 62,483
<TOTAL-LIABILITY-AND-EQUITY> 70,894
<SALES> 67,575
<TOTAL-REVENUES> 67,575
<CGS> 32,917
<TOTAL-COSTS> 32,917
<OTHER-EXPENSES> 10,492
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,530
<INCOME-TAX> 301
<INCOME-CONTINUING> 1,229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,229
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FOLLOWING ARE RESTATED FINANCIAL DATA SCHEDULES FOR THE REPORTING PERIODS
ENDED MARCH 31, 1996; JUNE 30, 1996; SEPTEMBER 30, 1996, AND DECEMBER 31, 1996
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996
<CASH> 30,119 30,631 33,369 34,756
<SECURITIES> 0 0 1,028 1,028
<RECEIVABLES> 11,453 10,444 8,004 8,032
<ALLOWANCES> 0 0 0 0
<INVENTORY> 10,081 11,600 10,818 10,332
<CURRENT-ASSETS> 52,810 53,736 54,320 55,512
<PP&E> 3,979 4,268 4,429 4,535
<DEPRECIATION> 1,811 1,987 2,132 2,276
<TOTAL-ASSETS> 59,207 60,206 60,758 61,718
<CURRENT-LIABILITIES> 7,807 5,552 4,335 3,738
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 8 8 8 8
<OTHER-SE> 51,392 54,646 56,415 57,972
<TOTAL-LIABILITY-AND-EQUITY> 59,207 60,206 60,758 61,718
<SALES> 17,049 34,320 47,368 58,387
<TOTAL-REVENUES> 17,049 34,320 47,368 58,387
<CGS> 7,486 14,940 20,997 26,219
<TOTAL-COSTS> 7,486 14,940 20,997 26,219
<OTHER-EXPENSES> 1,920 3,851 5,785 7,631
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 0 0 0 0
<INCOME-PRETAX> 4,413 9,125 11,744 13,492
<INCOME-TAX> 1,412 2,921 3,759 4,250
<INCOME-CONTINUING> 3,001 6,204 7,985 9,242
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 3,001 6,204 7,985 9,242
<EPS-PRIMARY> .36 .74 .96 1.10
<EPS-DILUTED> .35 .72 .93 1.08
</TABLE>
