U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
------ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
| X | SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
------ For the fiscal year ended March 31, 1996
OR
------
| | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
------ THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-24212
PRODUCTIVITY TECHNOLOGIES CORP.
(Exact name of Registrant as specified in its charter)
Delaware 13-3764753
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
520 Madison Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 843-1480
Securities registered pursuant to Section 12(b) of the
Exchange Act: None Securities registered pursuant to
Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
(Title of class)
Redeemable Common Stock Units, each consisting of one
Purchase Warrants Share of Common Stock and two
(Title of class) Redeemable Common Stock
Purchase Warrants
(Title of Class)
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. [ ]
As of June 21, 1996, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was approximately $10,712,000.
As of June 21, 1996, there were 2,125,000 shares of the Registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
PAGE 1 OF 82 PAGES
EXHIBIT INDEX -- PAGE 43
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Productivity Technologies Corp. (formerly named Production Systems
Acquisition Corporation), a Delaware corporation ("Company"), was organized in
June 1993 as a Specified Purpose Acquisition Company(R) ("SPAC(R)"),* with the
objective of acquiring an operating business ("Target Business") in the
production systems industry ("Production Systems Industry"). The Production
Systems Industry consists of companies which produce the machinery, components
and systems for manufacturing.
On May 23, 1996, the Company achieved its objective of acquiring a
Target Business with the acquisition of Atlas Technologies, Inc. ("Atlas"), a
Michigan-based corporation incorporated in 1974 and engaged in the manufacture
and sale of equipment to automate metal stamping press operations. The
acquisition was accomplished through the merger of a wholly-owned subsidiary of
the Company into Atlas, with Atlas being the surviving company and becoming a
wholly-owned subsidiary of the Company. The Company has no other subsidiaries or
operations.
Business of Atlas
Metal stamping presses are used to form a wide variety of sheet metal
components used in automobiles, appliances and other consumer and industrial
products. Atlas offers a complete range of products within three categories
critical to the operation of metal stamping presses: quick die changing
equipment, press automation equipment, and stacking and destacking equipment,
which, together, have historically accounted for approximately 90% of its sales
revenues. It also sells, on a turnkey basis, fully integrated metal stamping
systems comprised of components provided by Atlas and other manufacturers.
Metal stamping involves setting pieces of flat sheet metal over a
shaped die which is set in a press and then lowering a matching die onto the
sheet metal to form it into the desired shape. The sheet metal pieces typically
pass through several stamping press operations, each performing a different
shaping function. Atlas' products stack cut sheet metal blanks for feeding into
the presses, move components from one press station to another within a
multi-station transfer press or between presses within a tandem line of presses
and facilitate the changing of dies on a press.
In recent years, the increasing complexity and precision required in
stamped metal components, such as automobile body and appliance parts, coupled
with the large variety of such components necessary to meet consumer
preferences, has required the manufacturers of such products to increase the
flexibility and efficiency of the machinery used in their manufacture. The
presses must accommodate rapid changes in production schedules and produce
profitable batch runs of varying sizes. Equipment such as that made by Atlas is
essential to meet the needs of the manufacturers.
Sales of Atlas products have principally been to two customer segments
- - automobile and automotive parts manufacturers, and appliance manufacturers.
Other customers include manufacturers of garden and lawn equipment, office
furniture, heating, air conditioning and ventilation (HVAC) equipment and
aircraft. In Atlas' 1994 and 1995 fiscal years and for the nine months ended
March 31, 1996, the automotive segment accounted for approximately 82%, 79% and
85% of sales, respectively, and appliance manufacturers accounted for
approximately 4%, 8% and 10%, respectively. For its fiscal years 1994 and 1995,
and for the nine months ended March 31, 1996, sales by Atlas to General Motors
Corporation, The Chrysler Corporation and The Ford Motor Company represented
14%, 5% and 25%, 14%, 35% and 4%, and 15%, 10% and 16%, respectively, of sales
- --------
* "Specified Purpose Acquisition Company" and "SPAC" are registered
servicemarks of GKN Securities Corp.
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<PAGE>
for such periods. Sales are predominantly in North America but, in recent years,
Atlas has targeted sales efforts in Mexico, Europe and Asia, which, for the
fiscal year ended June 30, 1995 and the nine months ended March 31, 1996,
represented 11% and 11%, respectively, of total sales.
Atlas uses three marketing channels: direct sales, accounting for the
largest portion, with offices at its headquarters in Fenton, Michigan, Atlanta
and Chicago; commissioned sales representatives; and original equipment
manufacturers (OEMs) specializing in metal presses and related equipment. Order
backlogs were approximately $18,600,000 at March 31, 1996, $19,000,000 at
December 31, 1995 and $16,500,000 at December 31, 1994.
Products
Atlas offers critical, high technology products based on proven designs
and engineering, which it believes offer superior technology, engineering and
features to those offered by its competitors. Atlas products are modular and may
be used with existing systems as well as with completely new systems. As a
result of their modular design, a variety of pieces of equipment can be combined
to form an appropriate solution for a customer's metal stamping needs. Virtually
all of its products are on a made-to-order basis. Because of their many
desirable features, Atlas products are positioned at an above-average price
comparative to its competitors. Generally, there is a large number of suppliers
that are capable of providing the materials and components used by Atlas.
Atlas personnel perform applications engineering, product design or
customization, procurement, fabrication, machining, assembly, testing, shipping
and installation of the products and systems it sells. In 1993, Atlas began
implementing a continuing program to achieve greater standardization in the
engineering and design of its products. To date, the program has resulted in
faster order fulfillment and production, improved fabrication and, management
believes, increased sales. Atlas believes that significant cost-reducing
improvements can still be made in the manufacturing process, particularly from
further standardization. No assurance can be given, however, that such cost
reduction will be attained because Atlas may not be able to perform the
engineering required or make the necessary capital investment.
Quick die change equipment made by Atlas includes automated die carts,
die tables and high rise automated storage-retrieval systems which are used to
maneuver stamping press dies and molds weighing up to 100 tons. The
Atlas-developed products allow die swapping to be accomplished in minutes as
compared to hours if conventional equipment is used. Atlas storage-retrieval
systems permit dies not in use to be stored in multiple level racks and readily
accessible to die carts for die swapping. Atlas' equipment can be configured for
use with either manually controlled or fully automated presses. Atlas believes
that its equipment is instrumental in increasing the "up-time" of presses while
also facilitating short run capability, gentle die handling, safer and improved
ergonomics and easier and more efficient die maintenance.
Atlas' transfer press automation equipment is sold by it under the
names Flex 2000 and Flex 5000(R). Transfer presses use as many as ten dies
within a single press to progressively form the component (typically including
tasks such as drawing or forming, trimming, piercing and flanging). Unlike
tandem press lines, which use multiple presses arranged in a line and require
multiple devices to move a component, transfer presses move the component being
processed from one die station to another using a single automation device.
Compared to tandem presses, transfer presses generally operate at higher
production rates, require less floor space, consume less energy and allow more
component processes per press. Because of this, and because they have fewer
parts and require less expensive quick die change equipment than tandem presses,
transfer presses have become the preferred type of press for new purchases
although many tandem presses will remain in use for many years and can be
refitted with automation equipment.
Stacking and destacking automation equipment is used to handle the
sheet metal in the initial stages of the stamping process. Stackers stack flat
blanks from the coiled rolls which are delivered to the manufacturer.
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Destacking equipment feeds the flat blanks into the press and includes functions
to scrub or roll-coat the metal blanks and to que them to assure a steady flow.
Competition
Atlas products are sold in specialized markets that have limited
customers and little competition. In some instances, however, Atlas products are
procured through competitive bidding. Because of the capital cost and the need
for skilled personnel, such as engineers, designers, mechanics and sales
persons, entry into this industry is expensive and difficult to achieve and
Atlas does not expect competition to increase significantly over present levels.
Primary competitors of Atlas include Volvo AB, Herwo Die Changing, AB, Hirotec
(Japan), Verson All Steel Press, a division of Allied Products Corp., HMS
Products Co. and Aisaku (Japan). Each of these companies offers components which
compete with certain components manufactured or sold by Atlas, but none offers
as comprehensive a line as Atlas. A number of the competitors are well
established with substantial financial resources, recognized brand names,
customer loyalty and established market positions, strong engineering and
distribution networks and comprehensive manufacturing capabilities.
Trademarks and Patents
Atlas has an agreement to use components in the Flex 5000(R) transfer
press that it manufacturers and sells that are based on patents owned by Mr.
John Maher, an individual. The agreement grants Atlas an exclusive worldwide
license to use the patents for a term equal to the life of the patents,
including any extensions as a result of modifications to the patents. Currently,
the patents registered with the United States Patent and Trademark Office expire
on various dates between June 23, 2005 and June 21, 2007. Atlas is obligated to
pay Mr. Maher a royalty based on a portion of the sales price of the Flex
5000(R) as it relates to the value of the patented components. For Atlas' fiscal
year ended June 30, 1995 and the nine months ended March 31, 1996, Atlas
expensed approximately $100,000 and $225,000, respectively, in license fees
under this agreement. The agreement also provides that Mr. Maher is responsible
for defending Atlas for any patent infringements. Atlas believes that the terms
of the agreement are industry competitive.
Atlas has registered with the United States Patent and Trademark Office
a trademark on "Flex 5000(R)."
Atlas owns and has registered with the United States Patent and
Trademark Office two patents, one for a power and free roller conveyer and one
for the transfer arm for supporting workpieces. Atlas also has registered
patents for the first of these in Canada and Great Britain. Atlas has applied
for two United States patents for certain apparatus and methods for forming
workpieces and for magnetic sheet separator constructions.
Management and Employees
Ronald M. Prime is currently the Chief Executive Officer of Atlas and
has been responsible for the overall operations of Atlas, managing the project
management, engineering, manufacturing, controls, service, purchasing, and
finance departments. Mr. Prime has also been active in product development, as
well as the establishment and improvement of Atlas' project management,
engineering, manufacturing, and financial processes. From 1972 to 1984, Mr.
Prime was President of Fluid & Electric Control Co., founding that business and
growing it from one person to 150, one of the largest industrial controls
contractors in Michigan. That company was merged with a predecessor of Atlas in
1984. From 1970 to 1972, Mr. Prime held various technical and controls
engineering positions.
Michael D. Austin is currently the President of Atlas and has been the
principal officer of Atlas, chiefly responsible for directing the sales of the
company, for determining the overall product directions, managing product
research and development, and managing the application engineering departments.
From 1977 to 1984, Mr. Austin held various other management positions at Atlas,
including Vice President of Operations, Sales
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Manager, and Controls Manager. From 1973 to 1977, Mr. Austin held various
controls engineering and management positions at Fluid & Electric Control Co.,
including Chief Engineer.
Atlas employs approximately 200 persons. None of these persons is a
member of a union. Atlas believes that its employee relations are good. Atlas
believes that its location in Michigan is beneficial in its access and ability
to hire qualified personnel because of the highly industrialized nature of the
area.
ITEM 2. PROPERTIES
Atlas operates its manufacturing facilities in Fenton and Linden,
Michigan. It has approximately 43,200 square feet of space in Fenton which is
used for assembly operations and light and medium machining operations and
electrical panel construction. Project management, engineering and sales offices
are also located in Fenton. In Linden, at one location, Atlas has a welding and
fabrication facility located in approximately 16,300 square feet and a heavy
machining and light and medium assembly facility located in approximately 21,000
square feet. Atlas also maintains office space at its site in Linden. Atlas
rents approximately 1,200 square feet of space in Atlanta, Georgia for a sales
office. The principal executive office of Atlas is located at 201 South Alloy
Drive, Fenton, Michigan 48430, and its telephone number is (810) 629-6663.
ITEM 3. LEGAL PROCEEDINGS
In 1996, Atlas and John Maher, the owner of the patent for the Flex
5000(R) licensed to Atlas, initiated an action against Orchid International
Group Inc. ("Orchid") in the Federal Court of Canada, Trial Division, claiming
infringement and wrongful sale, manufacture and use by Orchid of the inventions
protected by such patent and seeking, among other relief, a declaration that the
patents are invalid and has been infringed by Orchid, injunctive relief and
damages of at least $5,000,000 (Cdn). The defendant has not yet filed an answer
to the complaint.
Except for such action, neither the Company nor Atlas is currently
involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, Warrants and Units are traded in the
over-the-counter market and quoted on the OTC Bulletin Board under the symbols
PRAC, PRACW and PRACU, respectively. The Company has not declared or paid any
dividends on its Common Stock since its inception.
The following table sets forth the range of high and low closing bid
prices for Units, Common Stock and Warrants, as reported by the OTC Bulletin
Board. The OTC Bulletin Board is an inter-dealer automated quotation system
sponsored and operated by the NASD for equity securities not included in the
Nasdaq System. Such over-the-counter market quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
reflect actual transactions.
<TABLE>
<CAPTION>
Units Common Stock Warrants
<S> <C> <C> <C> <C> <C> <C>
High Low High Low High Low
Year ended March 31, 1995:
Second Quarter (beginning June 24,
1994)......................................... 5 3/4 5 1/2 N/A N/A N/A N/A
Third Quarter................................... 5 3/4 5 1/8 4 1/4 4 7/8 3/4
Fourth Quarter.................................. 5 1/2 5 1/2 4 1/4 4 1/4 7/8 5/8
Year ended March 31, 1996:
First Quarter................................... 5 1/2 5 1/4 4 3/8 4 1/8 5/8 3/8
Second Quarter ................................. 5 1/4 5 1/4 4 11/16 4 3/8 9/16 3/8
Third Quarter................................... 5 1/4 5 1/4 4 3/4 4 11/16 1/2 7/16
Fourth Quarter.................................. 5 3/4 5 1/4 5 4 3/4 15/16 5/16
</TABLE>
As of June 21, 1996, the Company had 9 holders of record of its Common
Stock. The Company believes that there are in excess of 500 beneficial holders
of the Company's Common Stock.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from financial
statements of the Company which have been audited by BDO Seidman, LLP,
independent certified public accountants. The data should be read in conjunction
with the financial statements of the Company, together with the related notes
thereto, included elsewhere herein, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Period from June 25,
1993 (inception) to Year Ended Year Ended
March 31, 1994 March 31, 1995 March 31, 1996
---------------- -------------- --------------
<S> <C> <C> <C>
Statement of Operations Data:
Interest income........................... $ -- $ 342,548 $502,596
Total expenses and taxes.................. 1,850 281,034 397,509
------- --------- -------
Net income (loss)......................... $(1,850) $ 61,514 $105,087
======= ========= ========
Net income per share...................... $ -- $ .04 $.05
======= ===== ====
Balance Sheet Data: March 31, 1994 March 31, 1995 March 31, 1996
-------------- -------------- --------------
Assets:
Cash and cash equivalents................. $134,000 $ 34,512 $ 4,018
Short term investments.................... -- 446,293 79,745
Trust Fund, consisting of
U.S. Government securities.............. -- 8,584,551 9,070,728
Deferred registration and financing costs. 39,400 -- --
Prepayments............................. -- -- 12,737
Deferred Acquisition Costs.............. -- -- 213,067
Organization costs,
less amortization of $-0-, $7,911
and $18,459............................. -- 44,827 34,279
------- --------- ---------
Total assets.............................. $173,400 $9,110,183 $9,414,574
======== ========== ==========
Liabilities and Stockholders' Equity:
Accrued expenses and taxes................ $ 250 $ 31,419 $ 244,723
Deferred income taxes..................... -- 14,000 --
Notes payable............................. 150,000 -- --
Common stock, subject to possible
conversion, 339,999 shares at
conversion value........................ -- 1,716,052 1,813,239
Common stock, $.001 par value -
shares authorized 20,000,000,
outstanding 425,000, 2,125,000
and 2,125,000 (which includes
339,999 shares subject to possible
conversion)............................. 425 1,785 1,785
Additional paid-in capital................ 24,575 7,351,741 7,351,741
Retained earnings (deficit) accumulated
during development stage................ (1,850) (4,814) 3,086
------- --------- ---------
Total liabilities and stockholders' equity.. $173,400 $9,110,183 $9,414,574
======== ========== ==========
</TABLE>
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ITEM 7. ANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company
In March 1994, the Company raised $150,000 in bridge financing ("Bridge
Financing") in order to pay certain organizational expenses, the costs of the
Bridge Financing and certain costs of its initial public offering ("IPO"). Nine
investors in the Bridge Financing loaned $150,000 to the Company and were issued
promissory notes in that amount, bearing interest at 10% per annum and payable
upon consummation of the IPO, and Warrants to purchase 300,000 shares of the
Common Stock ("Bridge Warrants").
The IPO was completed on July 5, 1994, and the Company received net
proceeds of $8,980,100 after payment of offering expenses. A substantial portion
of such net proceeds ($8,262,000) was placed in the Trust Fund until the earlier
of the Company's consummation of a business combination with a Target Business
or liquidation. The trust agreement limited investments to U.S. Government
securities with a maturity of 180 days or less. At March 31, 1996, there was
approximately $9,071,000 in the Trust Fund. Cumulative interest earned on the
funds in the Trust Fund and on other funds of the Company was $845,000 as of
March 31, 1996. The remaining proceeds of the IPO, and the interest thereon,
have been used to pay for business, legal and accounting due diligence on
prospective acquisitions, and continuing general and administrative expenses, as
well as other expenses.
On May 23, 1996, the Company consummated its acquisition of Atlas and
terminated the Trust Fund, utilizing $7,120,000 from the Trust Fund to pay the
purchase price. Substantially all of the Company's working capital needs prior
to that date were attributable to the identification, evaluation and selection
of a suitable Target Business and the structuring, negotiation and consummation
of a business combination with Atlas. During the year ended March 31, 1996, the
Company incurred general, administrative and other expenses and taxes of
approximately $397,000, which were associated primarily with its evaluation of
Target Businesses. Since May 23, 1996, the Company has been a holding company
with Atlas being its sole subsidiary and operating business.
On May 17, 1996, the Company's Board of Directors approved a change of the
Company's fiscal year to one ending on June 30, effective July 1, 1996, to
coincide with Atlas' fiscal year.
Atlas
During the last several years, the business focus of Atlas has been on
manufacturing and selling quick die change, transfer press and stacking and
destacking equipment. During the same period, Atlas has standardized its
products, changed certain of its manufacturing methods and sold off an older
product line in an effort to improve productivity and margins and concentrate
its efforts on its current principal products.
Historically, about 90% of the sales of Atlas have been to automotive,
appliance and HVAC manufacturers. Recently automotive orders have substantially
increased due to several large stamping operation upgrade programs being
undertaken by, and resultant order increases from, several international
automobile manufacturers. For Atlas' fiscal years 1994 and 1995 and the nine
months ended March 31, 1996, sales to customers in the automotive industry
accounted for approximately 82%, 79% and 85%, respectively, of total sales.
Consequently, the sales and profitability of Atlas will depend to a large extent
on the economic conditions that affect the automotive industry, and to a lesser
extent, the appliance industry, as well as general economic conditions in the
United States, Mexico, Europe and Asia where the majority of its customers are
located. Although Atlas is dependent on the automotive industry, Atlas believes
that product standardization and design, and manufacture and sale of certain of
its products such as quick die change machinery and flexible transfer stamping
presses should reduce the effect on Atlas of cyclicality within the automotive
industry. Atlas further believes that because its machinery generally increases
productivity and reduced per-unit production costs, there will be continuing
demand for its products in down-turns in the economy and in industry groups to
which it sells.
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A significant percentage of Atlas' sales are to a small number of
customers. While these customers are concentrated in primarily two industries,
the automotive and appliance industries, Atlas believes that its customers in
these industries are undertaking long-term productivity improvement programs and
that they will continue to place orders with Atlas. Atlas is undertaking
marketing efforts to diversify its customer base; however, no assurance can be
given that it will be successful. Atlas also is standardizing many of its
products in an attempt to attract new and different customers and to be more
efficient in the design, manufacture and delivery of the products it sells. Such
efficiency may result in improved operating margins, although no assurance can
be given that margins will increase or if increased remain at such percentages.
Nonetheless, Atlas believes that in the foreseeable future, its sales will
continue to be primarily within those industries to which it currently is
selling at the current proportionate percentages.
Recently the sales of Atlas to foreign customers have increased and for
the Atlas fiscal year ended June 30, 1995 and the nine months ended March 31,
1996 represented 11% and 11%, respectively, of the sales of Atlas. Foreign sales
are subject to a number of risks, including transportation delays and
interruptions, political and economic disruptions, the imposition of tariff and
non-tariff barriers and changes in governmental policies including statutory and
regulatory changes. Although there is little Atlas can do to protect itself
against such risks, to the extent possible, Atlas' foreign sales are denominated
in United States dollars to eliminate the risk of currency fluctuation, foreign
sales may be guaranteed in part by the Export-Import Bank of the United States,
shipments are made FOB Michigan to reduce the risk of loss borne by Atlas during
shipment and Atlas obtains foreign risk and credit insurance through the
Export-Import Bank of the United States.
Liquidity and Capital Resources
Atlas believes that its principal long-term capital requirement has been
and is expected to continue to be the funding of capital expenditures to
modernize, improve and expand its facilities and marketing efforts and financing
day-to-day operations. In connection with Atlas' acquisition by the Company,
Atlas paid an aggregate of $2,201,848.88 in connection with certain long term
debt, covenants not to compete and contingent liabilities for former
stockholders. This was partially funded out of a six-year term loan obtained in
May 1996 from NBD Bank, N.A. in the amount of $1,500,000 which loan bears
interest at the bank's prime rate plus one percent. The loan is secured by
assets of Atlas and guaranteed by the Company in the amount of $500,000 until
December 31, 1996 and $150,000 until May 31, 1997, when the guaranty terminates.
Atlas' working capital at March 31, 1996 was $1,438,058, versus working
capital of $2,506,016 at March 31, 1995. The decrease in working capital of
$1,067,958 resulted from reclassification to current from long-term liabilities
of certain debt obligations to former Atlas shareholders. These current
liabilities to former Atlas shareholders were paid immediately prior to the
consummation of the merger between a subsidiary of the Company and Atlas on May
23, 1996.
At March 31, 1996, Atlas had borrowed an aggregate of $2,872,652, of which
the current portion was $1,808,846, comprised of the following loans: (i)
borrowings of $979,965 from NBD Bank, N.A. secured by the plant of Atlas with a
payment due on February 2, 1998 of $805,560, which bears interest at the rate of
1.25% over the bank's prime rate; (ii) borrowings of $203,788 from NBD Bank,
N.A. secured by the equipment of Atlas with a final payment due July 1998, which
bears interest at the rate of 7.75%; (iii) borrowings of $13,591 from Concord
Commercial secured by the equipment of Atlas with a final payment due June 1996,
which bears interest at the real rate of 8.01%; (iv) borrowings of $83,514 from
Concord Commercial secured by the equipment of Atlas with a final payment due
October, 1999, which bears interest at the rate of 8.7%, and (v) notes and other
obligations to former shareholders of Atlas comprising $1,591,794 which were
paid after March 31, 1996 but prior to the merger between Atlas and the Company.
In May 1996, as part of the credit facility which Atlas entered into with NBD
Bank, N.A., Atlas can borrow up to $550,000 to finance future acquisitions of
equipment and facilities.
In addition to the term loans, Atlas has entered into a revolving credit
loan with NBD Bank, N.A. in the amount of $8,000,000. The amount that may be
borrowed under this facility is limited to certain percentages of
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the domestic accounts receivable, raw materials and work in process of Atlas.
Borrowings under this credit facility bear interest at the adjustable rate of
3/4% over the bank's prime rate and are due on May 31, 1997. Atlas is reviewing
with NBD Bank, N.A. the potential for utilizing the Export-Import Bank of the
United States for the financing of foreign receivables and work in process.
Atlas believes that, as a result of its revolving facility, its short term
credit facilities are adequate to support its business operation at its current
levels of sales.
Until it reaches capacity at its present manufacturing facilities (which
management believes is approaching), Atlas believes that its capital
expenditures and operating costs will grow at rates proportional to increases in
sales volume. Currently, for capital expenditures not related to facility
expansion, Atlas has budgeted approximately $300,000 per year for machinery and
equipment, which it believes sufficient to accommodate growth in orders to be
processed at its existing two production facilities. Such capital expenditures
will be met using current credit facilities and working capital.
To provide for additional manufacturing capacity, Atlas' board of
directors recently approved a proposal to build a new production facility with
approximately 50,000 square feet of production and office space. The cost of
this project is estimated at up to $4.5 million. Atlas has received a letter of
inducement from the local Economic Development Corporation to finance much of
the project cost through the issuance of tax exempt industrial revenue bonds
which are expected to bear interest at a rate below the prime rate. Any further
required funds would be provided from working capital. If the industrial revenue
bond financing cannot be secured, there is no assurance Atlas will be able to
finance and build the new facility.
Recent Accounting Standards
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121").
SFAS No. 121 requires, among other things, impairment loss of assets to be held
and gains or losses from assets that are expected to be disposed of be included
as a component of income from continuing operations before taxes on income. The
Company will adopt SFAS No. 121 in fiscal 1996 and its implementation is not
expected to have a material effect on the financial statements of Atlas or the
Company.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 encourages entities to adopt the
fair value method in place of the provisions of Accounting Principals Board
Opinion No. 25. "Accounting for Stock Issued to Employees" ("APB No. 25"), for
all arrangements under which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees in
amounts based on the price of the stock. The Company intends to adopt the
employee stock-based compensation provisions of SFAS No. 123 by disclosing the
pro forma net income and pro forma net income per share amounts assuming the
fair value method was adopted. The Company will adopt this standard beginning in
its fiscal year ending June 30, 1997, as provided for under SFAS No. 123. The
Company does not expect adoption of this standard will have a material effect on
the financial statements of Atlas or the Company.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements of the Company as set forth on page F-1.
1. Atlas Technologies, Inc.
(a) Balance Sheet as of March 31 1996 (unaudited)
(b) Statements of Income for nine months ended March 31, 1996
and 1995 (unaudited
(c) Statement of Stockholders' Equity at March 31,1996 (unaudited)
(d) Statements of Cash Flows for nine months ended March 31, 1996
and 1995 (unaudited)
(e) Selected Information
2. Pro Forma Financial Information of the Company and Atlas
(a) Unaudited Pro Forma Consolidated Statements of Operations for
nine months ended March 31, 1996 and year ended June 30, 1995
(b) Notes to Unaudited Pro Forma Consolidated Statements of
Operations
(c) Unaudited Pro Forma Consolidated Balance Sheet as of
March 31, 1996
(d) Notes to Unaudited Pro Forma Consolidated Balance Sheet
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
Page 11
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The current directors and executive officers of the Company are as
follows:
Director
Nominee Age Since Position
Ray J. Friant, Jr..... 65 1993 Chairman of the Board
Samuel N. Seidman..... 62 1993 President and Director
Joseph K. Linman...... 57 1993 Director and Vice President
John S. Strance....... 71 1993 Director and Vice President
Jesse A. Levine....... 29 1993 Director, Chief Financial Officer,
Vice President, Secretary and
Treasurer
Alan H. Foster........ 70 1993 Director
Alan I. Goldman....... 58 1993 Director
Ray J. Friant, Jr. has been Chairman of the Board of the Company since its
inception. Since 1988, Mr. Friant has been Managing Director of Seidman, Friant,
Levine Ltd., a crisis management company, where he currently specializes in
corporate restructuring and reorganization. In this capacity, he has had
management control, and has successfully restructured and/or stabilized the
operations, of three public companies, CMI Corp., Mr. Gasket Co. and Advanced
Semiconductor Materials International N.V. ("ASM"), which companies have
manufacturing operations in roadbuilding equipment, automotive aftermarket
products and semiconductor production equipment, respectively. In connection
with his activities with Seidman, Friant, Levine Ltd., Mr. Friant presently
serves as Chief Operating Officer of ASM's chemical vapor deposition businesses.
Since 1982, Mr. Friant has also been President and Director of Friant
Associates, Inc., specializing in corporate turnarounds. Mr. Friant was Group
Vice President and General Manager of Gulf+Western Industrial Products Group
(IPG) from 1978 to 1982. IPG was a group of ten companies involved in electronic
systems, electronic connectors, electronic components, electro-mechanical
components, wire and cable, cutting tools and hardware manufacturing. From 1973
to 1978, as an employee of ITT Corp., Mr. Friant successfully reorganized
several multi-million dollar subsidiaries. In addition, he had a number of
special worldwide assignments involving ITT Corp. headquarters organization,
resource allocation for product development, and management succession. At
Western Union Corp. from 1969 to 1972, Mr. Friant developed and implemented the
business of teleprocessing at a non-regulated subsidiary. From 1953 to 1969, Mr.
Friant was employed by General Electric Co. ("GE"), where he was responsible for
initiating GE's phased array radar business, for designing and implementing GE's
Program Management System for managing large, complex military contracts and for
the business turnaround of several unsuccessful organizations. Mr. Friant earned
B.S. degrees in both Mechanical Engineering and Electrical Engineering from West
Virginia University. He also graduated from General Electric's three-year
graduate level Advanced Engineering program and General Electric Management
School.
Samuel N. Seidman has been President and a Director of the Company since
its inception. In 1970, Mr. Seidman founded Seidman & Co., Inc., an investment
banking and economic consulting firm, and serves as its President. In this
capacity, he has provided a broad range of investment banking services,
including financial analysis and valuations, private financings, and corporate
recapitalizations and debt restructurings. Mr. Seidman also is Managing Director
of Seidman, Friant, Levine Ltd., and serves as a director of AMREP Corp., a real
estate development corporation listed on the New York Stock Exchange. He has
acted as financial advisor to manufacturers of various kinds of production
systems and components for a number of industries, including ASM, a
multi-national producer of automated equipment and systems for the production of
semiconductors, traded on the Nasdaq National Market. Mr. Seidman advised in the
sale of ASM Fico Tooling, Inc., a European-based multi-national manufacturer of
specialized tooling for the semiconductor industry. Mr. Seidman was Co-Chairman
of the Creditors' Committee in the Chapter 11 reorganization of Sharon Steel
Corp., an integrated manufacturer of finished steel products, and served as
Page 12
<PAGE>
financial advisor in Chapter 11 to Chyron Corp., a specialized production
systems company for video productions listed on the New York Stock Exchange, and
Mr. Gasket Co., a manufacturer of automobile aftermarket products. Prior to
founding Seidman & Co., Mr. Seidman worked in corporate finance at Lehman
Brothers. Mr. Seidman has served as director of numerous public and private
companies, including Penn Engineering Corporation, a manufacturer of equipment
for steel production and metal processing which had been listed on the American
Stock Exchange. Mr. Seidman earned a B.A. degree from Brooklyn College and a
Ph.D. in economics from New York University. He was a Fulbright Scholar and a
member of the graduate faculty of the City University of New York. Mr. Seidman's
nephew, Jesse A. Levine, is Vice President, Secretary, Treasurer and a Director
of the Company.
Joseph K. Linman has been Vice President and a Director of the Company
since its inception. Mr. Linman retired from the Ford Motor Company ("Ford") in
1989 after 25 years with that company, preceded by two years with RCA Defense
Electronics. During his career with Ford, Mr. Linman held numerous managerial
and executive positions in financial, marketing, technical, governmental
relations and external affairs capacities, including Chief Financial Officer of
Ford Latin America, S.A. de C.V., a wholly-owned Ford subsidiary responsible for
automotive operations in Latin America, South Africa and Egypt. Mr. Linman
served as a member of the boards of directors or executive committees of Ford
subsidiary companies in nine countries and as a member of the advisory committee
of the Council of the Americas and the Mexico-U.S. Business Committee that
pioneered the North American Free Trade Agreement. Mr. Linman earned a B.S.
degree from Oregon State University and an M.B.A.
degree from Indiana University.
John S. Strance has been Vice President and a Director of the Company from
its inception. He is currently a private investor. From 1986 to 1992, he was the
President of Star Controls Corporation, a provider of sophisticated
microprocessor control products for process control and automation systems,
which he founded. From 1983 to 1986, Mr. Strance was an independent consultant
assessing technology and market trends and identifying and evaluating companies
for acquisition. From 1980 to 1983, Mr. Strance performed the same services as
Director of Planning and Development for Gulf+Western Manufacturing, responsible
for product development using new technology. From 1954 until 1980, Mr. Strance
held management positions as president of several subsidiaries of Gulf+Western.
Mr. Strance has been granted 13 U.S. letters patent for new products and
production systems. Mr. Strance earned B.S. and M.S. degrees in Mechanical
Engineering from the University of Oklahoma and the Carnegie Institute of
Technology, respectively.
Jesse A. Levine has been Secretary, Treasurer and a Director of the Company
since its inception, Chief Financial Officer since June 1995 and a Vice
President since May 1996. Since January 1992, Mr. Levine has been Regional Vice
President-Midwest of Seidman & Co., Inc., specializing in financial and business
analysis, corporate finance, private placements and corporate advisory services.
From January 1991 to December 1991, Mr. Levine was Contracts Administration
Manager of The Newman Group Computer Services Corp., Inc., a computer systems
supplier. Previously, Mr. Levine served as a commercial credit analyst for
Society Bank, Michigan. Mr. Levine earned a B.A. degree in economics from the
University of Michigan and has been elected a chartered financial analyst.
Samuel N. Seidman, the President of the Company, is Mr. Levine's uncle.
Alan H. Foster has been a Director of the Company since its inception.
Since 1986, he has been an Adjunct Professor of Finance and Corporate Strategy
at the University of Michigan. In conjunction with the University of Michigan
School of Engineering, Mr. Foster is engaged in the study of the future of
"agile machines." Since 1978, Mr. Foster has been the principal of A.H. Foster &
Company, a consulting firm which serves as a consultant in corporate finance to
foreign governments and domestic and international clients. Currently, Mr.
Foster is a director of Code-Alarm, Inc., a manufacturer of automobile security
systems traded on the Nasdaq National Market. For the last 12 years, Mr. Foster
has served numerous times as a court-appointed trustee in bankruptcy for both
Chapter 7 and Chapter 11 cases. He was employed by the American Motors
Corporation from 1963 to 1978, where he first served as Director, Financial
Planning and Analysis and then as Vice President and Treasurer for the last ten
of those years. From 1953 to 1963, Mr. Foster worked at Sylvania Electric
Products in various capacities, including Manager, Corporate Planning and
Control. Mr. Foster is the author of Practical Business Management, published
Page 13
<PAGE>
in 1962. Mr. Foster earned a B.S.B.A. degree from Boston College and an M.B.A.
degree from Harvard Business School.
Alan I. Goldman has been a Director of the Company since its inception.
Since 1985, Mr. Goldman has been self-employed as an investment banker and
management consultant, specializing in mergers and acquisi- tions, private
placements and business and organization consulting. From 1975 to 1985, Mr.
Goldman was Senior Vice President, Finance and Chief Financial Officer of
Management Assistance, Inc., a multi-national computer manufacturing, marketing
and maintenance company and a purchaser and user of productions systems and
components. From 1970 to 1974, Mr. Goldman was Vice President, Finance,
Treasurer and Chief Financial Officer of Interway Corporation, an international
company engaged in trailer and container leasing and fleet management. Mr.
Goldman earned a B.A. degree from Cornell University and an M.B.A. degree from
New York University.
The Company's Board of Directors is divided into three classes, each of
which serves for a term of two years, with only one class of directors being
elected in each year. The term of office of the first class of directors,
consisting of Messrs. Goldman and Levine, will expire at the next annual meeting
of stockholders, the term of office of the second class of directors, consisting
of Messrs. Friant and Strance, will expire at the second succeeding annual
meeting of stockholders, and the term of office of the third class of directors,
consisting of Messrs. Seidman, Linman and Foster, will expire at the third
succeeding annual meeting of stockholders. In each case, a director will hold
office until the next annual meeting of stockholders at which his class of
directors is to be elected.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires officers, directors and persons
who beneficially own more than 10% of a registered class of equity securities of
the Company ("10% stockholders") to file reports of ownership and changes in
ownership with the Commission. Officers, directors and 10% stockholders also are
required to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on its review of the copies of such forms furnished to it,
and written representations that no other reports were required, the Company
believes that during the fiscal year ended March 31, 1996, each of its officers,
directors and 10% stockholders complied with the Section 16(a) reporting
requirements, except that each of Messrs. Friant and Strance did not make timely
filings with respect to one transaction.
ITEM 11. EXECUTIVE COMPENSATION
No executive officer of the Company received any cash or other
compensation for services rendered from the Company since its inception through
May 22, 1996. Until May 22, 1996, Seidman & Co., Inc., a corporation of which
Samuel N. Seidman is President and Jesse A. Levine is Regional Vice President -
Midwest, was paid $5,000 per month as an administrative fee. It also received
and will continue to receive reimbursement for any out-of-pocket expenses
incurred in connection with the Company's business. There is no limit on the
amount of such out-of-pocket expenses and there has not been nor will there be
any review of the reasonableness of such expenses by anyone other than the
Company's Board of Directors, which includes persons who have received, and may
seek, reimbursement.
On February 8, 1996, the Board of Directors of the Company approved the
following annual salaries for its executive officers, effective May 23, 1996,
upon consummation of the acquisition of Atlas: Chairman (presently Mr. Friant),
$70,000; President (presently Mr. Seidman), $75,000; Chief Financial Officer,
Secretary and Treasurer (presently Mr. Levine), $25,000; and Vice Presidents
(presently Messrs. Linman, Strance and Levine) $25,000. Such salaries are
payable in equal monthly installments. The compensation terms and other terms of
employment will not be embodied in written agreements. An officer holding more
than one office will receive only the salary of the highest paying office. The
Board also approved fees of $16,000 per year for each director who is not an
employee of the Company (presently Messrs. Foster and Goldman), which is payable
in equal
Page 14
<PAGE>
quarterly installments. In addition, non-employee directors and officers other
than the Chairman and President will be paid at the rate of $1,000 to $2,000 per
day, as determined by the Chairman and the President, for actual days spent by
them in consulting or other special assignments for the benefit of the Company
or its subsidiaries. Officers and directors are also eligible for other
compensation and benefits as may be approved by the Board from time to time,
including benefits under the Company's 1996 Performance Equity Plan which was
adopted by the stockholders of the Company on May 21, 1996.
The Company has no employment agreements with its executive officers, each
of whom presently serves at the discretion of the Board of Directors.
Atlas Employment Agreements
Messrs. Ronald M. Prime and Michael D. Austin have entered into employment
agreements with Atlas under which they serve as the Chief Executive Officer and
President of Atlas, respectively.
The employment agreements with Messrs. Prime and Austin are identical
except that the term of Mr. Prime's agreement will terminate on December 31,
1998 and that of Mr. Austin will terminate on December 31, 2001. Each agreement
requires the executive to devote substantially all of his business time and
attention to the affairs of Atlas. The agreements provide for base salaries of
$190,000 per year subject to cost-of-living increases after December 31, 1996,
for six weeks vacation per year, reimbursement of business expenses, use of an
automobile and mobile telephone, medical and life insurance benefits and other
benefits generally made available to other employees.
The agreements also provide for two bonuses based on the earnings of Atlas
before interest and taxes, adjusted in the manner set forth in the agreements
("Adjusted Earnings"). Under one bonus arrangement, Messrs. Prime and Austin
will each be paid $208,333 for each of the six years beginning January 1, 1996,
in which Atlas' Adjusted Earnings exceed $2,000,000 and, if the Adjusted
Earnings average at least $2,000,000 during such six-year period, they will each
be paid, at the end of the six-year period, the sum of $1,250,000 less the
aggregate of the amounts paid to them under such bonus arrangement for the prior
five years.
Under the second bonus arrangement, if during the five years beginning
January 1, 1996, the Adjusted Earnings average at least $2,626,000, they will
each be paid an amount equal to the amount by which such average Adjusted
Earnings exceed $2,626,000. Both bonus arrangements are subject to liquidation
of amount and acceleration of payment in the event of a sale by the Company of
the capital stock of Atlas or a sale by Atlas of all or a substantial part of
its assets or issuance of capital stock of Atlas such that a person or group of
related persons becomes the owner of 51% or more of the outstanding stock of
Atlas. The bonuses are also subject to reduction to the extent of life insurance
benefits paid to an executive's estate pursuant to life insurance maintained on
the life of the executive pursuant to the employment agreements.
Each employment agreement also contains provisions restricting the
disclosure of confidential information and non-competition covenants.
Page 15
<PAGE>
Stock Price Performance Comparison
The following graph compares cumulative total return of the Company's
Common Stock (symbol PRAC) with the cumulative total return of (i) the Standard
& Poor's Midcap 400 index ("S&P Index") and (ii) an industry peer group index
("Peer Index") consisting of eight other publicly held SPAC(R)s. The graph
assumes $100 was invested on June 24, 1994 (the date the Common Stock began
trading on the OTC Bulletin Board) in shares of Common Stock, stocks comprising
the S&P Index and stocks comprising the Peer Index and the reinvestment of
dividends.
The Company has used an index of other SPAC(R) stocks for an industry peer
group due to the unique business purpose of SPAC(R)s, and the features of their
securities and rights of their security holders. The SPAC(R) index includes EDS
Corporation, Concord Health Group, Inc., Source Media, Inc., International
Metals SPAC(R), Bogen Communications, Inc., Zydeco Energy, Inc., Kellstrom
Industries and Restructuring SPAC(R) equally weighted.
<TABLE>
<S> <C> <C> <C>
PRAC S&P Midcap 400 SPAC Index
7/6/94 $100.00 $100.00 $100.00
7/31/94 100.00 102.84 117.42
8/31/94 100.00 108.00 119.12
9/30/94 100.00 105.83 120.14
10/31/94 100.00 106.83 120.59
11/30/94 100.00 101.80 136.65
12/31/94 100.00 102.56 133.26
1/31/95 100.00 103.48 135.30
2/28/95 100.00 108.68 142.19
3/31/95 102.94 110.39 139.68
4/30/95 104.41 112.48 134.73
5/31/95 108.09 114.94 138.47
6/30/95 108.82 119.47 140.61
7/31/95 108.82 125.55 143.89
8/31/95 110.29 127.64 145.81
9/30/95 111.76 130.56 150.28
10/31/95 111.76 127.05 150.79
11/30/95 111.76 132.37 142.03
12/31/95 111.76 131.86 137.79
1/31/96 113.24 133.62 159.28
2/28/96 117.65 137.93 160.64
3/28/96 117.65 139.40 155.11
4/30/96 120.59 143.50 155.11
5/31/96 144.12 145.20 184.52
</TABLE>
Page 16
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock, as of June 21, 1996 by (i) each
stockholder known by the Company to be beneficial owner of more than 5% of the
outstanding Common Stock, (ii) each director of the Company and (iii) all
directors and officers as a group. Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock listed below, based on
information furnished by such owners, have sole investment and voting power with
respect to such shares, subject to community property laws where applicable.
Number Percentage
Name of Beneficial Owner of Shares Beneficially Owned
Ray J. Friant, Jr.......................
30 Boxwood Drive
Convent Station, New Jersey 07960 122,250(1) 5.7%
Samuel N. Seidman......................
520 Madison Avenue
New York, New York 10022 136,250(1) 6.4%
Joseph K. Linman....................... 69,750(1) 3.3%
John S. Strance........................ 65,750 3.1%
Jesse A. Levine........................ 42,500 2%
Alan H. Foster......................... 21,250 1%
Alan I. Goldman........................ 21,250 1%
All Officer and Directors
as a group (9 persons)............... 519,000(1)(2) 24.0%
- -----------------------
(1) Includes shares of Common Stock issuable upon immediately exercisable
Warrants as follows: Mr. Friant--16,000 shares; Mr. Seidman--
20,000 shares; Mr. Linman--4,000 shares; Mr. Strance--2,000 shares.
(2) Includes 40,000 shares of Common Stock owned by Michael D. Austin.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTIES
Seidman & Co., Inc., an affiliate of the Company, makes available to the
Company a small amount of office space, as well as certain office,
administrative and secretarial services as may be required by the Company from
time to time. The Company paid Seidman & Co., Inc. $5,000 per month for such
services until May 22, 1996, including $60,000 during the fiscal year ended
March 31, 1996. Samuel N. Seidman, a director and President of the Company, is
President of Seidman & Co., Inc., and Jesse A. Levine, a director, Chief
Financial Officer, Vice President, Secretary and Treasurer of the Company, is
Regional Vice President--Midwest of Seidman & Co., Inc.
Page 17
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. The financial statements of the Company and Atlas listed in
Item 8 are submitted as a separate section of this report.
2. Financial Statement Schedules
Not Applicable.
3. Exhibits as required by Item 601 of Regulation S-K:
Exhibit No. Description
3.1 Certificate of Incorporation*
3.1.1 Amendment to Certificate of Incorporation filed March 28, 1996**
3.2 By-laws*
4.1 Form of Common Stock Certificate of the Company*
4.2 Form of Warrant Certificate of the Company*
4.3 Unit Purchase Option between GKN Securities Corp. and the Company*
4.4 Warrant Agreement between Continental Stock Transfer & Trust
Company and the Company*
4.5 1996 Performance Equity Plan of the Company****
10.1 Form of Underwriting Agreement between the Company and GKN
Securities Corp.* 10.3 Form of Share Escrow Agreement between the
Company and Continental Stock Transfer & Trust Company*
10.4 Letter Agreement among each of the Stockholders of the Company, the
Company and GKN Securities Corp.*
10.5 Letter Agreement between Seipman & Co., Inc. and the Company
regarding administrative support*
10.6 Agreement of Merger dated as of December 18, 1995 (without
schedules or exhibits)***
10.6.1 Amendment to Agreement of Merger dated December 18, 1995***
10.7 Employment Agreement dated May 23, 1996 between Atlas Technologies,
Inc. and Ronald M. Prime****
10.8 Employment Agreement dated May 23, 1996 between Atlas Technologies,
Inc. and Michael D. Austin****
27 Financial Data Schedule
- -----------------------------
(Footnotes on next page)
Page 18
<PAGE>
- -----------------------------
* Filed as Exhibits to Registration Statement on Form S-1, No. 33-78188, and
incorporated herein by reference.
** Filed as Exhibit to Report on Form 8-K (Event dated May 23, 1996) and
incorporated herein by reference.
*** Filed as Exhibits to Report on Form 8-K (Event dated December 18, 1995)
and incorporated herein by reference.
**** Filed herewith.
(b) During the last quarter of the period covered by this report the
Company filed a report on Form 8- K (Event dated December 18, 1995) which
reported information under Items 5 and 7 and included the following financial
statements of Atlas Technologies, Inc.:
(A) Independent Auditor's Report
Balance Sheets as of June 30, 1994 and 1995
Statements of Income and Retained Earnings for the years ended
June 30, 1993, 1994 and 1995
Statements of Cash Flows for the years ended June 30, 1993, 1994
and 1995
Notes to Financial Statements
(B) Balance sheets as of June 30, 1995 (audited) and September 30,
1995 (unaudited)
Statements of Income and Retained Earnings for the three
months ended September 30, 1994 and 1995 (unaudited)
Statements of Cash Flow for the three months ended September
30, 1994 and 1995 (unaudited)
Page 19
<PAGE>
PRODUCTIVITY TECHNOLOGIES CORP.
(A corporation in the development stage)
Contents
Report of independent certified public accountants F-2
Financial statements:
Balance sheets as of March 31, 1995 and 1996 F-3
Statements of operations for the period June 25, 1993
(inception) to March 31, 1994, for the years ended
March 31, 1995 and 1996 and for the period
June 25, 1993 (inception) to March 31, 1996 F-4
Statements of stockholders' equity for the period from
June 25, 1993 (inception) to March 31, 1996 F-5
Statements of cash flows for the period June 25, 1993
(inception) to March 31, 1994, for the years ended
March 31, 1995 and 1996 and for the period June 25, 1993
(inception) to March 31, 1996 F-6
Summary of accounting policies F-7
Notes to financial statements F-8 - F-11
Page F-1
<PAGE>
Report of Independent Certified Public Accountants
Productivity Technologies Corp.
New York, New York
We have audited the accompanying balance sheets of Productivity Technologies
Corp. (formerly Production Systems Acquisition Corp., a corporation in the
development stage) as of March 31, 1995 and 1996, and the related statements of
operations, stockholders' equity and cash flows for the period June 25, 1993
(inception) to March 31, 1994, the years ended March 31, 1995 and 1996, and the
period June 25, 1993 (inception) to March 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
On May 21, 1996, the Company's stockholders approved a merger agreement with
Atlas Technologies, Inc. (see Note 6) and the business combination was
consummated on May 23, 1996.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Productivity Technologies Corp.
as of March 31, 1995 and 1996, and the results of its operations and its cash
flows for the period June 25, 1993 (inception) to March 31, 1994, the years
ended March 31, 1995 and 1996, and the period June 25, 1993 (inception) to March
31, 1996, in conformity with generally accepted accounting principles.
New York, New York
May 24, 1996
Page F-2
<PAGE>
PRODUCTIVITY TECHNOLOGIES CORP.
(A corporation in the development stage)
BALANCE SHEETS
<TABLE>
<S> <C> <C>
March 31, 1995 1996
- ------------------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 34,512 $ 4,018
Short-term investments and accrued interest thereon 446,293 79,745
U.S. Government securities deposited in Trust Fund and accrued
interest thereon (Note 1) 8,584,551 9,070,728
Prepayments - 12,737
Deferred acquisition costs (Note 6) - 213,067
Organization costs less amortization of $7,911 and $18,459 44,827 34,279
- ------------------------------------------------------------------------------------------------------------
$9,110,183 $9,414,574
- ------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Accrued expenses and taxes $ 31,419 $ 244,723
Deferred income taxes 14,000 -
Commitment (Note 3)
Common stock subject to possible conversion, 339,999 shares at
conversion value (Note 1) 1,716,052 1,813,239
Common stock, $.001 par value - shares authorized 20,000,000;
outstanding 2,125,000 (which includes 339,999 shares subject
to possible conversion) (Notes 1 and 5) 1,785 1,785
Additional paid-in capital 7,351,741 7,351,741
Retained earnings (deficit) accumulated during the development
stage (4,814) 3,086
- ------------------------------------------------------------------------------------------------------------
$9,110,183 $9,414,574
- ------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
Page F-3
<PAGE>
PRODUCTIVITY TECHNOLOGIES CORP.
(A corporation in the development stage)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Period Period
June 25, 1993 June 25, 1993
(inception) to Year ended March 31, (inception) to
March 31, --------------------- March 31,
1994 1995 1996 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income:
Interest $ - $342,548 $502,596 $845,144
- --------------------------------------------------------------------------------------------------------------
Expenses:
General and administrative - 105,083 135,052 240,135
Occupancy (Note 3) - 45,000 60,000 105,000
Insurance - 57,200 38,223 95,423
State franchise taxes - 16,500 21,686 38,186
Amortization of organization
costs - 7,911 10,548 18,459
Amortization of financing
costs 1,600 14,400 - 16,000
Interest (Note 2) 250 3,940 - 4,190
- --------------------------------------------------------------------------------------------------------------
Total 1,850 250,034 265,509 517,393
- --------------------------------------------------------------------------------------------------------------
Net income (loss)
before provision for
(recovery of) income
taxes (1,850) 92,514 237,087 327,751
Provision for (recovery of)
income taxes:
Federal income taxes -
current - - 88,000 88,000
Federal income taxes -
deferred - 14,000 (14,000) -
State and local income
taxes - current - 17,000 58,000 75,000
- --------------------------------------------------------------------------------------------------------------
Net income (loss) for period $(1,850) $164,751 $61,514 $105,087
- --------------------------------------------------------------------------------------------------------------
Net income per share $ - $.04 $.05
- --------------------------------------------------------------------------------------------------------------
Weighted average common
shares outstanding 425,000 1,682,534 2,125,000
- --------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
Page F-4
<PAGE>
PRODUCTIVITY TECHNOLOGIES CORP.
(A corporation in the development stage)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
earnings
(deficit)
Common stock Preferred stock accumulated
--------------------- --------------------- Additional during the Total
Number Number paid-in development stockholders'
of shares Amount of shares Amount capital stage equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, June 25, 1993 - $ - - $ - $ - $ - $ -
Original issuance of common stock 425,000 425 - - 24,575 - 25,000
Net loss for the period - - - - - (1,850) (1,850)
- -----------------------------------------------------------------------------------------------------------------------------------
Balances, March 31, 1994 425,000 425 - - 24,575 (1,850) 23,150
Sale of 1,700,000 units, net
of underwriting discounts
and offering expenses 1,360,001 1,360 - - 7,327,166 - 7,328,526
Net income for the year - - - - - 61,514 61,514
Accretion of conversion value
of common stock - - - - - (64,478) (64,478)
- -----------------------------------------------------------------------------------------------------------------------------------
Balances, March 31, 1995 1,785,001 1,785 - - 7,351,741 (4,814) 7,348,712
Net income for the year - - - - - 105,087 105,087
Accretion of conversion value
of mon stock - - - - - (97,187) (97,187)
- -----------------------------------------------------------------------------------------------------------------------------------
Balances, March 31, 1996 1,785,001 $1,785 - $ - $7,351,741 $ 3,086 $7,356,612
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
Page F-5
<PAGE>
PRODUCTIVITY TECHNOLOGIES CORP.
(A corporation in the development stage)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period Period
June 25, 1993 Year ended March 31, June 25, 1993
(inception) to -------------------- (inception) to
March 31, 1994 1995 1996 March 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,850) $ 61,514 $105,087 $ 164,751
- ----------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Amortization of financing costs 1,600 14,400 - 16,000
Amortization of organization costs - 7,911 10,548 18,459
Deferred income taxes - 14,000 (14,000) -
Change in assets and liabilities:
Increase in prepayments - - (12,737) (12,737)
Increase in accrued expenses and taxes 250 31,169 213,304 244,723
- ----------------------------------------------------------------------------------------------------------------------------------
Total adjustments 1,850 67,480 197,115 266,445
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating - 128,994 302,202 431,196
activities
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
U.S. Government securities deposited in Trust
Fund and accrued interest thereon - (8,584,551) (486,177) (9,070,728)
Deferred acquisition costs - - (213,067) (213,067)
Short-term investments and accrued interest thereon - (446,293) 366,548 (79,745)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities - (9,030,844) (332,696) (9,363,540)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from sale of shares to founding
Stockholders 25,000 - - 25,000
Proceeds from notes payable 150,000 - - 150,000
Proceeds from public offering of units, net - 8,980,100 - 8,980,100
Repayment of notes payable - (150,000) - (150,000)
Deferred registration costs (25,000) 25,000 - -
Deferred financing costs (16,000) - - (16,000)
Organization costs - (52,738) - (52,738)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities: 134,000 8,802,362 - 8,936,362
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 134,000 (99,488) (30,494) 4,018
Cash and cash equivalents, beginning of period - 134,000 34,512 -
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $134,000 $ 34,512 $ 4,018 $ 4,018
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures:
Cash paid during the period for:
Interest $ - $ 4,190 $ - $ 4,190
Income taxes - - 123,335 123,335
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
Page F-6
<PAGE>
PRODUCTIVITY TECHNOLOGIES CORP.
(A corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
Income Taxes Productivity Technologies Corp., formerly Production
Systems Acquisition Corp. (the "Company"), follows
Statement of Financial Accounting Standards No. 109
("FAS No. 109"), "Accounting for Income Taxes". FAS
No. 109 is an asset and liability approach that
requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences
of events that have been recognized in the Company's
financial statements or tax returns ("temporary
differences"). Temporary differences resulted from
the Company using the cash basis for Federal income
tax purposes through March 31, 1995.
Organization Costs Organization costs are amortized over 60 months.
Net Income (Loss) Net income (loss) per common share is computed on the
Per Share basis of the weighted average number of common shares
outstanding during the period, including common stock
equivalents (unless anti-dilutive), which would arise
from the exercise of stock warrants.
Cash Equivalents For purposes of the statements of cash flows, the
Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to
be cash equivalents.
Short-term Investments Short-term investments represent U.S. Treasury Bills
with maturities of six months or less. Cost
approximates market.
Trust Fund U.S. Government securities deposited in Trust Fund
represents U.S. Treasury Bills with maturities of six
months or less. Cost approximates market.
Use of Estimates The preparation of financial statements in conformity
with generally accepted accounting principles
requires management to make assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at
the date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Page F-7
<PAGE>
PRODUCTIVITY TECHNOLOGIES CORP.
(A corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
1. Organization and The Company was incorporated in Delaware on June 25,
Business Operations 1993 with the objective of acquiring an operating
business engaged in the production systems industry
and selected March 31 as its fiscal year-end. On
May 21, 1996, the Company's stockholders approved a
merger agreementnwith Atlas Technologies, Inc (see
Note 6) and approved changing the name of the
Company from Production Systems Acquisition
Corporation to Productivity Technologies Corp. On
May 17, 1996, the Company's directors approved the
change of the Company's fiscal year-end to June 30.
The Company's founding stockholders ("Initial
Stockholders") purchased 625,000 common shares,
$.001 par value, for $25,000. During June 1994,
200,000 shares were returned to the Company, for
no consideration, by the Initial Stockholders which
reduced the common stock outstanding to 425,000
shares and adjusted the Initial Stockholders'
percentage ownership to 20% of the common stock
expected to be outstanding after the Company's
initial public offering ("Offering") (Note 2). This
return of shares has been retroactively reflected
in the financial statements.
The registration statement for the Offering was
effective June 24, 1994. The Company
consummated the Offering on July 5, 1994 and
raised net proceeds of $8,980,100 (Note 2). The
Company's management has broad discretion with
respect to the specific application of the net
proceeds of this Offering, although substantially
all of the net proceeds of this Offering were
intended to be generally applied toward an operating
business engaged in the production systems industry
("Business Combination"). Upon the closing of the
Offering, $8,262,000 was placed in an interest-
bearing trust account ("Trust Fund") until the
earlier of (i) the consummation of a Business
Combination (see Note 6) or (ii) liquidation of the
Company. The Trust Fund indenture limits investments
to U.S. Government securities with maturities of 180
days or less. The remaining proceeds have been used
to pay for business, legal and accounting due
diligence on prospective acquisitions, and
continuing general and administrative expenses in
addition to other expenses.
Page F-8
<PAGE>
PRODUCTIVITY TECHNOLOGIES CORP.
(A corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
With respect to the first Business Combination which was approved and
consummated (see Note 6), any Public Stockholder (all stockholders other
than the Initial Stockholders) who voted against the Business Combination
could have demanded that the Company convert his shares into cash. The per
share conversion price would have been equal to the amount in the Trust
Fund as of the record date for determination of stockholders entitled to
vote on the Business Combination divided by the number of shares held by
Public Stockholders. The Company would not have consummated a Business
Combination if 20% or more in interest of the Public Stockholders had
exercised their conversion rights. Accordingly, Public Stockholders holding
19.99% of the aggregate number of shares owned by all Public Stockholders
could have had their shares converted to cash. Such Public Stockholders
could have been entitled to receive their per share interest in the Trust
Fund computed without regard to shares held by Initial Stockholders.
Accordingly, a portion of the net proceeds from the Offering (19.99% of the
amount held in the Trust Fund) was classified as common stock subject to
possible conversion in the accompanying balance sheet at the conversion
value. With respect to the acquisition discussed in Note 6, no stockholders
demanded such conversion.
The Company's Certificate of Incorporation provided for mandatory
liquidation of the Company, without stockholder approval, in the event that
the Company did not consummate a Business Combination within 24 months from
the consummation of the Offering (July 5, 1996). Since a Business
Combination was consummated on May 23, 1996, such provisions are no longer
applicable.
Page F-9
<PAGE>
PRODUCTIVITY TECHNOLOGIES CORP.
(A corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
2. Public Offering On July 5, 1994, the Company consummated its
Offering of 1,700,000 units ("Units"). Each Unit
consisted of one share of the Company's common
stock, $.001 par value, and two Redeemable Common
Stock Purchase Warrants ("Warrants"). Each
Warrant entitles the holder to purchase from the
Company one share of common stock at an exercise
price of $5.00 during the period commencing on
the later of one year from the effective date of
the Offering or the consummation of a Business
Combination and ending seven years from the
effective date of the Offering. The Warrants will
be redeemable at a price of $.01 per Warrant upon
30 days notice at any time, only in the event of
the common stock is at least $8.50 per share for
20 consecutive trading days ending on the third
day prior to date on which notice of redemption
is given.
The Company issued an aggregate of $150,000 of
promissory notes to certain accredited investors.
These notes bore interest at the rate of 10% per
annum and were repaid on the consummation of
the Company's Offering with accrued interest
thereon of $4,190. In addition, the investor
were issued 300,000 warrants (valued at a
nominal amount) which are identical to the
Warrants discussed above, except that they
are not redeemable by the Company until 90 days
after the consummation of a Business Combination.
3. Commitment At March 31, 1996, the Company occupied office
space provided by a related company owned by
certain stockholders who are senior executive
officers of the Company. Such related company had
agreed that, until the acquisition of a target
business by the Company, it will make such office
space, as well as certain office and secretarial
services, available to the Company, as may be
required by the Company from time to time. The
Company has been paying $5,000 per month for such
services commencing on the effective date of the
Offering up to consummation of the acquisition
described in Note 6.
4. Preferred Stock The Company is authorized to issue 1,000,000
shares of preferred stock ($.001 par value) with
such designations, voting and other rights and
preferences as may bevdetermined from time to
time by the Board of Directors.
Page F-10
<PAGE>
PRODUCTIVITY TECHNOLOGIES CORP.
(A corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
5. Common Stock Common Stock At March 31, 1996, 4,210,000 shares of
common stock were reserved for issuance upon
exercise of the Warrants and the securities
underlying a purchase option granted to the
underwriter of the Offering.
6. Acquisition of Atlas On May 23, 1996, the Company acquired all of the
outstanding stock of Atlas Technologies, Inc.
("Atlas") (a manufacturer of automation equipment
for use with metal stamping presses) for
approximately $7,120,000 in cash to be adjusted, as
defined. Costs relating to this acquisition,
primarily professional fees (expected to approximate
$400,000) aggregated $213,067 as of March 31, 1996
and have been deferred. The acquisition was funded
with proceeds from the maturity of U.S. Government
securities that had been maintained in a trust fund
from the date of the Offering. For financial
reporting purposes, the transaction will be
accounted for under the purchase method. Concurrent
with the acquisition, the Company guaranteed
$500,000 of Atlas' bank borrowings. This guarantee
decreases to $150,000 on December 1, 1996 and
terminates May 31, 1997.
Page F-11
<PAGE>
ATLAS TECHNOLOGIES, INC
BALANCE SHEET
March 31, 1996
---------------
ASSETS (Unaudited)
Current assets:
Cash $ 155,316
Contract receivables 5,776,993
Notes receivable 516,192
Officer note receivable 15,600
Costs and estimated earnings
in excess of billings
on uncompleted contracts 6,327,745
Inventories 991,988
Prepaid expenses 28,310
Deferred taxes - current 269,000
----------
14,081,144
----------
Property, plant, and equipment:
Land 77,200
Buildings and improvements 1,945,123
Machinery and equipment 4,973,586
Transportation equipment 99,117
Accumulated depreciation (4,501,160)
----------
2,593,866
----------
Other assets:
Deferred taxes - noncurrent 187,000
Noncompetition agreement, net of accumulated
amortization 232,333
Officer notes receivable, net of current portion 123,362
Other assets 40,000
----------
582,695
----------
$17,257,705
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Account payable $ 2,531,168
Line of credit 4,990,852
Accrued expenses and other 1,606,934
Accrued taxes 99,851
Billings in excess of costs and estimated
earnings on uncompleted contracts 905,435
Stock redemption payable 700,000
Current portion of long-term debt 1,808,846
----------
12,643,086
----------
Long-term debt, net of current portion 1,063,806
----------
Commitments
-
Stockholders' equity:
Common stock ($1 par value, authorized 50,000 shares,
25,683 issued and outstanding) 25,683
Paid in capital 73,465
Retained earnings 3,451,665
----------
3,550,813
----------
$17,257,705
==========
See selected information.
Page F-12
<PAGE>
ATLAS TECHNOLOGIES, INC
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Nine months ended March 31,
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales
$25,841,050 $21,027,428
---------- ----------
Cost of sales 17,862,970 15,374,582
Selling, general, and administrative
expenses 4,935,291 3,800,913
Management bonuses 1,602,530 -
---------- ----------
24,400,791 19,175,495
---------- ----------
1,440,259 1,851,933
---------- ----------
Other income (expense):
Interest income 32,036 2,232
Interest expense (410,910) (462,352)
Gain on disposal of assets 35,474 308,565
Miscellaneous 20,273 68,812
---------- ----------
(323,127) (82,743)
---------- ----------
Net income before income taxes 1,117,132 1,769,190
Income taxes 379,200 370,630
---------- ----------
Net income $737,932 $1,398,560
========== =========
Net income per share of common stock $28.73 $45.36
========== =========
Weighted average common shares 25,683 30,830
========== =========
</TABLE>
See selected information.
Page F-13
<PAGE>
ATLAS TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Total
Number of Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
------- ------- ------- --------- ------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1995 .................... 25,683 $25,683 $73,465 $3,413,733 $3,512,881
Stock redemption ............................ -- -- -- (700,000) (700,000)
Net income for the period ................... -- -- -- 737,932 737,932
------- ------- ------ --------- ---------
Balance at March 31, 1996 (Unaudited) ....... 25,683 $25,683 $73,465 $3,451,665 $3,550,813
====== ====== ====== ========= =========
</TABLE>
See selected information.
Page F-14
<PAGE>
ATLAS TECHNOLOGIES, INC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended March 31,
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 737,932 $1,398,560
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 293,715 264,587
Gain on sale of property & equipment - (28,565)
Increase in contract receivables, inventories, prepaids and other (1,822,274) (2,136,456)
Increase in accounts payable, accrued
expenses, and other 424,599 418,009
Costs and estimated earnings in excess of billings
on uncompleted contracts; and billings in excess of
costs and estimated earnings on uncompleted contracts (1,036,333) (1,311,040)
--------- ---------
Net cash used in operating activities (1,402,361) (1,394,905)
--------- ---------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment - 132,142
Expenditures for property, plant, and equipment (357,612) (348,680)
Issuance of notes receivable (47,793) (88,326)
--------- ---------
Net cash used in investing activities (405,405) (304,864)
--------- ---------
Cash flow from financing activities:
Proceeds from issuance of long-term debt - 110,000
Net borrowing on line of credit 2,381,914 2,278,970
Purchase of common stock - (196,000)
Payment of debt (436,085) (569,188)
--------- ---------
Net cash provided by financing activities 1,945,829 1,623,782
--------- ---------
Net increase (decrease) in cash 138,063 (75,987)
Cash, Beginning of period 17,253 93,084
--------- ---------
Cash, End of period $155,316 $17,097
======= ======
</TABLE>
See selected information.
Page F-15
<PAGE>
ATLAS TECHNOLOGIES, INC.
SELECTED INFORMATION - Substantially all Disclosures
Required by Generally Accepted Accounting Principles Are Not Included
MARCH 31, 1996
1. General
On December 18, 1995, the majority stockholders of Atlas Technologies,
Inc. (Atlas) entered into a definitive Merger agreement with Production Systems
Acquisition Corporation (PSAC). PSAC is a Specified Purpose Acquisition
Company(R) (SPAC(R)) formed to acquire or merge with an operating business in
the production systems industry. Under the merger agreement, a newly formed
wholly owned subsidiary of PSAC will be merged with and into Atlas , so that
Atlas will become a wholly owned subsidiary of PSAC. Each share of the
outstanding stock of Atlas at the date of the merger will be entitled to receive
its prorata portion of the $7,000,000 merger consideration to be paid by PSAC.
The accompanying financial statements are unaudited. However, in the
opinion of management, all adjustments necessary for a fair statement of
financial position and results for the stated periods have been included. A
commitment to the former stockholders has been recorded in the period ended
March 31, 1996. This commitment is discussed in Note 5. The remaining
adjustments are of a normal recurring nature. Selected information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted. It
is suggested that these condensed financial statements be read in conjunction
with the audited financial statements and notes thereto as of and for the year
ended June 30, 1995. Results for interim periods are not necessarily indicative
of the results to be expected for an entire fiscal year.
2. Officer note receivable
At the effective date of the merger, this note will become due and will be paid
to the corporation in full.
3. Inventories
Inventories at June 30, 1995, and March 31, 1996, are stated at lower
of cost (first-in, first-out) or market and include primarily raw materials and
parts.
4. Line of credit and long-term debt
At the effective date of the merger, certain items included in current
portion of long-term debt that are secured by company stock will be paid in full
or refinanced with new debt at the Company's lending institution.
5. Commitments and Stock Redemption
As discussed in Note 1, terms of the merger require the stockholders of
Atlas to receive from PSAC $7,000,000 in consideration for their shares of the
outstanding stock of Atlas prior to the date of the merger, with additional
consideration to be paid in the amount of $10,000 per week for each week the
closing date is beyond March 1, 1996. The agreement also requires an equity
adjustment of the merged subsidiary (Atlas). Upon approval of the merger, a
contingent liability of $700,000 has been defined and will be paid to a former
stockholder as part of the stockholder's redemption agreement. Other payments
and contributions will be made to current executives of the company and the
Employee Stock Ownership Plan. The effect of these payments is to reduce the net
income of the company reported in these financial statements for the period
ended December 31, 1995. In the event the equity of Atlas at the effective date
is below $3,196,064, the merger consideration of $7,000,000 will be reduced.
Page F-16
<PAGE>
ATLAS TECHNOLOGIES, INC.
SELECTED INFORMATION - Substantially all Disclosures
Required by Generally Accepted Accounting Principles Are Not Included
MARCH 31, 1996
5. Commitments and Stock Redemption - (continued)
PSAC has also agreed to retain the two majority stockholders, Ronald M.
Prime and Michael D. Austin, under employment agreements pursuant to which they
will serve as Chief Executive Officer and President of Atlas, respectively.
These agreements will be identical except that the term of Mr. Prime's agreement
will terminate on December 31, 1998, and that of Mr. Austin will terminate on
December 31, 2001. Each agreement requires the executive to devote substantially
all of his business time and attention to the affairs of Atlas. The agreements
require a bonus payment to be made to the shareholders in the amount of $100,000
each upon signing of the agreement. Annual compensation (salary) will be
$190,000, subject to cost of living increases after December 31, 1996. The
agreements also require additional annual bonuses to the executives if certain
operating results are achieved.
6. Subsequent event
On May 23, 1996, PSAC acquired all the shares of Atlas under the merger
agreement discussed in Note 1 above.
Page F-17
<PAGE>
PRODUCTION SYSTEMS ACQUISITION CORPORATION ("PSAC")
AND ATLAS TECHNOLOGIES, INC. ("ATLAS")
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated balance sheet as of March 31, 1996
and the unaudited pro forma consolidated statements of operations for the year
ended June 30, 1995 and nine months ended March 31, 1996 include the accounts of
PSAC and Atlas for the respective periods. The unaudited pro forma financial
statements have been prepared to illustrate the estimated effects of the merger
of PSAC and Atlas ("Merger"). The Merger is accounted for as an acquisition of
the common stock by PSAC under the purchase method of accounting. The pro forma
financial statements were derived by adjusting the historical financial
statements of PSAC and Atlas for certain transactions pursuant to the Merger
described in the notes to the unaudited pro forma consolidated financial
statements.
The unaudited pro forma consolidated balance sheet was prepared as if
the Merger had occurred on March 31, 1996. The unaudited pro forma consolidated
statements of operations for the year ended June 30, 1995 and nine months ended
March 31, 1996 were prepared as if the Merger had occurred on July 1, 1994. The
pro forma financial data does not purport to be indicative of the results which
actually could have been obtained had such transactions been completed as of the
assumed dates or which may be obtained in the future. The pro forma statements
of operations conform to Atlas' fiscal year since the operations of the combined
companies will primarily be those of Atlas. This presentation, considered a more
accurate reflection of results, would not be materially different if PSAC's
fiscal year end of March 31 were the basis of presentation.
<TABLE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
Pro Forma Adjustments
----------------------------------- Pro Forma
PSAC Atlas Debit Credit consolidated(1)
(in thousands, except per share and share amounts)
<S> <C> <C> <C> <C> <C>
Nine months ended March 31, 1996
Net sales.................................... $ -- $ 25,841 $ -- $ -- $ 25,841
Operating expenses:
Cost of sales............................. -- 17,863 -- -- 17,863
Selling, general and 149(2) --
administrative expenses............. 210 4,935 144(3) 279(5) 5,159
Management bonuses........................... -- 1,602 813(4) 1,602(5) 813
- ----------------------------------------------------------------------- -----------------------------------------------------------
Operating income (loss)...................... (210) 1,441 1,106 1,881 2,006
Other income (expense):
Interest income........................... 372 32 329(6) -- 75
Interest expense.......................... -- (411) -- -- (411)
Gain on disposal of assets................ -- 35 -- -- 35
Miscellaneous income...................... -- 20 -- -- 20
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income tax
provision................................. 162 1,117 1,435 1,881 1,725
Income tax provision......................... 96 379 252(7) -- 727
- -----------------------------------------------------------------------------------------------------------------------------------
Net income................................... $ 66 $ 738 $ 1,687 1,881 $ 998
- -----------------------------------------------------------------------------------------------------------------------------------
Per share of common stock:
Income.................................... $ 0.03 $ 0.47
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of
shares of common stock.................... 2,125,000 2,125,000
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page F-18
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Pro Forma Adjustments
--------------------------- Pro Forma
PSAC Atlas Debit Credit consolidated(1)
(in thousands, except per share and share amounts)
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1995
Net sales.................................... $ -- $ 29,078 $ -- $ -- $ 29,078
Operating expenses:
Cost of sales............................. -- 21,034 -- -- 21,034
Selling, general and administrative 198(2)
expenses............................... 277 5,119 192(3) -- 5,786
Management bonuses........................... -- -- 566(4) -- 566
- ----------------------------------------------------------------------------------------------------------------------------------
Operating income (loss)...................... (277) 2,925 956 -- 1,692
Other income (expense):
Interest income........................... 474 33 407(6) -- 100
Interest expense.......................... -- (645) -- -- (645)
Gain on disposal of assets................ -- 308 -- -- 308
Miscellaneous income...................... -- 64 -- -- 64
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income tax
provision................................. 197 2,685 1,363 -- 1,519
Income tax provision......................... 67 465 125(7) -- 657
- ---------------------------------------------------------------------------------------------------------------------------------
Net income................................... $ 130 $ 2,220 $1,488 -- $ 862
- ---------------------------------------------------------------------------------------------------------------------------------
Per share of common stock:
Income.................................... $ 0.06 $ 0.41
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of
shares of common stock.................... 2,125,000 2,125,000
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(1) The unaudited pro forma consolidated statements of operations are
presented assuming that no PSAC stockholders will request conversion of
their shares. No such requests were made.
(2) The purchase price, which includes cash paid for the Atlas shares
($7,120,000), and certain transaction expenses (approximately
$400,000), will exceed the book value of Atlas' stockholders equity by
approximately $4,567,000 against which a $598,000 deferred tax
liability will be provided. This excess is allocated $1,496,000 to
property, plant and equipment (based on a recent appraisal) and
$3,071,000 to goodwill. Additional depreciation on property, plant and
equipment based on a 20-year life, and amortization of goodwill based
on a 25-year life aggregating $198,000 has been charged to operations
for the year ended June 30, 1995 and $149,000 for the nine months ended
March 31, 1996.
(3) Represents annual salaries to officers and directors of PSAC ($252,000)
net of annual savings of $60,000 on PSAC occupancy expense. Such
payments would have been incurred had the transaction been consummated
on July 1, 1994.
(4) Represents pro forma amounts payable to Atlas senior management under
new employment agreements after the Merger (based on Atlas operating
income, as adjusted) in the amounts of $813,000 and $566,000 for the
nine months ended March 31, 1996 and year ended June 30, 1995,
respectively. Such payments would have been incurred had the
transaction been consummated on July 1, 1994.
Page F-19
<PAGE>
(5) Represents elimination of management bonuses ($1,602,000) and
professional fees ($279,000) incurred by Atlas aggregating $1,881,000.
These amounts would not have been incurred in the normal course of
business had it not been stated that the Merger Agreement contemplates
that the net worth of Atlas equal $3,196,084 at the date of
consummation of the Merger.
(6) Represents the elimination of interest income on the portion of
PSAC's investment in a U.S. government security deposited in the Trust
Fund, which will be liquidated upon consummation of the Merger.
(7) Represents consolidated income tax provision at an effective rate of
40% on taxable income after adding back non-deductible amortization of
goodwill of $92,000 and $123,000 for the nine months ended March 31,
1996 and year ended June 30, 1995, respectively.
</FN>
</TABLE>
Page F-20
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Pro forma
PSAC Atlas Pro Forma Adjustments consolidated (1)
---- ----- ------------------------------------ ----------------
Debit Credit
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................. $ 4 $ 155 $ 9,071(2) $ 337(3) $2,168
395(7) 7,120(4)
Short term investments and accrued
interest thereon........................... 80 -- -- -- 80
U.S. Government security deposited in
Trust Fund and accrued interest
thereon.................................... 9,071 -- -- 9,071(2) --
Contracts and notes receivable............. -- 6,309 -- 272(7) 6,037
Costs and estimated earnings in excess
of billings on uncompleted contracts....... -- 6,328 -- -- 6,328
Inventories -- 992 -- -- 992
Prepaid expenses........................... 13 28 -- -- 41
Deferred acquisition costs................. 213 -- -- 213(3) --
Deferred taxes............................. -- 269 -- -- 269
- ----------------------------------------------------------------------------------------------------------------------------------
Total current assets................ 9,381 14,081 9,466 17,013 15,915
- ----------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net.. -- 2,594 400(3) -- 4,090
1,096(4) --
Goodwill..................................... -- -- 3,071(4) -- 3,071
Deferred taxes............................... -- 187 -- -- 187
Other assets................................. 34 396 -- 123(7) 307
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets........................ $9,415 $17,258 $14,033 $17,136 $23,570
==================================================================================================================================
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable, accrued expenses
and income taxes payable................... $ 245 $4,238 150(3) -- $4,333
Line of credit............................. -- 4,991 -- 2,148(6) 7,139
Billings in excess of costs and
estimated earnings on uncompleted
contracts.................................. -- 905 -- -- 905
Stock redemption payable................... -- 700 700(6) -- --
Current maturities of long-term debt....... -- 1,809 1,448(6) -- 361
- ---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities........... 245 12,643 2,298 2,148 12,738
- ---------------------------------------------------------------------------------------------------------------------------------
Long-term debt, net of current portion -- 1,064 -- -- 1,064
Deferred income taxes............... -- -- -- 598(4) 598
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities................... 245 13,707 2,298 2,746 14,400
=================================================================================================================================
Common stock subject to possible
conversion................................... 1,813 -- 1,813(5) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common Stock............................... 2 26 26(4) -- 2
Additional paid-in capital................. 7,352 73 73(4) 1,813(5) 9,165
Retained earnings.......................... 3 3,452 3,452(4) -- 3
- ----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity.......... 7,357 3,551 3,551 1,813 9,170
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity................ $9,415 $17,258 $7,662 $4,559 $23,570
==================================================================================================================================
</TABLE>
Page F-21
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(1) The unaudited pro forma consolidated balance sheet is presented
assuming that no PSAC stockholders request conversion of their shares.
No such requests were made.
(2) Represents the release of restricted cash from the Trust Fund as a
result of the Merger.
(3) Represents PSAC's estimated expenses ($400,000) to be incurred in
connection with the Merger: brokers' fee ($180,000) and other
professional fees ($220,000), allocated to plant, property and
equipment.
(4) Represents the payment for the Atlas shares ($7,120,000), elimination
of Atlas' capital accounts, allocation of the excess of the purchase
price over Atlas' stockholders' equity at December 31, 1995 to
property, plant and equipment based on a recent appraisal of fixed
assets ($1,096,000) and goodwill ($3,071,000) and accounting for the
deferred tax liabilities ($598,000) at an assumed 40% tax rate on the
temporary differences arising from the excess purchase price allocated
to property, plant and equipment. The carrying value of the remaining
assets and liabilities of Atlas approximate fair value.
(5) Represents the reclassification of common stock subject to possible
conversion since the unaudited pro forma consolidated balance sheet
contemplates that no PSAC stockholders will request conversion of their
shares.
(6) Represents payment of debts due to a former stockholder of Atlas upon
consummation of the Merger ($1,448,000) and stock redemption due to
such former stockholder ($700,000).
(7) Receipt of notes receivable ($395,000) repaid at closing.
Page F-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned herewith duly authorized.
June 28, 1996 PRODUCTIVITY TECHNOLOGIES CORP.
By: /s/ Samuel N. Seidman
Samuel N. Seidman
President
Pursuant to the requirements of The Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Company and in the capacities and on the dates indicated.
/s/ Ray J. Friant, Jr. Chairman of the Board June 28, 1996
- ------------------------------
Ray J. Friant, Jr.
/s/ Samuel N. Seidman Chief Executive Officer, June 28, 1996
- ----------------------------- President and Director
Samuel N. Seidman
/s/ Joseph K. Linman Vice President and Director June 28, 1996
- -----------------------------
Joseph K. Linman
/s/ John S. Strance Vice President and Director June 28, 1996
- -----------------------------
John S. Strance
/s/ Jesse A. Levine Vice President, Secretary, June 28, 1996
- ----------------------------- Treasurer and Director and
Jesse A. Levine Chief Financial Officer
/s/ Alan H. Foster Director June 28, 1996
- -----------------------------
Alan H. Foster
/s/ Alan I. Goldman Director June 28, 1996
- -----------------------------
Alan I. Goldman
Page 42
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
4.5 1996 Performance Equity Plan of the Company 44
10.7 Employment Agreement dated May 23, 1996
between Atlas Technologies, Inc. and Ronald M.
Prime 55
10.8 Employment Agreement dated May 23, 1996
between Atlas Technologies, Inc. and Michael D.
Austin 68
27 Financial Data Schedule 82
Page 43
<PAGE>
EXHIBIT 4.5
Approved by Board of Directors on: February 8, 1996
Approved by Stockholders on: May 21, 1996
PRODUCTIVITY TECHNOLOGIES CORP.
1996 Performance Equity Plan
Section Purpose; Definitions.
1.1 Purpose. The purpose of the Productivity Technologies Corp.
(the "Company") 1996 Performance Equity Plan (the "Plan") is to enable the
Company to offer to its key employees, officers, directors and consultants whose
past, present and/or potential contributions to the Company and its Subsidiaries
have been, are or will be important to the success of the Company, an
opportunity to acquire a proprietary interest in the Company. The various types
of long-term incentive awards which may be provided under the Plan will enable
the Company to respond to changes in compensation practices, tax laws,
accounting regulations and the size and diversity of its businesses.
1.2 Definitions. For purposes of the Plan, the following terms
shall be defined as set forth below:
(a) "Agreement" means the agreement between the Company and the
Holder setting forth the terms and conditions of an award under the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto and the regulations promulgated
thereunder.
(d) "Committee" means the Stock Option Committee of the Board or any
other committee of the Board, which the Board may designate to administer
the Plan or any portion thereof. If no Committee is so designated, then all
references in this Plan to "Committee" shall mean the Board.
(e) "Common Stock" means the Common Stock of the Company, par value
$.01 per share.
(f) "Company" means Productivity Technologies Corp., a corporation
organized under the laws of the State of Delaware.
(g) "Deferred Stock" means Stock to be received, under an award made
pursuant to Section 8, below, at the end of a specified deferral period.
(h) "Disability" means disability as determined under procedures
established by the Committee for purposes of the Plan.
(i) "Effective Date" means the date set forth in Section 12.1, below.
<PAGE>
(j) "Fair Market Value", unless otherwise required by any applicable
provision of the Code or any regulations issued thereunder, means, as of
any given date: (i) if the Common Stock is listed on a national securities
exchange or quoted on the Nasdaq National Market or Nasdaq SmallCap Market, the
last sale price of the Common Stock in the principal trading market for the
Common Stock on the last trading day preceding the date of grant of an award
hereunder, as reported by the exchange or Nasdaq, as the case may be; (ii) if
the Common Stock is not listed on a national securities exchange or quoted on
the Nasdaq National Market or Nasdaq SmallCap Market, but is traded in the
over-the-counter market, the closing bid price for the Common Stock on the last
trading day preceding the date of grant of an award hereunder for which such
quotations are reported by the OTC Bulletin Board or the National Quotation
Bureau, Incorporated or similar publisher of such quotations; and (iii) if the
fair market value of the Common Stock cannot be determined pursuant to clause
(i) or (ii) above, such price as the Committee shall determine, in good faith.
(k) "Holder" means a person who has received an award under the Plan.
(l) "Incentive Stock Option" means any Stock Option intended to be
and designated as an "incentive stock option" within the meaning of Section 422
of the Code.
(m) "Nonqualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(n) "Normal Retirement" means retirement from active employment with
the Company or any Subsidiary on or after age 65.
(o) "Other Stock-Based Award" means an award under Section 9, below,
that is valued in whole or in part by reference to, or is otherwise based upon,
Stock.
(p) "Parent" means any present or future parent corporation of the
Company, as such term is defined in Section 424(e) of the Code.
(q) "Plan" means the Productivity Technologies Corp. 1996
Performance Equity Plan, as hereinafter amended from time to time.
(r) "Restricted Stock" means Stock, received under an award made
pursuant to Section 7, below, that is subject to restrictions under said
Section 7.
(s) "SAR Value" means the excess of the Fair Market Value (on the
exercise date) of the number of shares for which the Stock Appreciation
Right is exercised over the exercise price that the participant would have
otherwise had to pay to exercise the related Stock Option and purchase the
relevant shares.
(t) "Stock" means the Common Stock of the Company, par value $.001
per share.
(u) "Stock Appreciation Right" means the right to receive from the
Company, on surrender of all or part of the related Stock Option, without a
cash payment to the Company, a number of shares of Common Stock equal to the SAR
Value divided by the exercise price of the Stock Option.
(v) "Stock Option" or "Option" means any option to purchase shares of
Stock which is granted pursuant to the Plan.
(w) "Stock Reload Option" means any option granted under Section
5.3, below, as a result of the payment of the exercise price of a Stock Option
and/or the withholding tax related thereto in the form of Stock owned by the
Holder or the withholding of Stock by the Company.
- 2 -
<PAGE>
(x) "Subsidiary" means any present or future subsidiary corporation
of the Company, as such term is defined in Section 424(f) of the Code.
Section 2. Administration.
2.1 Committee Membership. The Plan shall be administered by the
Board or a Committee. Committee members shall serve for such term as the Board
may in each case determine, and shall be subject to removal at any time by the
Board.
2.2 Powers of Committee. The Committee shall have full authority
to award, pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock
Appreciation Rights, (iii) Restricted Stock, (iv) Deferred Stock, (v) Stock
Reload Options and/or (vi) Other Stock-Based Awards. For purposes of
illustration and not of limitation, the Committee shall have the authority
(subject to the express provisions of this Plan):
(a) to select the officers, key employees, directors and
consultants of the Company or any Subsidiary to whom Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock, Reload Stock Options
and/or Other Stock-Based Awards may from time to time be awarded hereunder.
(b) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to, number of shares, share price, any restrictions or limitations, and
any vesting, exchange, surrender, cancellation, acceleration, termination,
exercise or forfeiture provisions, as the Committee shall determine);
(c) to determine any specified performance goals or such other
factors or criteria which need to be attained for the vesting of an award
granted hereunder;
(d) to determine the terms and conditions under which awards
granted hereunder are to operate on a tandem basis and/or in conjunction
with or apart from other equity awarded under this Plan and cash awards made by
the Company or any Subsidiary outside of this Plan;
(e) to permit a Holder to elect to defer a payment under the
Plan under such rules and procedures as the Committee may establish,
including the crediting of interest on deferred amounts denominated in cash and
of dividend equivalents on deferred amounts denominated in Stock;
(f) to determine the extent and circumstances under which Stock
and other amounts payable with respect to an award hereunder shall be
deferred which may be either automatic or at the election of the Holder; and
(g) to substitute (i) new Stock Options for previously granted
Stock Options, which previously granted Stock Options have higher option
exercise prices and/or contain other less favorable terms, and (ii) new awards
of any other type for previously granted awards of the same type, which
previously granted awards are upon less favorable terms.
2.3 Interpretation of Plan.
(a) Committee Authority. Subject to Section 11, below, the
Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any award issued under the Plan (and to determine the form and
substance of all Agreements relating thereto), and to otherwise supervise the
administration of the Plan. Subject to Section 11, below, all decisions made by
the Committee pursuant to the provisions of the Plan shall be made in the
Committee's sole discretion and shall be final and binding upon all persons,
including the Company, its Subsidiaries and Holders.
- 3 -
<PAGE>
(b) Incentive Stock Options. Anything in the Plan to the
contrary notwithstanding, no term or provision of the Plan relating to
Incentive Stock Options (including but limited to Stock Reload Options or Stock
Appreciation rights granted in conjunction with an Incentive Stock Option) or
any Agreement providing for Incentive Stock Options shall be interpreted,
amended or altered, nor shall any discretion or authority granted under the Plan
be so exercised, so as to disqualify the Plan under Section 422 of the Code, or,
without the consent of the Holder(s) affected, to disqualify any Incentive Stock
Option under such Section 422.
Section 3. Stock Subject to Plan.
3.1 Number of Shares. The total number of shares of Common Stock
reserved and available for distribution under the Plan shall be 330,000 shares.
Shares of Stock under the Plan may consist, in whole or in part, of authorized
and unissued shares or treasury shares. If any shares of Stock that have been
granted pursuant to a Stock Option cease to be subject to a Stock Option, or if
any shares of Stock that are subject to any Stock Appreciation Right, Restricted
Stock, Deferred Stock award, Reload Stock Option or Other Stock-Based Award
granted hereunder are forfeited, or any such award otherwise terminates without
a payment being made to the Holder in the form of Stock, such shares shall again
be available for distribution in connection with future grants and awards under
the Plan. Only net shares issued upon a stock-for-stock exercise (including
stock used for withholding taxes) shall be counted against the number of shares
available under the Plan.
3.2 Adjustment Upon Changes in Capitalization, Etc. In the event
of any merger, reorganization, consolidation, recapitalization, dividend (other
than a cash dividend), stock split, reverse stock split, or other change in
corporate structure affecting the Stock, such substitution or adjustment shall
be made in the aggregate number of shares reserved for issuance under the Plan,
in the number and exercise price of shares subject to outstanding Options, in
the number of shares and Stock Appreciation Right price relating to Stock
Appreciation Rights, and in the number of shares subject to, and in the related
terms of, other outstanding awards (including but not limited to awards of
Restricted Stock, Deferred Stock, Reload Stock Options and Other Stock-Based
Awards) granted under the Plan as may be determined to be appropriate by the
Committee in order to prevent dilution or enlargement of rights, provided that
the number of shares subject to any award shall always be a whole number.
Section 4. Eligibility.
Awards may be made or granted to key employees, officers, directors and
consultants who are deemed to have rendered or to be able to render significant
services to the Company or its Subsidiaries and who are deemed to have
contributed or to have the potential to contribute to the success of the
Company. No Incentive Stock Option shall be granted to any person who is not an
employee of the Company or a Subsidiary at the time of grant.
Section 5. Stock Options.
5.1 Grant and Exercise. Stock Options granted under the Plan may
be of two types: (i) Incentive Stock Options and (ii) Nonqualified Stock
Options. Any Stock Option granted under the Plan shall contain such terms, not
inconsistent with this Plan, or with respect to Incentive Stock Options, not
inconsistent with the Code, as the Committee may from time to time approve. The
Committee shall have the authority to grant Incentive Stock Options,
Non-Qualified Stock Options, or both types of Stock Options and which may be
granted alone or in addition to other awards granted under the Plan. To the
extent that any Stock Option intended to qualify as an Incentive Stock Option
does not so qualify, it shall constitute a separate Nonqualified Stock Option.
An Incentive Stock Option may be granted only within the ten-year period
commencing from the Effective Date and may only be exercised within ten years of
the date of grant (or five years in the case of an Incentive Stock Option
granted to an optionee ("10% Stockholder") who, at the time of grant, owns Stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company.
- 4 -
<PAGE>
5.2 Terms and Conditions. Stock Options granted under the Plan
shall be subject to the following terms and conditions:
(a) Exercise Price. The exercise price per share of Stock
purchasable under a Stock Option shall be determined by the Committee at
the time of grant and may not be less than 100% of the Fair Market Value of the
Stock as defined above; provided, however, that the exercise price of an
Incentive Stock Option granted to a 10% Stockholder shall not be less than 110%
of the Fair Market Value of the Stock.
(b) Option Term. Subject to the limitations in Section 5.1,
above, the term of each Stock Option shall be fixed by the Committee.
(c) Exercisability. Stock Options shall be exercisable at such
time or times, and subject to such terms and conditions as shall be
determined by the Committee and as set forth in Section 10, below. If the
Committee provides, in its discretion, that any Stock Option is exercisable only
in installments, i.e., that it vests over time, the Committee may waive such
installment exercise provisions at any time at or after the time of grant in
whole or in part, based upon such factors as the Committee shall determine.
(d) Method of Exercise. Subject to whatever installment,
exercise and waiting period provisions are applicable in a particular case,
Stock Options may be exercised in whole or in part at any time during the term
of the Option, by giving written notice of exercise to the Company specifying
the number of shares of Stock to be purchased. Such notice shall be accompanied
by payment in full of the purchase price, which shall be in cash or, unless
otherwise provided in the Agreement, in shares of Stock (including Restricted
Stock and other contingent awards under this Plan) or, partly in cash and partly
in such Stock, or such other means which the Committee determines are consistent
with the Plan's purpose and applicable law. Cash payments shall be made by wire
transfer, certified or bank check or personal check, in each case payable to the
order of the Company; provided, however, that the Company shall not be required
to deliver certificates for shares of Stock with respect to which an Option is
exercised until the Company has confirmed the receipt of good and available
funds in payment of the purchase price thereof. Payments in the form of Stock
shall be valued at the Fair Market Value of a share of Stock on the date prior
to the date of exercise. Such payments shall be made by delivery of stock
certificates in negotiable form which are effective to transfer good and valid
title thereto to the Company, free of any liens or encumbrances. Subject to the
terms of the Agreement, the Committee may, in its sole discretion, at the
request of the Holder, deliver upon the exercise of a Nonqualified Stock Option
a combination of shares of Deferred Stock and Common Stock; provided that,
notwithstanding the provisions of Section 8 of the Plan, such Deferred Stock
shall be fully vested and not subject to forfeiture. A Holder shall have none of
the rights of a stockholder with respect to the shares subject to the Option
until such shares shall be transferred to the Holder upon the exercise of the
Option.
(e) Transferability. Except as may be set forth in the
Agreement, no Stock Option shall be transferable by the Holder other than
by will or by the laws of descent and distribution, and all Stock Options shall
be exercisable, during the Holder's lifetime, only by the Holder.
(f) Termination by Reason of Death. If a Holder's employment by
the Company or a Subsidiary terminates by reason of death, any Stock Option
held by such Holder, unless otherwise determined by the Committee at the time of
grant and set forth in the Agreement, shall be fully vested and may thereafter
be exercised by the legal representative of the estate or by the legatee of the
Holder under the will of the Holder, for a period of one year (or such other
greater or lesser period as the Committee may specify at grant) from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter.
(g) Termination by Reason of Disability. If a Holder's
employment by the Company or any Subsidiary terminates by reason of Disability,
any Stock Option held by such Holder, unless otherwise determined by the
- 5 -
<PAGE>
Committee at the time of grant and set forth in the Agreement, shall be
fully vested and may thereafter be exercised by the Holder for a period of one
year (or such other greater or lesser period as the Committee may specify at the
time of grant) from the date of such termination of employment or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter.
(h) Other Termination. Subject to the provisions of Section
13.3, below, and unless otherwise determined by the Committee at the time
of grant and set forth in the Agreement, if a Holder is an employee of the
Company or a Subsidiary at the time of grant and if such Holder's employment by
the Company or any Subsidiary terminates for any reason other than death or
Disability, the Stock Option shall thereupon automatically terminate, except
that if the Holder's employment is terminated by the Company or a Subsidiary
without cause or due to Normal Retirement, then the portion of such Stock Option
which has vested on the date of termination of employment may be exercised for
the lesser of three months after termination of employment or the balance of
such Stock Option's term.
(i) Additional Incentive Stock Option Limitation. In the case
of an Incentive Stock Option, the aggregate Fair Market Value of Stock
(determined at the time of grant of the Option) with respect to which Incentive
Stock Options become exercisable by a Holder during any calendar year (under all
such plans of the Company and its Parent and Subsidiary) shall not exceed
$100,000.
(j) Buyout and Settlement Provisions. The Committee may at any
time, in its sole discretion, offer to buy out a Stock Option previously
granted, based upon such terms and conditions as the Committee shall establish
and communicate to the Holder at the time that such offer is made.
(k) Stock Option Agreement. Each grant of a Stock Option shall
be confirmed by, and shall be subject to the terms of, the Agreement
executed by the Company and the Holder.
5.3 Stock Reload Option. The Committee may also grant to the
Holder (concurrently with the grant of an Incentive Stock Option and at or after
the time of grant in the case of a Nonqualified Stock Option) a Stock Reload
Option up to the amount of shares of Stock held by the Holder for at least six
months and used to pay all or part of the exercise price of an Option and, if
any, withheld by the Company as payment for withholding taxes. Such Stock Reload
Option shall have an exercise price equal to the Fair Market Value as of the
date of the Stock Reload Option grant. Unless the Committee determines
otherwise, a Stock Reload Option may be exercised commencing one year after it
is granted and shall expire on the date of expiration of the Option to which the
Reload Option is related.
Section 6. Stock Appreciation Rights.
6.1 Grant and Exercise. The Committee may grant Stock Appreciation
Rights to participants who have been, or are being granted, Options under the
Plan as a means of allowing such participants to exercise their Options without
the need to pay the exercise price in cash. In the case of a Nonqualified Stock
Option, a Stock Appreciation Right may be granted either at or after the time of
the grant of such Nonqualified Stock Option. In the case of an Incentive Stock
Option, a Stock Appreciation Right may be granted only at the time of the grant
of such Incentive Stock Option.
6.2 Terms and Conditions. Stock Appreciation Rights shall be subject
to the following terms and conditions:
(a) Exercisability. Stock Appreciation Rights shall be
exercisable as shall be determined by the Committee and set forth in the
Agreement, subject to the limitations, if any, imposed by the Code, with respect
to related Incentive Stock Options.
(b) Termination. A Stock Appreciation Right shall terminate and
shall no longer be exercisable upon the termination or exercise of the related
Stock Option.
- 6 -
<PAGE>
(c) Method of Exercise. Stock Appreciation Rights shall be
exercisable upon such terms and conditions as shall be determined by the
Committee and set forth in the Agreement and by surrendering the applicable
portion of the related Stock Option. Upon such exercise and surrender, the
Holder shall be entitled to receive a number of Option Shares equal to the SAR
Value divided by the Fair Market Value (on the exercise date).
(d) Shares Affected Upon Plan. The granting of a Stock
Appreciation Right shall not affect the number of shares of Stock available
for awards under the Plan. The number of shares available for awards under the
Plan will, however, be reduced by the number of shares of Stock acquirable upon
exercise of the Stock Option to which such Stock Appreciation Right relates.
Section 7. Restricted Stock.
7.1 Grant. Shares of Restricted Stock may be awarded either alone
or in addition to other awards granted under the Plan. The Committee shall
determine the eligible persons to whom, and the time or times at which, grants
of Restricted Stock will be awarded, the number of shares to be awarded, the
price (if any) to be paid by the Holder, the time or times within which such
awards may be subject to forfeiture (the "Restriction Period"), the vesting
schedule and rights to acceleration thereof, and all other terms and conditions
of the awards.
7.2 Terms and Conditions. Each Restricted Stock award shall be
subject to the following terms and conditions:
(a) Certificates. Restricted Stock, when issued, will be
represented by a stock certificate or certificates registered in the name
of the Holder to whom such Restricted Stock shall have been awarded. During the
Restriction Period, certificates representing the Restricted Stock and any
securities constituting Retained Distributions (as defined below) shall bear a
legend to the effect that ownership of the Restricted Stock (and such Retained
Distributions), and the enjoyment of all rights appurtenant thereto, are subject
to the restrictions, terms and conditions provided in the Plan and the
Agreement. Such certificates shall be deposited by the Holder with the Company,
together with stock powers or other instruments of assignment, each endorsed in
blank, which will permit transfer to the Company of all or any portion of the
Restricted Stock and any securities constituting Retained Distributions that
shall be forfeited or that shall not become vested in accordance with the Plan
and the Agreement.
(b) Rights of Holder. Restricted Stock shall constitute issued
and outstanding shares of Common Stock for all corporate purposes. The
Holder will have the right to vote such Restricted Stock, to receive and retain
all regular cash dividends and other cash equivalent distributions as the Board
may in its sole discretion designate, pay or distribute on such Restricted Stock
and to exercise all other rights, powers and privileges of a holder of Common
Stock with respect to such Restricted Stock, with the exceptions that (i) the
Holder will not be entitled to delivery of the stock certificate or certificates
representing such Restricted Stock until the Restriction Period shall have
expired and unless all other vesting requirements with respect thereto shall
have been fulfilled; (ii) the Company will retain custody of the stock
certificate or certificates representing the Restricted Stock during the
Restriction Period; (iii) other than regular cash dividends and other cash
equivalent distributions as the Board may in its sole discretion designate, pay
or distribute, the Company will retain custody of all distributions ("Retained
Distributions") made or declared with respect to the Restricted Stock (and such
Retained Distributions will be subject to the same restrictions, terms and
conditions as are applicable to the Restricted Stock) until such time, if ever,
as the Restricted Stock with respect to which such Retained Distributions shall
have been made, paid or declared shall have become vested and with respect to
which the Restriction Period shall have expired; (iv) a breach of any of the
restrictions, terms or conditions contained in this Plan or the Agreement or
otherwise established by the Committee with respect to any Restricted Stock or
Retained Distributions will cause a forfeiture of such Restricted Stock and any
Retained Distributions with respect thereto.
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(c) Vesting; Forfeiture. Upon the expiration of the Restriction
Period with respect to each award of Restricted Stock and the satisfaction
of any other applicable restrictions, terms and conditions (i) all or part of
such Restricted Stock shall become vested in accordance with the terms of the
Agreement, subject to Section 10, below, and (ii) any Retained Distributions
with respect to such Restricted Stock shall become vested to the extent that the
Restricted Stock related thereto shall have become vested, subject to Section
10, below. Any such Restricted Stock and Retained Distributions that do not vest
shall be forfeited to the Company and the Holder shall not thereafter have any
rights with respect to such Restricted Stock and Retained Distributions that
shall have been so forfeited.
Section 8. Deferred Stock.
8.1 Grant. Shares of Deferred Stock may be awarded either alone or
in addition to other awards granted under the Plan. The Committee shall
determine the eligible persons to whom, and the time or times at which, grants
of Deferred Stock will be awarded, the number of shares of Deferred Stock to be
awarded to any person, the duration of the period (the "Deferral Period") during
which, and the conditions under which, receipt of the shares will be deferred,
and all the other terms and conditions of the awards.
8.2 Terms and Conditions. Each Deferred Stock award shall be subject
to the following terms and conditions:
(a) Certificates. At the expiration of the Deferral Period (or
the Additional Deferral Period referred to in Section 8.2 (d) below, where
applicable), share certificates shall be issued and delivered to the Holder, or
his legal representative, representing the number equal to the shares covered by
the Deferred Stock award.
(b) Rights of Holder. A person entitled to receive Deferred
Stock shall not have any rights of a stockholder by virtue of such award
until the expiration of the applicable Deferral Period and the issuance and
delivery of the certificates representing such Stock. The shares of Stock
issuable upon expiration of the Deferral Period shall not be deemed outstanding
by the Company until the expiration of such Deferral Period and the issuance and
delivery of such Stock to the Holder.
(c) Vesting; Forfeiture. Upon the expiration of the Deferral
Period with respect to each award of Deferred Stock and the satisfaction of
any other applicable restrictions, terms and conditions all or part of such
Deferred Stock shall become vested in accordance with the terms of the
Agreement, subject to Section 10, below. Any such Deferred Stock that does not
vest shall be forfeited to the Company and the Holder shall not thereafter have
any rights with respect to such Deferred Stock.
(d) Additional Deferral Period. A Holder may request to, and
the Committee may at any time, defer the receipt of an award (or an
installment of an award) for an additional specified period or until a specified
event (the "Additional Deferral Period"). Subject to any exceptions adopted by
the Committee, such request must generally be made at least one year prior to
expiration of the Deferral Period for such Deferred Stock award (or such
installment).
Section 9. Other Stock-Based Awards.
9.1 Grant and Exercise. Other Stock-Based Awards may be awarded,
subject to limitations under applicable law, that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on, or related
to, shares of Common Stock, as deemed by the Committee to be consistent with the
purposes of the Plan, including, without limitation, purchase rights, shares of
Common Stock awarded which are not subject to any restrictions or conditions,
convertible or exchangeable debentures, or other rights convertible into shares
of Common Stock and awards valued by reference to the value of securities of or
the performance of specified Subsidiaries. Other Stock-Based Awards may be
awarded either alone or in addition to or in tandem with any other awards
under this Plan or any other plan of the Company.
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9.2 Eligibility for Other Stock-Based Awards. The Committee shall
determine the eligible persons to whom and the time or times at which grants of
such other stock-based awards shall be made, the number of shares of Common
Stock to be awarded pursuant to such awards, and all other terms and conditions
of the awards.
9.3 Terms and Conditions. Each Other Stock-Based Award shall be
subject to such terms and conditions as may be determined by the Committee and
to Section 10, below.
Section 10. Accelerated Vesting and Exercisability.
If (i) any person or entity other than the Company and/or any officer,
director or principal stockholder (i.e., a holder (beneficially or of record) of
more than ten percent of the Company's voting stock) of the Company as of the
Effective Date acquire securities of the Company (in one or more transactions)
having 25% or more of the total voting power of all the Company's securities
then outstanding and (ii) the Board of Directors of the Company does not
authorize or otherwise approve such acquisition (an "Acceleration Event"), then,
the vesting periods of any and all Options and other awards granted and
outstanding under the Plan shall be accelerated and all such Options and awards
will immediately and entirely vest, and the respective holders thereof will have
the immediate right to purchase and/or receive any and all Stock subject to such
Options and awards on the terms set forth in this Plan and the respective
agreements respecting such Options and awards.
Section 11. Amendment and Termination.
The Board may at any time, and from time to time, amend alter, suspend
or discontinue any of the provisions of the Plan, but no amendment, alteration,
suspension or discontinuance shall be made which would impair the rights of a
Holder under any Agreement theretofore entered into hereunder, without the
Holder's consent.
Section 12. Term of Plan.
12.1 Effective Date. The Plan shall be effective as of February 8,
1996 ("Effective Date"), subject to the approval of the Plan by the Company's
stockholders within one year after the Effective Date. Any awards granted under
the Plan prior to such approval shall be effective when made (unless otherwise
specified by the Committee at the time of grant), but shall be conditioned upon,
and subject to, such approval of the Plan by the Company's stockholders and no
awards shall vest or otherwise become free of restrictions prior to such
approval.
12.2 Termination Date. Unless terminated by the Board, this Plan
shall continue to remain effective until such time no further awards may be
granted and all awards granted under the Plan are no longer outstanding.
Notwithstanding the foregoing, grants of Incentive Stock Options may only be
made during the ten year period following the Effective Date.
Section 13. General Provisions.
13.1 Written Agreements. Each award granted under the Plan shall be
confirmed by, and shall be subject to the terms of the Agreement executed by the
Company and the Holder. The Committee may terminate any award made under the
Plan if the Agreement relating thereto is not executed and returned to the
Company within ten days after the Agreement has been delivered to the Holder for
his or her execution.
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13.2 Unfunded Status of Plan. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Holder by the Company, nothing contained herein shall
give any such Holder any rights that are greater than those of a general
creditor of the Company.
13.3 Employees.
(a) Engaging in Competition With the Company. In the event a
Holder's employment with the Company or a Subsidiary is terminated for any
reason whatsoever, and within eighteen months after the date thereof such Holder
accepts employment with any competitor of, or otherwise engages in competition
with, the Company, the Committee, in its sole discretion, may require such
Holder to return to the Company the economic value of any award which was
realized or obtained by such Holder at any time during the period beginning on
that date which is six months prior to the date of such Holder's termination of
employment with the Company.
(b) Termination for Cause. The Committee may, in the event a
Holder's employment with the Company or a Subsidiary is terminated for
cause, annul any award granted under this Plan to such employee and, in such
event, the Committee, in its sole discretion, may require such Holder to return
to the Company the economic value of any award which was realized or obtained by
such Holder at any time during the period beginning on that date which is six
months prior to the date of such Holder's termination of employment with the
Company.
(c) No Right of Employment. Nothing contained in the Plan or in
any award hereunder shall be deemed to confer upon any Holder who is an
employee of the Company or any Subsidiary any right to continued employment with
the Company or any Subsidiary, nor shall it interfere in any way with the right
of the Company or any Subsidiary to terminate the employment of any Holder who
is an employee at any time.
13.4 Investment Representations. The Committee may require each
person acquiring shares of Stock pursuant to a Stock Option or other award under
the Plan to represent to and agree with the Company in writing that the Holder
is acquiring the shares for investment without a view to distribution thereof.
13.5 Additional Incentive Arrangements. Nothing contained in the
Plan shall prevent the Board from adopting such other or additional incentive
arrangements as it may deem desirable, including, but not limited to, the
granting of Stock Options and the awarding of stock and cash otherwise than
under the Plan; and such arrangements may be either generally applicable or
applicable only in specific cases.
13.6 Withholding Taxes. Not later than the date as of which an
amount must first be included in the gross income of the Holder for Federal
income tax purposes with respect to any option or other award under the Plan,
the Holder shall pay to the Company, or make arrangements satisfactory to the
Committee regarding the payment of, any Federal, state and local taxes of any
kind required by law to be withheld or paid with respect to such amount. If
permitted by the Committee, tax withholding or payment obligations may be
settled with Common Stock, including Common Stock that is part of the award that
gives rise to the withholding requirement. The obligations of the Company under
the Plan shall be conditioned upon such payment or arrangements and the Company
or the Holder's employer (if not the Company) shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the Holder from the Company or any Subsidiary.
13.7 Governing Law. The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of New York (without regard to choice of law provisions).
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13.8 Other Benefit Plans. Any award granted under the Plan shall
not be deemed compensation for purposes of computing benefits under any
retirement plan of the Company or any Subsidiary and shall not affect any
benefits under any other benefit plan now or subsequently in effect under which
the availability or amount of benefits is related to the level of compensation
(unless required by specific reference in any such other plan to awards under
this Plan).
13.9 Non-Transferability. Except as otherwise expressly provided in
the Plan or the Agreement, no right or benefit under the Plan may be alienated,
sold, assigned, hypothecated, pledged, exchanged, transferred, encumbranced or
charged, and any attempt to alienate, sell, assign, hypothecate, pledge,
exchange, transfer, encumber or charge the same shall be void.
13.10 Applicable Laws. The obligations of the Company with
respect to all Stock Options and awards under the Plan shall be subject to
(i) all applicable laws, rules and regulations and such approvals by any
governmental agencies as may be required, including, without limitation, the
Securities Act of 1933, as amended, and (ii) the rules and regulations of any
securities exchange on which the Stock may be listed.
13.11 Conflicts. If any of the terms or provisions of the Plan or
an Agreement (with respect to Incentive Stock Options) conflict with the
requirements of Section 422 of the Code, then such terms or provisions shall be
deemed inoperative to the extent they so conflict with the requirements of said
Section 422 of the Code. Additionally, if this Plan or any Agreement does not
contain any provision required to be included herein under Section 422 of the
Code, such provision shall be deemed to be incorporated herein and therein with
the same force and effect as if such provision had been set out at length herein
and therein. If any of the terms or provisions of any Agreement conflict with
any terms or provision of the Plan, then such terms or provisions shall be
deemed inoperative to the extent they so conflict with the requirements of the
Plan. Additionally, if any Agreement does not contain any provision required to
be included therein under the Plan, such provision shall be deemed to be
incorporated therein with the same force and effect as if such provision had
been set out at length therein.
13.12 Non-Registered Stock. The shares of Stock to be distributed
under this Plan have not been, as of the Effective Date, registered under the
Securities Act of 1933, as amended, or any applicable state or foreign
securities laws and the Company has no obligation to any Holder to register the
Stock or to assist the Holder in obtaining an exemption from the various
registration requirements, or to list the Stock on a national securities
exchange.
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
AGREEMENT dated as of May 23, 1996, between RONALD M. PRIME,
residing at 6438 Brewer, Flint, Michigan 48433 ("Executive"), and ATLAS
TECHNOLOGIES, INC., a Michigan corporation having its principal office at 201
South Alloy, Fenton, Michigan 48430 ("Company").
WHEREAS, the Company and Executive desire to provide for the
continued employment of Executive by the Company on the terms set forth herein;
IT IS AGREED:
1. Employment, Duties and Acceptance.
1.1 The Company hereby employs Executive as its Chief
Executive Officer. It being the intent of the Company to enhance and grow its
existing product lines, Executive's duties and authority shall include, but not
be limited to, those matters set forth in Schedule A hereto. All of Executive's
powers and authority in any capacity shall at all times be subject to the
reasonable direction and control of the Company's Board of Directors ("Board").
During the term of this Agreement, Executive shall be elected as a member of
the Board.
1.2 The Board may assign to Executive such other executive
duties for the Company or any Affiliate as are consistent with Executive's
status in the capacity set forth above. As used herein, "Affiliate" means any
parent corporation or subsidiary of the Company and any other corporation under
common control with the Company.
1.3 Executive accepts such employment and agrees to devote all
of his business time, energies and attention to the performance of his
duties; provided that nothing herein shall be construed as preventing
Executive from making and supervising personal investments.
2. Compensation and Benefits.
2.1 No later than 60 days after the execution of this Agreement,
the Company shall pay Executive the sum of $100,000. Such payment shall be
subject to withholding taxes and other normal payroll deductions.
2.2 The Company shall pay to Executive a salary ("Salary") at
the rate of $190,000 per year until December 31, 1996, subject to cost-of-
living increases thereafter in accordance with Section 2.5. Executive's
Salary shall be paid in equal periodic installments in accordance with the
Company's normal payroll procedures and shall be subject to withholding taxes
and other normal payroll deductions.
<PAGE>
2.3 During the term of this Agreement, Executive shall be
entitled to such medical and life insurance benefits and other benefits as
are set forth in Schedule B hereto. Executive shall be entitled to six weeks of
vacation in each calendar year but shall not be entitled to payment in lieu
thereof to the extent not taken.
2.4 (a) The Company will pay or reimburse Executive for all
transportation, hotel and other expenses reasonably incurred by Executive on
business trips and for all other ordinary and reasonable out-of-pocket expenses
actually incurred by Executive in the conduct of the business of the Company
against itemized vouchers submitted with respect to any such expenses approved
in accordance with customary procedures.
(b) The Company shall provide Executive with an automobile
suitable for business use and shall pay all the costs and expenses reasonably
incurred by Executive in connection with the use thereof, including but not
limited to purchase or leasing costs, fuel, maintenance, insurance,
garaging and mobile telephone.
2.5 For each twelve month period of the term of this Agreement
beginning on January 1, 1997, Executive's Salary shall be increased by an
amount equal to the product obtained by multiplying Executive's Salary in the
immediately preceding calendar year ("Prior Year") by a fraction, the numerator
of which shall be the difference between (a) the Consumer Price Index for All
Urban Consumers - Detroit, Michigan, as published by the U.S. Bureau of Labor
Statistics (reference base 1982-1984 = 100) ("CPI"), for the month of November
in the Prior Year, and (b) the CPI for the month of November in the calendar
year preceding the Prior Year ("Base Year CPI") and the denominator of which
shall be the Base Year CPI.
2.6 If, during the five complete fiscal years beginning as of
January 1, 1996 (the "Bonus Period"), the average Annual Adjusted Earnings (as
hereinafter defined) of the Company exceed $2,626,000 per year, the Company
shall pay Executive a bonus equal to the amount by which the average Annual
Adjusted Earnings of the Company during the Bonus Period exceed $2,626,000. The
Company shall establish an interest-bearing escrow account, the balance of which
(excluding interest earned thereon) shall be maintained by the Company making a
deposit or withdrawal within 120 days after the end of each fiscal year during
the Bonus Period such that the balance of the account (excluding interest) is
equal to the percentage specified below multiplied by the amount by which
average Annual Adjusted Earnings of the Company for the portion of the Bonus
Period through the end of such fiscal year exceed $2,626,000. The Company shall
have the right to withdraw all moneys from such account, including interest, as
of the end of any such fiscal year if the average Annual Adjusted Earnings of
the Company during the Bonus Period through the end of any such fiscal year are
less than $2,626,000. Such bonus shall be paid to Executive by transferring to
Executive the amount, if any, in such escrow account, together with all earnings
thereon, within 120 days after the end of the fifth such fiscal year, subject to
withholding taxes and such other deductions therefrom as are required by law.
Notwithstanding the foregoing, if Executive shall die before the end of the
Bonus Period, there shall be deducted from amounts payable pursuant to
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this Section 2.6, the amount of insurance proceeds payable to Executive's
estate under the insurance maintained by the Company pursuant to Section 2.11.
Fiscal Year Percentage
First 20%
Second 40%
Third 60%
Fourth 80%
Fifth 100%
2.7 Subject to the further provisions of this Section 2.7, the
Company shall pay to Executive an additional bonus of $208,333 for each of the
six complete fiscal years beginning on January 1, 1996 ("Additional Bonus
Period") in which the Adjusted Earnings of the Company are at least $2,000,000,
such additional bonus to be paid within 120 days after the end of each fiscal
year for which it is earned, subject to withholding taxes and such other
deductions therefrom as are required by law; provided that if the average
Adjusted Earnings of the Company during the Additional Bonus Period are at least
$2,000,000 the total additional bonus payable hereunder shall be $1,250,000 and
any portion thereof not theretofore paid to Executive shall be paid within 120
days after the end of the Additional Bonus Period. Notwithstanding the
foregoing, if Executive shall die before the end of the Additional Bonus Period,
amounts thereafter payable pursuant to this Section 2.7 shall be due only to the
extent that the sum of the amounts, if any, payable under Sections 2.6 and 2.7,
without giving effect to the deduction provided for by the last sentence of
Section 2.6, exceeds the sum of the amounts theretofore paid to Executive or
Executive's estate pursuant to Sections 2.6, 2.7 and 2.11.
2.8 The provisions of Sections 2.6 and 2.7 shall survive the
expiration or termination of this Agreement for any reason and, in the event
of such expiration or termination, amounts, if any, payable to Executive
pursuant to such Sections shall be paid to Executive or Executive's estate, as
the case may be, at the times specified therein.
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2.9 As used herein, the term "Annual Adjusted Earnings" shall
mean the earnings of the Company during the fiscal year in question before
interest and taxes (determined in accordance with generally accepted accounting
principles) but without any deduction for (a) amounts payable to Executive
pursuant to Sections 2.6 and 2.7 or amounts payable to Michael D. Austin
("Austin") pursuant to similar provisions of the Employment Agreement between
Austin and the Company entered into concurrently with the execution of this
Agreement, (b) the first $250,000 of Environmental Remediation Costs undertaken
by the Company in accordance with Section 7.08 of the Merger Agreement referred
to in Section 4.6 or (c) management fees charged to the Company by its parent
company. The interest component of capital leases entered into prior to the date
hereof shall be a deduction in computing Annual Adjusted Earnings but the
interest component of capital leases entered into on or after the date hereof
shall not be a deduction. Notwithstanding the foregoing, for purposes of Section
2.7, any loss attributable to (a) a settlement or write-down of the account
receivable from Terra-Block Worldwide Corporation ("Terra-Block") below $40,000
or (b) a sale or write-down of the Company's inventory of equipment manufactured
to the order of Terra-Block below $572,885 shall not be a deduction in the
calculation of Annual Adjusted Earnings for the fiscal year in which such
settlement, sale or write-down occurs or any other fiscal year.
2.10 During the term of this Agreement, the Company:
(a) shall not amend the provisions of its Certificate of
Incorporation and By-Laws relating to indemnification and limitation of
liability of directors and officers, as in effect on the date hereof, withou
the consent of Executive;
(b) shall not declare or pay any dividends of cash or
property upon its capital stock or make other distributions of cash or
property with respect to its capital stock except for fair value; or
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(c) enter into any agreements with the holder of its
capital stock or any other Affiliate other than on terms no less favorable
to the Company then could be achieved on an arm's- length basis.
2.11 During the term of this Agreement, the Company shall
maintain term life insurance on the life of Executive in an amount equal to
$2,000,000 less the sum of amounts, if any, theretofore paid to Executive
pursuant to the provisions of Section 2.7, for which the beneficiary shall be
the Executive's estate or such other person designated by Executive.
2.12 In the event, on or before the completion of the
Additional Bonus Period, of a sale by the Company of all or a substantial part
of its assets or a sale by the holder of the capital stock of the Company or the
issuance by the Company of capital stock such that a person or group of related
persons becomes the owner of capital stock of the Company having more than fifty
percent of the voting power of all outstanding shares of capital stock, in full
payment and liquidation of the bonus payable pursuant to Section 2.6 and the
bonuses payable pursuant to Section 2.7, the Company shall pay to Executive,
within thirty (30) days after the occurrence of such event, an amount equal to
(a) $1,250,000 less all amounts theretofore paid to Executive pursuant to
Section 2.7 plus (b) if such event occurs on or before the completion of the
Bonus Period, an amount equal to the greater of (i) $750,000 or (ii) the amount
by which the average Annual Adjusted Earnings of the Company for all fiscal
years prior to the fiscal year in which such event occurs exceeds $2,626,000.
2.13 Any expenses incurred by the Company in connection with
the action entitled "Richard Burda and Brenda Burda v. Atlas Automation, Inc.,
et al.," Case No. 95-35809 in the Circuit Court of Genesee County (the "Burda
Action") shall be a deduction in the computation of Annual Adjusted Earnings for
the fiscal year(s) in which such expenses are incurred. If the Burda Action
were a matter with respect to which the Company would be entitled to
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indemnification pursuant to Article IX of the Merger Agreement, an amount
equal to the lesser of (a) 30% of the amount which would be paid to the Company
as "Damages" with respect to the Burda Action pursuant to Article IX of the
Merger Agreement (after taking into account all other Damages to which the
Company is entitled to indemnification thereunder and the limitations set forth
in Section 9.05 of the Merger Agreement) or (b) the amount by which the amount
payable pursuant to Section 2.6 of this Agreement exceeds $750,000 shall be
deducted from amounts, if any, payable pursuant to Section 2.6.
3. Term and Termination.
3.1 The term of this Agreement shall commence as of the date
hereof and shall continue until December 31, 1998, unless sooner terminated
as herein provided.
3.2 If Executive dies during the term of this Agreement, this
Agreement shall thereupon terminate, except that the Company shall pay to
the legal representative of Executive's estate all monies due hereunder to the
end of the month during which Executive dies. In addition, the Company shall pay
to Executive's estate such amounts, if any, as may be payable pursuant to
Sections 2.6 and 2.7 at the time such amounts are payable thereunder.
3.3 The Company, by notice to Executive, may terminate this
Agreement if Executive shall fail because of illness or incapacity to
render, for twelve consecutive months, services of the character contemplated by
this Agreement. Notwithstanding such termination, the Company shall pay to
Executive all monies due hereunder to the end of the month in which such
termination occurs. In addition, the Company shall pay to Executive such
amounts, if any, as may be payable pursuant to Sections 2.6 and 2.7 at the time
such amounts are payable thereunder.
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3.4 The Company, by notice to Executive, may terminate this
Agreement and Executive's employment with the Company for cause. As used
herein, "cause" shall mean: (a) the refusal or failure by Executive to carry out
specific directions of the Board which are of a material nature and consistent
with his status in the capacity set forth in Section 1.1, or the refusal or
failure by Executive to perform a material part of Executive's duties in such
capacity; provided that failure to achieve specified performance goals shall not
be "cause" hereunder; (b) fraudulent or dishonest action by Executive in his
relations with the Company or any of its Affiliates, or with any customer or
other business contact of the Company or any of its Affiliates ("dishonest" for
these purposes shall include Executive's knowingly or recklessly making of a
material misstatement or omission for his personal benefit); or (c) the
conviction of Executive of any crime involving an act of moral turpitude.
Notwithstanding the foregoing, no "cause" for termination shall be deemed to
exist with respect to Executive's acts described in clause (a) above unless the
Company shall have given written notice to Executive specifying the "cause" with
reasonable particularity and, within five business days after such notice,
Executive shall not have cured or eliminated the situation or event giving rise
to such "cause."
4. Protection of Confidential Information; Non-Competition.
4.1 Executive acknowledges that:
(a) As a result of his employment by the Company,
Executive has obtained and will obtain secret and confidential information
concerning the business of the Company and its Affiliates, including, without
limitation, financial information, proprietary rights, trade secrets and
"know-how," customers, and certain business methodologies ("Confidential
Information").
(b) The Company and its Affiliates will suffer substantial
damage which will be difficult to compute if, during the period of his
employment with the Company or thereafter, Executive should divulge
Confidential Information or, thereafter, Executive should enter a
business competitive with that of the Company.
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(c) The provisions of this Agreement are reasonable and
necessary for the protection of the business of the Company and its
Affiliates.
4.2 Executive agrees that he will not at any time, either during
the term of this Agreement or thereafter, divulge to any person or entity
any Confidential Information obtained or learned by him or her as a result of
his employment with the Company or any of its Affiliates, except (i) in the
course of performing his duties hereunder, (ii) with the Company's express
written consent; (iii) to the extent that any such information is in the public
domain other than as a result of Executive's breach of any of his obligations
hereunder; or (iv) where required to be disclosed by court order, subpoena or
other government process. If Executive shall be required to make disclosure
pursuant to the provisions of clause (iv) of the preceding sentence, Executive
promptly, but in no event more than 48 hours after learning of such subpoena,
court order, or other government process, shall notify, by personal delivery or
by electronic means, confirmed by mail, the Company and, at the Company's
expense, Executive shall: (a) take all reasonably necessary steps required by
the Company to defend against the enforcement of such subpoena, court order or
other government process, and (b) permit the Company to intervene and
participate with counsel of its choice in any proceeding relating to the
enforcement thereof. As used in this Agreement, "Affiliate" means any entity
that, directly or indirectly, is controlled by, controlling, or under common
control with the Company. Upon termination of his employment with the Company.
4.3 Upon termination of his employment with the Company,
Executive will promptly deliver to the Company all original memoranda, notes,
records, reports, manuals, drawings, blueprints and other documents relating
to the business of the Company and its Affiliates (and all copies thereof) and
all property associated therewith, which he may then possess or have under
his control.
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4.4 If Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Section 4.2, the Company shall have the
right and remedy to have the provisions of this Agreement specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed by Executive that the services being rendered hereunder to the Company
are of a special, unique and extraordinary character and that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company.
4.5 If any provision of Sections 4.2 is held to be
unenforceable because of the scope, duration or area of its applicability, the
tribunal making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
4.6 Executive acknowledges that until the termination of the
"Non-Competition Period" defined therein, Executive is subject to the
provisions of Section 5.04(b) of that certain Merger Agreement dated December
18, 1995, between Production Systems Acquisition Corporation, AMS Holding
Company, Executive, Austin,
and the Company.
5. Miscellaneous Provisions.
5.1 All notices provided for in this Agreement shall be
in writing, and shall be deemed to have been duly given when delivered
personally to the party to receive the same, when transmitted by electronic
means, or when mailed first class postage prepaid, by certified mail, return
receipt requested, addressed to the party to receive the same at his or its
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address set forth below, or such other address as the party to receive the
same shall have specified by written notice given in the manner provided for
in this Section 5.1. All notices shall be deemed to have been given as of the
date of personal delivery or transmittal thereof or three business days after
mailing thereof.
If to Executive:
Ronald M. Prime
6438 Brewer
Flint, Michigan 48507
Marked "Personal and Confidential"
If to the Company:
Atlas Technologies, Inc.
201 South Alloy Drive
Fenton, Michigan 48430
Attn.: President
Telecopier: (810) 629-8145
with a copy to:
Mr. Jesse A. Levine
Seidman & Co., Inc.
777 East Eisenhower Parkway
Suite 106
Ann Arbor, Michigan 48108
Telecopier: (313) 996-1738
5.2 This Agreement executed simultaneously herewith sets forth the
entire agreement of the parties relating to the employment of Executive and
are intended to supersede all prior negotiations, understandings and
agreements. No provisions of this Agreement may be waived or changed except
by a writing by the party against whom such waiver or change is sought to be
enforced. The failure of any party to require performance of any provision
hereof shall in no manner affect the right at a later time to enforce such
provision.
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<PAGE>
5.3 All questions with respect to the construction of this
Agreement, and the rights and obligations of the parties hereunder, shall
be determined in accordance with the law of the State of Michigan applicable to
agreements made and to be performed entirely in Michigan. Any dispute,
controversy or claim arising out of or relating to this Agreement, the making,
interpretation or the breach thereof, other than a claim solely for injunctive
relief for any alleged breach of the provisions of Section 4.2, as to which the
parties shall have the right to apply for specific performance to any court
having equity jurisdiction in Genesee County, Michigan, shall be submitted to
arbitration to the American Arbitration Association in Flint, Michigan,
before a single arbitrator in accordance with the Commercial Arbitration Rules
of the American Arbitration Association and judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof and any
party to the arbitration may, if he or it so elects, institute proceedings in
any court having jurisdiction for the specific performance of any such award.
The powers of the arbitrator shall include, but not be limited to, the
awarding of injunctive relief. All costs and expenses of the arbitration,
including legal fees of the prevailing party, shall be borne by the
non-prevailing party.
5.4 This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company. This Agreement shall not
be assignable by Executive, but shall inure to the benefit of and be binding
upon Executive's heirs and legal representatives.
5.5 This Agreement supersedes all prior agreements between
the Company and Executive regarding the terms and conditions of
Executive's employment with the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
/s/ Ronald M. Prime
RONALD M. PRIME
ATLAS TECHNOLOGIES, INC.
By: /s/ Michael D. Austin
Title: President
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<PAGE>
SCHEDULE A
A. Executive and Prime, or if only one of them shall be employed by the
Company at any time, such one (the "Executives") shall be jointly responsible
for the determination of actions and the implementation thereof regarding the
matters set forth below, subject to such limitations as are set forth herein. In
exercising their responsibilities, the Executives shall act in a manner
consistent with the Company's historical practices in the ordinary course of
business.
(a) Personnel policy, including hiring and discharge of
employees, provided that no person not employed by the Company on
January 1, 1996 who is related to an Executive or an Executive's spouse (a
"Relative") shall be hired without the express approval of the Board of
Directors.
(b) To the extent provided in Section B below, establishment
of salaries, bonuses and other compensation for employees other
than themselves, provided that increases in compensation payable to
Relatives shall not be in excess of amounts commensurate with increases given to
other employees.
(c) To the extent provided in Section B below, procurement
of credit facilities and authorization of capital expenditures
to the extent that such are required to meet projected increases in
business or as replacements for obsolete or worn out equipment and machinery.
(d) Determination of sources of supply and the costs
thereof.
(e) Determination of sales and marketing activities
to the extent related to the Company's present markets, including
determination of product lines and expansion or discontinuance thereof.
(f) Determination of write-offs of bad debts and
inventory, provided that Executives shall institute such write-offs as are
required to be consistent with historic levels of sales and collections of
accounts receivable and are mandated by good accounting and business practices.
(g) Engagement of legal counsel on behalf of the Company
in connection with the day-to-day operation of the Company and the
prosecution and defense of claims and litigation, including procurement of
advice regarding the responsibilities of the Executives under their Employment
Agreements, but not with respect to the defense or prosecution of claims for
indemnification arising under the Merger Agreement referred to in Section 4.6
of the Employment Agreements.
A-1
<PAGE>
B. Notwithstanding anything in the Employment Agreement to which this
Schedule is attached to the contrary, so long as business conditions and the
Company's business are at levels consistent with those of prior fiscal periods
so as to support the anticipated levels of expense, no further approval of the
Board of Directors of the Company shall be required for the Executives to:
(a) approve increases to the total annual gross payroll
of the Company in any fiscal year in an amount consistent with the
average historical increase in the Compa- ny's annual gross payroll during the
five prior fiscal years plus such amount, if any, as bears the same proportion
to the annual gross payroll of the Company during the immediately prior fiscal
year as the increase in revenues from sales of the Company in the immediately
prior fiscal year over revenues from sales of the Company in the second
immediately prior fiscal year bears to the revenues from sales of the Company in
such second immediately prior fiscal year;
(b) negotiate and procure increases in the amount of
credit facilities available for use of the Company during any fiscal
quarter in an amount which bears the same proportion to the amount of credit
facilities available at the end of the prior fiscal quarter as the increase in
revenues from sales of the Company in such prior fiscal quarter over revenues
from sales of the Company in the second prior fiscal quarter bears to the
revenues from sales of the Company in such second prior fiscal quarter; and
(c) authorize capital expenditures (including capitalized
lease obligations) up to an aggregate of $300,000 for machinery and
an aggregate of $100,000 for buildings and improvements for the year ending
December 31, 1996, such amounts to be increased (but not decreased) for each
succeeding year ("new year") by the proportion that revenues for sales in the
year preceding the new year bears to revenues from sales during the year ended
December 31, 1995.
A-2
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
AGREEMENT dated as of May 23, 1996, between MICHAEL D. AUSTIN,
residing at 1432 Beaumont Court, Flushing, MI 48433 ("Executive"), and ATLAS
TECHNOLOGIES, INC., a Michigan corporation having its principal office at 201
South Alloy, Fenton, Michigan 48430 ("Company").
WHEREAS, the Company and Executive desire to provide for the
continued employment of Executive by the Company on the terms set forth herein;
IT IS AGREED:
1. Employment, Duties and Acceptance.
1.1 The Company hereby employs Executive as its President. It
being the intent of the Company to enhance and grow its existing product lines,
Executive's duties and authority shall include, but not be limited to,
those matters set forth in Schedule A hereto. All of Executive's powers and
authority in any capacity shall at all times be subject to the reasonable
direction and control of the Company's Board of Directors ("Board"). During the
term of this Agreement, Executive shall be elected as a member of the Board.
1.2 The Board may assign to Executive such other executive
duties for the Company or any Affiliate as are consistent with Executive's
status in the capacity set forth above. As used herein, "Affiliate" means any
parent corporation or subsidiary of the Company and any other
corporation under common control with the Company.
1.3 Executive accepts such employment and agrees to devote
all of his business time, energies and attention to the performance of
his duties; provided that nothing herein shall be construed as preventing
Executive from making and supervising personal investments.
2. Compensation and Benefits.
2.1 No later than 60 days after the execution of this
Agreement, the Company shall pay Executive the sum of $100,000. Such payment
shall be subject to withholding taxes and other normal payroll deductions.
2.2 The Company shall pay to Executive a salary ("Salary")
at the rate of $190,000 per year until December 31, 1996, subject to
cost-of-living increases thereafter in accordance with Section 2.5. Executive's
Salary shall be paid in equal periodic installments in accordance with the
Company's normal payroll procedures and shall be subject to withholding taxes
and other normal payroll deductions.
<PAGE>
2.3 During the term of this Agreement, Executive shall be
entitled to such medical and life insurance benefits and other benefits as
are set forth in Schedule B hereto. Executive shall be entitled to six weeks of
vacation in each calendar year but shall not be entitled to payment in lieu
thereof to the extent not taken.
2.4 (a) The Company will pay or reimburse Executive for
all transportation, hotel and other expenses reasonably incurred by Executive on
business trips and for all other ordinary and reasonable out-of-pocket expenses
actually incurred by Executive in the conduct of the business of the Company
against itemized vouchers submitted with respect to any such expenses approved
in accordance with customary procedures.
(b) The Company shall provide Executive with an
automobile suitable for business use and shall pay all the costs and expenses
reasonably incurred by Executive in connection with the use thereof, including
but not limited to purchase or leasing costs, fuel, maintenance, insurance,
garaging and mobile telephone.
2.5 For each twelve month period of the term of this
Agreement beginning on January 1, 1997, Executive's Salary shall be increased by
an amount equal to the product obtained by multiplying Executive's Salary in the
immediately preceding calendar year ("Prior Year") by a fraction, the numerator
of which shall be the difference between (a) the Consumer Price Index for All
Urban Consumers - Detroit, Michigan, as published by the U.S. Bureau of Labor
Statistics (reference base 1982-1984 = 100) ("CPI"), for the month of November
in the Prior Year, and (b) the CPI for the month of November in the calendar
year preceding the Prior Year ("Base Year CPI") and the denominator of which
shall be the Base Year CPI.
2.6 If, during the five complete fiscal years beginning
as of January 1, 1996 (the "Bonus Period"), the average Annual Adjusted Earnings
(as hereinafter defined) of the Company exceed $2,626,000 per year, the Company
shall pay Executive a bonus equal to the amount by which the average Annual
Adjusted Earnings of the Company during the Bonus Period exceed $2,626,000. The
Company shall establish an interest-bearing escrow account, the balance of which
(excluding interest earned thereon) shall be maintained by the Company making a
deposit or withdrawal within 120 days after the end of each fiscal year during
the Bonus Period such that the balance of the account (excluding interest) is
equal to the percentage specified below multiplied by the amount by which
average Annual Adjusted Earnings of the Company for the portion of the Bonus
Period through the end of such fiscal year exceed $2,626,000. The Company shall
have the right to withdraw all moneys from such account, including interest, as
of the end of any such fiscal year if the average Annual Adjusted Earnings of
the Company during the Bonus Period through the end of any such fiscal year are
less than $2,626,000. Such bonus shall be paid to Executive by transferring
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<PAGE>
to Executive the amount, if any, in such escrow account, together with all
earnings thereon, within 120 days after the end of the fifth such fiscal year,
subject to withholding taxes and such other deductions therefrom as are required
by law. Notwithstanding the foregoing, if Executive shall die before the end of
the Bonus Period, there shall be deducted from amounts payable pursuant to this
Section 2.6, the amount of insurance proceeds payable to Executive's estate
under the insurance maintained by the Company pursuant to Section 2.11.
Fiscal Year Percentage
First 20%
Second 40%
Third 60%
Fourth 80%
Fifth 100%
2.7 Subject to the further provisions of this Section 2.7,
the Company shall pay to Executive an additional bonus of $208,333 for each
of the six complete fiscal years beginning on January 1, 1996 ("Additional Bonus
Period") in which the Adjusted Earnings of the Company are at least $2,000,000,
such additional bonus to be paid within 120 days after the end of each fiscal
year for which it is earned, subject to withholding taxes and such other
deductions therefrom as are required by law; provided that if the average
Adjusted Earnings of the Company during the Additional Bonus Period are at least
$2,000,000 the total additional bonus payable hereunder shall be $1,250,000 and
any portion thereof not theretofore paid to Executive shall be paid within 120
days after the end of the Additional Bonus Period. Notwithstanding the
foregoing, if Executive shall die before the end of the Additional Bonus Period,
amounts thereafter payable pursuant to this Section 2.7 shall be due only to the
extent that the sum of the amounts, if any, payable under Sections 2.6 and 2.7,
without giving effect to the deduction provided for by the last sentence of
Section 2.6, exceeds the sum of the amounts theretofore paid to Executive or
Executive's estate pursuant to Sections 2.6, 2.7 and 2.11.
2.8 The provisions of Sections 2.6 and 2.7 shall survive
the expiration or termination of this Agreement for any reason and,
in the event of such expiration or termination, amounts, if any, payable to
Executive pursuant to such Sections shall be paid to Executive or
Executive's estate, as the case may be, at the times specified therein.
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<PAGE>
2.9 As used herein, the term "Annual Adjusted Earnings" shall
mean the earnings of the Company during the fiscal year in question before
interest and taxes (determined in accordance with generally accepted accounting
principles) but without any deduction for (a) amounts payable to Executive
pursuant to Sections 2.6 and 2.7 or amounts payable to Ronald M. Prime ("Prime")
pursuant to similar provisions of the Employment Agreement between Prime and the
Company entered into concurrently with the execution of this Agreement, (b) the
first $250,000 of Environmental Remediation Costs undertaken by the Company in
accordance with Section 7.08 of the Merger Agreement referred to in Section 4.6
or (c) management fees charged to the Company by its parent company. The
interest component of capital leases entered into prior to the date hereof shall
be a deduction in computing Annual Adjusted Earnings but the interest component
of capital leases entered into on or after the date hereof shall not be a
deduction. Notwithstanding the foregoing, for purposes of Section 2.7, any loss
attributable to (a) a settlement or write-down of the account receivable from
Terra-Block Worldwide Corporation ("Terra-Block") below $40,000 or (b) a sale or
write-down of the Company's inventory of equipment manufactured to the order of
Terra-Block below $572,885 shall not be a deduction in the calculation of Annual
Adjusted Earnings for the fiscal year in which such settlement, sale or
write-down occurs or any other fiscal year.
2.10 During the term of this Agreement, the Company:
(a) shall not amend the provisions of its
Certificate of Incorporation and By-Laws relating to indemnification and
limitation of liability of directors and officers, as in effect on the date
hereof, without the consent of Executive;
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<PAGE>
(b) shall not declare or pay any dividends of cash or
property upon its capital stock or make other distributions of cash or
property with respect to its capital stock except for fair value; or
(c) enter into any agreements with the holder of its
capital stock or any other Affiliate other than on terms no less favorable
to the Company then could be achieved on an arm's- length basis.
2.11 During the term of this Agreement, the Company shall
maintain term life insurance on the life of Executive in an amount equal to
$2,000,000 less the sum of amounts, if any, theretofore paid to Executive
pursuant to the provisions of Section 2.7, for which the beneficiary shall be
the Executive's estate or such other person designated by Executive.
2.12 In the event, on or before the completion of the
Additional Bonus Period, of a sale by the Company of all or a substantial part
of its assets or a sale by the holder of the capital stock of the Company or the
issuance by the Company of capital stock such that a person or group of related
persons becomes the owner of capital stock of the Company having more than fifty
percent of the voting power of all outstanding shares of capital stock, in full
payment and liquidation of the bonus payable pursuant to Section 2.6 and the
bonuses payable pursuant to Section 2.7, the Company shall pay to Executive,
within thirty (30) days after the occurrence of such event, an amount equal to
(a) $1,250,000 less all amounts theretofore paid to Executive pursuant to
Section 2.7 plus (b) if such event occurs on or before the completion of the
Bonus Period, an amount equal to the greater of (i) $750,000 or (ii) the amount
by which the average Annual Adjusted Earnings of the Company for all fiscal
years prior to the fiscal year in which such event occurs exceeds $2,626,000.
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<PAGE>
2.13 Any expenses incurred by the Company in connection with
the action entitled "Richard Burda and Brenda Burda v. Atlas Automation,
Inc., et al.," Case No. 95-35809 in the Circuit Court of Genesee County (the
"Burda Action") shall be a deduction in the computation of Annual Adjusted
Earnings for the fiscal year(s) in which such expenses are incurred. If the
Burda Action were a matter with respect to which the Company would be entitled
to indemnification pursuant to Article IX of the Merger Agreement, an amount
equal to the lesser of (a) 30% of the amount which would be paid to the Company
as "Damages" with respect to the Burda Action pursuant to Article IX of the
Merger Agreement (after taking into account all other Damages to which the
Company is entitled to indemnification thereunder and the limitations set forth
in Section 9.05 of the Merger Agreement) or (b) the amount by which the amount
payable pursuant to Section 2.6 of this Agreement exceeds $750,000 shall be
deducted from amounts, if any, payable pursuant to Section 2.6.
3. Term and Termination.
3.1 The term of this Agreement shall commence as of the
date hereof and shall continue until December 31, 2001, unless sooner terminated
as herein provided.
3.2 If Executive dies during the term of this Agreement, this
Agreement shall thereupon terminate, except that the Company shall pay to
the legal representative of Executive's estate all monies due hereunder to the
end of the month during which Executive dies. In addition, the Company shall pay
to Executive's estate such amounts, if any, as may be payable pursuant to
Sections 2.6 and 2.7 at the time such amounts are payable thereunder.
3.3 The Company, by notice to Executive, may terminate
this Agreement if Executive shall fail because of illness or incapacity to
render, for twelve consecutive months, services of the character contemplated
by this Agreement. Notwithstanding such termination the Company shall pay
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<PAGE>
to Executive all monies due hereunder to the end of the month in which such
termination occurs. In addition, the Company shall pay to Executive such
amounts, if any, as may be payable pursuant to Sections 2.6 and 2.7 at the time
such amounts are payable thereunder.
3.4 The Company, by notice to Executive, may terminate this
Agreement and Executive's employment with the Company for cause. As used
herein, "cause" shall mean: (a) the refusal or failure by Executive to carry out
specific directions of the Board which are of a material nature and consistent
with his status in the capacity set forth in Section 1.1, or the refusal or
failure by Executive to perform a material part of Executive's duties in such
capacity; provided that failure to achieve specified performance goals shall not
be "cause" hereunder; (b) fraudulent or dishonest action by Executive in his
relations with the Company or any of its Affiliates, or with any customer or
other business contact of the Company or any of its Affiliates ("dishonest" for
these purposes shall include Executive's knowingly or recklessly making of a
material misstatement or omission for his personal benefit); or (c) the
conviction of Executive of any crime involving an act of moral turpitude.
Notwithstanding the foregoing, no "cause" for termination shall be deemed to
exist with respect to Executive's acts described in clause (a) above unless the
Company shall have given written notice to Executive specifying the "cause" with
reasonable particularity and, within five business days after such notice,
Executive shall not have cured or eliminated the situation or event giving rise
to such "cause."
4. Protection of Confidential Information; Non-Competition.
4.1 Executive acknowledges that:
(a) As a result of his employment by the Company,
Executive has obtained and will obtain secret and confidential
information concerning the business of the Company and its Affiliates,
including, without limitation, financial information, proprietary rights,
trade secrets and "know-how," customers, and certain business methodologies
("Confidential Information").
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<PAGE>
(b) The Company and its Affiliates will suffer
substantial damage which will be difficult to compute if, during the period of
his employment with the Company or thereafter, Executive should divulge
Confidential Information or, thereafter, Executive should enter a business
competitive with that of the Company.
(c) The provisions of this Agreement are reasonable
and necessary for the protection of the business of the Company and
its Affiliates.
4.2 Executive agrees that he will not at any time, either
during the term of this Agreement or thereafter, divulge to any person or
entity any Confidential Information obtained or learned by him or her as a
result of his employment with the Company or any of its Affiliates, except (i)
in the course of performing his duties hereunder, (ii) with the Company's
express written consent; (iii) to the extent that any such information is in the
public domain other than as a result of Executive's breach of any of his
obligations hereunder; or (iv) where required to be disclosed by court order,
subpoena or other government process. If Executive shall be required to make
disclosure pursuant to the provisions of clause (iv) of the preceding sentence,
Executive promptly, but in no event more than 48 hours after learning of such
subpoena, court order, or other government process, shall notify, by personal
delivery or by electronic means, confirmed by mail, the Company and, at the
Company's expense, Executive shall: (a) take all reasonably necessary steps
required by the Company to defend against the enforcement of such subpoena,
court order or other government process, and (b) permit the Company to intervene
and participate with counsel of its choice in any proceeding relating to the
enforcement thereof. As used in this Agreement, "Affiliate" means any entity
means any entity that, directly or indirectly, is controlled by, controlling, or
under common control with the Company.
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<PAGE>
4.3 Upon termination of his employment with the Company,
Executive will promptly deliver to the Company all original memoranda, notes,
records, reports, manuals, drawings, blueprints and other documents relating to
the business of the Company and its Affiliates (and all copies thereof) and all
property associated therewith, which he may then possess or have under his
control.
4.4 If Executive commits a breach, or threatens to
commit a breach, of any of the provisions of Section 4.2, the Company shall have
the right and remedy to have the provisions of this Agreement specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed by Executive that the services being rendered hereunder to the Company
are of a special, unique and extraordinary character and that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company.
4.5 If any provision of Sections 4.2 is held to be
unenforceable because of the scope, duration or area of its applicability, the
tribunal making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
4.6 Executive acknowledges that until the termination of
the "Non-Competition Period" defined therein, Executive is subject to the
provisions of Section 5.04(b) of that certain Merger Agreement dated December
18, 1995, between Production Systems Acquisition Corporation, AMS Holding
Company, Executive, Prime and
the Company.
5. Miscellaneous Provisions.
5.1 All notices provided for in this Agreement shall be in
writing, and shall be deemed to have been duly given when delivered
personally to the party to receive the same, when transmitted by electronic
means, or when mailed first class postage prepaid, by certified mail, return
receipt requested, addressed to the party to receive the same at his or its
address set forth below, or such other address as the party to receive the same
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<PAGE>
shall have specified by written notice given in the manner provided for in this
Section 5.1. All notices shall be deemed to have been given as of the date of
personal delivery or transmittal thereof or three business days after mailing
thereof.
If to Executive:
Michael D. Austin
1432 Beaumont Court
Flushing, MI 48433
Marked "Personal and Confidential"
If to the Company:
Atlas Technologies, Inc.
201 South Alloy Drive
Fenton, Michigan 48430
Attn.: Chief Executive Officer
Telecopier: (810) 629-8145
with a copy to:
Mr. Jesse A. Levine
Seidman & Co., Inc.
777 East Eisenhower Parkway
Suite 106
Ann Arbor, Michigan 48108
Telecopier: (313) 996-1738
5.2 This Agreement executed simultaneously herewith sets
forth the entire agreement of the parties relating to the employment of
Executive and are intended to supersede all prior negotiations, understandings
and agreements. No provisions of this Agreement may be waived or changed except
by a writing by the party against whom such waiver or change is sought to be
enforced. The failure of any party to require performance of any provision
hereof shall in no manner affect the right at a later time to enforce such
provision.
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<PAGE>
5.3 All questions with respect to the construction of this
Agreement, and the rights and obligations of the parties hereunder, shall
be determined in accordance with the law of the State of Michigan applicable to
agreements made and to be performed entirely in Michigan. Any dispute,
controversy or claim arising out of or relating to this Agreement, the making,
interpretation or the breach thereof, other than a claim solely for injunctive
relief for any alleged breach of the provisions of Section 4.2, as to which the
parties shall have the right to apply for specific performance to any court
having equity jurisdiction in Genesee County, Michigan, shall be submitted to
arbitration to the American Arbitration Association in Flint, Michigan,
before a single arbitrator in accordance with the Commercial Arbitration Rules
of the American Arbitration Association and judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof and any
party to the arbitration may, if he or it so elects, institute proceedings in
any court having jurisdiction for the specific performance of any such award.
The powers of the arbitrator shall include, but not be limited to, the
awarding of injunctive relief. All costs and expenses of the arbitration,
including legal fees of the prevailing party, shall be borne by the
non-prevailing party.
5.4 This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company. This Agreement shall not
be assignable by Executive, but shall inure to the benefit of and be binding
upon Executive's heirs and legal representatives.
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<PAGE>
5.5 This Agreement supersedes all prior agreements
between the Company and Executive regarding the terms and conditions of
Executive's employment with the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
/s/ Michael D. Austin
MICHAEL D. AUSTIN
ATLAS TECHNOLOGIES, INC.
By: /s/ Ronald M. Prime
Title: Chief Executive Officer
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<PAGE>
SCHEDULE A
A. Executive and Austin, or if only one of them shall be employed by
the Company at any time, such one (the "Executives") shall be jointly
responsible for the determination of actions and the implementation thereof
regarding the matters set forth below, subject to such limitations as are set
forth herein. In exercising their responsibilities, the Executives shall act in
a manner consistent with the Company's historical practices in the ordinary
course of business.
(a) Personnel policy, including hiring and discharge of
employees, provided that no person not employed by the Company on
January 1, 1996 who is related to an Executive or an Executive's spouse (a
"Relative") shall be hired without the express approval of the Board of
Directors.
(b) To the extent provided in Section B below, establishment
of salaries, bonuses and other compensation for employees other than
themselves, provided that increases in compensation payable to
Relatives shall not be in excess of amounts commensurate with increases given to
other employees.
(c) To the extent provided in Section B below, procurement
of credit facilities and authorization of capital expenditures to the
extent that such are required to meet projected increases in business or
as replacements for obsolete or worn out equipment and machinery.
(d) Determination of sources of supply and the costs
thereof.
(e) Determination of sales and marketing activities to
the extent related to the Company's present markets, including
determination of product lines and expansion or discontinuance thereof.
(f) Determination of write-offs of bad debts and inventory,
provided that Executives shall institute such write-offs as are required
to be consistent with historic levels of sales and collections of
accounts receivable and are mandated by good accounting and business practices.
(g) Engagement of legal counsel on behalf of the Company
in connection with the day-to-day operation of the Company and the
prosecution and defense of claims and litigation, including procurement of
advice regarding the responsibilities of the Executives under their Employment
Agreements, but not with respect to the defense or prosecution of claims for
indemnification arising under the Merger Agreement referred to in Section 4.6
of the Employment Agreements.
A-1
<PAGE>
B. Notwithstanding anything in the Employment Agreement to which this
Schedule is attached to the contrary, so long as business conditions and the
Company's business are at levels consistent with those of prior fiscal periods
so as to support the anticipated levels of expense, no further approval of the
Board of Directors of the Company shall be required for the Executives to:
(a) approve increases to the total annual gross payroll
of the Company in any fiscal year in an amount consistent with the
average historical increase in the Compa- ny's annual gross payroll during the
five prior fiscal years plus such amount, if any, as bears the same proportion
to the annual gross payroll of the Company during the immediately prior fiscal
year as the increase in revenues from sales of the Company in the immediately
prior fiscal year over revenues from sales of the Company in the second
immediately prior fiscal year bears to the revenues from sales of the Company in
such second immediately prior fiscal year;
(b) negotiate and procure increases in the amount of
credit facilities available for use of the Company during any fiscal
quarter in an amount which bears the same proportion to the amount of credit
facilities available at the end of the prior fiscal quarter as the increase in
revenues from sales of the Company in such prior fiscal quarter over revenues
from sales of the Company in the second prior fiscal quarter bears to the
revenues from sales of the Company in such second prior fiscal quarter; and
(c) authorize capital expenditures (including capitalized
lease obligations) up to an aggregate of $300,000 for machinery and an
aggregate of $100,000 for buildings and improvements for the year ending
December 31, 1996, such amounts to be increased (but not decreased) for each
succeeding year ("new year") by the proportion that revenues for sales in the
year preceding the new year bears to revenues from sales during the year ended
December 31, 1995.
A-2
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Productivity Technologies Corp. as of March 31,
1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-1-1995
<PERIOD-END> MAR-31-1996
<CASH> 4,000
<SECURITIES> 9,151,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,168,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,415,000
<CURRENT-LIABILITIES> 245,000
<BONDS> 0
<COMMON> 2,000
0
0
<OTHER-SE> 9,168,000
<TOTAL-LIABILITY-AND-EQUITY> 9,415,000
<SALES> 0
<TOTAL-REVENUES> 503,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 266,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 237,000
<INCOME-TAX> 132,000
<INCOME-CONTINUING> 105,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 105,000
<EPS-PRIMARY> .05
<EPS-DILUTED> 0
</TABLE>
