<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 28, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from Commission File Number
______ to ______ 0-24934
PRI AUTOMATION, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Massachusetts 04-2495703
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
805 Middlesex Turnpike 01821-3986
Billerica, MA (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number: (978) 670-4270
-----------------
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 .
--------- ---------
The number of shares outstanding of each of the issuer's classes of
common stock as of August 5, 1998:
Class Number of Shares Outstanding
----- ----------------------------
Common Stock, $.01 par value 19,748,946
<PAGE>
PRI AUTOMATION, INC.
INDEX
Page No.
--------
Part I. Financial Information
---------------------
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for
the Three and Nine Months Ended June 28, 1998 and
June 29, 1997 3
Condensed Consolidated Balance Sheets as of
June 28, 1998 and September 30, 1997 4
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended June 28, 1998 and
June 29, 1997 5-6
Notes to Condensed Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-16
Part II. Other Information
-----------------
Item 2. Changes in Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18-19
SIGNATURE 20
Exhibit Index 21
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PRI AUTOMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue.................................. $ 38,301 $56,150 $150,558 $149,546
Cost of revenue.............................. 29,571 31,051 93,130 83,307
--------- ------- ---------- --------
Gross profit................................. 8,730 25,099 57,428 66,239
Operating expenses:
Research and development.................... 9,505 7,256 28,210 20,262
Selling, general and administrative......... 8,950 8,941 27,268 21,991
Acquired in-process research and
development................................ -- -- 8,417 --
Merger costs and special charges............ 2,140 -- 8,953 --
--------- ------- ---------- --------
Operating (loss) profit...................... (11,865) 8,902 (15,420) 23,986
Other (expense) income, net.................. (105) 257 467 820
--------- ------- ---------- --------
(Loss) income before income taxes............ (11,970) 9,159 (14,953) 24,806
(Benefit) provision for income taxes......... (4,189) 2,290 (1,980) 6,468
--------- ------- ---------- --------
Net (loss) income............................ ($ 7,781) $ 6,869 ($ 12,973) $ 18,338
========= ======= ========== ========
Net (loss) income per common share:
Basic....................................... ($0.40) $0.36 ($0.66) $0.96
Diluted..................................... ($0.40) $0.34 ($0.66) $0.91
Weighted average number shares outstanding:
Basic....................................... 19,663 19,252 19,557 19,110
Diluted..................................... 19,663 20,192 19,557 20,043
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
PRI AUTOMATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
June 28, September 30,
1998 1997
---- ----
ASSETS
Current Assets:
Cash and cash equivalents............................. $ 34,472 $ 27,615
Marketable securities................................. 1,316 2,642
Trade accounts receivable, net........................ 33,020 71,549
Contracts in progress................................. 18,098 15,463
Inventories........................................... 37,173 34,117
Other current assets.................................. 8,223 3,670
-------- --------
Total current assets................................. 132,302 155,056
Property and equipment, net........................... 17,940 12,794
Marketable securities................................. 3,331 506
Other assets.......................................... 2,352 2,354
-------- --------
Total assets......................................... $155,925 $170,710
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable...................................... $ 16,459 $ 21,564
Accrued expenses and other liabilities................ 16,178 17,764
Capital lease obligations............................. 92 171
Billings in excess of revenues and customer advances.. 5,097 3,462
-------- --------
Total current liabilities........................... 37,826 42,961
Non-current Liabilities:
Capital lease obligations............................. 140 204
-------- --------
Total liabilities.................................... 37,966 43,165
Stockholders' Equity:
Common stock, $.01 par value; 50,000,000 shares
authorized; 19,744,930 and 19,348,781 issued and
outstanding at June 28, 1998 and
September 30, 1997, respectively..................... 197 193
Additional paid-in capital............................ 87,161 77,721
Retained earnings..................................... 30,593 49,629
Unrealized gain on securities......................... 8 2
-------- --------
Total stockholders' equity.......................... 117,959 127,545
-------- --------
Total liabilities and stockholders' equity.......... $155,925 $170,710
======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
PRI AUTOMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
June 28, June 29,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income................................................ $(12,973) $ 18,338
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization expense........................... 4,768 2,866
Non-cash compensation........................................... -- 140
Tax benefit from disqualified dispositions...................... -- 1,742
Loss on abandonment of leasehold improvements................... 356 --
Provision for doubtful accounts................................. 790 300
Translation losses, net......................................... 387 --
Acquired in-process research & development...................... 8,417 --
Changes in operating assets and liabilities, net of effect from
acquisitions:
Trade accounts receivable....................................... 38,712 (15,035)
Contracts in progress........................................... (2,635) (2,110)
Inventories..................................................... (3,111) (8,875)
Other assets.................................................... (5,499) (2,011)
Accounts payable................................................ (7,165) 2,649
Accrued expenses and other liabilities.......................... (2,494) 6,368
Billings in excess of revenues and customer advances............ 1,636 (1,046)
-------- --------
Net cash provided by operating activities......................... 21,189 3,326
-------- --------
Cash flows from investing activities:
Purchases of marketable securities............................... (5,547) (4,531)
Proceeds from the sale of marketable securities.................. 2,331 9,017
Proceeds from maturities of marketable securities................ 1,685 4,490
Proceeds from sale of property and equipment..................... 20 --
Purchases of property and equipment.............................. (9,770) (4,300)
Net cash acquired in Chiptronix acquisition...................... 246 --
-------- --------
Net cash (used in) provided by investing activities............. (11,035) 4,676
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options and Employee Stock
Purchase Plan................................................... 1,498 2,480
Payments under capital lease obligations......................... (143) (59)
Repayments of borrowings......................................... -- (900)
Dividend distributions to shareholders........................... (4,507) (6,573)
-------- --------
Net cash (used in) financing activities......................... (3,152) (5,052)
-------- --------
Effect of exchange rate changes on cash........................... (145) --
-------- --------
Net increase in cash and cash equivalents......................... 6,857 2,950
Cash and cash equivalents at beginning of period.................. 27,615 28,860
-------- --------
Cash and cash equivalents at end of period........................ $ 34,472 $ 31,810
======== ========
</TABLE>
5
<PAGE>
PRI AUTOMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--Continued
(In thousands)
(Unaudited)
Nine Months Ended
-----------------
June 28, June 29,
1998 1997
---- ----
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest......................................... $ 30 $ 12
Taxes............................................ 8,557 5,217
Significant noncash transactions:
Acquisition of Interval Logic Corporation
(see Note E)....................................
Acquisition of Chiptronix Handling Systems GmbH
(see Note E)....................................
Fixed assets acquired under capital leases....... 194
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
<PAGE>
PRI AUTOMATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. Basis Of Presentation
The condensed consolidated financial statements include the accounts of PRI
Automation, Inc. and its wholly-owned subsidiaries (collectively, the
"Company"). All significant intercompany transactions and balances have been
eliminated.
The condensed consolidated financial statements are unaudited. However, in
the opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such information have been
made. The results for interim periods are not necessarily indicative of the
results for the entire year. The condensed consolidated financial statements
should be read in connection with the audited consolidated financial statements
of the Company for the year ended September 30, 1997 included in its Form 10-K,
filed with the Securities and Exchange Commission.
In January 1998 the Company acquired Equipe Technologies, Inc., E-Machine,
Inc., and Equipe Japan Ltd. (collectively, "Equipe"). On May 19, 1998 the
Company acquired Chiptronix Handling Systems GmbH ("Chiptronix"). The
acquisitions of Equipe and Chiptronix both were accounted for using the pooling
of interests method of accounting. All prior period historical condensed
consolidated financial statements presented herein have been restated to include
the financial position, results of operations, and cash flows of Equipe. The
Company has not restated its financial statements for the acquisition of
Chiptronix due to immateriality (see Note E).
For interim reporting purposes, the Company closes its first three fiscal
quarters on the Sunday nearest the last day of December, March and June in each
year. The Company's fiscal year ends on the last day of September.
B. Inventories
Inventories consist of the following (in thousands):
June 28, September 30,
1998 1997
---- ----
Raw materials...................................... $24,747 $27,193
Work in process and finished goods................. 12,426 6,924
------- -------
$37,173 $34,117
======= =======
C. Accrued Expenses And Other Liabilities
The significant components of accrued expenses and other liabilities consist
of the following (in thousands):
June 28, September 30,
1998 1997
---- ----
Accrued expenses................................... $ 4,988 $ 3,531
Accrued compensation............................... 6,297 6,555
Accrued special charges............................ 2,591 --
Warranty reserves.................................. 2,302 1,725
Income taxes payable............................... -- 5,953
------- -------
$16,178 $17,764
======= =======
7
<PAGE>
D. Earnings Per Share
The Company has adopted Statement of Financial Accounting Standard ("SFAS")
No. 128, "Earnings Per Share," which specifies the computation, presentation and
disclosure requirements for net income (loss) per common share. Basic net income
(loss) per common share is computed based on the weighted average number of
common shares outstanding during the period. Diluted net income (loss) per
common share gives effect to all dilutive potential common shares outstanding
during the period. Under SFAS No. 128, the computation of diluted net income
per common share does not assume the issuance of common shares that have an
antidilutive effect on net income per common share. All net income per common
share amounts have been restated for periods prior to the quarter ended December
28, 1997. A reconciliation between basic and diluted earnings per share is as
follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended
------------------
June 28, 1998 June 29, 1997
------------- -------------
<S> <C> <C>
Net (loss) income............................................. ($7,781) $ 6,869
Shares used in computation:
Weighted average common shares outstanding
used in computation of basic net (loss) income
per common share....................................... 19,663 19,252
Dilutive effect of stock options.......................... -- 940
------ ------
Shares used in computation of diluted net (loss) income
per common share........................................ 19,663 20,192
====== ======
Basic net (loss) income per common share.................. ($0.40) $ 0.36
Diluted net (loss) income per common share................ ($0.40) $ 0.34
<CAPTION>
Nine Months Ended
-----------------
June 28, 1998 June 29, 1997
------------- -------------
<S> <C> <C>
Net (loss) income............................................. ($12,973) $18,338
Shares used in computation:
Weighted average common shares outstanding
used in computation of basic net (loss) income
per common share....................................... 19,557 19,110
Dilutive effect of stock options.......................... -- 933
------ ------
Shares used in computation of diluted net (loss) income
per common share........................................ 19,557 20,043
====== ======
Basic net (loss) income per common share.................. ($0.66) $ 0.96
Diluted net (loss) income per common share................ ($0.66) $ 0.91
</TABLE>
Options to purchase 595,944 and 790,737 shares of common stock were
outstanding for the three and nine months ended June 28, 1998, respectively, but
were not included in the computation of diluted net loss per common share
because the Company is in a loss position and, the inclusion of such shares
therefore, would be antidilutive. Options to purchase 11,918 and 9,253 shares of
common stock were outstanding for the three and nine month periods ended June
29, 1997 but were not included in the computation of diluted net income per
common share because the options' exercise prices were greater than the average
market price of the common shares and therefore, would be antidilutive under the
treasury stock method.
8
<PAGE>
E. Acquisitions
On October 29, 1997 the Company acquired Interval Logic Corporation ("ILC"),
a California corporation, for aggregate consideration of 111,258 shares of the
Company's common stock. In addition, the Company issued or assumed options to
purchase an aggregate of 199,170 shares of the Company's common stock. ILC was
formed in 1995 to develop advanced, high-perfomance planning and scheduling
software solutions for the semiconductor industry. The value of the transaction
is $8.5 million including approximately $600,000 of expenses related to the
acquisition. The transaction was accounted for as a purchase. The purchase price
was allocated to the tangible and intangible assets of ILC based on the
estimated fair value of those assets using a risk-adjusted discounted cash flow
approach. Specifically, the purchased technology was evaluated through extensive
interviews and analysis of data concerning the state of the technology and was
deemed to be in-process research and development because the Company needed to
make significant further investments to complete development of the technology,
to integrate it with the Company's existing products including the "Transnet"
product line and to enable it to meet expected customer requirements. The
Company recognized a charge of $8,417,000 for the purchase of in-process
research and development in October 1997. Pro forma results are not presented
due to immateriality.
On January 22, 1998 the Company acquired Equipe Technologies, Inc., E-
Machine, Inc. and Equipe Japan Ltd., (collectively, "Equipe"). Equipe is a
leading worldwide developer, manufacturer, and supplier of wafer and substrate
handling robots, pre-aligners and controllers to semiconductor process tool
manufacturers. The Company issued 4,364,016 shares of common stock in exchange
for all of the outstanding stock of Equipe. The business combination was
accounted for as a pooling of interests. The accompanying condensed consolidated
financial statements for periods prior to the merger have been restated to
present the combined operations of the merged companies. Significant
intercompany transactions for the Equipe companies prior to the period in which
the business combination occurred have been eliminated from the accompanying
financial statements. Direct acquisition costs of $4,490,000, primarily relating
to legal, investment banking, and accounting fees, have been charged against
results of operations for the nine months ended June 28, 1998.
The following information presents certain statement of operations data (in
thousands) of the Company and Equipe for the periods prior to the acquisition:
PRI Combined
Automation, Inc. Equipe Companies
---------------- ------ ---------
Net revenue for:
The three months ended
December 28, 1997 $ 46,830 $18,303 $ 65,133
The three months ended
June 29, 1997 44,362 11,788 56,150
The nine months ended
June 29, 1997 122,825 26,721 149,546
Net (loss) income for:
The three months ended
December 28, 1997 (3,449) 3,042 (407)
The three months ended
June 29, 1997 4,359 2,510 6,869
The nine months ended
June 29, 1997 12,301 6,037 18,338
9
<PAGE>
Equipe Technologies, Inc. and one of the related companies, E-Machine, Inc.,
were S-corporations for income tax purposes prior to the acquisition. The
following pro forma information gives effect to adjustments that provide for
income taxes as if Equipe Technologies, Inc. and the related company were
treated as C-corporations for the periods presented. The pro forma information
is shown for comparative purposes only.
UNAUDITED PRO FORMA NET INCOME (LOSS) PER COMMON SHARE
------------------------------------------------------
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- --------------------
June 29, June 28, June 29,
1997 1998 1997
---- ---- ----
<S> <C> <C> <C>
Historical net income (loss)............................. $6,869 ($12,973) $18,338
Adjustment to Equipe income tax expense to
convert from S-corporation to C-corporation
status.................................................. (965) (1,156) (2,306)
------ -------- -------
Unaudited pro forma net income (loss).................... $5,904 ($14,129) $16,032
====== ======== =======
Unaudited pro forma net income (loss) per common share:
Basic................................................... $ 0.31 ($ 0.72) $ 0.84
Diluted................................................. $ 0.29 ($ 0.72) $ 0.80
</TABLE>
On May 19, 1998, the Company acquired Chiptronix Handling Systems GmbH
("Chiptronix"), a Switzerland corporation, for aggregate consideration of
105,000 shares of the Company's common stock. Chiptronix is the European
distributor of Equipe products. The business combination was accounted for as a
pooling of interests. However, as the financial position and results of
operations of Chiptronix are immaterial to the financial position and results of
operations of the Company on a consolidated basis, no prior period financial
amounts have been restated. In accordance with this business combination, the
Company has acquired the net assets of Chiptronix, including its retained
deficit of $1,556,000 as of March 29, 1998 and this amount is included in the
changes to stockholders' equity for the three months ended June 28, 1998. The
results of operations for the quarter ended June 28, 1998 of Chiptronix have
been consolidated into the accompanying financial statements of the Company.
F. Special Charges
For the third quarter of fiscal 1998, the Company recorded a pre-tax charge
against earnings of $2,140,000, which is included in operating expenses for the
quarter, associated with the restructuring plan announced by the Company on July
13, 1998. The charge includes provisions for severance compensation of $1.1
million resulting from reductions of approximately 161 personnel, costs of
$320,000 relating to reduction in facilities space at four locations, provisions
for doubtful accounts of $500,000 and $220,000 for other contingencies. The
Company also recorded a pre-tax charge of $4,900,000 against earnings, which is
included in cost of revenue for the third quarter of fiscal 1998, for the write-
down of inventories to their net realizable values.
10
<PAGE>
For the second quarter of fiscal year 1998, the Company recorded a non-
recurring charge of $2,323,000 against results of operations for restructuring
costs. The Company restructured its operations by consolidating its business
unit structure into a more centralized functional organization as a result of
the Equipe acquisition. This pre-tax charge included costs of approximately
$1,723,000 related to two facilities which are anticipated to be idle until
April 1999 and approximately $600,000 for severance. As of June 28, 1998,
facilities expenses charged against this reserve amounted to $870,000 and the
Company expects to pay the balance of $853,000 through April 1999.
Additionally, as of June 28, 1998 $357,000 was charged against the restructuring
liability for severance payments to 83 former personnel and the Company expects
the balance to be paid by December 1998.
G. INCOME TAXES
The effective tax rate for the three and nine months ended June 28, 1998 was
(35.0%) and (13.2%) as compared to 25.0% and 26.1 %, respectively, for the
corresponding periods in fiscal 1997. The effective tax benefit for the nine-
month period ended June 28, 1998 was unfavorably impacted by the charges for
acquired in-process research and development and merger and other non-recurring
costs which are not fully deductible for tax purposes. This unfavorable impact
was partially offset by the impact of Equipe Technologies, Inc. and E-machine,
Inc., which were both subchapter S-corporations for federal income tax purposes
for the three months ended December 28, 1997. The tax rate, exclusive of the
acquired in-process research and development charge, merger costs and other
special charges, for the three and nine months ended June 28, 1998 would have
been (35.0%) and 19.6% as compared to 25.0% and 26.1% for the corresponding
periods in fiscal 1997. The changes in the effective tax rates excluding these
special charges, for the three and nine months ended June 28, 1998 as compared
with the corresponding periods in fiscal 1997 are attributable to the fact that
prior to January 1, 1998 Equipe Technologies, Inc. and E-Machine, Inc. were not
subject to federal income tax due to S-corporation status.
H. JOINT VENTURE
Effective June 1, 1998 the Company entered into a Korean joint venture with
Chung Song System Co., Ltd. ("CSSC") and Shinsung Engineering Co. Ltd. ("SEC")
to distribute the Company's products and services in Korea. CSSC and SEC are in
the business of development and marketing of products and services for the
semiconductor industry. Under the terms of the agreement, the Company owns 80%
of the joint venture and CSSC and SEC each own 10% of the joint venture. The
Company and its partners have committed to invest 2.6 billion Korean Won of
capital in the joint venture over a two-year period beginning June 1, 1998.
I. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The statement requires companies to
recognize all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for changes in fair value, gains or
losses, depends on the intended use of the derivative and its resulting
designation. The statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company will adopt SFAS 133 by October 1,
1999. The Company is evaluating SFAS 133 to determine its impact on its
consolidated financial statements.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain Factors That May Affect Future Results
From time to time, information provided by the Company, statements made by its
employees or information included in its filings with the Securities and
Exchange Commission may contain statements which are not historical facts but
which are "forward-looking statements" which involve risks and uncertainties.
In particular, statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," relating to the Company's revenue and
expense levels, profitability and the sufficiency of capital to meet working
capital and capital expenditures requirements, may be forward-looking
statements. The words "expect," "anticipate," "internal," "plan," "believe,"
"seek," "estimate" and similar expressions also are intended to identify such
forward-looking statements. This Report also contains other forward-looking
statements. Such statements are not guarantees of future performance, and
involve certain risks, uncertainties and assumptions that could cause the
Company's future results to differ materially from those expressed in any
forward-looking statements made by or on behalf of the Company. Many of such
factors are beyond the Company's ability to control or predict. Readers are
accordingly cautioned not to place undue reliance on forward-looking statements.
The Company disclaims any intent or obligation to update publicly any forward-
looking statements whether in response to new information, future events or
otherwise. Important factors that may cause the Company's actual results to
differ from such forward-looking statements include, but are not limited to, the
factors discussed below.
The Company's future results are subject to substantial risks and
uncertainties. The Company's business and results of operations depend in
significant part upon capital expenditures from manufacturers of semiconductors,
which in turn depend upon the current and anticipated market demand for
semiconductors and products incorporating semiconductors. Historically, the
semiconductor industry has been highly cyclical with recurring periods of over-
supply, which often have had a severe effect on the semiconductor industry's
demand for capital expenditures, including systems manufactured and marketed by
the Company. The Company believes that the markets for newer generations of
semiconductors will also be subject to similar fluctuations. Also, the recent
high rate of technical innovation and resulting improvements in the performance
and price of semiconductor devices, which have driven much of the demand for the
Company's products, could slow, or encounter limits, in the future. In
addition, any other factor adversely affecting the semiconductor industry or
particular segments within the semiconductor industry may adversely effect the
Company's business, financial condition and operating results.
The current financial uncertainty within the economies of certain Asian
countries has adversely affected, and may continue to adversely affect, the
worldwide semiconductor industry and the Company. These effects have included
and could include delay or cancellation of orders from customers in these
countries. Additional risks and uncertainties include: competitive pressures on
selling prices; inventory management, including suppliers' ability to meet the
Company's needs in a timely manner; the timing and cancellation of customer
orders; changes in product mix; the Company's ability to introduce new products
and technologies on a timely basis; the Company's ability to increase its
manufacturing capacity to meet increased demand while maintaining satisfactory
levels of product quality, service levels, and timeliness of deliveries; rapid
technological change and introduction of products and technologies by the
Company's competitors; market acceptance of the Company's and its competitors'
products; the level of orders received which can be shipped in a quarter, the
timing of investments in engineering and development, the Company's ability to
absorb and manage acquisitions, and risks associated with doing business in Asia
and Europe. As a result of the foregoing and other factors, the Company may
12
<PAGE>
experience material fluctuations in future operating results on a quarterly or
annual basis which could materially and adversely affect its business, financial
condition, operating results and stock price.
RESULTS OF OPERATIONS
On January 22, 1998 the Company acquired Equipe Technologies, Inc.,
E-Machine, Inc. and Equipe Japan Ltd., (collectively, "Equipe"). Equipe is a
leading worldwide developer, manufacturer, and supplier of wafer-handling
robots, pre-aligners and controllers to semiconductor process tool
manufacturers. The business combination was accounted for as a pooling of
interests. The financial results of the Company for fiscal periods prior to the
second quarter of fiscal 1998 have been restated to reflect the results of
operations for the combined entities.
Revenue: Net revenue for the three and nine months ended June 28, 1998
was $38.3 million and $150.6 million, respectively, a decrease of 31.8% and an
increase of 0.7%, respectively, over the corresponding periods in fiscal 1997.
Net revenue for the three months ended June 28, 1998 as compared to the
corresponding period in fiscal 1997 was adversely affected by the current
downturn in the semiconductor industry resulting in decreased demand for the
Company's products. Net export sales to customers for the three and nine months
ended June 28, 1998 were $15.9 million and $51.7 million, respectively, compared
to $25.9 million and $62.8 million, respectively, for the corresponding periods
in fiscal 1997. Net export sales for the three months and nine months ended
June 28, 1998 accounted for 41.6% and 34.4% of net revenue, respectively, as
compared to 46.1% and 42.0%, respectively, of net revenue for the corresponding
periods in fiscal 1997.
Gross profit: The gross profit margin for the three and nine months ended
June 28, 1998 was 22.8% and 38.1% of net revenue, respectively, as compared to
44.7% and 44.3% of net revenue for the corresponding periods in fiscal 1997. The
decline in gross profit margin is partially due to a reduced level of equipment
sales and an unfavorable absorption of fixed manufacturing costs. Additionally,
a provision of $4.9 million, to reduce inventories to their net realizable
values, in the third quarter of fiscal 1998 reduced the gross profit margin by
12.8% of net revenue for this fiscal quarter and by 3.3% for the nine months
ended June 29, 1998.
Research and development: Research and development expenses for the three
and nine months ended June 28, 1998 were $9.5 million and $28.2 million,
respectively, representing 24.8% and 18.7% of net revenue, respectively,
compared to $7.3 million and $20.3 million, representing 12.9% and 13.5% of net
revenue for the corresponding periods in fiscal 1997. The increases in research
and development expenses are attributable to the Company's ongoing investment in
next-generation wafer flow automation systems for end user and OEM customers.
This includes material control and scheduling software, atmospheric and vacuum
wafer-handling systems and automated material handling systems for advanced
200mm fabs and, in the near future, 300mm pilot lines.
Selling, general and administrative: Selling, general and administrative
expenses for the three and nine months ended June 28, 1998 were $9.0 million and
$27.3 million, respectively, representing 23.4% and 18.1% of net revenue,
compared to $8.9 million and $22.0 million, representing 15.9% and 14.7% of net
revenue for the corresponding periods in fiscal 1997. The increase in selling,
general and administrative expenses occurred in the first and second quarters of
fiscal 1998 and is attributable to investments in general and administrative
infrastructure, management, and marketing and sales support.
Acquired in-process research and development: In October 1997, the Company
acquired Interval Logic Corporation ("ILC") in a transaction valued at $8.5
million, accounted for as a purchase. ILC was formed in 1995 to develop
advanced high-performance planning and scheduling software solutions for the
semiconductor industry. At the time of the acquisition, the purchase price was
allocated to the tangible and intangible assets of ILC based on the fair market
value of those assets using a risk-adjusted
13
<PAGE>
discounted cash flow approach. Specifically, the purchased technology was
evaluated through extensive interviews and analysis of data concerning the state
of the technology and was deemed to be in-process research and development
because of the Company's need to make significant further investments to
complete development of the technology, to integrate it with the Company's
existing products including the "Transnet" product line and to enable it to meet
expected customer requirements. The Company recognized a charge of $8.4 million
for the purchase of in-process research and development in October 1997.
Merger costs and special charges: The Company recorded a pre-tax charge of
approximately $2.1 million against earnings for the three months ended June 28,
1998, associated with the Company's restructuring plan announced July 13, 1998.
The charge includes provisions for severance compensation of $1.1 million to
reduce personnel by approximately 161, costs of $320,000 relating to reduction
in facilities space at four locations, provisions for doubtful accounts of
$500,000 and $220,000 for other contingencies. In the second quarter of fiscal
1998 ended March 29, 1998, the Company took a $4.5 million charge against
earnings related to the January 22, 1998 acquisition of Equipe. Additionally,
in the second quarter of fiscal 1998 the Company, to restructure its business
units, took a $2.3 million charge against earnings for non-recurring costs,
which included pre-tax costs of $1.7 million for two idle facilities and
$600,000 for the severance of approximately 83 administrative and operations
personnel.
Other (expense) income, net: Other (expense) income, net for the three and
nine months ended June 28, 1998 was ($105,000) and $467,000, respectively, as
compared to $257,000 and $820,000 for the corresponding periods in fiscal 1997.
Interest income for the three and nine months ended June 28, 1998 was $342,000
and $1.1 million respectively, as compared to $261,000 and $856,000 for the
corresponding periods in fiscal 1997. Interest expense for the three and nine
months ended June 28, 1998 was ($15,000) and ($24,000), respectively, as
compared to ($6,000) and ($15,000) for the corresponding periods in fiscal 1997.
In addition, non-interest other (expenses) for the three and nine months ended
June 28, 1998 amounted to ($432,000) and ($616,000).
Income tax (benefit) provision: The effective tax rate for the three and nine
months ended June 28, 1998 was (35.0%) and (13.2%) as compared to 25.0% and
26.1%, respectively, for the corresponding periods in fiscal 1997. The effective
tax benefit for the nine-month period ended June 28, 1998 was unfavorably
impacted by the charges for acquired in-process research and development and
merger and other non-recurring costs which are not fully deductible for tax
purposes. This unfavorable impact was partially offset by the impact of Equipe
Technologies, Inc. and E-Machine, Inc., which were both subchapter
S-corporations for federal income tax purposes for the three months ended
December 28, 1997. The tax rate, exclusive of the acquired in-process research
and development charge, merger costs and other special charges, for the three
and nine months ended June 28, 1998 would have been (35.0%) and 19.6% as
compared to 25.0% and 26.1% for the corresponding periods in fiscal 1997. The
changes in the effective tax rates excluding these special charges, for the
three and nine months ended June 28, 1998 as compared to the corresponding
periods in fiscal 1997 are attributable to the fact that prior to January 1,
1998 Equipe Technologies, Inc. and E-Machine, Inc. were not subject to federal
income tax due to S-corporation status.
Net (loss) income: The net loss for the three and nine months ended June 28,
1998 was $7.8 million and $13.0 million, respectively, as compared to net income
of $6.9 million and $18.3 million for the corresponding periods in fiscal 1997.
Excluding special charges of $4.6 million, post-tax, the net loss for the three
months ended June 28, 1998 would have been $3.2 million, $0.16 net loss per
common share, as compared to net income of $6.9 million, $0.34 net income per
diluted common share, in the same period in fiscal year 1997. Net income in the
nine months ended June 28, 1998, excluding the acquired in-process research and
development costs, the Equipe acquisition merger costs and other special charges
14
<PAGE>
recorded by the Company, would have been $5.9 million, $0.29 per diluted common
share, as compared with net income of $18.3 million, $0.91 per diluted common
share, for the corresponding period in fiscal year 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has funded its operations primarily through
private equity financings, bank lines of credit, public stock offerings in
October 1994 and July 1995 and cash generated from operations.
As of June 28, 1998 the Company had working capital of $94.5 million,
including cash and cash equivalents of $34.5 million and short-term marketable
securities of $1.3 million. Additionally, the Company had $3.3 million of non-
current marketable securities at June 28, 1998.
The total increase in cash and cash equivalents for the nine months ended June
28, 1998 was $6.9 million. Net cash provided by operating activities for the
nine months ended June 28, 1998 was $21.2 million, compared to $3.3 million for
the corresponding period in fiscal 1997. The net cash provided by operating
activities for the nine months ended June 28, 1998 was primarily attributable to
the net loss which, after adjusting for non-cash items, provided $1.7 million,
and to decreases in trade accounts receivable of $38.7 and billings in excess of
revenues and customer advances of $1.6 million. The sources of cash were offset
partially by cash used to increase contracts in progress by $2.6 million,
inventories by $3.1 million, other assets by $5.5 million, and to decrease
accounts payable and other liabilities by $9.7 million. For the nine months
ended June 29, 1997, net cash provided by operating activities was primarily
attributable to net income of $23.4 million after adjusting for non-cash
expenses, increases in accounts payable of $2.6 million and in accrued expenses
and other liabilities of $6.4 million, offset in part by increases in trade
accounts receivable of $15.0 million, in inventories of $8.9 million, in
contracts in progress of $2.1 million, and in other assets of $2.0 million.
Net cash used in investing activities for the nine months ended June 28, 1998
was $11.0 million as compared to $4.7 million of net cash provided by investing
activities for the corresponding period in fiscal 1997. Net cash used in
investing activities for the nine months ended June 28, 1998 was primarily
attributable to the purchase of property and equipment of $9.8 million and the
purchases, net of sales and maturities, of marketable securities of $1.5
million. Net cash provided by investing activities for the nine months ended
June 29, 1997 was attributable to the net purchase, sales and maturities of
marketable securities of $9.0 million, offset partially by the purchase of fixed
assets of $4.3 million.
Net cash used in financing activities for the nine months ended June 28, 1998
was $3.2 million as compared to $5.1 million for the corresponding period in
fiscal 1997. Net cash used in financing activities for the nine months ended
June 28, 1998 and June 29, 1997 was primarily attributable to normal dividend
distributions of $4.5 million and $6.6 million, respectively, to shareholders of
Equipe Technologies and E-Machine, Inc. prior to their acquisition by the
Company. Both of these Equipe entities operated as S-corporations prior to the
merger with the Company. In addition, net cash used in financing activities for
the nine months ended June 29, 1997 included repayments of short-term bank
borrowings of $900,000. These uses of cash were offset partially by proceeds
from the exercise of stock options and from proceeds of the Company's Employee
Stock Purchase Plan.
At June 28, 1998, the Company had a revolving credit agreement with The Chase
Manhattan Bank (the "Bank"). The revolving credit facility enables the Company
to borrow up to $20,000,000 on an unsecured basis. Outstanding revolving credit
loans bear interest, at the Company's option, at the 30, 60 or 90 day LIBOR rate
plus a credit spread or at the effective prime rate. At June 28, 1998, the
LIBOR
15
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borrowing rate would have been 6.75% and the prime rate was 8.5%. The ability of
the Company to effect borrowings under the revolving credit facility is
conditioned upon the meeting of certain financial criteria. The revolving credit
agreement expires on June 16, 2000. As of June 28, 1998, the Company had no
borrowings under this credit agreement.
The Company believes that existing cash and investment balances and funds
available under its existing lines of credit will be sufficient to meet the
Company's cash requirements to fund operations and expected capital expenditures
during the next twelve months.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The statement requires companies to
recognize all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for changes in fair value, gains or
losses, depends on the intended use of the derivative and its resulting
designation. The statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company will adopt SFAS 133 by October 1,
1999. The Company is evaluating SFAS 133 to determine its impact on its
consolidated financial statements.
YEAR 2000
Computer systems and software products that were designed to accept entries of
only two digits in the "year" date code field may be unable to properly process
date information beyond the year 1999. Inability of the Company's products to
process these dates could have a material adverse effect on its business. The
Company has established a centrally coordinated project team, including
representatives of each of the Company's divisions, to determine the Year 2000
readiness of the Company's products, business processes and systems. The Company
has reviewed all equipment and software currently being marketed or already
installed at customer sites for Year 2000 compliance. The Company expects to
complete all internal and field testing and upgrades of current and installed
products by the end of calendar 1998. The Company cannot presently estimate the
total cost of this testing and upgrade process but does not expect it to be
material. The Company is also assessing its internal systems, including business
information systems, systems utilized in its manufacturing and service
operations, and systems providing electronic interfaces between the Company and
its business associates and customers, to ensure the Company's operations are
not interrupted by Year 2000 issues. The Company expects to have addressed all
internal Year 2000 issues identified in this process by the end of calendar
1998. The Company is also working closely with suppliers and other third parties
upon which it is dependent to determine the extent of their Year 2000
compliance. Based on its investigation to date the Company does not expect the
total cost of its Year 2000 assessment and remediation program to have a
material adverse effect on the Company's business, results of operations or
financial condition.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) N/A
(b) N/A
(c) The following information is furnished with regard to all securities of
the Company sold by the Company since the end of the Company's last fiscal year
that were not registered under the Securities Act of 1933 (the "Securities
Act"):
On October 29, 1997, the Company issued 111,258 shares of Common Stock and
issued or assumed options to purchase an aggregate of 199,170 shares of Common
Stock in connection with the Company's acquisition of Interval Logic
Corporation.
On January 22, 1998, the Company issued 4,364,016 shares of Common Stock in
consideration for all of the issued and outstanding stock of Equipe
Technologies, Inc., and two related corporations.
On May 19, 1998, the Company issued 105,000 shares of Common Stock in
consideration for all of the issued and outstanding stock of Chiptronix Handling
Systems GmbH.
The above issuances were made in reliance upon the exemption from registration
set forth in Section 4(2) of the Securities Act, relating to sales by an issuer
not involving any public offering.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders of the Company held on March 30, 1998,
(the "Annual Meeting"), the Company's stockholders elected to fix the number of
directors that shall constitute the whole Board of Directors of the Company at
six and elected the following nominees as directors of the Company:
The number of votes cast for, or withheld from, each nominee for election as
director were as follows:
<TABLE>
<CAPTION>
Nominee For Withheld Authority
------------------------- ---------- ------------------
<S> <C> <C>
Mordechai Wiesler 11,158,618 24,201
Mitchell G. Tyson 11,158,558 24,261
Amram Rasiel 11,168,618 14,201
Borouch B. Frusztajer 11,168,418 14,401
Alexander V. d'Arbeloff 11,168,315 14,504
Paul F. Rogan 11,158,384 24,435
</TABLE>
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ITEM 5. OTHER INFORMATION
Under rules recently adopted by the Securities and Exchange Commission,
proxies solicited by management in connection with the Company's 1999 annual
meeting of stockholders may confer discretionary authority to vote on any
shareholder proposal of which the Company did not have notice by January 20,
1999, or, if the date of the 1999 annual meeting of stockholders is changed by
more than 30 days from March 6, 1999, by a reasonable time before the Company
mails its proxy materials for such annual meeting. The Company's By-Laws
further provide that a stockholder must give written notice to the Company not
less than sixty days prior to the scheduled annual meeting describing any
proposal to be brought before such meeting, even if such item is not be included
in the Company's proxy statement relating to such meeting. Such notice
requirements are set forth in Section 3.5 of the Company's By-Laws.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
*3.4 Amended and Restated By-Laws of the Company
*3.5 Restated Articles of Organization of the Company
**3.6 Articles of Amendment to the Restated Articles of Organization of
the Company, as approved by stockholders of the Company on April
22, 1997
***3.7 Articles of Amendment to the Restated Articles of Organization of
the Company, as approved by stockholders of the Company on
January 16, 1998
10.25 Sublease agreement dated as of March 18, 1998 by and between the
Company and BAAN USA
10.26 Joint Venture Agreement by and between the Company and Chung
Song Systems, Co., Ltd. and Shinsung Engineering Co., Ltd.
10.27 Stock Purchase Agreement dated as of May 19, 1998 by and between
the Company and the Shareholders of Chiptronix Handling Systems
GmbH and of Chiptronix GmbH
10.28 Revolving Credit Agreement dated as of June 16, 1998 by and between
the Company and The Chase Manhattan Bank
27.1 Financial Data Schedule
27.2 Financial Data Schedule
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_______________
* Incorporated by reference to the similarly-numbered Exhibit to the
Company's Registration Statement on Form S-1,
File No. 33-81836.
** Incorporated by reference to the similarly-numbered Exhibit to the
Company's Quarterly Report Form 10-Q, for the period ended June 29, 1997.
*** Incorporated by reference to the similarly-numbered Exhibit to the
Company's Quarterly Report Form 10-Q, for the period ended
December 28, 1997.
b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K (the "Form 8-K") with the
Securities and Exchange Commission on July 16, 1998. The Form 8-K reported that
the Company had announced in a July 13, 1998 press release that it was
undertaking a restructuring plan designed to reduce costs and expenses,
including a workforce reduction of approximately 15%, and that its expected
operating results for the fiscal quarter ended June 28, 1998 would be lower than
previously anticipated.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRI AUTOMATION, INC.
Date: August 11, 1998 By: /s/ Stephen D. Allison
--------------------------
Stephen D. Allison
Duly Authorized Officer and
Principal Financial Officer
20
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EXHIBIT INDEX
Exhibit
NUMBER DESCRIPTION
------ -----------
*3.4 Amended and Restated By-Laws of the Company
*3.5 Restated Articles of Organization of the Company
**3.6 Articles of Amendment to the Restated Articles of Organization of
the Company, as approved by stockholders of the Company on
April 22, 1997
***3.7 Articles of Amendment to the Restated Articles of Organization of
the Company, as approved by stockholders of the Company on January
16, 1998
10.25 Sublease agreement dated as of March 18, 1998 by and between the
Company and BAAN USA
10.26 Joint Venture Agreement by and between the Company and Chung
Song Systems, Co., Ltd. and Shinsung Engineering Co., Ltd.
10.27 Stock Purchase Agreement dated as of May 19, 1998 by and between the
Company and the Shareholders of Chiptronix Handling Systems GmbH
and of Chiptronix GmbH
10.28 Revolving Credit Agreement dated as of June 16, 1998 by and between
the Company and The Chase Manhattan Bank
27.1 Financial Data Schedule
27.2 Financial Data Schedule
_______________
* Incorporated by reference to the similarly-numbered Exhibit to the
Company's Registration Statement on Form S-1, File No. 33-81836.
** Incorporated by reference to the similarly-numbered Exhibit to the Company's
Quarterly Report Form 10-Q, for the period ended June 29, 1997.
*** Incorporated by reference to the similarly-numbered Exhibit to the Company's
Quarterly Report Form 10-Q, for the period ended December 28, 1997.
21
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EXHIBIT 10.25
[LETTERHEAD OF CORNISH & CAREY COMMERCIAL APPEARS HERE]
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SUBLEASE
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<TABLE>
<S> <C>
Sublessor: BAAN USA, a Delaware Corporation Subleased 4600 Bohannon Drive, Suite 105
Premises: Menlo Park, California
Sublessee: PRI Automation, Inc., a Massachusetts Date: March 18, 1998
Corporation
</TABLE>
1. Parties:
This Sublease is made and entered into as of March 18, 1998, by and between BAAN
USA, a Delaware Corporation ("Sublessor"), and PRI Automation, a Massachusetts
Corporation ("Sublessee"), under the Master Lease dated December 15, 1994,
between Menlo Oaks Partners, L.P., a Delaware Limited Partnership, as "Lessor"
and Sublessor under this Sublease as "Lessee." A copy of the Master Lease is
attached hereto as Attachment I and incorporated herein by this reference.
2. Provisions Constituting Sublease:
2.1 This Sublease is subject to all of the terms and conditions of the
Master Lease. Sublessee hereby assumes and agrees to perform all of the
obligations of "Lessee" under the Master Lease to the extent said
obligations apply to the Subleased Premises and Sublessee's use of the
Common Areas, except as specifically set forth herein. Sublessor hereby
agrees to cause Lessor under the Master Lease to perform all of the
obligations of Lessor thereunder to the extent said obligations apply to
the Subleased Premises and Sublessee's use of the Common Areas. Sublessee
shall not commit or permit to be committed on the Subleased Premises or on
any other portion of the Project any act or omission which violates any
term or condition of the Master Lease. Except to the extent waived or
consented to in writing by the other party or parties hereto who are
affected thereby, neither of the parties hereto will, by renegotiation of
the Master Lease, assignment, subletting, default or any other voluntary
action, avoid or seek to avoid the observance or performance of the terms
to be observed or performed hereunder by such party, but will at all times
in good faith assist in carrying out all the terms of this Sublease and in
taking all such action as may be necessary or appropriate to protect the
rights of the other party or parties hereto who are affected thereby
against impairment. Nothing contained in this Section 2.1 or elsewhere in
this Sublease shall prevent or prohibit Sublessor from assigning its
interest in this Sublease or subletting the Premises to any other third
party.
2.2 All of the terms and conditions contained in the Master Lease are
incorporated herein, except as specifically provided below, and the terms and
conditions specifically set forth in this Sublease, shall constitute the
complete terms and conditions of this Sublease, except the following paragraphs
of the Master Lease which shall solely be the obligation of Sublessor: Title
page, introduction paragraph on
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page 1, paragraphs 2, 3, 4.1, 4.4, 4.6, 16, 18.15, Exhibit C, Exhibit F, Special
Provisions Rider to Lease; paragraphs 1, 5, 6, 7, 13, 18, 21(c), 23(c).
3. Subleased Premises and Rent:
3.1 Subleased Premises:
Sublessor leases to Sublessee and Sublessee leases from Sublessor the
Subleased Premises upon all of the terms, covenants and conditions
contained in this Sublease. The Subleased Premises consist of approximately
14,193+/- square feet.
3.2 Rent:
Sublessee shall pay to Sublessor as Rent for the Subleased Premises the sum
of Forty-Six Thousand One Hundred Twenty-Seven and 25/100 Dollars
($46,127.25) per month, without deductions, offset, prior notice or demand.
Rent shall be payable by Sublessee to Sublessor in consecutive monthly
installments on or before the first day of each calendar month during the
Sublease Term. If the Sublease commencement date or the termination date of
the Sublease occurs on a date other than the first day or the last day,
respectively, of a calendar month, then the Rent for such partial month
shall be prorated and the prorated Rent shall be payable on the Sublease
commencement date or on the first day of the calendar month in which the
Sublease termination date occurs, respectively. Beginning on the thirteenth
(13th) month and each month thereafter of the Sublease Agreement, the
monthly rent shall be Forty-Seven Thousand Five Hundred Eleven and 00/100
Dollars ($47,511.00). Sublessee shall pay Sublessor the first month's rent
upon execution of the Sublease Agreement.
3.3 Security Deposit:
In addition to the Rent specified above, Sublessee shall pay to Sublessor
Forty-Seven Thousand Five Hundred Eleven and 00/100 Dollars ($47,511.00) as
a non-interest bearing Security Deposit upon execution of the Sublease
Agreement. In the event Sublessee has performed all of the terms and
conditions of this Sublease during the term hereof, Sublessor shall return
to Sublessee, within thirty days after Sublessee has vacated the Subleased
Premises, the Security Deposit less any sums due and owing to Sublessor.
4. Rights of Access and Use:
4.1 Use:
Sublessee shall use the Subleased Premises only for those purposes
permitted in the Master Lease, unless Sublessor and Master Lessor consent
in writing to other uses prior to the commencement thereof.
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5. Sublease Term:
5.1 Sublease Term:
The Sublease Term shall be for the period commencing on April 1, 1998, and
continuing through February 7, 2000. In no event shall the Sublease Term
extend beyond the Term of the Master Lease.
5.2 Inability to Deliver Possession:
In the event Sublessor is unable to deliver possession of the Subleased
Premises at the commencement of the term, Sublessor shall not be liable for
any damage caused thereby, nor shall this Sublease be void or voidable but
Sublessee shall not be liable for Rent until such time as Sublessor offers
to deliver possession of the Subleased Premises to Sublessee, but the term
hereof shall not be extended by such delay. If Sublessee, with Sublessor's
consent, takes possession prior to commencement of the term, Sublessee
shall do so subject to all the covenants and conditions hereof and shall
pay Rent for the period ending with the commencement of the term at the
same rental as that prescribed for the first month of the term prorated at
the rate of 1/30th thereof per day. In the event Sublessor has been unable
to deliver possession of the Subleased Premises within 30 days from the
commencement date, Sublessee, at Sublessee's option, may terminate this
Sublease.
6. Notices:
All notices, demands, consents and approvals which may or are required to be
given by either party to the other hereunder shall be given in the manner
provided in the Master Lease, at the addresses shown below. Sublessor shall
notify Sublessee of any Event of Default under the Master Lease, or of any other
event of which Sublessor has actual knowledge which will impair Sublessee's
ability to conduct its normal business at the Subleased Premises, as soon as
reasonably practicable following Sublessor's receipt of notice from the Lessor
of an Event of Default or actual knowledge of such impairment.
<TABLE>
<CAPTION>
Notices to Sublessor: Notices to Sublessee:
--------------------- ---------------------
<S> <C>
Phil Van Etten Terry Massood
Aurum Software PRI Automation
2350 Mission College Boulevard, Suite 1300 805 Middlesex Turnpike
Santa Clara, CA 95054 Billerica, MA 01821-3986
</TABLE>
7. Condition of Premises:
Sublessor, at Sublessor's sole cost and expense, shall perform the following
work to the Premises before the commencement date:
A. Remove all office partitions in the Premises and repair, to the best
of Sublessor's ability, any damage to the carpet.
B. Deliver Premises in broom-clean condition.
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8. Signage:
All rights to signage shall be subject to the Master Lease.
9. Early Occupancy:
Upon full execution of the Sublease Agreement, Sublessee shall have early access
to install telephone wires and computer cabling provided that there is no
interference with Sublessor's business operation.
10. Broker Fee and Representation:
Within thirty (30) days of the Sublease Agreement, Sublessor shall pay Cornish &
Carey Commercial, a licensed real estate broker, fees set forth in a separate
agreement between Sublessor and Broker. Cornish & Carey Commercial represents
the Sublessor and Corners Parrish International, Inc. represents the Sublessee
in this transaction.
11. Compliance With Nondiscrimination Regulations:
It is understood that it is illegal for Sublessor to refuse to display or
sublease the Subleased Premises, or to assign, surrender or sell the Master
Lease, to any person because of race, color, religion, national origin, sex,
sexual orientation, marital status or disability.
12. Toxic Contamination Disclosure:
Sublessor and Sublessee each acknowledge that they have been advised that
numerous federal, state, and/or local laws, ordinances and regulations ("Laws")
affect the existence and removal, storage, disposal, leakage of and
contamination by materials designated as hazardous or toxic ("Toxics"). Many
materials, some utilized in everyday business activities and property
maintenance, are designated as hazardous or toxic.
Some of the Laws require that Toxics be removed or cleaned up by landowners,
future landowners or former landowners without regard to whether the party
required to pay for "clean up" caused the contamination, owned the property at
the time the contamination occurred or even knew about the contamination. Some
items, such as asbestos or PCBs, which were legal when installed, now are
classified as Toxics, and are subject to removal requirements. Civil lawsuits
for damages resulting from Toxics may be filed by third parties in certain
circumstances.
Sublessor and Sublessee each acknowledge that Broker has no specific expertise
with respect to environmental assessment or physical condition of the Subleased
Premises, including, but not limited to, matters relating to: (i) problems which
may be posed by the presence or disposal of hazardous or toxic substances on or
from the Subleased Premises, (ii) problems which may be posed by the Subleased
Premises being within the Special Studies Zone as designated under the
Alquist-Priolo Special Studies Zone Act (Earthquake Zones), Section 2621-2630,
inclusive of California Public Resources Code, and (iii) problems which may be
posed by the Subleased Premises being within a HUD Flood Zone as set forth in
the U.S. Department of Housing and Urban Development "Special Flood Zone Area
Maps," as applicable.
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SUBLEASE
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Sublessor and Sublessee each acknowledge that Broker has not made an independent
investigation or determination of the physical or environmental condition of the
Subleased Premises, including, but not limited to, the existence or nonexistence
of any underground tanks, sumps, piping, toxic or hazardous substances on the
Subleased Premises. Sublessee agrees that it will rely solely upon its own
investigation and/or the investigation of professionals retained by it or
Sublessor, and neither Sublessor nor Sublessee shall rely upon Broker to
determine the physical and environmental condition of the Subleased Premises or
to determine whether, to what extent or in what manner, such condition must be
disclosed to potential sublessees, assignees, purchasers or other interested
parties.
Sublessor: BAAN USA, A DELAWARE CORPORATION
By: /s/ Phil Van Etten Date: 3/24/98
--------------------------------------- -------------------------
Sublessee: PRI AUTOMATION, INC., A MASSACHUSETTS CORPORATION
By: /s/ Stephen D. Allison Date: 3/20/98
--------------------------------------- -------------------------
NOTICE TO SUBLESSOR AND SUBLESSEE: CORNISH & CAREY COMMERCIAL, IS NOT AUTHORIZED
TO GIVE LEGAL OR TAX ADVICE; NOTHING CONTAINED IN THIS SUBLEASE OR ANY
DISCUSSIONS BETWEEN CORNISH & CAREY AND SUBLESSOR AND SUBLESSEE SHALL BE DEEMED
TO BE A REPRESENTATION OR RECOMMENDATION BY CORNISH & CAREY COMMERCIAL, OR ITS
AGENTS OR EMPLOYEES AS TO THE LEGAL EFFECT OR TAX CONSEQUENCES OF THIS DOCUMENT
OR ANY TRANSACTION RELATING THERETO. ALL PARTIES ARE ENCOURAGED TO CONSULT WITH
THEIR INDEPENDENT FINANCIAL CONSULTANTS AND/OR ATTORNEYS REGARDING THE
TRANSACTION CONTEMPLATED BY THIS PROPOSAL.
rev 7/95
Page 5 of 5
<PAGE>
CONSENT TO SUBLEASE
-------------------
THIS CONSENT TO SUBLEASE AND AMENDMENT TO SUBLEASE AND MASTER
LEASE (this "Agreement") is entered as of the 31st day of March, 1998, by and
among MENLO OAKS PARTNERS, LP., a Delaware limited partnership ("Landlord"),
BAAN U.S.A., INC., a Delaware corporation ("Tenant"), BAAN HOLDINGS, B.V., a
Dutch corporation ("Guarantor"), and PRI AUTOMATION, INC., a Massachusetts
corporation ("Subtenant").
THE PARTIES ENTER this Agreement on the basis of the following
facts, intentions and understandings:
A. Landlord leases to Tenant, and Tenant leases from Landlord,
certain premises ("Premises") pursuant to a lease dated December 15, 1994, and
amended by that certain Amendment No. 1 to Lease dated as February 28, 1995 (as
amended, the "Master Lease"). A copy of the Master Lease is attached hereto as
Exhibit A. The Premises are more particularly described in the Master Lease.
- ---------
B. Tenant and Subtenant entered a sublease ("Sublease") dated
March 18, 1998, a copy of which is attached hereto as Exhibit B, whereby Tenant
---------
proposes to sublease to Subtenant and Subtenant proposes to sublease from Tenant
the Premises.
C. The terms of the Master Lease require the written consent
of Landlord as a condition precedent to the Sublease.
D. Guarantor has executed and delivered to Landlord that
certain Guarantee dated as of December 15, 1994, pursuant to which Guarantor
guarantied the obligations of Tenant under the Master Lease.
E. Tenant and Subtenant now desire to amend the Sublease and
Landlord and Tenant now desire to amend the Lease as provided herein. In
addition, Landlord hereby grants its consent to the Sublease on the terms and
conditions contained herein.
NOW THEREFORE, IN CONSIDERATION of the mutual covenants and
promises of the parties, the parties hereto agree as follows:
1. Consent. Landlord hereby consents to the Sublease subject
-------
to all of the terms and conditions of this Agreement.
1.
<PAGE>
2. Representations. Tenant hereby represents and warrants to
Landlord that:
a. Master Lease. The Master Lease attached hereto as
------------
Exhibit A is a true and correct copy of the Master Lease, and there exist no
- ---------
amendments, modifications or extensions of or to the Master Lease (except as
included in the Master Lease attached hereto), and the Master Lease is now in
full force and effect, and
b. No Offsets. There exist no defenses or offsets to
----------
enforcement of the Master Lease by Landlord, and Landlord is not, as of the date
of Tenant's execution hereof, in default in the performance of the Master Lease,
nor has Landlord committed any breach thereof, nor has any event occurred which,
with the passage of time, or the giving of notice, or both, would constitute a
default or breach by Landlord.
3. Subordinate. The Sublease shall be subject and subordinate
-----------
to the Master Lease and all of the Master Lease's provisions, covenants and
conditions. In case of any conflict between the provisions of the Master Lease
and the provisions of the Sublease, the provisions of the Master Lease shall
prevail unaffected by the Sublease. Subtenant shall comply with the terms and
conditions of the Master Lease to the extent applicable to the use and occupancy
of the Premises. Any breach of the Master Lease by either Tenant or Subtenant
shall entitle Landlord to all the rights and remedies provided in the Master
Lease in the event of a breach, and any other available remedy, against both
Tenant and Subtenant.
4. No Ratification. This Agreement shall not operate as a
---------------
consent to, approval of, or ratification by Landlord of any of the provisions of
the Sublease and Landlord shall not be bound or estopped in any way by the
provisions of the Sublease.
5. No Waiver. This Agreement shall not be construed to modify,
---------
waive or affect (i) any present or future breach or default on the part of
Tenant under the Master Lease; (ii) any of the provisions, covenants, or
conditions in the Master Lease (except as provided in Section 15); (iii) any of
Tenant's obligations under the Master Lease; or (iv) any rights or remedies of
Landlord under the Master Lease or to enlarge or increase Landlord's obligations
or Tenant's rights under the Master Lease.
6. Not Assignable. This Agreement is personal to Tenant,
--------------
Guarantor and Subtenant and may not be assigned by Tenant, Guarantor or
Subtenant. Any attempted assignment in violation of this section shall be void.
7. No Release. Neither the Sublease nor this Agreement shall
----------
release or discharge Tenant from any liability under the Master Lease and Tenant
shall remain liable and responsible for the full performance and observance of
all of the provisions, covenants and conditions set forth in the Master Lease on
the part of Tenant to be performed and observed. The breach or violation of any
provision of the Master Lease by Subtenant shall constitute a default by Tenant
in fulfilling such provision. Tenant shall indemnify Landlord against any
2.
<PAGE>
loss, cost or expense, including attorneys' fees or costs, which arise by virtue
of the Sublease or Subtenant's occupancy of the Premises.
8. Consent to Subsequent Sublease. This Agreement by Landlord
------------------------------
shall not be construed as a consent by Landlord to any future assignment or
subletting either by Tenant or Subtenant. The Sublease may not be assigned,
renewed or extended, nor shall the Premises, or any part thereof, be further
sublet without the prior written consent of Landlord in each instance.
9. Termination. Upon the expiration of the term or earlier
-----------
termination of the Master Lease, or upon the surrender of the Premises by Tenant
to Landlord, except as provided in Section 10 below, the Sublease shall
terminate as of the effective date ("Termination Date") of such expiration,
termination or surrender, and Subtenant shall vacate the Premises on or before
the Termination Date. Pursuant to Section 8.1 of the Master Lease, Tenant shall
surrender the Premises to Landlord at the expiration or earlier termination of
the Master Lease in the same condition as when leased, reasonable wear and tear,
damage by fire or other insured casualty excepted. Subtenant shall cooperate
with Tenant in connection with Tenant's performance of its obligations pursuant
to this Section 9. If Tenant fails to surrender the Premises to Landlord in the
condition provided above, Tenant, at Landlord's election, shall be deemed to
have held over in the Premises (in accordance with Section 18.12 of the Master
Lease) until such time as Tenant completes Tenant's obligations under the Master
Lease with respect to the condition in which Tenant is required to surrender to
Landlord possession of the Premises to Landlord.
10. Landlord's Election. If the Master Lease expires or
-------------------
terminates during the term of the Sublease for any reason, or if Tenant shall
surrender the Master Lease to Landlord, Landlord may elect, in Landlord's sole
discretion, by delivering written notice to Subtenant not later than thirty (30)
days after the Termination Date, to continue the Sublease as a direct lease
between Landlord, as landlord, and Subtenant, as tenant, on the terms and
conditions of the Sublease for either (i) the remaining term of the Sublease or
(ii) such periodic tenancy as Landlord shall select, provided that in no event
shall initial period of the periodic tenancy be in excess of the remaining term
of the Sublease. Upon an election by Landlord pursuant to this section,
Subtenant shall attorn to Landlord. If Landlord elects to continue the Sublease,
in no event shall Landlord be (i) liable to Subtenant for any act or omission by
Tenant, (ii) subject to any offsets or defenses which Subtenant had or might
have against Tenant, (iii) bound by any rent or additional rent or any other
payment which Subtenant may have paid to Tenant, or (iv) bound by any amendment
to the Sublease not consented to in writing by Landlord.
11. Continuing Liability. Both Tenant and Subtenant shall be
--------------------
liable for all bills rendered by Landlord for charges incurred by or imposed
upon Subtenant for services rendered and materials supplied to the Premises. If
a separate submeter shall be installed to measure utilities furnished to the
Premises, then payment for such installation and the utilities so furnished
shall be made by Subtenant directly to Landlord as and when billed and the
3.
<PAGE>
furnishing of such utilities shall be in accordance with and subject to all of
the applicable terms, covenants and conditions of the Master Lease.
12. Notices. All notices required to be given hereunder shall
-------
be in writing and mailed postage prepaid by certified or registered mail, return
receipt requested, or by personal delivery, addressed to Landlord, Tenant and
Subtenant at the address provided below, or at such other address as may be
designated by notice given in accordance with the provisions of this Section 12.
Notices shall be deemed received two (2) days after the date of mailing, or upon
personal delivery.
<TABLE>
<S> <C>
Landlord: Menlo Oaks Partners, L.P. c/o: Freestone Properties, Inc.
---------------------------------------------------------
4400 Bohannon Dr., Ste. 260
---------------------------------------------------------
Menlo Park, CA 94025
---------------------------------------------------------
Attn: Mike Tamas
-----------------
Tenant: Aurum Software
---------------------------------------------------------
2350 Mission College Blvd., Suite 1300
---------------------------------------------------------
Santa Clara, CA 95054
---------------------------------------------------------
Attn: Phil Van Etten
-----------------
Subtenant: PRI Automation
---------------------------------------------------------
805 Middlesex Turnpike
---------------------------------------------------------
Billesion, MA
---------------------------------------------------------
Attn: Terry Massood
-----------------
</TABLE>
13. Signage. Within thirty (30) days after the date of this
-------
Agreement, Tenant, at its sole cost and expense, shall (i) remove Tenant's sign
at the entrance to the Premises, on the monument sign at the entrance to the
building in which the Premises is located and on the building (the "4700
Bohannon Building") located at 4700 Bohannon Drive, Menlo Park, California and
(ii) restore to the condition existing prior to Tenant's installation of its
signage, the portion of the entrance to the Premises and the 4700 Bohannon
Building where Tenant's signs previously had been located (including repairing
any damage caused by Tenant's removal of Tenant's signage).
14. Amendment to Sublease. Tenant and Subtenant hereby amend
---------------------
the Sublease as follows:
a. Master Lease. The term "Master Lease" as used in
------------
the Sublease shall refer to the Master Lease as defined herein (a copy of which
is attached hereto as Exhibit A).
---------
b. Base Rent. Each reference to "Rent" contained in
---------
Section 3.2 of the Sublease is deleted and the term "Base Rent" is substituted
in place thereof.
4.
<PAGE>
c. Term. The Sublease Term shall end on January 31,
----
2000.
Tenant's and Subtenant's amendment to the Sublease provided in this
Section 14 is agreed to by and between Tenant and Subtenant only. Landlord is
not and shall not be deemed to be a party to Tenant's and Subtenant's amendment
of the Sublease pursuant to this Section 14.
15. Amendment to Master Lease. Section 1 of the Special
-------------------------
Provisions to the Master Lease is deleted.
16. Guarantor. Guarantor consents to the Sublease and the
---------
foregoing and agrees that its obligations under its Guaranty also include the
guaranty of the obligations of Tenant under this Agreement.
17. Entire Agreement. There are no oral or side agreements
----------------
among the parties affecting this Agreement, and this Agreement contains the
entire agreement of the parties with respect to Landlord's consent to the
Sublease.
5.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the day and year first above written.
<TABLE>
<CAPTION>
"Landlord" "Tenant"
<S> <C>
MENLO OAKS PARTNERS, L.P., a BAAN U.S.A., INC.,
Delaware limited partnership a Delaware corporation
By: AM Limited Partners, By: /s/ Mary E. Coleman
its General Partner --------------------------
Name: Mary E. Coleman
By: Amarok Menlo, Inc., its Its: Vice President
Partner
By: /s/ Phil Van Etten
By: /s/ [SIGNATURE UNKNOWN] --------------------------
---------------------------------- Name: Phil Van Etten
Name: [SIGNATURE UNKNOWN] Its: Vice-President
Its: PRESIDENT
"Subtenant"
PRI AUTOMATION, INC.,
a Massachusetts corporation
By: /s/ Stephen D. Allison
---------------------------
Name: Stephen D. Allison
Its: CEO
By: /s/ Mitch Tyson
---------------------------
Name: Mitch Tyson
Its: President & COO
</TABLE>
6.
<PAGE>
"Guarantor"
BAAN HOLDINGS, S.V.,
& Dutch corporation
By: /s/ Klaas Wagenaar
----------------------------
Name: Mr. Klaas Wagenaar
---------------------
Its: Senior Vice President &
---------------------
Chief Administrative Officer
By:
----------------------------
Name:
---------------------
Its:
---------------------
7.
<PAGE>
"Guarantor"
BAAN HOLDINGS, S.V.,
a Dutch corporation
By: /s/ Amal Johnson
----------------------------
Name: Amal Johnson
---------------------
Its: Baan - EVP
---------------------
By:
----------------------------
Name:
---------------------
Its:
---------------------
7.
<PAGE>
EXHIBIT 10.26
JOINT VENTURE AGREEMENT
This JOINT VENTURE AGREEMENT is made and entered into this ___th day
of ________, 1998, ("Effective Date") by and between PRI Automation, Inc., a
Massachusetts corporation with its principal offices located at 805 Middlesex
Turnpike, Billerica MA 01821, USA, ("PRI"), and Chung Song System Co., Ltd., a
South Korean corporation with its principal offices located at 33, Jije-Dong,
Pyungtaek, Kyungki-Do, Korea ("CSSC"), and Shinsung Eng. Co., Ltd., a South
Korean corporation with its principal place of business located at 327
DagsonDong, 6Ka, Yeongdeungpo-Ku, Seoul, 150-046, Korea, ("SEC") with reference
to the following facts:
RECITALS
A. PRI designs and manufactures factory automation systems primarily used by
semiconductor manufacturers to automate the fabrication of integrated
circuits.
B. CSSC and SEC are companies with substantial prior experience in the
development and marketing of products and services for the semiconductor
industry within South Korea.
C. Mr. S.K. Suh ("Suh") is an officer and employee of CSSC, and is a highly
qualified business executive with experience and expertise in the area of
promoting the sale of semiconductor equipment and other products to
semiconductor manufacturers within South Korea.
D. PRI, on the one hand, and CSSC and SEC, on the other hand, wish to act as
equal participants in the formation and operation of a company within South
Korea for the purpose of marketing, selling, installing and supporting PRI
products within South Korea and for the purpose of jointly developing a
manufacturing strategy to be implemented by the joint venture company upon
agreement by the partners.
E. PRI, CSSC and SEC wish to appoint Suh as the initial chief executive
officer of such company, once the company is formed pursuant to the terms
of this Agreement.
Now, therefor, in consideration of the promises and mutual covenants and
agreements set forth in this Agreement, PRI, CSSC and SEC agree as follows:
1. Definitions.
1.1 All defined terms used in this Agreement will be identified by the use
of initial capitalization and will have the meaning ascribed to them
by the Schedule of Defined Terms attached as Exhibit A to this
Agreement.
2. Formation of the Company.
<PAGE>
2.1 Within ninety (90) days of the execution of this Agreement, PRI, CSSC
and SEC will cause to be formed a company (the "Company") pursuant to
the terms of this Agreement with its principal place of business
located in the City of Seoul, South Korea adopting as its Articles of
Incorporation attached to this Agreement as Exhibit B.
2.2 All costs and fees associated with the formation of the Company will
be borne by the Company. Such fees include, without limitation, any
applicable Registration Tax, Education, Tax, Public Bond, Notarization
Fee, Stamp Fees, and any other costs or fees recognized by law in
South Korea. Each party will bear its own legal fees.
3. Capitalization of the Company.
3.1 Contemporaneous with, and in connection with, the formation of the
Company pursuant to Section 2, the Company will be capitalized as
follows.
3.2 Subject to the terms and conditions of this Agreement, and subject to
Governmental Approval in form and substance satisfactory to PRI, CSSC
and SEC, PRI and CSSC will each subscribe to the equity capital of the
Company as follows. CSSC will contribute capital in the form of two
hundred and sixty million South Korean won (KW260,000,000) in cash and
will receive 260 shares of the common stock of the Company. SEC will
contribute capital in the form of two hundred and sixty million South
Korean won (KW260,000,000) in cash and will receive 260 shares of the
common stock of the Company. PRI will contribute capital in the form
of two billion and eighty million South Korean won (KW2,080,000,000)
in cash and will receive 2,080 shares of the common stock of the
Company.
3.3 During the period that expires two years after the Effective Date CSSC
and SEC will each have, at their sole discretion, the option each to
purchase up to seven hundred and eighty (780) additional shares of the
common stock of the Company, subject to the following terms and
conditions:
3.3.1 The option price is one million South Korean won (KW1,000,000)
per share of common stock, and the purchaser must purchaser a
minimum of one hundred and ninety five (195) in any one purchase
event.
3.3.2 The purchase option may only be exercised upon thirty (30) days
prior written notice to PRI and the Company.
3.3.3 SEC and CSSC must exercise the option to purchase shares
2
<PAGE>
simultaneously, and at no point will either SEC or CSSC acquire
a larger percentage of issued shares than the percentage owned
by the other.
3.3.4 The Company's actual receipt of the purchase money from the
purchaser in a commercially reasonable form designated by the
Company, and SEC's and CSSC's good faith performance of all of
their obligations under this Agreement, jointly and severally,
are express conditions precedent to SEC's and CSSC's right to
purchase shares pursuant to this Section 3.3.
3.4 Other than the purchase of shares of common stock by SEC and CSSC
pursuant to Section 3.3 above, if at any time after the issuance of
shares as provided in Section 3.2 the Company increases the number of
equity shares or other equity securities issued, then PRI, CSSC and
SEC will each have the right, but not the obligation, to subscribe to
such new issuance and pay fully at par value for such shares or other
equity security, up to the number of shares required to maintain the
subscribing party's percentage ownership of the total outstanding
shares issued by the Company at the time of the subsequent offering.
3.5 PRI, CSSC and SEC will each make their cash contributions by making
payment to the Company at the time of the incorporation of the Company
in a commercially reasonable manner chosen by the Company consistent
with the requirements of South Korean law.
4. Acquisition of Assets by Purchase.
4.1 Within sixty (60) days of the formation and capitalization of the
Company the Company will enter into the Purchase and Sale Agreement
attached hereto as Exhibit C, and will purchase the specified assets
and materials from PRI pursuant to the terms of the Purchase and Sale
Agreement. The completion of the Purchase and Sale Agreement and the
transactions contemplated therein are an express condition of the
effectiveness of this Agreement.
5. Conditions Subsequent.
5.1 The formation of the Company pursuant to Section 2, CSSC's, SEC's, and
PRI's contribution of cash pursuant to Section 3, and the unanimous
approval of the Business Plan by the shareholders pursuant to Section
11 of this Agreement, are each conditions subsequent to the
effectiveness of this Agreement. The failure of any party to perform
such acts will not give rise to any claim against the other party,
including, without limitation, claims for damages based upon alleged
breach of contract, but such failure will cause this Agreement to
expire and have no further effect except for those provisions
specified in Section 17.6 which will survive the termination or
expiration of this Agreement. There are no other
3
<PAGE>
conditions subsequent in this Agreement other than those expressly
described in this Section 5.
6. Purpose of the Company; Strategic Alliance with PRI.
6.1 The purpose of the Company will be to market, sell, install and
support PRI's factory automation products within the Territory,
including, without limitation, PRI's hardware and software products,
and to provide services to consumers of such products within the
Territory including, without limitation, installation and operational
support, repair, and responding to customer queries. The parties will
jointly develop a strategy for expanding the activities of the Company
to include manufacturing to be implemented by the Company upon
agreement by the venture partners.
6.2 In furtherance of the purposes of the Company, within thirty (30) days
of the formation of the Company, or such further time as may be
required by South Korean law, the parties will cause the Company to
execute and enter into the Strategic Alliance Agreement attached as
Exhibit D to this Agreement and to perform the obligations and duties
stated therein. The acts and performances required by the Strategic
Alliance Agreement are cumulative and in addition to the acts and
performances required by this Agreement. In the event of any
unavoidable conflict between the terms of the Strategic Alliance
Agreement and the terms of this Agreement, then this Agreement will
control. If this Agreement is terminated, expires and becomes of no
further effect for any reason, then the Strategic Alliance Agreement
will also and simultaneously terminate, expire, and be of no further
effect.
7. Restrictions on the Transfer of shares.
7.1 In addition to such restrictions on the transfer of shares as may be
provided in the Articles of Incorporation of the Company at the time
of the Company's formation or in the future, the shareholders agree to
the following.
7.2 PRI, CSSC and SEC each agree not to voluntarily transfer, pledge or
encumber shares in the Company held by such shareholder without the
prior written consent of the other shareholder. Any transfer in
violation of Section 7 of this Agreement gives rise to an action for
damages in the Company and in the shareholder not in violation of
Section 7, and all such additional relief or remedies as may be
provided for or permitted by South Korean law as of the date of the
violation of Section 7.
7.3 Since damages arising from a breach of the above mentioned obligations
under this Section 7 may be difficult to determine with precision, the
shareholders agree
4
<PAGE>
that the shareholder who breaches the terms of this Section 7 shall
pay to the other shareholder as liquidated damages a sum equivalent to
twice the fair market value of the shares, as determined in Section
8.5, sold, transferred or otherwise disposed of or twice the proceeds
received by the breaching shareholder in the transaction whereby the
breach occurred, whichever is greater. The shareholders agree that
such liquidated damages are fair and reasonable and will be without
prejudice to, and cumulative with other remedies provided by law or
this Agreement.
7.4 In the event of an involuntary transfer of shares in the Company held
by PRI, CSSC or SEC, the shareholders will have the rights set forth
in Section 8 of this Agreement.
7.5 In subscribing to shares in the Company, PRI, CSSC and SEC each
represent and warrant that: (i) such shares were acquired by such
shareholder solely for such shareholder's own account and not with a
view to, or for resale in connection with, the distribution or other
disposition thereof; (ii) such shareholder is intimately familiar with
the prospects of the Company and the significant risks associated with
an investment in the shares of the Company; and (iii) an investment in
such shares may not be liquidated by the holder thereof, even in an
emergency.
7.6 Any certificates evidencing PRI's, CSSC's or SEC's shares in the
Company will bear the following legend, along with such security law
legends as counsel for the Company may deem necessary or appropriate:
"ANY TRANSFER OR SALE OF THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO CERTAIN CONDITIONS CONTAINED IN THAT JOINT VENTURE
AGREEMENT BY AND BETWEEN PRI AUTOMATION, INC., CHUNG SONG SYSTEM CO.,
LTD AND SHINSUNG ENG. CO., LTD. DATED AS OF THE ___ DAY OF ___ 1998,
AND APPROVAL BY THE BOARD OF DIRECTORS IN ACCORDANCE WITH THE ARTICLES
OF INCORPORATION OF THE COMPANY, COPIES OF WHICH ARE AVAILABLE FOR
REVIEW AT THE REGISTERED HEADQUARTERS OF THE COMPANY. ANY TRANSFER OR
SALE OF THESE SHARES OR ANY INTEREST THEREIN, IN VIOLATION OF THE SAID
CONDITIONS SHALL BE AND IS PROHIBITED."
8. Buy-Sell Agreement.
8.1 As to CSSC and SEC only, and expressly excluding PRI, each of the
following will be "Triggering Events": (i) a written notice of
Triggering Event from any party to the other parties upon the death or
adjudication of incompetency of Suh; (ii) Suh ceasing to devote a
significant portion of his time to the business of the Company for any
reason; (iii) the disability (defined to mean failure by reason of
5
<PAGE>
physical or mental impairment to perform material duties of his
position for the Company for a period of four continuous months or
four non-continuous months over an 18-month period) of Suh; (iv) a
change in ownership control of CSSC or SEC; and (v) the transfer of
more than 33% of all outstanding issued shares in CSSC or SEC to a
third party.
8.2 As to CSSC, SEC and PRI, each of the following will be "Triggering
Events": (i) a notice of Triggering Event from a non-breaching party
identifying a material breach of the terms this Agreement, which
breach was not cured within thirty (30) days of prior written notice
thereof; and (ii) any involuntary transfer of the respective
shareholder's shares in the Company.
8.3 Upon the occurrence of a Triggering Event, the following will apply:
8.3.1 If the shareholder causing the Triggering Event or to whom the
Triggering Event applies is SEC alone (or the recipient of the
shares from SEC in the event of an involuntary transfer) then
SEC will be obligated to sell, and PRI and CSSC will be
obligated to buy in quantities that will maintain the 2 to 1
ratio of the relative ownership positions of PRI and CSSC
respectively, all of the shares of the Company held by the SEC
(or said recipient of shares) upon written notice ("Purchase
Notice") to SEC within thirty (30) days from the date on which
PRI and CSSC became aware of the occurrence of the Triggering
Event. Said purchase and sale will occur thirty days after the
Purchase Notice; provided, however, that if SEC may not legally
sell, or either or both of the purchasing shareholders may
not legally purchase such shares, such purchase and sale will
take place as soon as the shareholders are legally permitted to
effect such purchase.
8.3.2 If the shareholder causing the Triggering Event or to whom the
Triggering Event applies is CSSC alone, or CSSC and SEC together
or contemporaneously (or the recipient of the shares from CSSC
and/or SEC in the event of an involuntary transfer or transfers)
then CSSC and SEC will be obligated to sell, and PRI will have
the option, at its sole discretion, to buy, all of the shares of
the Company held by the SEC and CSSC (and/or said recipient of
shares) upon written notice ("Purchase Notice") to SEC and CSSC
within thirty (30) days from the date on which PRI became aware
of the occurrence of the Triggering Event. Said purchase and
sale will occur thirty days after the Purchase Notice; provided,
however, that if SEC or CSSC may not legally sell, or PRI may
not legally purchase such shares, such purchase and sale will
take place as soon as the shareholders are legally permitted to
effect such purchase.
8.3.3 If the shareholder causing the Triggering Event or to whom the
Triggering
6
<PAGE>
Event applies is PRI (or the recipient of shares from PRI in the
event of an involuntary transfer or transfers) then PRI will be
obligated to sell, and CSSC and SEC will be jointly and
severally have the option, at their sole discretion, to buy, all
shares of the Company held by PRI (or the recipient of shares)
upon written notice ("Purchase Notice") to PRI within thirty
(30) days from the date on which CSSC and SEC became aware of
the occurrence of the Triggering Event. Said purchase and sale
will occur thirty days after the Purchase Notice; provided,
however, that if PRI may not legally sell, or CSSC or SEC may
not legally purchase such shares, such purchase and sale will
take place as soon as the shareholders are legally permitted to
effect such purchase.
8.3.4 With regard to any purchase and sale carried out pursuant to any
provision of this Section 8.3, at the closing of the purchase
and sale, the selling shareholder or shareholders (and/or the
recipient of shares in an involuntary transfer) will deliver
certificates representing the shares duly endorsed for transfer,
together with any applicable transfer taxes, against payment by
the purchasing shareholder for such shares as provided in this
Agreement. The purchasing shareholder may assign his or its
rights to purchase shares so long as it guarantees payment of
any note issued in connection with the purchase of shares.
8.4 The purchase price for shares of the Company to be purchased as
provided in any portion of this Section 8, above, will be as follows.
In the event of a purchase triggered by a Triggering Event, the price
per share will be the fair market value of each share as determined:
(i) by the written agreement of the parties, (ii) if no written
agreement is reached within ten (10) business days of the date on
which the purchase notice is given, then by an independent appraiser
agreed to in writing by the parties, or (iii) if no agreement is
reached as to value or an independent appraiser, then by the
Accountant of Company (as defined in Section 12.4) applying, first,
the terms of this Agreement and, second, generally accepted methods
for conducting such a valuation. The cost of the appraisal will be
paid by the Company. For the purposes of this Section 8 "fair market
value" means the price paid by a willing buyer to an unrelated willing
seller in an arm's length transaction, taking into account the purpose
of the Company to sell and support PRI products and the unique
services provided by Suh to the Company, but without regard to number
of shares at issue or whether such shares do or do not constitute a
controlling block of shares in the Company.
8.5 In order to confirm proper payments and share deliveries pursuant to
this Section 8 above, a shareholder having rights to receive payments
or shares pursuant to this Section 8 will have the right to audit the
relevant books and records of the Company after commercially
reasonable advance notice, at the Company's main
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offices during the Company's ordinary business hours. In performing
any such audit, the relevant shareholder will maintain the
confidentiality of all information obtained as a result of such audit,
will use such information only for the purposes of enforcing rights
hereunder and will conduct such audit in a manner that causes a
minimum disruption to the business. The costs of any such audit will
be borne by the shareholder requesting the audit.
8.6 The remedies under this Section 8 will be in addition to, but not in
lieu of, the remedies or relief as may be provided for or permitted
under the South Korean laws, the Article of Incorporation or other
provisions of this Agreement. In the event of any conflict between the
provisions of this Section 8 and the provisions of any other Section
of this Agreement, the provisions of this Section 8 will control.
9. Governance of the Company.
9.1 Board of Directors.
9.1.1 Unless otherwise agreed in writing by PRI, CSSC and SEC, the
Company will have five directors, of whom two will be designated
by PRI at the sole discretion of PRI ("PRI Directors"), one will
be designated by CSSC at the sole discretion of CSSC ("CSSC
Director"), one will be designated by SEC at the sole discretion
of SEC ("SEC Director") and one of whom will be appointed
jointly by PRI and CSSC ("Fifth Director"). PRI, CSSC and SEC
agree to vote all shares of the Company owned or controlled by
them, and otherwise to use their respective best efforts, to
elect directors as specified in the preceding sentence. The
initial directors of the Company will be as follows. PRI
designates Mitchell G. Tyson and Robert G. Postle as the PRI
Directors. CSSC designates S.K. Suh as the CSSC Director. SEC
designates Wan-Keun Lee as the SEC Director. PRI and CSSC
jointly appoint Robert Holzel as the Fifth Director.
9.1.2 The Company's Board of Directors (the "Board") will meet at
least quarterly and at such locations as the Board may from time
to time agree. The presence of at least one PRI Director and one
CSSC or SEC Director will be required to constitute a quorum for
the transaction of business. The Fifth Director must be present
within the meaning of the Company's bylaws or other governing
rules of procedure in order to vote, and the Fifth Director will
be invited to attend every meeting and will be allowed to vote
on all matters submitted to a vote at any meeting where the
Fifth Director is present.
9.1.3 The Chairman of the Board will be appointed by the vote of the
Board. If
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the Chairman so appointed is unable to attend any meeting of the
Board, then PRI will be entitled to appoint another Director to
act as Chairman in his or her place at such meeting.
9.1.4 All decisions of the Board will be by simple numerical majority
of all of the Directors in office and will require a numerical
majority of all of the Directors in office, except regarding
Fundamental Board Issues, as hereinafter defined, which will
require a four-fifths majority of all Directors. In the event
that a required majority cannot be achieved on any material
matter moved before the Board, and in the event the party moving
the matter continues to desire a decision from the Board, then
the party moving the matter will provide a notice of failure to
achieve the required majority to the Fifth Director who will
schedule at the first reasonable opportunity, and in no event
more than thirty (30) days after receiving such notice a meeting
of the Board at which all Directors will be required to attend
and at which the matter may be moved for a second vote in the
presence of all five Directors. In the event that the required
majority of Directors is not achieved regarding any Fundamental
Board Issue, either PRI, CSSC or SEC may by written notice to
the other shareholders declare that a deadlock (a "Board
Deadlock") exists and the procedure described in Section 9.5
below will be followed.
9.1.5 The Board will elect the General Manager or Representative
Director of the Company. PRI will have the right, at its sole
discretion and at all times, to appoint the Chief Financial
Officer, Statutory Auditor or other chief financial officer of
the Company, however denominated.
9.1.6 Subject to applicable law, the compensation of directors and
officers will be decided by the shareholders at a duly
constituted shareholders' meeting.
9.1.7 The following matters will constitute "Fundamental Board
Issues":
9.1.7.1 Transactions between the Company and a director, officer
or shareholder of the Company, or a person or entity
related to a director, officer or shareholder of the
Company which have not been disclosed to all
shareholders and previously approved by the Board. For
the purpose of this Section 9.1.7.1, a person or entity
will be deemed to be related to a director, officer or
shareholder of the Company if: (i) in the case of a
person, such person is related by kinship to the
shareholder, officer, or director within two removes or
degrees; (ii) in the case of an entity, the shareholder,
officer or director owns five percent (5%) or more of
the issued equity of the entity or if the shareholder,
officer or director of the
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Company is also an officer or director of such entity.
9.1.7.2 Adoption of, or change in, major activities or policies
with regard to the business of the Company, and the
adoption or amendment of the Business Plan and Budget for
the Company;
9.1.7.3 Creation, assumption or guarantee of indebtedness for
borrowed money, creation of any encumbrance (including
any fixed or floating charge, security interest or
consensual lien), issuance of debt securities or lending
of money;
9.1.7.4 Payment, directly or indirectly, of any cash or assets of
the Company to CSSC, PRI or SEC, or any person or entity
affiliated with any of them, except as authorized by
unanimous vote of the Board;
9.1.7.5 Termination of the appointment of the Accountant or
outside auditor;
9.1.7.6 Acquisition or purchase of, or subscription for, by the
Company of any shares, debentures, mortgages or
securities (or any interest therein) in any entity;
9.1.7.7 Appointment of any committee of the directors or
delegation of any of the powers of the directors to such
committee;
9.1.7.8 Entering into any license, distribution, dealership,
consultancy, volume purchase, requirements, supply or
similar agreement or arrangement with any person or
entity other than PRI that involves revenues, fees,
royalties or payments of any kind in excess of forty
thousand dollars (US$40,000) or the cash equivalent in
South Korean won; or,
9.1.7.9 Entering into any agreement with regard to any of the
foregoing.
9.2 Shareholder Meetings.
Meetings of the shareholders may be periodically convened and
conducted as required by the Board or the articles or bylaws of the
Company, except as follows. In no event will there be held any meeting
of the shareholders or any business transacted on behalf of the
shareholders at any purported shareholders meeting unless there is
present duly authorized representatives of or proxies for PRI, SEC and
CSSC. There will be no quorum at a shareholders meeting unless the
duly
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authorized representative of or proxies for PRI, CSSC and SEC are
present.
9.3 Fundamental Shareholder Issues.
The following matters will constitute "Fundamental Shareholder
Issues", which will require the unanimous consent of the shareholders
pursuant to a shareholders' meeting held in person or by other means
permitted by the articles and bylaws of the Company:
9.3.1 Authorization or issuance of share capital of the Company or
other securities except as provided by Section 2 above, or
authorization or issuance of warrants, options, convertible
securities or other agreements, instruments or commitments
pursuant to which the Company is or may become obligated to
issue any shares of its capital or other securities except as
provided in Section 2 above;
9.3.2 Dissolution, liquidation or winding up of the Company;
9.3.3 Merger or consolidation of the Company with or into another
company;
9.3.4 Amendment of the articles of incorporation;
9.3.5 Organization, acquisition or disposition of any subsidiary;
9.3.6 Sale, transfer, lease or other disposition of a part of the
property or assets of the Company or any subsidiary of the
Company (or any interest therein) with a value in excess of
twenty thousand dollars (US$20,000);
9.3.7 Alteration of any rights attaching to any shares or additional
shares of the Company;
9.3.8 Consolidation, sub-division, conversion or reclassification of
any of the Company's share capital or alteration of any of the
rights attaching thereto;
9.3.9 Entering into any partnership, joint venture or profit sharing
agreement with any person or entity;
9.3.10 Making of any tax election by the Company;
9.3.11 The distribution of profits, if any, pursuant to this
Agreement; or,
9.3.12 Entering into any agreement with regard to any of the
foregoing.
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9.4 Shareholder Deadlock.
9.4.1 In the event that PRI, CSSC and SEC fail to agree on any
Fundamental Shareholder Issue, either PRI, SEC, or CSSC may by
written notice to the other shareholders and to the Company
declare that a deadlock (a "Shareholders' Deadlock") exists.
Following the giving of any such notice, the parties and the
Company will follow the procedure set forth in Section 9.5 of
this Agreement.
9.5 Rights on Deadlock.
9.5.1 Upon (i) a declaration of a Shareholders' Deadlock in
accordance with Section 9.4 above, or (ii) a declaration of a
Board Deadlock in accordance with Section 9.1.4 above, the
following procedures will be followed. The shareholder
declaring the Deadlock will provide notice of such declaration
to the Fifth Director. At the earliest reasonable opportunity,
and in no event more than twenty (20) days after his or her
receipt of such notice, the Fifth Director will schedule a
meeting which must be attended in person by all Directors at a
commercially reasonable location within or without South Korea,
but in no event at the offices of CSSC, SEC, PRI or the
Company. At this meeting the Fifth Director, or a third party
appointed by the Fifth Director and approved by PRI, SEC, and
CSSC, will attempt to mediate a resolution to the Deadlock.
The mediation will follow any method or procedure chosen by the
Fifth Director or the appointed mediator except that the
mediation will terminate no more than seventy two (72) hours
after it commences and all costs associated with the mediation
will be divided and paid evenly by CSSC, PRI, and SEC. If the
mediation does not result in the resolution of the Deadlock,
then the Company will shut down and cease operations, liquidate
all of its assets, pay any debts or obligations, and distribute
any residual value to the shareholders on the basis of their
share holdings at the time of the distribution. The shut down,
liquidation, satisfaction of debts and obligations, and
distribution will be supervised by the Treasurer, Auditor or
other chief financial officer of the Company at the time of
Deadlock and will be carried on in a commercially reasonable
manner on a commercially reasonable schedule.
10. Management of Operations.
10.1 The day-to-day business of the Company will be managed by the
Representative Director of the Company. The Representative Director of
the Company will report and be accountable to the Board. The initial
Representative Director will be Suh, who will serve for a term of one
year from the Effective Date of this
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Agreement, or until he is removed or replaced. Thereafter, the
Representative Director will be designated by the unanimous consent of
the shareholders and will serve in accordance with resolutions adopted
by the Board and the shareholders.
10.2 In the event any person serving as Representative Director is unable
to perform his or her duties as a Representative Director because of
medical disability (as evidenced by a written opinion of a physician),
the business of the Company will be managed jointly for up to sixty
days by one PRI Director chosen by PRI and the CSSC Director. If an
incumbent Representative Director continues to be disabled after 60
days, the Board will appoint a new Representative Director by
unanimous consent and each shareholder or such shareholder's duly
authorized representative will vote its shares in favor of appointing
the Representative Director and take all other action necessary to
provide for such appointment.
10.3 As often as necessary to keep the Board and the shareholders
reasonably informed of material events, and in no event less than once
each calendar month, the Representative Director will provide to the
Directors and the shareholders a written report summarizing the
material facts arising from or relating to the Company's operational
performance since the last such written report. In addition to such
other information as the Representative Director may include at his
discretion such operational reports will include the following: (i)
the operational plans of the Company and any changes thereto; (ii) the
acquisition and allocation of operational resources, including human
resources, office space, equipment and other non-monetary resources;
(iii) the efforts of the Company to market and promote the products of
PRI; (iv) material matters relating to third party disputes and
litigation, government relations including all necessary permits and
approvals, and public relations and public image; and (v) all quotes
for the sale of PRI Products that have been made and remain
outstanding.
11. Creation and Amendment of the Business Plan.
11.1 The first act of the Representative Director of the Company will be to
cooperate and work together with PRI to develop promptly a business
plan for the Company, to be approved and agreed upon by all
shareholders ("Business Plan"). The Business Plan will include a
description of: the scope of work the parties expect to be undertaken
by the Company; staffing, organization and management requirements;
marketing plans; methods of operation of the Company, and; such other
subjects as the Representative Directors may choose to include or the
shareholders may require. The period covered by the initial Business
Plan will be three (3) years.
11.2 Within sixty (60) days of the end of each fiscal year, the
Representative Director will prepare a revised Business Plan to be
approved and agreed upon by all
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shareholders prior to the end of the next fiscal year. The revised
Business Plan will include additional plans necessary to extend the
plan for the next three years, and will include such other revisions
as the Representative Director may suggest and the shareholders may
agree upon.
11.3 The Business Plan may be revised at any time but only with unanimous
written consent of the shareholders. Unless he or she receives
unanimous written permission to the contrary, the Representative
Director will operate the Company by implementing the Business Plan.
12. Financial Management and Reporting.
12.1 The fiscal year of the Company will end on September 30 of each year.
12.2 In addition to financial records maintained according to the
requirements of applicable law, the Company will at all times keep
records and books of account in which complete and correct entries
will be made, in accordance with generally accepted accounting
principles and practices adopted from time to time by the Company and
utilized in the preparation of its annual audited financial
statements. The Company will afford to each shareholder and its
employees, counsel, accountants and other authorized representatives
free and full access, at all reasonable times, to all its books,
records and properties and to all its officers and other employees of
the Company having responsibility for financial or accounting matters
generally, for any reasonable purpose whatsoever. Each shareholder
will use all reasonable efforts to maintain the confidentiality of any
confidential and proprietary information so obtained by it that is not
otherwise available.
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12.3 The Company will prepare and submit to all shareholders at least
ninety days prior to the beginning of each fiscal year an annual
budget for the next fiscal year, including, on an annual and quarterly
basis, an operating plan, capital plan and staffing plan in the
format, and with such detail, as the shareholders may reasonably
request. These plans will be accepted as the budget for such fiscal
year when they have been approved by the shareholders (the "Budget").
------
The Budget will be reviewed by the Company no less frequently than
quarterly. All proposed changes to and material deviations from the
Budget will be submitted to the shareholders in advance of their
adoption by the Company and will only be adopted by the Company after
such changes or deviations are approved by all shareholders.
12.4 The financial statements of the Company will be audited as of the end
of each fiscal year by independent certified public accountants of
established international reputation agreed upon in writing by the
shareholders (the "Accountant"). The Company will pay the costs of
each such audit. All questions of accounting will be determined by the
Accountant based on generally accepted accounting principles, and the
determination of any such questions by the Accountant will be
conclusive.
12.5 Unless otherwise agreed to by the shareholders in writing, the Company
will furnish to each shareholder the following financial statements
and other information:
12.5.1 Within ten (10) days after the end of each month, an unaudited
financial report of the Company, which report will be prepared
in accordance with generally accepted accounting principles
consistently applied and which will include: (i) an income
statement for such month, together with a cumulative income
statement from the first day of the then-current fiscal quarter
and year; (ii) a comparison between the actual income
statements for such periods and the Budget for such periods,
with an explanation of any material differences between them,
if any; and, (iii) a balance sheet as of the last day of such
month.
12.5.2 Within sixty (60) days after the end of each fiscal year of the
Company, audited financial statements of the Company, which
will include an income statement for such fiscal year and a
balance sheet as of the last day thereof, and statements of
stockholders' equity and cash flow statements for such fiscal
year, each prepared in accordance with generally accepted
accounting principles consistently applied, which will be
accompanied by the unqualified audit opinion of the Accountant
thereon, prepared in accordance with generally accepted
auditing standards, and the
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Accountant's annual management letter. At such time, the
Company will also provide to the shareholders a certificate of
the Accountant certifying to shareholders that, based upon the
Accountant's examination of the affairs of the Company
performed in connection with the audit of such financial
statements in accordance with generally accepted auditing
standards, the Accountant is not aware of the occurrence or
existence during such fiscal year of any condition or event
which constitutes or would constitute, upon notice or lapse of
time or both, a default in the performance of any of the
Company's obligations under this Agreement or any other
agreement to which the Company is a party, or if they are aware
of such condition or event, specifying the nature thereof.
12.5.3 Promptly upon becoming available, any other financial or other
information available to management of the Company as any of
the shareholders will have reasonably requested on a timely
basis.
13. Distribution of Profits.
13.1 At the end of each fiscal year the Company will determine by generally
accepted accounting principles consistently applied the amount of
profit for such fiscal year. Unless otherwise required by South Korean
law, each year the Company will retain no more than twelve (12) months
and no less than six (6) months of operating working capital. All
other profits, as determined by generally accepted accounting
principles, will be either: (i) distributed to the shareholders based
upon their share holdings at the time of the distribution; or, (ii)
re-invested or retained by the Company. The decision to distribute,
re-invest, or retain profits will be made exclusively by the unanimous
vote of all shareholders.
14. Representations and Warranties.
14.1 PRI, CSSC and SEC each represent and warrant to the others that the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby: (i) do not, and
will not, conflict with or violate any provision of, and will not
constitute a default or breach under, any agreement to which PRI, SEC,
or CSSC is currently a party; (ii) do not, and will not, violate any
law, regulation, order, judgment or decree of any court or other
governmental agency to which PRI, SEC. or CSSC is subject; and, (iii)
do not and will not violate or infringe the proprietary rights of any
third party, including, without limitation, rights of confidentiality
and non-disclosure, copyrights, patents, trademarks, trade secrets, or
other proprietary rights.
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15. Confidentiality.
15.1 Unless otherwise agreed to in writing by the other shareholders or the
Company, or otherwise provided in this Agreement, neither PRI, CSSC,
nor SEC will disclose any Confidential Information to any third party,
or use any Confidential Information for any purpose other than
furthering the purposes of this Agreement and of the Company. PRI,
CSSC, and SEC may disclose Confidential Information to their own
employees, consultants, parent or subsidiary entities, contractors,
agents, or representatives, but only to the extent necessary to
further the purposes of the Company and this Agreement, and only after
taking all steps reasonably necessary to insure that Confidential
Information is not improperly disclosed, including, without
limitation, procuring, where appropriate, nondisclosure agreements
from parties to whom Confidential Information is disclosed.
16. Non-Solicitation and Non-Competition.
16.1 Until the termination of this Agreement and for one year thereafter no
shareholder will induce any employee, contractor, consultant, or agent
of the Company or of the other shareholder to leave the employ of the
Company or the other shareholder for any reason.
16.2 During the term of this Agreement, no shareholder will directly or
indirectly engage in a business in South Korea or enter into any
business relationship with any other entity or person in South Korea,
which will or could compete with or which will or could have a
materially adverse effect on the business of the Company.
16.3 Unless this Agreement is terminated by the material breach of PRI, for
a period of four years after termination of this agreement, CSSC and
SEC agree, jointly and severally, that they will neither directly nor
indirectly engage in a business in South Korea or enter into any
business relationship with any other entity or person in South Korea,
which will or could compete with or which will or could have a
materially adverse effect on the business of PRI.
17. Term and Termination.
17.1 The Agreement will become effective as of the Effective Date and
remain in effect until it expires or is terminated pursuant to its
terms.
17.2 This Agreement will terminate immediately upon: (i) the completion of
the cessation of the business activity of the Company, (ii) the sale
or other disposition
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of all of the Company's assets, and the distribution, if any, of any
residual value in the Company to the shareholders, or (iii) the
closing of the sale by a shareholder of all of his or its shares to
any other shareholder pursuant to any provisions of this Agreement.
17.3 All shareholders will have the right to cause the Company to terminate
its business and to sell or otherwise dispose of its assets following
the procedure set out in Section 17.4 below, in the event of the
following:
17.3.1 upon written notice to the other shareholders if: (i) the
Strategic Alliance Agreement entered into contemporaneously
herewith is terminated, expired, or becomes ineffective prior
to the termination, expiration, or ineffectiveness of this
Agreement; or (ii) any other shareholder has breached the terms
of this Agreement or any other agreement contemplated herein,
including, without limitation, those Agreements attached as
Exhibits hereto, and has failed to cure such breach thirty (30)
days after receiving notice of such breach from another
shareholder or other party to the agreement under which the
breach arises;
17.3.2 upon ten (10) days written notice to the other shareholders if
the Company has for two consecutive months failed to pay its
obligations when due or if a receiver has been appointed over
the whole or any part of the assets of any other shareholder or
of the Company, or if any petition is filed by or against any
other shareholder initiating any bankruptcy or reorganization
proceeding of such shareholder or the Company, if such
proceeding will not have been dismissed or stayed within sixty
(60) days after such filing, or if any order is made or
resolution is passed for the dissolution of such shareholder
(unless such order or resolution is a part of a scheme of
recapitalization, merger or consolidation), or if steps are
taken to dissolve another shareholder, subject in each such
case to the right of the affected shareholder to obtain a stay
of such proceedings; or,
17.3.3 upon thirty (30) days written notice if the shareholders fail
to approve, confirm or amend any Budget within sixty (60) days
following the commencement of the fiscal period to which such
Budget relates.
17.4 The party or parties receiving notice pursuant to Section 17.3 (the
"Selling Shareholders") hereby grant to the party which gave such
notice (the "Buying Shareholder") an irrevocable option to buy the
Selling Shareholders' shares in the Company upon the Selling
Shareholders' receipt of a notice of exercising the option, which
shall be given within thirty (30) days of the written notice provided
under Section 17.3.1(ii) or 17.3.2. The purchase price for the Selling
Shareholders' shares will be determined following the procedures
described in
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Section 8.5 above. Immediately upon the Buying Shareholder's
acquisition of the Selling Shareholder's shares, the Buying
Shareholder will vote all of its shares in support of a resolution
requiring the termination of the Company's business and the
dissolution of the Company in a commercially reasonable manner and
the Treasurer, Auditor or other chief financial officer will dissolve
the Company pursuant to such vote.
17.5 Upon the expiration or termination of this Agreement each shareholder
and the Company will promptly return the providing shareholder all
copies of all Confidential Information previously provided to him or
it by such shareholder. The Confidential Information of the Company
will be retained in the files of Company and the shareholders, but
only to the extent such Company Confidential Information does not
contain or embody Confidential Information previously provided by a
shareholder.
18. General Provisions.
18.1 Entire Agreement; Language.
This Agreement and the Exhibits attached hereto and agreements
referred to herein represent the entire agreement among the parties
hereto with respect to the subject matter of this Agreement, and
supersedes all prior understandings or agreements among them and
relating thereto. The official language of this Agreement is the
American usage of English. All reports, documents, and information
required to be delivered by the Company or any party to this
Agreement will be delivered in English.
18.2 Amendment.
This Agreement will not be amended or modified except by a written
instrument executed by all shareholders.
18.3 Governing Law and Venue.
Except as otherwise required under the mandatory provisions of South
Korean laws, the interpretation and enforcement of this Agreement
will be governed by and construed under the laws of South Korea
without regard to its principles of conflicts of laws. Any dispute
arising from or relating to the interpretation and enforcement of
this Agreement will be resolved through binding arbitration before
the London Court of International Arbitration ("LCIA") in London,
England. The arbitration will follow the Arbitration Rules of the
LCIA applicable at the time of the dispute except that the arbitrator
or arbitrators chosen under the LCIA rules will be familiar with the
conventions and practices of the semiconductor
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manufacturing industry. PRI, SEC, and CSSC stipulate and consent to
the jurisdiction of the LCIA over them and to the convenience and
fairness of proceeding before the LCIA.
18.4 Relationship of the Parties.
Nothing contained in this Agreement will be construed to constitute a
shareholder as a partner, agent, or representative of any other
shareholder. Except as otherwise expressly provided herein, no
shareholder will have any authority to act for or assume any
obligation or responsibility on behalf of the Company or any other
shareholder. Except as expressly provided herein, the liabilities of
the shareholders under this Agreement will be several and not joint,
and each shareholder will be responsible only for its obligations as
set forth herein, including all taxes, fees, costs, and charges
associated therewith.
18.5 Notices.
All notices permitted or required by this Agreement will be deemed to
be properly given if delivered personally, or sent by overnight
international courier of established reputation (such as UPS, DHL, or
FedEx), to the party to be notified at the address given at the outset
of this Agreement, marked "Attention: President" or such other address
as may be indicated in writing from time to time by the party to be
notified.
18.6 Assignment.
The rights and obligations of the parties to this Agreement are
personal and will not be assigned or delegated without the prior
written consent of the other party hereto. This Agreement will be
binding upon and inure to the benefit of, the parties and their
successors and approved assigns.
18.7 Equitable Relief.
The parties hereto agree that it would be impossible to measure in
money the damage to the Company and the shareholders in the event of a
breach of any of the terms and provisions of this Agreement, and the
parties hereto agree that in the event of any such breach, the Company
and the shareholders will not have an adequate remedy at law and will
be irreparably damaged if such provisions are not specifically
enforced. Each of the terms and provisions of this Agreement will be
enforceable in a court of equity by a decree of specific performance,
and each of the parties hereto hereby consents that preliminary and
final injunctive relief may be provided for and granted in connection
therewith. Specific performance and equitable relief will be
commutative
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remedies that may be provided in addition to any other remedies or
forms of relief allowed by law or the terms of this Agreement.
18.8 Non-Waiver and Severability.
No failure or delay on the part of the Company or the shareholders or
any of them in exercising any right, power or privilege hereunder, and
no course of dealing between the Company and the shareholders or any
of them will operate as a waiver thereof, nor will any single or
partial exercise of any right, power or privilege hereunder preclude
the simultaneous or later exercise of any other right, power or
privilege. In the event that any provision of this Agreement will be
held invalid or unenforceable, the remaining provisions of this
Agreement will remain in full force and effect and be construed to
further the purposes of the Company and this Agreement.
18.9 Further Assurances and Cooperation.
PRI, CSSC and SEC each agree to execute and deliver such further
instruments, certificates, documents, and to provide such information
and cooperation as may be necessary from time to time to provide or
complete the performances required by this Agreement.
18.10 Counterparts.
This Agreement may be executed in counterparts, each of which will be
deemed to be an original and all of which when taken together will be
deemed to be one Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written
PRI Automation, Inc. Shinsung Eng. Co., Ltd.
By: (sign) /s/ Mitchell G. Tyson By: (sign) /s/ W.K. Lee
---------------------- ------------------------
(print) Mitchell G. Tyson (print) W.K. Lee
--------------------- -----------------------
Its: President Its: President
---------------------------- ------------------------------
Chung Song System Co., Ltd.
By: (sign) Sung K. Suh
----------------------
21
<PAGE>
(print) Sung K. Suh
--------------------
Its: President
---------------------------
22
<PAGE>
EXHIBIT A
Schedule of Defined Terms
"Accountant" will have the meaning ascribed to it in Section 12.4.
"Agreement" will mean this Joint Venture Agreement, including all schedules,
exhibits and addenda thereto.
"Board" will have the meaning ascribed to it in Section 9.1.2.
"Board Deadlock" will have the meaning ascribed to it in Section 9.1.4.
"Budget" will have the meaning ascribed to it in Section 12.3.
"Business Plan" will have the meaning ascribed to it in Section 11.1.
"Company" will mean the South Korean corporation formed by PRI pursuant to
Section 2.1 of this Agreement.
"Confidential Information" will mean the terms of this Agreement and all
information provided or disclosed to PRI or Suh by the Company, or regarding the
Company which is marked "CONFIDENTIAL", "TRADE SECRET" or "PROPRIETARY." In
addition, Confidential Information will include all information provided by PRI
to Suh, or by Suh to PRI that is with regard to the confidential business of PRI
or Suh and is marked "CONFIDENTIAL," "TRADE SECRET" or "PROPRIETARY."
Confidential Information will not include: (i) any information or material that
is retrieved through the public domain and was in or enters the public domain
through no fault of the retrieving party; (ii) any information independently and
properly developed by the party possessing such information; or, (iii) is
required to be disclosed by applicable law, regulation, or governmental or
judicial order, although a party disclosing information that would otherwise be
Confidential Information but for applicable law, regulation or governmental or
judicial notice will give notice of the disclosure to the other party in advance
of making such disclosure.
"CSSC" will have the meaning ascribed to it in the opening sentence of this
Agreement.
"CSSC Directors" will have the meaning ascribed to it in Section 9.1.1.
"Fifth Director" will have the meaning ascribed to it in Section 9.1.
"Fundamental Board Issues" will have the meaning ascribed to it in Section
9.1.7.
23
<PAGE>
"Fundamental Shareholder Issues" will have the meaning ascribed to it in
Section 9.3.
"PRI" will have the meaning ascribed to it as it appears in context on the first
page of this Agreement.
"PRI Directors" will have the meaning ascribed to it in Section 9.1.1.
"SEC" will have the meaning ascribed to it as it appears in context on the first
page of this Agreement.
"Strategic Alliance Agreement" will refer to the form of agreement provided in
Exhibit D, attached hereto.
"Suh" will have the meaning ascribed to it in Recital C of this Agreement.
"Territory" will mean the following geographic region: South Korea.
"Triggering Events" will have the meaning ascribed to it in Section 8.1 &
8.2.
"Triggering Shareholder" will have the meaning ascribed to it in Section 8.3.
24
<PAGE>
EXHIBIT C
Purchase and Sale Agreement
[See attached]
25
<PAGE>
PURCHASE AND SALE AGREEMENT
In consideration of the parties performance of the Joint Venture Agreement
entered into by and between the same parties as of ___________________, l997,
which performance is an express condition to the continued effectiveness of this
Purchase and Sale Agreement, _______________, a _____________ corporation
("Seller"), has SOLD, ASSIGNED and TRANSFERRED and by these presents does SEAL,
ASSIGN, TRANSFER and DELIVER to Chung Song Systems Co., Ltd., a South Korean
corporation, its successors and assigns ("Buyer"), effective as of ___________,
1997, all Seller's right, title and interest in and to each and all of the
assets and properties described below (the "Assets"):
Acquisition Description Value (KW)
4/09/96 Telephone 1,960,000
4/10/96 Hand Phone - Samsung Anycall 760,000
4/10/96 HP Laser Printer 1,900,000
4/10/96 Desk Top - Samsung 3,790,000
4/10/96 Desk Top - Samsung 3,790,000
4/10/96 Fax Machine - Shindoricho 2,300,000
4/16/96 Refrigerator 434,545
4/16/96 Hand Phone - Motorola 540,000
4/16/96 Copy Machine - Xerox 11,300,000
5/09/96 Note Book - Compaq LTE 5200 6,814,000
6/01/96 Monitor & Keyboard 630,000
6/01/96 Cordless Phone 560,000
7/01/96 Samsung Note Book 3,150,000
8/20/96 Book Binder 440,000
11/01/96 Samsung Laser Printer 650,000
4/08/96 Samsung Note Book 3,150,000
5/15/96 Handphone (Anycall) 2 sets 1,272,726
6/11/96 Samsung Note P.C. 3,100,000
6/11/96 Samsung Note P.C. 3,100,000
6/26/96 Television - CT-2955 909,090
6/26/96 VTR-SV-S200 472,727
8/21/97 Desk Top 2,460,000
8/21/97 HP Scanner 720,000
Furniture & Fixtures 54,203,088
4/4/96 Automobile 29,618,120
<PAGE>
Seller hereby authorizes Buyer to take any appropriate action in connection
with any of the above described Assets to acquire, perfect, and defend its
rights therein, but at its own expense.
And Seller, subject to the terms of the Agreement, does hereby warrant,
covenant and agree that it:
(a) has good and marketable title to the Assets;
(b) will warrant and defend the sale of the Assets against all and
every person or persons whomsoever claiming to or making claim against any
or all of the same; and
(c) will take all steps reasonably necessary to put Buyer, its
successors or assigns, in actual possession and operating control of said
assets and business, except that any such steps requested by Buyer will be
at Buyer's expense.
IN WITNESS WHEREOF, Buyer and Seller have caused this Purchase and Sale
Agreement to be signed by their duly authorized representatives, as set forth
below.
BUYER SELLER
By: By:
---------------------------- ----------------------------
Name: Name:
-------------------------- --------------------------
Title: Title:
------------------------- -------------------------
Date: Date:
-------------------------- --------------------------
<PAGE>
EXHIBIT 10.27
-----------------------------------
STOCK PURCHASE AGREEMENT
-----------------------------------
Among
PRI AUTOMATION, INC.,
PRI SWITZERLAND, INC.
and
THE SHAREHOLDERS OF CHIPTRONIX HANDLING SYSTEMS GMBH
AND OF CHIPTRONIX GMBH
Dated as of May 19, 1998
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE I PURCHASE AND SALE................................................................... 1
Section 1.1 Purchase and Sale of Company Shares and Related Company
Shares.............................................................................. 1
Section 1.2 Purchase Consideration................................................ 1
Section 1.3 Closing............................................................... 2
Section 1.4 Accounting Treatment.................................................. 4
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLERS...................................... 4
Section 2.1 Corporate Status...................................................... 4
Section 2.2 Corporate Documents................................................... 5
Section 2.3 Capital Structure..................................................... 5
Section 2.4 Investments; Related Companies........................................ 5
Section 2.5 Financial Statements.................................................. 6
Section 2.6 Compliance with Applicable Laws....................................... 7
Section 2.7 Litigation............................................................ 8
Section 2.8 Properties............................................................ 8
Section 2.9 Contracts............................................................. 8
Section 2.10 Taxes................................................................. 10
Section 2.11 Benefit Plans......................................................... 11
Section 2.12 Absence of Certain Changes or Events.................................. 11
Section 2.13 Officers, Directors and Key Employees................................. 13
Section 2.14 Potential Conflicts of Interest....................................... 14
Section 2.15 Finder's Fees......................................................... 14
Section 2.16 Bank Accounts......................................................... 14
Section 2.17 Environmental Matters................................................. 14
Section 2.18 Insurance............................................................. 15
Section 2.19 Employee Relations.................................................... 15
Section 2.20 Proprietary Rights.................................................... 15
Section 2.21 Certain Loans......................................................... 16
Section 2.22 Customers and Vendors................................................. 16
Section 2.23 Business Activity Restrictions........................................ 16
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH SELLER..................................... 16
Section 3.1 Authority............................................................. 16
Section 3.2 Ownership............................................................. 17
Section 3.3 Further Assurances.................................................... 17
Section 3.4 Investment in PRI Common.............................................. 17
Section 3.5 Tax Matters........................................................... 18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND THE
PURCHASER................................................................................. 19
Section 4.1 Corporate Status........................................................ 19
Section 4.2 Authority............................................................... 19
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Section 4.3 Investment Purpose.................................................... 19
Section 4.4 Capitalization........................................................ 19
ARTICLE V INDEMNIFICATION..................................................................... 19
Section 5.1 Agreement to Indemnify................................................ 19
Section 5.2 Survival of Representations and Warranties............................ 20
Section 5.3 Certain Limitations................................................... 20
Section 5.4 Specific Representations.............................................. 20
ARTICLE VI GENERAL PROVISIONS................................................................. 21
Section 6.1 Expenses.............................................................. 21
Section 6.2 Notices............................................................... 21
Section 6.3 Public Announcements.................................................. 22
Section 6.4 Headings.............................................................. 22
Section 6.5 Severability.......................................................... 22
Section 6.6 Entire Agreement...................................................... 23
Section 6.7 Assignment............................................................ 23
Section 6.8 No Third Party Beneficiaries.......................................... 23
Section 6.9 Amendment............................................................. 23
Section 6.10 Governing Law......................................................... 23
Section 6.11 Counterparts.......................................................... 23
Section 6.12 Arbitration........................................................... 23
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT, dated as of May 19, 1998, among PRI Automation,
Inc., a Massachusetts corporation ("Parent"), PRI Switzerland, Inc., a
Massachusetts corporation (the "Purchaser"), and each of the persons listed on
---------
Schedule A hereto, each of whom is referred to as a "Seller."
- ---------- ------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Sellers are all the quota holders of Chiptronix Handling
Systems GmbH, a Swiss corporation (the "Company"); and
-------
WHEREAS, Kerstin Czenkusch-Hans, being one of the Sellers, is the holder of
all the share capital of Chiptronix GmbH, a German corporation (the "Related
-------
Company"); and
- -------
WHEREAS, all the issued and outstanding capital stock of the Purchaser is
owned by PRI Holdings, Inc. and PRI International Holdings, Inc., each of which
is a wholly-owned subsidiary of Parent;
WHEREAS, each Seller wishes to sell to the Purchaser, and the Purchaser
wishes to purchase from each Seller, the quotas of the Company set forth
opposite his or her name on Schedule A (collectively, the "Company Shares"),
---------- --------------
upon the terms and subject to the conditions set forth herein; and
WHEREAS, Mrs. Czenkusch-Hans wishes to sell to the Purchaser, and the
Purchaser wishes to purchase from her, all the share capital of the Related
Company as set forth opposite her name on Schedule A (collectively, the "Related
---------- -------
Company Shares"), upon the terms and subject to the conditions set forth herein.
- --------------
NOW, THEREFORE, in consideration of the promises and the mutual agreements
and covenants hereinafter set forth, the Purchaser and each of the Sellers
hereby agree as follows:
ARTICLE I
PURCHASE AND SALE
Section 1.1 Purchase and Sale of Company Shares and Related Company Shares.
--------------------------------------------------------------
Upon the terms and subject to the conditions contained in this Agreement, at the
Closing, each Seller shall sell to the Purchaser, and the Purchaser shall
purchase from each Seller, the Company Shares and the Related Company Shares, if
any, set forth opposite each Seller's name on Schedule A.
----------
Section 1.2 Purchase Consideration. The consideration for the purchase of
----------------------
the Company Shares and the Related Company Shares shall be payable in the form
of shares of the
<PAGE>
common stock, $.01 par value, of Parent ("PRI Common"), and shall consist of One
----------
Hundred Five Thousand (105,000) shares of PRI Common (the "PRI Shares"). The PRI
----------
Shares shall be divided among the Sellers in proportion to the Company Shares
held by them, as set forth on Schedule A.
----------
Section 1.3 Closing.
-------
(a) Subject to the terms and conditions of this Agreement, the sale and
purchase of the Company Shares and Related Company Shares contemplated by this
Agreement shall take place at a closing (the "Closing") to be held at the
-------
offices of Foley, Hoag & Eliot LLP, Boston, Massachusetts at 10:00 a.m. Boston
time on May 20, 1998, or at such other place or at such other time or on such
other date as the Sellers and the Purchaser may mutually agree upon in writing
(the date on which the Closing takes place being the "Closing Date").
------------
(b) At the Closing:
(i) the Sellers shall deliver or cause to be delivered to the
Purchaser duly executed and notarized deeds evidencing (A) the
agreement of the Sellers to sell and transfer to the Purchaser the
Company Shares, and (B) the approval of the quota holders of the
Company of the transactions contemplated hereby and the amendment
of the articles of incorporation of the Company to reflect such
transactions, each in a form suitable to be published and recorded
in the commercial register of the Kanton of St. Gallen
(collectively, the "Company Transfer Documents"), substantially as
--------------------------
set forth in Exhibit A and Exhibit A-1 hereto, respectively;
--------- -----------
(ii) the Sellers shall deliver or cause to be delivered to the
Purchaser a duly executed and notarized Assignment of Shares
evidencing the transfer and assignment to the Purchaser of the
Related Company Shares (the "Related Company Transfer Document"),
---------------------------------
in substantially the form of Exhibit B hereto;
---------
(iii) Parent shall execute and deliver to the Sellers a Registration
Rights Agreement relating to the PRI Shares in the form attached
hereto as Exhibit C (the "Registration Rights Agreement")
--------- -----------------------------
(iv) each of the Sellers shall execute and deliver to the Purchaser a
counterpart of the Registration Rights Agreement;
(v) each of the Sellers shall execute and deliver to the Purchaser an
Escrow Agreement in the form attached hereto as Exhibit D (the
---------
"Escrow Agreement")
----------------
2
<PAGE>
(vi) each of the Purchaser and the Escrow Agent named therein shall
execute and deliver to each Seller a counterpart of the Escrow
Agreement;
(vii) the Purchaser shall deliver to the Sellers evidence that all
necessary corporate action has been taken by Parent to cause the
issuance, as of the Closing Date or as soon as practicable
thereafter, of nonqualified stock options to purchase an aggregate
of 38,200 shares of PRI Common to those employees of the Company
listed on Schedule B hereto, at an exercise price equal to the
----------
last sale price of the PRI Common as reported by the Nasdaq Stock
Market on the date of grant, which options shall be consistent in
form and substance with nonqualified stock options granted by
Purchaser to its employees having comparable responsibilities,
except that such options shall have a term of not less than ten
years and one day;
(viii) the Sellers shall deliver to Purchaser the legal opinion of Jorg
Schoch as to the matters set forth in Exhibit E hereto;
---------
(ix) Parent's independent public accountants, Coopers & Lybrand LLP
(the "Accountants") shall deliver to Parent a letter concurring
-----------
with the conclusions of managements of Parent and the Company as
to the appropriateness of pooling of interests accounting for the
transactions contemplated hereby under Accounting Principles Board
Opinion No. 16;
(x) each Seller shall deliver to Parent an agreement in the form of
Exhibit F hereto (the "Affiliate Lock-Up Agreement")
--------- ---------------------------
(xi) the Company and Ekkehard Hans shall enter into an Amendment to
Employment Contract for Managing Director (the "Employment
Agreement") in the form of Exhibit H, hereto;
---------
(xii) Ekkehard Hans shall deliver to the Company his non-interest
bearing promissory note in the form of Exhibit H hereto, payable
---------
on or before December 31, 1998 evidencing the Hans Loan;
(xiii) the Purchaser shall deliver to each Seller a stock certificate
evidencing 90% of the number of shares of PRI Common set forth
opposite such Seller's name on Schedule A hereto (rounded to the
----------
nearest whole number of shares); and
3
<PAGE>
(xiv) the Purchaser shall deliver to the Escrow Agent stock
certificates representing the balance of the PRI Shares, to
be held and disposed of pursuant to the Escrow Agreement.
(c) Each Seller hereby appoints Ekkehard Hans, with full power of
substitution, the representative and attorney-in-fact of such Seller (the
"Sellers' Representative"), with full power and authority in the name of and for
-----------------------
and on behalf of the undersigned to:
(i) issue such instructions to the Escrow Agent with respect to
the disposition of the PRI Shares held in escrow pursuant
to the Escrow Agreement as the Sellers' Representative
shall determine to be appropriate; and
(ii) to take such other actions in furtherance of the
transactions contemplated hereby as the Sellers'
Representative shall determine in his sole discretion to be
appropriate or advisable.
This power of attorney, and the authority confirmed hereby, being coupled
with an interest, are irrevocable and shall not be terminable by any act or deed
of the undersigned, by the death or incapacity of the undersigned, by operation
of law or otherwise. Notwithstanding the foregoing, this power of attorney shall
terminate in the event that the Closing has not taken place by June 30, 1998.
Section 1.4 Accounting Treatment. The parties intend that the acquisition
--------------------
by Purchaser of the Company Shares and the Related Company Shares shall be
treated as a pooling of interests for accounting purposes. No party to this
Agreement shall knowingly take any action, directly or indirectly, that would
cause the acquisition by Purchaser of the Company Shares and the Related Company
Shares to fail to qualify as a pooling of interests, including taking any action
that would alter the equity interests of the Company or the Related Company in a
way that would prohibit pooling of interests treatment for the acquisition.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS
Except as set forth in the disclosure schedule dated as of the date of this
Agreement delivered to Purchaser by the Sellers (the "Disclosure Schedule"), the
-------------------
Sellers, jointly and severally, represent and warrant to Purchaser and Parent as
follows:
Section 2.1 Corporate Status. The Company is a corporation duly organized,
----------------
validly existing and in good standing under the laws of Switzerland, with all
requisite corporate power to own, lease and operate its properties and to carry
on its business as now being conducted. The Company is duly qualified to do
business as a foreign corporation, and is in good standing, in each
4
<PAGE>
other jurisdiction in which it owns or leases property or conducts business,
except where the failure to be so qualified does not have any effect that is, or
is reasonably likely to be, materially adverse to its results of operations or
financial condition (a "Company Material Adverse Effect").
-------------------------------
Section 2.2 Corporate Documents. The Company has delivered to Purchaser
-------------------
true and complete copies of its articles of incorporation, as amended to date,
and its statutes, as amended to date (collectively, the "Charter Documents").
-----------------
The Charter Documents are in full force and effect and no further amendment or
restatement thereof has been adopted or proposed. The Company is not in
violation of any provision of the Charter Documents. The minute books and
owners' book of the Company, which have heretofore been made available to
Purchaser, are true and complete and are the only minute books and owners' book
of the Company. Ekkehard D. Hans is the sole Managing Director and officer of
the Company.
Section 2.3 Capital Structure. The authorized share capital of the Company
-----------------
consists of quotas in the aggregate amount of SFR 20,000, which are held by the
Sellers in the respective amounts set forth opposite their names on Schedule A.
----------
No share capital of the Company is held as treasury stock. The quotas of the
Company as of the date hereof are duly authorized, validly issued, fully paid
and nonassessable and not subject to preemptive rights created by statute, the
Charter Documents or any agreement to which the Company is a party or is bound.
The Company has not issued, nor is the Company or any Seller a party to or bound
by any option, warrant, call, right or agreement, obligating the Company to
issue, deliver or sell quotas or shares of capital stock of the Company,
including any agreement containing provisions with respect to preemptive rights,
rights of first refusal, purchase rights, "tag-along" or "come-along"
arrangements, or similar rights; any voting trust, proxy or other agreement or
understanding with respect to the voting of quotas or shares of capital stock of
the Company; and any other agreement restricting the transfer of, or affecting
rights with respect to, quotas or shares of the capital stock of the Company.
Section 2.4 Investments; Related Companies.
------------------------------
(a) The Company does not directly or indirectly own, or have the
right to acquire, any equity interest or investment in the equity capital of any
person or entity. The Company has no obligation to acquire any class of
securities (including debt securities) issued by any person or entity. The
Company has not owned or controlled any subsidiary corporation or any stock or
other interest in any person or entity and is not a party to, and has not been a
party to, or bound by any partnership, joint venture, voluntary association,
cooperative or business trust agreement or arrangement.
(b) The Related Company is a GmbH company organized under the laws
of Germany. The authorized share capital of the Related Company consists of
50,000 Deutschmarks, which is held by Mrs. Czenkusch-Hans. No share capital of
the Related Company is held as treasury stock. The share capital of the Related
Company as of the date hereof is duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights
5
<PAGE>
created by statute, the organizational documents of the Related Company or any
agreement to which the Related Company is a party or is bound. The Related
Company has not issued, nor is the Related Company or any Seller a party to or
bound by any option, warrant, call, right or agreement, obligating the Related
Company to issue, deliver or sell quotas or shares of capital stock of the
Related Company, including any agreement containing provisions with respect to
preemptive rights, rights of first refusal, purchase rights, "tag-along" or
"come-along" arrangements, or similar rights; any voting trust, proxy or other
agreement or understanding with respect to the voting of quotas or shares of
capital stock of the Related Company; and any other agreement restricting the
transfer of, or affecting rights with respect to, quotas or shares of the
capital stock of the Related Company. The Company has delivered to the Purchaser
true and complete copies of the organizational documents of the Related Company,
as amended to date (the "Related Party Charter Documents"). Mrs. Czenkusch-Hans,
-------------------------------
as the sole shareholder of the Related Company, has authorized the dissolution
of the Related Company pursuant to German law and has appointed Ekkehard Hans as
the liquidator of the Related Company. Notice of such actions has been duly
recorded in the commercial register at Kempten/Allgau and was published three
times in the Federal Gazette as required by German law on or before February 4,
1998. True and complete copies of such notices and publications have been
provided to the Purchaser.
(c) The Related Company has no employees or operations (other than
the conduct, by Ekkehard Hans as liquidator, of the statutory liquidation of the
Related Company) nor does it have any material assets or any material
liabilities or obligations, whether absolute, accrued, contingent or otherwise,
of any nature other than as set forth in Section 2.4(c) of the Disclosure
----------
Schedule. The Company has not assumed (expressly, by operation of law or
- --------
otherwise), nor does the Company have any liability for, any obligations or
liabilities of the Related Company, or obligations or liabilities arising out of
the activities of the Related Company.
(d) The Related Company has not, since its inception, declared or
paid any dividends or redeemed or made any distribution in respect of its
capital stock nor has it made any payment or distribution to any Seller, other
than compensation, reasonable in amount, for services actually provided by such
Seller as to the Related Company and reimbursement of actual out-of-pocket
expenses paid by such Seller for the benefit of the Related Company.
Section 2.5 Financial Statements.
--------------------
(a) The balance sheet of the Company at December 31, 1997 and the
related statement of income for the year then ended, together with the review
report thereon of Interrevision AG, the Company's independent accountants and
the balance sheet as of April 28, 1998 (the "Balance Sheet") and related income
-------------
statement of the Company for the four months then ended, all of which are
included in Section 2.5 of the Disclosure Schedule (collectively, the "Financial
------------------- ---------
Statements"), comply with the Swiss Company Law and the articles of
- ----------
incorporation of the Company, have been prepared in accordance with
internationally accepted accounting standards and fairly present in all material
respects the financial condition and results of operation of the Company as of
the dates and for the periods specified.
6
<PAGE>
(b) All accounts receivable reflected on the Balance Sheet and the
Company's books and records as of the date hereof represent sales actually made
in the ordinary course of business and in a manner consistent with the Company's
regular credit practices. The reserve for doubtful accounts reflected on the
Balance Sheet has been established based upon and consistent with past practice
and is adequate. All amounts reflected on the Balance Sheet as "Accounts
Receivable Clients" are collectible in full in accordance with the Company's
normal credit terms and, in any event, by September 30, 1998.
(c) The inventory of the Company reflected on the Balance Sheet
consists of merchandise and spare parts held for sale that are in new condition,
are included in the Company's current price list and are saleable in the
ordinary course of the Company's business. The inventory reserve reflected on
the Balance Sheet has been established based upon and consistent with past
practice and is adequate. Other than equipment held by customers for evaluation
purposes (reflected as "Goods for Sale Outside" in the Financial Statements),
all the Company's inventory is held at its premises at Grenzstrasse 24, St.
Margrethen, Switzerland. No inventory is held on consignment by or for the
Company.
(d) The loan receivable by the Company from Ekkehard Hans in the
amount of $76,698 (the "Hans Loan"), represents the valid, enforceable
obligation of Mr. Hans, and is collectible in full in accordance with its terms,
and, in any event, by September 30, 1998.
(e) The Company has no liabilities or obligations of any nature,
whether absolute, accrued, contingent or otherwise, other than those disclosed
or reflected on the Balance Sheet or disclosed in accordance with this Agreement
(including any Schedule hereto), those incurred since April 28, 1998 in the
ordinary course of the Company's business consistent with past practice, and
contingent liabilities or obligations that are not material, individually or in
the aggregate.
(f) The Company does not have any outstanding indebtedness for
borrowed money (which, for purposes of this paragraph, shall not be deemed to
include accounts payable arising out of the purchase of goods and services in
the ordinary course of the Company's business), other than as reflected on the
Balance Sheet.
Section 2.6 Compliance with Applicable Laws. The Company holds all permits,
-------------------------------
licenses, variances, certificates of occupancy, exemptions, orders, approvals
and authorizations of all governmental authorities that are necessary for the
operation of its business (the "Permits"). The Company is in compliance with the
-------
terms of the Permits, except where any such failure so to comply, individually
or in the aggregate with any other such failures, would not have a Company
Material Adverse Effect. The business of the Company is not being conducted in
violation of or conflict with any law or governmental order, except such
violations or conflicts as do not and will not, individually or in the
aggregate, have a Company Material Adverse Effect. As of the date of this
Agreement, no investigation or review by any governmental authority with respect
to the
7
<PAGE>
Company is pending or, to the knowledge of the Company or any Seller,
threatened, nor has any governmental authority indicated an intention to conduct
the same.
Section 2.7 Litigation. There is no claim, dispute, action, suit, appeal,
----------
legal, administrative or arbitral proceeding, or investigation, at law or in
equity, pending against the Company, or involving any of its assets or
properties, before any court, agency, authority, arbitration panel or other
tribunal, and, to the knowledge of the Company and each Seller, none has been
threatened. The Company is not subject to any subpoena, warrant, order, writ,
injunction or decree of any court, agency, authority, arbitration panel or other
tribunal, nor is it in default with respect to any such subpoena, warrant,
order, writ, injunction or decree. No judgment has been entered by, and no
claim, dispute, action, suit, appeal, legal, administrative or arbitral
proceeding, or investigation, at law or in equity, is pending or, to the
knowledge of the Company or any Seller, threatened, that materially and
adversely affects, or could materially and adversely affect, the ability of the
Company to perform under this Agreement or that seeks to enjoin or prohibit any
of the transactions contemplated by this Agreement.
Section 2.8 Properties.
----------
(a) Owned Properties. The Company does not own and has never owned
any real property (other than leasehold interests referred to in paragraph (b)
below).
(b) Leased Properties. The Company has delivered to Purchaser true
and complete copies of all leases, subleases, licenses, revocable use permits
and other agreements (collectively, the "Real Property Leases") under which the
--------------------
Company uses or occupies any real property (the land and improvements covered by
the Real Property Leases being herein called the "Leased Real Property"). Each
Real Property Lease is valid, binding and in full force and effect, no written
notice of default or termination thereunder is outstanding with respect to any
Real Property Lease, all rent and other material sums due and payable by the
Company under each Real Property Lease are current, neither the Company nor, to
the knowledge of the Company, the lessor, is in default in any material respect
in its obligations under any Real Property Lease, and no event has occurred nor
condition exists which, with the giving of notice or the lapse of time or both,
would constitute a material default under any Real Property Lease.
(c) Personal Property. The Company has good and marketable title
to, or holds under valid leasehold estates, all personal property necessary for
the operation of the Company's business, free and clear of any imperfection of
title, lien or encumbrance.
(d) Condition of Property. The Leased Real Property and personal
property owned and leased by the Company and necessary for the operation of the
Company's business are in good operating condition and repair, ordinary wear and
tear excepted.
Section 2.9 Contracts. As used herein, "Contracts" means all written or
---------
oral agreements, contracts, instruments, guaranties, or commitments to which the
Company is a party
8
<PAGE>
or by which or to which the Company's assets or properties are bound or subject.
The Company has provided or made available to Purchaser true and complete copies
of all of the following Contracts to which it is a party, a list of which
Contracts is attached as Section 2.9 of the Disclosure Schedule:
-------------------
(a) Contracts with any current or former officer, director, employee,
consultant, agent, representative or security holder, including any
employment, consulting or deferred compensation agreement and any
executive compensation, bonus or incentive plan agreement;
(b) Contracts for the purchase, sale or lease of materials, supplies,
equipment, goods, research and development, or capital assets, or the
receipt of services, the performance of which will extend over a
period of more than one year or involve consideration in excess of
$10,000;
(c) Contracts currently in effect that were entered into in the ordinary
course of business and that involve payment of consideration to or by
the Company in excess of $10,000 (other than purchase orders from
customers received in the ordinary course of business);
(d) Contracts for the sale of any assets or properties of the Company
other than in the ordinary course of business or for the grant to any
Person of any preferential rights to purchase any assets or properties
of the Company;
(e) Contracts establishing joint ventures or partnerships;
(f) Contracts establishing franchise, distribution or sales agency
arrangements;
(g) Contracts under which the Company agrees to indemnify any party other
than Contracts entered into in the ordinary course of business;
(h) Contracts containing obligations or liabilities of any kind to holders
of the capital stock of the Company as such;
(i) Contracts relating to the acquisition by the Company of any operating
business or any capital stock of any other Person;
(j) Contracts containing options for the purchase of any asset tangible or
intangible, for an aggregate purchase price of more than $10,000;
(k) Contracts requiring the payment to any person of any override or
similar commission or fee;
9
<PAGE>
(l) Contracts for the borrowing of money;
(m) Contracts calling for an aggregate purchase price or payments by
the Company in any one year of more than $20,000 in any one case
(or in the aggregate, in the case of any related series of
Contracts); and
(n) any other Contracts that were not made in the ordinary course of
business and that are, individually or in the aggregate, material
to the Company.
Section 2.10 Taxes.
-----
(a) The Company has timely filed in accordance with applicable law
all Tax Returns (as defined below) required to be filed by or with respect to
it, its operations and assets. All Taxes (as defined below) shown as due on such
Tax Returns have been paid. All Tax Returns filed by the Company with respect to
Taxes were prepared in compliance with all applicable laws and regulations and
were true and complete in all material respects as of the date on which they
were filed or as subsequently amended to the date hereof. The Company has
provided or otherwise made available to Purchaser true and complete copies of
all Tax Returns of the Company for each of the years ended December 31, 1997 and
1996 and all revenue agent's reports and other written assertions of
deficiencies or other liabilities for Taxes with respect to past periods for
which the applicable statute of limitations has not expired. The Company will
provide to Purchaser copies of any such reports or written assertions received
after the date hereof within ten days of their first being received by the
Company.
(b) The Company has timely paid, or will timely pay on or prior to
the Closing Date, all Taxes for which a notice of, or assessment or demand for,
payment has been received or which are otherwise due and payable up to and
including the Closing Date with respect to the Company, its operations and
assets (in each case, whether or not shown on any Tax Return), except for Taxes
that are being contested in good faith by appropriate proceedings and Taxes for
which adequate reserves are reflected on the Balance Sheet.
(c) The Company has complied with all applicable laws, rules and
regulations relating to the withholding of Taxes and has timely collected or
withheld and paid over (and up to the Closing Date will have timely collected or
withheld and paid over) to the proper governmental authorities all amounts
required to be so collected or withheld and paid over for all periods up to the
Closing Date under all applicable laws. There are not currently in effect any
waivers or extensions of any applicable statute of limitations for the
assessment or collection of Taxes with respect to any Tax Return that relates to
the Company, and no request for any such waiver or extension is pending.
(d) The Company has no current or potential contractual obligation to
indemnify any other Person with respect to Taxes, and has no obligation to make
distributions in respect of Taxes. No claim has ever been made by a taxing
authority in a jurisdiction where the
10
<PAGE>
Company does not file Tax Returns that the Company is or may be subject to
taxation by such jurisdiction. No power of attorney has been granted by the
Company with respect to any matter relating to Taxes, which power of attorney is
currently in force.
As used herein: "Taxes" means all taxes of any kind, charges, fees, customs,
duties, imposts, levies or other assessments, including all net income, gross
receipts, ad valorem, value added, transfer, gains, franchise, profits,
inventory, net worth, capital stock, asset, sales, use, license, estimated,
withholding, payroll, transaction, capital, employment, social security, workers
compensation, unemployment, excise, severance, stamp, occupation, and property
taxes, together with any interest and any penalties, additions to tax or
additional amounts, imposed by any taxing authority; and "Tax Return means all
returns, declarations, reports, forms, estimates, information returns and
statements required to be filed in respect of any Taxes or to be supplied to a
taxing authority in connection with any Taxes.
Section 2.11 Benefit Plans.
-------------
(a) Except as set forth in the employment agreements listed in
Section 2.9 of the Disclosure Schedule and except for statutory benefits
-------------------
required by Swiss law to be provided to employees of the Company, there are no
employee benefit plans, arrangements, policies or commitments (including any
employment, consulting or deferred compensation agreement, executive
compensation, bonus, incentive, pension, profit-sharing, savings, retirement,
stock option, stock purchase or severance pay plan, any life, health, disability
or accident insurance plan, or any holiday or vacation practice) as to which the
Company has any direct or indirect, actual or contingent liability.
(b) The consummation of the transactions contemplated by this
Agreement will not entitle any current or former individual employed by the
Company to severance pay, unemployment compensation or any similar payment.
Section 2.12 Absence of Certain Changes or Events. Except as contemplated
------------------------------------
by this Agreement, since December 31, 1997, the Company has conducted its
business only in the ordinary course consistent with past practice. Without
limiting the generality of the foregoing, during such period:
(a) there has been no material adverse change in the business,
results of operations, properties, assets, liabilities, prospects
or condition (financial or otherwise) of the Company nor has
there been any occurrence or circumstance that with the passage
of time could reasonably be expected to result in such a change;
(b) neither the business, properties nor assets of the Company have
suffered a material adverse loss (whether or not covered by
insurance) as the result of fire, explosion, earthquake,
accident, labor trouble, condemnation or taking
11
<PAGE>
of property by any Governmental Authority, flood, windstorm,
pestilence, embargo, riot, act of God or the public enemy or any
other casualty or similar event;
(c) The Company has not declared or paid any dividend or other
distribution (whether in cash, stock or property or any
combination thereof) in respect of the capital stock of the
Company;
(d) The Company has not purchased, redeemed or otherwise acquired (or
committed itself to purchase, redeem or acquire), directly or
indirectly, any shares of the capital stock of the Company;
(e) The Company has not made any acquisition of all or any part of
the assets, properties, capital stock or business of any other
Person, other than inventory, equipment and supplies acquired in
the ordinary course of business consistent with past practice;
(f) The Company has not, except in the ordinary course of business
consistent with past practice, sold or otherwise disposed of any
material assets of the Company;
(g) The Company has not sold, assigned, transferred, conveyed or
licensed, or committed itself to sell, assign, transfer, convey
or license, any Proprietary Rights (as defined in Section 2.20),
------------
other than in the ordinary course of business;
(h) The Company has not waived or released any right or claim of
material value to its business, including any write-off or other
compromise of any material account receivable of the Company;
(i) The Company has not paid, directly or indirectly, any of its
material liabilities before the same became due in accordance
with its terms or otherwise than in the ordinary course of
business consistent with past practice;
(j) The Company has not made any payment or commitment to pay any
severance or termination pay to any employee of the Company;
(k) The Company has not made any wage or salary increase or bonus, or
increase in any other direct or indirect compensation for or to
any employee, officer, director, consultant, agent or other
representative, other than in the ordinary course of business
consistent with past practice;
12
<PAGE>
(l) The Company has not made any loan or advance to any of its
Stockholders, officers, directors, employees, consultants, agents
or other representatives (other than travel advances made in the
ordinary course of business), or made any other loan or advance
otherwise than in the ordinary course of business consistent with
past practice;
(m) The Company has not pledged or otherwise, voluntarily or
involuntarily, encumbered any of its assets or properties, except
for liens for current taxes which are not yet delinquent and
purchase-money liens arising out of the purchase or sale of
products made in the ordinary and usual course of business and in
any event not in excess of $5,000 for any single item or $10,000
in the aggregate;
(n) The Company has not materially changed any of its accounting
methods, principles or procedures;
(o) The Company has not materially changed any of its business
policies or practices, including advertising, marketing, pricing,
purchasing, personnel, sales or budget policies;
(p) The Company has not suffered or incurred any damage, destruction
or loss, whether or not covered by insurance, which will have or
could reasonably be expected to have a Company Material Adverse
Effect; and
(q) The Company has not entered into any agreement to do any of the
foregoing.
Section 2.13 Officers, Directors and Key Employees. The Company has
-------------------------------------
provided to Purchaser:
(a) the name, position held and compensation of each person who is
either an officer or director of the Company or an employee, consultant, agent
or other representative of the Company whose current annual rate of compensation
(including bonuses and commissions) exceeds $50,000;
(b) all wage and salary increases or bonuses received by any such
person since January 1, 1997, and any accrual by the Company for, or commitment
or agreement by the Company to pay, any wage or salary increase or bonus to any
such Person; and
(c) any arrangement or obligation of the Company to make any payment
to any such person as a result of, or conditioned on, the consummation of the
transactions contemplated hereby.
13
<PAGE>
No Seller has reason to believe that any of the Persons described in clause (a)
above intends to terminate such Person's relationship with the Company.
Section 2.14 Potential Conflicts of Interest. Except for normal
-------------------------------
compensation received as employees, no officer, director or stockholder of the
Company and no entity known by the Company to be controlled by any officer,
director or stockholder of the Company:
(a) is directly or indirectly engaged in business as a competitor,
lessor, lessee, customer or supplier of the Company; owns directly or indirectly
any interest (excepting no more than five percent stockholdings for investment
purposes in securities of publicly held companies) in any person that is engaged
in business as a competitor, lessor, lessee, franchisee, customer or supplier of
the Company; or is an officer, director, employee or consultant of any such
person;
(b) owns directly or indirectly, in whole or in part, any material
tangible or intangible property that the Company uses;
(c) has any cause of action or other claim whatsoever against, or
owes any amount to, the Company, except for claims in the ordinary course of
business, such as for accrued vacation pay, and similar matters in agreements
existing on the date hereof, or
(d) has made any payment or commitment to pay any commission, fee or
other amount to, or purchase or obtain or otherwise contract to purchase or
obtain any goods or services from, any person of which any officer or director
of the Company is a partner or stockholder (excepting no more than five percent
stockholdings for investment purposes in securities of publicly held companies).
Section 2.15 Finder's Fees. The Company has not incurred any liability,
-------------
contingent or otherwise, for brokerage fees, finder's fees, agent's commissions,
financial advisory fees or other similar forms of compensation in connection
with this Agreement or any of the transactions contemplated hereby.
Section 2.16 Bank Accounts. The Company has provided or made available to
-------------
Purchaser true and complete written summaries of information regarding all
accounts, lock boxes and safe deposit boxes maintained by the Company at banks,
trust companies, securities or other brokers or other financial institutions,
including the names of all persons authorized to draw thereon or have access
thereto.
Section 2.17 Environmental Matters. The Company has been in the past and is
---------------------
now in compliance with all environmental laws and all requirements of applicable
permits, licenses, approvals and other authorizations pertaining thereto other
than any such noncompliance that would not have a Company Material Adverse
Effect.
14
<PAGE>
Section 2.18 Insurance. The Company has delivered or made available to
---------
Purchaser true and complete copies of all insurance policies or binders to which
the Company is a party or under which the Company is covered and true and
complete copies of all applications for insurance policies. All insurance
policies to which the Company is a party or that provide coverage to the Company
are in full force and effect. Since its formation, the Company has not received
any refusal of coverage, or any notice of suspension, revocation, modification
or cancellation or any other indication that any insurance policy is no longer
in full force or effect or that the issuer of any policy is not willing or able
to perform its obligations thereunder or any notice from an insured to
discontinue any coverage afforded to the Company and there is no basis for the
issuance of any such notice or the taking of any such action. The Company has
paid all premiums due and has otherwise performed all of its respective
obligations under each such policy, except such as will not adversely affect the
Company's coverage thereunder. There was no claim in excess of $5,000 asserted
under any of the insurance policies of the Company for the period from the
inception of the Company to the date hereof. The Company is not party to, or
bound by, any Contract requiring the Company to name a third party as loss payee
under any insurance policy or binder held by or on behalf of the Company or
otherwise requiring the Company to obtain insurance for or on behalf of any
third party or to provide coverage to third parties (such as, for example, under
leases or service agreements). There is no self-insurance arrangement by or
affecting the Company.
Section 2.19 Employee Relations. The Company has never been a party to a
------------------
collective bargaining agreement and has never made any final or binding offer to
a labor union or association representing its employees with respect to any
terms or conditions of employment. The Company has never had, nor is there now
threatened, a union organizing effort, strike, picket, organized work stoppage,
organized work slowdown, or other labor trouble that has had, or could
reasonably be expected to have, a Company Material Adverse Effect. The Company
has complied with all applicable laws relating to employment, equal opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closings.
Section 2.20 Proprietary Rights. The Company owns, or is licensed or
------------------
otherwise possesses legally enforceable rights to use, all patents, trademarks,
trade names, service marks, copyrights, and any applications therefor,
technology, know-how, computer software programs or applications (in both source
code and object code form), and tangible or intangible proprietary information
or material that are material to the business of the Company as currently
conducted or as proposed to be conducted by the Company (the "Proprietary
-----------
Rights"). No claims with respect to the Proprietary Rights have been asserted
- ------
or, to the knowledge of the Company, are threatened by any person to the effect
that the business of the Company as currently conducted or as proposed to be
conducted by the Company, infringes on or misappropriates any copyright, patent,
trademark, service mark, trade secret or other proprietary rights of any other
Person or constitutes unfair competition or trade practices under any Law,
against the use by the Company of any trademarks, service marks, trade names,
trade secrets, copyrights, patents, technology, know-how or computer software
programs and applications used in the Company's business as
15
<PAGE>
currently conducted or as proposed to be conducted by the Company, or
challenging the ownership by the Company, validity or effectiveness of any of
the Proprietary Rights.
Section 2.21 Certain Loans. Other than the Hans Loan, there are no loans,
-------------
receivables, advances or similar amounts owed to the Company by any director,
officer, employee, consultant or stockholder of the Company, or owing by any
affiliate of any director or officer of the Company, nor is any amount owed by
the Company to any of its directors, officers, employees or stockholders other
than normal compensation and advances in the ordinary course of business to
officers and employees for reimbursable business expenses not exceeding $1,000
for any one individual.
Section 2.22 Customers and Vendors. The Company has provided to PHI a true
---------------------
and complete written summary listing of the ten largest customers and vendors of
the Company (by dollar volume of purchases) for the year ended December 31,
1997. The relationships of the Company with its customers and vendors are good
commercial working relationships, and no material customer or vendor of the
Company has canceled or otherwise terminated, or threatened in writing to cancel
or otherwise terminate, its relationship with the Company since January 1, 1997.
Section 2.23 Business Activity Restrictions. There is no agreement
------------------------------
(noncompetition or otherwise), commitment, judgment, injunction, order or decree
to which the Company or any officer, employee or consultant of the Company is a
party or that otherwise is binding upon the Company or such officer, employee or
consultant that has or reasonably could be expected to have the effect of
prohibiting or impairing any business practice of the Company, any acquisition
of property (tangible or intangible) by the Company or the conduct of business
by the Company. The Company has not entered into any agreement under which the
Company is restricted from selling, licensing or otherwise distributing any of
its technology or products to, or providing services to, customers or potential
customers or any class of customers, in any geographic area, during any period
of time or in any segment of the market or line of business.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF EACH SELLER
As an inducement to the Purchaser to enter into this Agreement, each
Seller, severally but not jointly, represents and warrants to Parent and the
Purchaser as follows:
Section 3.1 Authority. Such Seller has full power and authority to enter
---------
into this Agreement, the Registration Rights Agreement, the Escrow Agreement and
such Seller's Affiliate Lock-Up Agreement (collectively, the "Seller
------
Agreements") and the Seller Agreements are binding and enforceable against such
- ----------
Seller. All corporate action on the part of the Company, the Related Company,
and the Sellers necessary to authorize the execution, delivery and performance
of the Seller Agreements and transfer to the Purchaser of the Company Shares and
the Related
16
<PAGE>
Company Shares has been duly taken. The execution, delivery and performance by
the Sellers of this Agreement will not result in any violation of or constitute
any breach under the Charter Documents or Related Company Charter Documents, any
provision of Swiss or German law, or any agreement to which the Company, the
Related Company or any Seller is a party or by which any of them is bound.
Section 3.2 Ownership. Such Seller is the sole and exclusive record and
---------
beneficial owner of all right, title and interest in and to the number of
Company Shares and Related Company Shares set forth opposite such Seller's name
on Schedule A hereto, free and clear of all claims and encumbrances of any
----------
nature whatsoever. Upon the execution and delivery by the Sellers to Purchaser
of the Company Transfer Documents and the publication and registration thereof
in the commercial register of the Kanton of St. Gallen, the Purchaser will be
the legal and beneficial owner of the Company Shares, free and clear of any
claims and encumbrance of any nature whatsoever. Upon the execution and delivery
to the Purchaser of the Related Company Transfer Documents and the publication
and registration thereof in the commercial register at Kempten/Allgau, the
Purchaser will be the legal and beneficial owner of the Related Company Shares,
free and clear of any claims and encumbrance of any nature whatsoever.
Section 3.3 Further Assurances. Each Seller will execute and deliver to the
------------------
Purchaser such additional documents and take such further action as may be
reasonably requested by the Purchaser in order to transfer ownership of and
title to all Company Shares and Related Company Shares being purchased from such
Seller to the Purchaser.
Section 3.4 Investment in PRI Common.
------------------------
(a) Such Seller (together with such Seller's financial and other
advisors, if any) has such knowledge and expertise in financial and business
matters that such Seller is capable of evaluating the merits and risks of the
exchange of such Seller's Company Shares and Related Company Shares for shares
of PRI Common pursuant to this Agreement and of protecting such Seller's
interests in connection therewith. Such Seller has the ability to bear the
economic risk of the investment in PRI Common.
(b) Such Seller has been provided with copies of Parent's Annual
Report on Form 10-K, as amended, for the fiscal year ended September 30, 1997,
and its Quarterly Reports on Form 10-Q for the fiscal quarters ended December
28, 1997 and March 29, 1998.
(c) Such Seller is acquiring shares of PRI Common for such Seller's
own account and not with a view to, or for resale in connection with, any
distribution thereof in violation of applicable law, and such Seller has no
present intention of selling, granting any participating in, or otherwise
distributing the same in violation of applicable law. Such Seller understands
that the shares of PRI Common to be received by such Seller pursuant to this
Agreement have not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), by reason of a specific exemption from the registration
--------------
provisions of the
17
<PAGE>
Securities Act that depends upon, among other things, the bona fide nature of
such Seller's investment intent and the accuracy of such Seller's
representations, warranties and covenants as expressed herein. Such Seller
understands that the shares of PRI Common to be received by such Seller pursuant
to this Agreement are characterized as "restricted securities"' under the
Securities Act inasmuch as they are being acquired in a transaction not
involving a public offering and that under such laws and applicable regulations
such shares may be resold without registration under the Securities Act only in
certain limited circumstances. Such Seller acknowledges that the shares of PRI
Common must be held indefinitely unless subsequently registered under the
Securities Act (pursuant to the Registration Rights Agreement or otherwise) or
an exemption from such registration is available. Such Seller is aware of the
provisions of Rule 144 under the Securities Act which permit limited resale of
shares purchased in a private placement subject to the satisfaction of certain
conditions, including the existence of a public market for the shares, the
availability of certain current public information about the Company, the resale
occurring not less than two years after a party has purchased and paid for the
security to be sold, the sale being effected through a "broker's transaction or
in transactions directly with a "market maker" (as provided by Rule 144(f) under
the Securities Act) and the number of shares being sold during any three-month
period not exceeding specified limitations.
(d) It is understood that each certificate representing shares of
PRI Common received by such Seller pursuant to this Agreement shall bear a
legend substantially to the following effect (in addition to any legend required
under applicable state securities laws):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."
Section 3.5 Tax Matters. Each Seller acknowledges that he or she has been
-----------
advised by Parent and the Purchaser that the sale of Company Shares and Related
Company Shares contemplated by this Agreement could give rise to gain that would
be taxable for United States federal income tax purposes. Each Seller further
acknowledges that he or she has been encouraged to seek the advice of a
qualified tax adviser with respect to the tax consequences to him or her, under
the laws of the United States, Switzerland, and any other relevant jurisdiction,
of the transactions contemplated hereby. Each Seller represents and warrants
that such Seller has not, in entering into this Agreement, relied upon any
advice or representation of Parent, the Purchaser, its independent auditors or
counsel or any other person acting on behalf of Parent or the Purchaser
concerning such tax consequences.
18
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND THE PURCHASER
As an inducement to each Seller to enter into this Agreement, Parent and
the Purchaser jointly and severally represent and warrant to each Seller as
follows:
Section 4.1 Corporate Status. Each of Parent and the Purchaser is a
----------------
corporation duly incorporated, validly existing and in good standing under the
laws of The Commonwealth of Massachusetts, with all necessary corporate power
and authority to enter into and perform its obligations under this Agreement and
under the Registration Rights Agreement and the Escrow Agreement, to the extent
that either is a party thereto.
Section 4.2 Authority. This Agreement has been duly and validly authorized,
---------
executed and delivered by Parent and the Purchaser and is binding on and
enforceable against Parent and the Purchaser in accordance with its terms. The
Registration Rights Agreement and the Escrow Agreement will be duly and validly
authorized, executed and delivered by Parent and the Purchaser, respectively,
and will be binding and enforceable against each of them, respectively, to the
extent it is a party thereto.
Section 4.3 Investment Purpose. The Purchaser is acquiring the Company
------------------
Shares and the Related Company Shares for its own account for investment and not
for or with a view to or for resale in connection with any distribution thereof
within the meaning of the Securities Act.
Section 4.4 Capitalization. The authorized and outstanding capital stock of
--------------
Parent consists of 400,000 shares of preferred stock, $.01 par value, none of
which is issued and outstanding, and 50,000,000 shares of PRI Common, of which
[ ] shares were issued and outstanding as of [ ]. All of the
outstanding shares of PRI Common are, and the shares of PRI Common when issued
and delivered to each Seller in accordance with this Agreement will be, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, Parent's articles of organization or
bylaws, or any agreement to which Parent is a party or is bound. As of the date
of the Agreement, all outstanding shares of PRI Common are listed on the Nasdaq
Stock Market, and there are no proceedings to revoke or suspend such listing.
ARTICLE V
INDEMNIFICATION
Section 5.1 Agreement to Indemnify. The Sellers shall jointly and severally
----------------------
(and without any right of contribution from or indemnification by the Company)
indemnify, defend and hold harmless Parent, the Purchaser and the affiliates,
officers, directors, employees, representatives and agents of each of them
(collectively, the "Indemnified Persons") against and in respect of any and all
-------------------
claims, costs, losses, expenses, liabilities or other damages,
19
<PAGE>
including interest, penalties and reasonable attorneys' fees and disbursements
(collectively "Damages") by reason of or otherwise arising out of a breach by
-------
Sellers or any Seller of a representation, warranty or covenant contained in
this Agreement. The amounts for which the Indemnified Persons may seek
indemnification under this Article 8 shall extend to, and as used herein the
term "Damages" shall include, reasonable attorneys' fees and disbursements,
reasonable accountants' fees, costs of litigation and other expenses incurred by
them in the defense of any claim asserted against them and any amounts paid in
settlement or compromise of any claim asserted against them to the extent that
the claim asserted is or would have been subject to the indemnification
provisions hereof. The indemnity under this Article 8 extends only to the net
amount of Damages sustained by the Indemnified Person after deducting therefrom
any amount that such Indemnified Person recovers as proceeds of insurance in
respect of such claim, net of any cost of collection, deductible, retroactive
premium adjustment, reimbursement obligation or other cost directly related to
the insurance claim for such claim.
Section 5.2 Survival of Representations and Warranties. Except as otherwise
------------------------------------------
set forth below, the representations and warranties of the Sellers in this
Agreement shall survive the Closing, and any investigation made by Parent or
Purchaser, for a period of one year after the Closing Date or, if sooner, until
the publication of audited financial statements of Parent for its first fiscal
year ending after the date hereof (the "Survival Period"). The representations
---------------
and warranties of Parent shall survive until the end of the Survival Period. The
covenants of any party shall survive the Closing in accordance with their terms.
Section 5.3 Certain Limitations. The obligations of the Sellers with
-------------------
respect to indemnification pursuant to Section 5.1 above shall be subject to the
-----------
following limitations:
(a) no indemnification shall be required to be made hereunder
unless the aggregate amount of claims for which indemnity is sought exceeds
$150,000, in which case indemnification shall be provided to the full extent of
such claims; and
(b) no claims for indemnity shall be made after the expiration of
the Survival Period.
Section 5.4 Specific Representations. Notwithstanding the foregoing, the
------------------------
representations and warranties of the Sellers in Section 2.4(b), 2.4(c), 2.4(d),
2.5(b), 2.5(c) and 2.5(d) above and in Sections 3.1 through 3.4 above (the
"Specific Representations") shall survive the Closing, and any investigation
made by Parent or Purchaser, for a period of three years after the Closing Date.
The limitations set forth in Sections 5.2 and 5.3 above shall not apply to
claims for indemnification arising out of any breach of the Specific
Representations.
20
<PAGE>
ARTICLE VI
GENERAL PROVISIONS
Section 6.1 Expenses. Except as otherwise specified in this Agreement, all
--------
costs and expenses, including, without limitation, fees and disbursements of
counsel, financial advisors and accountants, incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses, whether or not the Closing shall have
occurred.
Section 6.2 Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be deemed to have been
duly given or made (i) as of the date delivered if delivered personally, by
overnight courier or by facsimile, or (ii) on the third business day after being
mailed or sent, if mailed by registered or certified mail (postage prepaid,
return receipt requested) or sent by overnight courier, in any case addressed to
the respective parties at the following addresses or telecopier numbers (or at
such other address or telecopier number for a party as shall be specified in a
notice given in accordance with this Section 6.2):
-----------
(a) if to a Seller, to the address set forth for such Seller on
Schedule A hereto;
----------
(b) if to the Company:
Chiptronix Handling Systems GmbH
Grenzstrasse 24
CH-9430 St. Margrethen
Switzerland
Fax: 41-0-71747/5529
Telephone:
Attn: Ekkehard D. Hans
with a copy to:
Ring & Green
1900 Avenue of the Stars, Suite 2300
Los Angeles, CA 90067
Fax: (310)556-1346
Telephone: (310) 201-0777
Attn: Robert A. Ring, Esq.
21
<PAGE>
(c) if to the Parent or Purchaser:
Parent:
-------
PRI Automation, Inc.
800 Middlesex Turnpike
Billerica, MA 01821-3986
Fax: (978) 671-9430
Telephone: (978) 670-4270
Attention: Mitchell G. Tyson, President
Purchaser:
---------
PRI Switzerland, Inc.
800 Middlesex Turnpike
Billerica, MA 01821-3986
Fax:(978) 671-9430
Telephone: (978) 670-4270
Attention: Stephen D. Allison, President
in either case, with a copy to:
Foley, Hoag & Eliot, LLP
One Post Office Square
Boston, MA 02019
Fax: (617) 832-7000
Telephone: (617) 832-1000
Attention: Robert L. Birnbaum, Esq.
Section 6.3 Public Announcements. No party to this Agreement shall make, or
--------------------
cause to be made, any press release or public announcement or otherwise
communicate with any news media in respect of this Agreement or the transactions
contemplated hereby without the prior written consent of the other parties.
Section 6.4 Headings. The descriptive headings contained in this Agreement
--------
are for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement
Section 6.5 Severability. If any term or other provision of this Agreement
------------
is invalid, illegal or incapable of being enforced by any law or public policy,
all other terms and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or
22
<PAGE>
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner in order that the transactions
contemplated hereby are consummated as originally contemplated to the greatest
extent possible.
Section 6.6 Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, between
any Seller, Parent or the Purchaser with respect to the subject matter hereof.
Section 6.7 Assignment. This Agreement may not be assigned by operation of
----------
law or otherwise without the express written consent of each Seller, Parent or
the Purchaser (which consent may be granted or withheld in the sole discretion
of each such party); provided, however, that the Purchaser may assign this
Agreement to an affiliate of the Purchaser without the consent of any Seller;
provided further, however, that no such assignment by the Purchaser shall
relieve the Purchaser of its obligation to deliver to the Sellers the
consideration specified in Section 1.2 above.
Section 6.8 No Third Party Beneficiaries. This Agreement shall be binding
----------------------------
upon and inure solely to the benefit of the parties hereto and their permitted
assigns and nothing herein, express or implied, is intended to or shall confer
upon any other person any legal or equitable right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement.
Section 6.9 Amendment. This Agreement may not be amended or modified
---------
except by an instrument in writing signed by, or on behalf of, each Seller,
Parent and the Purchaser.
Section 6.10 Governing Law. This Agreement shall be governed by, and
-------------
construed and enforced in accordance with, the laws of The Commonwealth of
Massachusetts applicable to contracts executed in and to be performed entirely
within that state.
Section 6.11 Counterparts. This Agreement may be executed in one or more
------------
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
Section 6.12 Arbitration.
-----------
(a) Any dispute, controversy or claim arising in connection with
this Agreement, including any claim for indemnification pursuant to Section 5 of
this Agreement, shall be settled by expedited arbitration by a panel of three
arbitrators; except that, notwithstanding the foregoing, any dispute,
controversy or claim arising in connection with a breach of the confidentiality
provisions of this Agreement shall not be subject to arbitration pursuant to
this Section 6.12. The arbitration shall be held in Boston, Massachusetts and
shall be conducted by,
23
<PAGE>
and in accordance with the rules of, a commercial arbitration service mutually
acceptable to the parties (it being agreed that the Boston, Massachusetts office
of JAMS/Endispute shall be deemed to be mutually acceptable for such purpose)
(the "Arbitrator"). The rules set forth in this Section 6.12 shall govern such
arbitration to the extent they conflict with the rules of the Arbitrator.
(b) Upon written notice by a party to any other party of a request for
arbitration hereunder, Parent, Purchaser and the Sellers (acting through the
Sellers' Representative) shall designate the Arbitrator and select three
arbitrators employed by the Arbitrator within thirty days after the date of such
notice. If they are unable within said thirty-day period to agree upon an
Arbitrator, the Boston, Massachusetts office of JAMS/Endispute, shall be
designated as the Arbitrator and the Arbitrator shall designate the three
arbitrators pursuant to its rules. The arbitration shall be conducted in an
expeditious manner, the parties using their best efforts to cause the
arbitration to be completed within sixty days after selection of the Arbitrator.
In the arbitration, there shall be no discovery except as the arbitrators shall
permit following a determination by the arbitrators that the party seeking such
discovery has substantial demonstrable need. All other procedural matters shall
be within the discretion of the arbitrators. In the event a party fails to
comply with the procedures in any arbitration in a manner deemed material by the
arbitrators, the arbitrators shall fix a reasonable period of time for
compliance and, if the party does not comply within said period, a remedy deemed
just by the arbitrators, including an award of default, may be imposed.
(c) The determination of the arbitrators by majority vote shall be
final and binding on the parties. The expense of the arbitration and all
expenses incurred by the parties with respect thereto (including reasonable
attorneys' fees and fees of experts shall be borne by the party not prevailing
in the arbitration, as determined by the arbitrators; provided, that pending the
award of the arbitrators, the fees and expenses of the Arbitrator shall be
advanced equally by Parent and the Purchaser, on the one hand, and the Sellers,
on the other. Judgment upon the award rendered by the arbitrators may be entered
in the U.S. District Court for the District of Massachusetts sitting in Boston,
Massachusetts.
* * *
24
<PAGE>
IN WITNESS WHEREOF, each Seller has executed this Agreement in his or her
individual capacity and each of parent and the Purchaser has caused this
Agreement to be executed by its officer thereunto duly authorized as of the date
first written above.
PARENT: SELLERS:
PRI AUTOMATION, INC.
By: /s/ Stephen D. Allison /s/ Ekkehard D. Hans
-------------------------------- ---------------------------------
Name: Stephen D. Allison Ekkehard D. Hans
Title: Chief Financial Officer
*
---------------------------------
PURCHASER: Kerstin Czenkusch-Hans
PRI SWITZERLAND, INC.
*
---------------------------------
Jorg-Michael Hans
By: /s/ Stephen D. Allison
--------------------------------
Stephen D. Allison
President *By: /s/ Ekkehard D. Hans
-----------------------------
Ekkehard D. Hans
Attorney-in-Fact
25
<PAGE>
List of Exhibits*:
- -----------------
Exhibits A and A-l: Form of Company Transfer Documents
Exhibit B: Form of Related Company Transfer Document
Exhibit C: Form of Registration Rights Agreement
Exhibit D: Form of Escrow Agreement
Exhibit E: Form of Opinion of Sellers' Counsel
Exhibit F: Form of Employment Agreement
Exhibit G: Form of Affiliate Lock-Up Agreement
Exhibit H: Form of Promissory Note
List of Schedules*:
- ------------------
Schedule A: Schedule of Sellers
Schedule B: PRI Options
Disclosure Schedule:
Section 2.4(c): Assets and Liabilities of Related Company
Section 2.5: Financial Statement
Section 2.9 List of Material Contracts
*The above referenced exhibits and schedules are omitted in accordance with
601(b2) of regulation S-K. Copies will be provided to the Commission upon
request.
26
<PAGE>
EXHIBIT 10.28
REVOLVING CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of June 16, 1998, is between PRI
AUTOMATION, INC., a Massachusetts corporation with its principal office located
at 805 Middlesex Turnpike, Billerica, Massachusetts 01821-3986 ("Borrower") and
THE CHASE MANHATTAN BANK, a New York banking corporation with an office located
at 999 Broad Street, Bridgeport, Connecticut 06604, ("Bank").
PART 1. DEFINITIONS
- ------ -----------
As used in this Credit Agreement, the following words and terms have the
following meanings:
"Account" means any right to payment for goods sold or leased or for
services rendered, which is not evidenced by an instrument or chattel paper,
whether or not it has been earned by performance, whether secured or unsecured,
now existing or hereafter arising, and the proceeds thereof.
"Applicable Margin" means one percent (1.0%) with respect to
Eurodollar Loans.
"Borrower's Affiliates" means any Subsidiary and any other Person, now
existing or formed hereafter, controlled by Borrower or any partners or
shareholders of Borrower and which is engaged in operations related, directly or
indirectly, to the business of Borrower.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a legal holiday for commercial banks in the State of New
York.
"Capital Expenditures" means for any period, the Dollar amount of
gross expenditures (including obligations under Capital Leases) made for fixed
assets, real property, plant and equipment, and all renewals, improvements and
replacements thereto (but not repairs thereof) incurred during such period.
"Capital Lease" means any lease which has been or should be
capitalized on the books of the lessee in accordance with GAAP.
"Collateral" means any and all real and personal property of Borrower
and of any Guarantor hereunder in which Bank now has, by any Collateral Document
or other agreement acquires, or hereafter acquires, a security interest or
mortgage.
"Collateral Documents" means the collateral security documents
executed by Borrower and any Guarantor.
"Commitment" means Twenty Million and no/100 Dollars ($20,000,000).
"Consolidated Liabilities" means and includes all items which would be
included in determining total liabilities of Borrower and any Subsidiaries in
accordance with generally accepted accounting principles consistently applied;
provided, however, that for the purposes of this Credit Agreement, "Consolidated
Liabilities" excludes all Subordinated Debt but includes without limitation:
<PAGE>
2
(a) all Indebtedness other than Subordinated Debt, including the
Indebtedness evidenced by the Note;
(b) all obligations in respect of lease rentals which, under generally
accepted accounting principles consistently applied, would be shown in a
balance sheet of the obligor as a liability item; and
(c) in the case of any Subsidiary, all preferred Stock of such
Subsidiary (other than preferred Stock held by Borrower or any Wholly-owned
Subsidiary) taken at the greater of its voluntary or involuntary
liquidation price but exclusive of accrued dividends, if any.
"Consolidated Net Income" means the net income of Borrower and any
Subsidiaries, after taxes and after extraordinary items (but without giving
effect to any gain resulting from the re-appraisal or write-up of any asset or
to the sale of any asset other than Inventory), as determined on a consolidated
basis in accordance with generally accepted accounting principles applied on a
basis consistent with the accounting procedures used in preparing the financial
statements referred to in Parts 7.4 and 8.1 hereof.
"Consolidated Net Worth" means the total of shareholders' equity of
Borrower as it appears on the consolidated balance sheet of Borrower, minus the
net carrying value of intangible assets (including, but not limited to,
goodwill, organizational expenses, trademarks, tradenames, licenses, patents,
capitalized research and development costs), minus minority interests in any
Subsidiaries.
"Credit Agreement" means this Revolving Credit Agreement and any
amendments hereto.
"Credit Loan" means the Loan described in Part 2 of this Credit
Agreement.
"Credit Note" means the Note described in Part 2 of this Credit
Agreement.
"Current Debt Service" means the sum of all payments of principal,
interest accrued or capitalized, or sinking funds in respect of all Consolidated
Liabilities scheduled to fall due in the twelve month period ending on the last
day of the current fiscal quarter.
"EBITDA" means the sum of the following items measured for each twelve
month period ending on the last day of each fiscal quarter: (a) net income, plus
(ii) depreciation, amortization, and all other non-cash charges, plus (iii)
taxes, plus (iv) interest expense, minus (v) extraordinary items.
"Effective Date" means June 16, 1998.
"Equipment" means goods which are used or bought for use primarily in
business, now existing or hereafter acquired, and the proceeds thereof.
"Eurodollar Base Rate" means the rate per annum (rounded upwards, if
necessary, to the nearest 1/16 of 1%) quoted by the Reference Bank at
approximately 11:00 a.m. London time (or as soon thereafter as practicable) two
Business Days prior to the first day of the Interest Period for such Loans for
<PAGE>
3
the offering by the Reference Bank to leading banks in the London interbank
market of dollar deposits having a term comparable to the principal amount of
the Eurodollar Loan made by Bank to which such Interest Period relates.
"Eurodollar Loans" means the Loans the interest rates on which are
determined on the basis of the Eurodollar Base Rate.
"Event of Default" means any of the events of default described in
Part 9.1 of this Credit Agreement.
"Expiration Date" means June 16, 2000.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time.
"Guarantor" means any guarantor of the Note.
"Guaranty" means any guaranty agreement executed by any Guarantor.
"Indebtedness" means and includes (a) all items which in accordance
with generally accepted accounting principles consistently applied would be
included on the liability side of a balance sheet as at the date as of which
indebtedness is to be determined, excluding capital Stock, capital and earned
surplus, surplus reserves and deferred credits, (b) guaranties, endorsements and
other contingent obligations in respect of, or any obligations to purchase or
otherwise acquire, indebtedness of others, (c) indebtedness secured by any
mortgage, pledge, security interest or lien existing on property owned by
Borrower, whether or not the indebtedness secured thereby shall have been
assumed, (d) all obligations arising under any conditional sale, lease or title
retention agreement covering property acquired or used by Borrower or any
Subsidiaries, and (e) the full amount of all indebtedness of others, the payment
of which Borrower or any Subsidiary has agreed, contingently or otherwise, to
advance or supply funds for or with respect to which Borrower or any Subsidiary
is contingently liable, including without limitation, indebtedness for borrowed
money and indebtedness guaranteed or supported indirectly by Borrower or any
Subsidiary through an agreement, contingent or otherwise (i) to purchase the
indebtedness, or (ii) to purchase, sell, transport or lease (as lessee or
lessor) property at prices or in amounts designed to enable the debtor to make
payment of the indebtedness or to assure the owner of the indebtedness against
loss, or (iii) to supply funds to or in any manner invest in the debtor;
provided, however, that such indebtedness does not mean or include any
indebtedness of Borrower in respect of which moneys sufficient to pay
indebtedness (as such indebtedness may be duly called for redemption and
payment) shall be deposited with a depository, agency or trustee in trust for
the payment thereof.
"Interest Expense" means, for any period, the sum, for the Borrower
and its Subsidiaries (determined on a consolidated basis without duplication in
accordance with GAAP), of (a) all interest in respect of Indebtedness
(including, without limitation, the interest component of any payments in
respect of Capital Lease obligations) accrued or capitalized during such period
(whether or not actually paid during such period) plus (b) the net amount
----
payable (or minus the net amount receivable) under interest
-----
<PAGE>
4
rate protection agreements during such period (whether or not actually paid
or received during such period).
"Interest Period" means with respect to any Eurodollar Loans, the
period commencing on the date such Loans are made and ending on the numerically
corresponding day in the first, second or third calendar month thereafter, as
Borrower may select as provided in Part 2.4 hereof, except that each such
Interest Period which commences on the last Business Day of a calendar month (or
on any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month. Notwithstanding the foregoing: (i) each
Interest Period which would otherwise end on a day which is not a Business Day
shall end on the next succeeding Business Day (or if such next succeeding
Business Day falls in the next succeeding calendar month, on the next preceding
Business Day); (ii) no Interest Period for any Eurodollar Loan shall have a
duration of less than one month and, if any Interest Period would otherwise be a
shorter period, such Loans shall be Prime Rate Loans during such period; and
(iii) each Interest Period for each type of Loan which would otherwise commence
before and end after the Expiration Date shall end on the Expiration Date.
"Inventory" means goods held for sale or lease or to be furnished
under contracts of service or if they have been so furnished, or raw materials,
work-in-process or materials used or consumed in a business, now existing or
hereafter arising, and the proceeds thereof. Inventory of Borrower will not be
classified as its Equipment.
"Loan" means any loan made under this Credit Agreement.
"Monthly Due Date" means the first day of each month.
"Note" means the Credit Note described in Part 2 of this Credit
Agreement.
"Organizational Agreements" means, with respect to a corporation, its
charter and its by-laws and, with respect to a partnership, its partnership
agreement, and any amendments to such documents and agreements.
"Permitted Acquisition" means any acquisition by Borrower of all or
substantially all of the assets or stock (by merger or otherwise) of any Person
that is a going concern and, in each case, that is in substantially the same
line of business as Borrower, that satisfies the following conditions:
(a) no Event of Default is in existence at the time of such
acquisition or would be caused thereby after giving effect thereto;
(b) Bank shall have received at least ten (10) days prior written
notice thereof and, as soon as available, copies of all agreements
delivered in connection therewith; and
(c) Bank shall have received a certificate from Borrower's chief
financial officer certifying that all of the applicable conditions
contained herein to treating such acquisition as a Permitted Acquisition
have been satisfied.
<PAGE>
5
"Person" means natural persons, corporations (which shall be deemed to
include business trusts), associations, companies, partnerships, joint ventures
or other legal entities, and governments, agencies and political subdivisions.
"Post-Default Rate" means, in respect of any principal of any Loan or
any other amount payable by Borrower under this Credit Agreement or the Note
which is not paid when due (whether at stated maturity, by acceleration or
otherwise), a rate per annum, during the period commencing on the due date of
such payment until such amount is paid in full, equal to: (a) for Prime Rate
Loans, 2% above the Prime Rate as in effect from time to time; and (b) for
Eurodollar Loans, 2% above the interest rate for such Loans as provided in Part
2.4 hereof.
"Prime Rate" means that rate of interest from time to time announced
by Bank at its head office as its prime commercial lending rate.
"Prime Rate Loans" means Loans the interest rates on which are
determined on the basis of the Prime Rate.
"Quarterly Due Date" means the first day of each January, April, July
and October.
"Reference Bank" means the principal London office of The Chase
Manhattan Bank.
"Stock" means and includes any and all shares, interests,
participations or other equivalents (howsoever designated) of corporate stock.
See also "Voting Stock."
"Subordinated Debt" means all Indebtedness of Borrower subordinated in
right of payment to all debts of Borrower to Bank by written terms or agreement
in form and substance satisfactory to Bank.
"Subsidiary" means any corporation the majority of the shares of
Voting Stock of which at any time outstanding is owned directly or indirectly by
Borrower or by one or more of its other subsidiaries or by Borrower in
conjunction with one or more of its other subsidiaries. See also "Wholly-owned
Subsidiary."
"Total Funded Debt" means, for any period, the sum for the Borrower
and its Subsidiaries (determined on a consolidated basis without duplication in
accordance with GAAP) of the following: (a) all obligations of such Person for
borrowed money, (b) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (c) all obligations of such
Person to pay the deferred purchase price of property or services, except trade
accounts payable arising in the ordinary course of business, (d) all obligations
of such Person as lessee which are capitalized in accordance with generally
accepted accounting principles, and (e) all obligations of such Person to
reimburse or prepay any bank or other Person in respect of amounts paid under a
letter of credit, banker's acceptance or similar instrument, whether drawn or
undrawn (provided, however, if the Company provides standby letters of credit or
--------
bank guarantees in support of obligations of a Subsidiary, only the underlying
obligation and not the contingent
<PAGE>
6
liability created by the letter of credit or bank guaranty shall be treated as
Debt of the Borrower and such Subsidiary).
"Voting Stock" means Stock having voting power in the election of
directors of such corporations, other than Stock having such power only by
reason of the happening of a contingency.
"Wholly-owned Subsidiary" means any corporation of which all the
Voting Stock (other than directors' qualifying shares) at the time is owned or
controlled, directly or indirectly, by Borrower.
All accounting terms appearing in this Credit Agreement have the
meanings respectively given to them in accordance with generally accepted
accounting principles consistently applied, except as expressly otherwise
defined in this Credit Agreement. All terms relating to Collateral and not
otherwise defined herein shall have the meanings ascribed to them in the Uniform
Commercial Code of the State of New York.
PART 2. REVOLVING LOANS
- ------ ---------------
2.1 The Commitment.
--------------
(a) Subject to the terms and conditions of this Credit Agreement, and
relying upon the representations and warranties herein set forth, Bank
agrees to make Credit Loans to Borrower, at any time and from time to time
on or after the Effective Date and until and including the Expiration Date
in an aggregate principal amount not exceeding at any one time outstanding
the principal sum of the Commitment; provided, however, that the sum of (i)
the outstanding aggregate amount of Loans (after giving effect to all
amounts requested), (ii) the aggregate principal amount outstanding of any
and all letters of credit and/or bankers acceptances issued by Bank for
Borrower as account party, and (iii) the aggregate amount of any
unreimbursed payments made by Bank pursuant to any letter of credit or
bankers acceptance, shall not at any time exceed the Commitment. Within
that limit, Borrower may borrow, repay and reborrow on or after the
Effective Date and until and including the Expiration Date, except as
provided in this Credit Agreement.
(b) Borrower may at any time and from time to time terminate or
permanently reduce the Commitment by giving not less than ten (10) Business
Days' prior written notice to such effect to Bank, provided that any
partial reduction shall be in the aggregate amount of $500,000 or a
multiple thereof and that Borrower shall prepay such part, if any, of the
principal of the Credit Note then outstanding as may be in excess of the
amount of the Commitment as so reduced.
(c) Except as otherwise provided herein, all outstanding Credit Loans
shall be repaid on the Expiration Date.
2.2 The Credit Note. The obligation of Borrower to repay all amounts
---------------
loaned by Bank under this Part will be evidenced by a Credit Note of Borrower,
payable to the order of Bank, in the form attached hereto as Exhibit A, with the
blanks appropriately completed.
<PAGE>
7
2.3 Borrowing Procedure.
-------------------
(a) The following individuals may request Credit Loans: Stephen D.
Allison, Joanne Shifres and Mitchell G. Tyson. Any request for a Credit
Loan may be oral (including telephonic) or written, but if oral shall be
promptly confirmed in writing. Bank shall be protected and held harmless
by Borrower in acting upon any request for a Loan believed by it to have
been genuine and to have been given by a proper Person.
(b) The minimum amount of each Loan under this Part is as follows:
(i) for Eurodollar Loans, in an amount at least equal to $100,000.00
and shall be in an integral multiple of $100,000; and
(ii) for Prime Rate Loans, no minimum amount.
(c) Bank will credit the proceeds of each Credit Loan to Borrower's
deposit account with Bank.
(d) Bank will maintain records of the date and amount of each
borrowing, the interest rate selected and the Interest Period therefor, and
each principal payment under this Part and will make a statement of these
records available to Borrower upon request. Bank may endorse on the grid
portion of the Credit Note the date and the amount of each borrowing
obtained from Bank, the interest rate selected and the Interest Period
therefor and the initials or other identifying symbol of the Person making
the endorsement.
2.4 Interest.
--------
(a) Borrower will pay to Bank interest on the unpaid principal amount
of each Credit Loan made by Bank for the period commencing on the date of
such Loan to but excluding the date such Loan shall be paid in full, at the
following rates per annum:
(i) During such periods such Loan is a Prime Rate Loan, the Prime Rate
(as in effect from time to time).
(ii) During such periods such Loan is a Eurodollar Loan, for each
Interest Period relating thereto, the Eurodollar Base Rate for such
Loan for such Interest Period plus the Applicable Margin.
(b) Notwithstanding the foregoing, Borrower will pay to Bank interest
at the applicable Post-Default Rate on any principal of any Credit Loan
made by Bank, and (to the fullest extent permitted by law) on any other
amount (other than interest) payable to Bank by Borrower hereunder or under
the Credit Note, which shall not be paid in full when due (whether on the
last day of the applicable Interest Period, on the Expiration Date, by
acceleration or otherwise), for the period commencing on the due date
thereof until the same is paid in full.
<PAGE>
8
(c) Accrued interest on each Credit Loan shall be payable (i) in the
case of a Prime Rate, monthly on the Monthly Due Date, and (ii) in the case
of a Eurodollar Loan, on the last day of each Interest Period therefor, and
if such Interest Period is shorter than thirty (30) days, on the last day
of the calendar month in which the Interest Period ends, except that
interest payable at the Post-Default Rate shall be payable from time to
time on demand of Bank. Promptly after the determination of any interest
rate provided for herein or any change therein, Bank shall notify Borrower
thereof.
2.5 Commitment Fee. Borrower agrees to pay a commitment fee to Bank as a
--------------
consideration for the Commitment. The commitment fee shall be calculated at the
rate of one fifth of one percent (0.20%) per annum (based on a year of 365 days)
from the Effective Date, on the average daily unborrowed amount of Bank's
Commitment. The commitment fee will be payable on each Quarterly Due Date and
on the Expiration Date, for the preceding period for which such fee has not been
paid. After any and each permanent reduction of the Commitment by Borrower,
future commitment fees shall be calculated upon the Commitment of Bank as so
reduced.
2.6 Facility Fee. On the Effective Date, Borrower shall pay to Bank a
------------
facility fee in an amount equal to one quarter of one percent ( 0.25%) of the
Commitment as then in effect.
2.7 Prepayment. Borrower shall have the right to prepay Credit Loans at
----------
any time or from time to time, provided that:
(a) Borrower shall give Bank notice of each such prepayment as
provided in Part 4.6 hereof; and
(b) Eurodollar Loans may be prepaid only on the last day of an
Interest Period for such Loans.
2.8 Additional Costs.
----------------
(a) Borrower shall pay to Bank from time to time such amounts as Bank
may determine to be necessary to compensate it for any costs which the Bank
determines are attributable to its making or maintaining any Eurodollar
Loan under this Credit Agreement or its undertaking to make or maintain any
such Loans hereunder, or any reduction in any amount receivable by Bank
hereunder in respect of any such Loans or such undertaking (such increases
in costs and reductions in amounts receivable being herein called
"Additional Costs"), resulting from any regulatory change applicable to
Bank which: (i) changes the basis of taxation of any amounts payable to
Bank under this Credit Agreement in respect of any of such Loans (other
than federal and state taxes imposed on the net income of Bank on account
of any of such Loans by the jurisdiction in which the Bank is located); or
(ii) imposes or modifies any reserve, special deposit, deposit insurance or
assessment, capital or similar requirements relating to any extensions of
credit or other assets of, or any deposits with or other liabilities of,
Bank (including any of such Loans or any deposits referred to in the
definition of Eurodollar Base Rate); or (iii) imposes any other condition
affecting this Credit Agreement (or any of such extensions of credit or
liabilities).
<PAGE>
9
Bank will notify Borrower of any event occurring after the
date of this Credit Agreement which will entitle Bank to compensation
pursuant to this Part as promptly as practicable after it obtains knowledge
thereof and determines to request such compensation. All payments required
from Borrower hereunder shall be made within fifteen (15) days of
Borrower's receipt of notice that such payments are due.
(b) Without limiting the effect of the foregoing provisions of this
Part, in the event that, by reason of any regulatory change applicable to
Bank, Bank either (i) incurs Additional Costs based on or measured by the
excess above a specified level of the amount of a category of deposits or
other liabilities of Bank which includes deposits by reference to which the
Eurodollar Base Rate is determined as provided in this Credit Agreement or
a category of extensions of credit or other assets of Bank which includes
Eurodollar Loans or (ii) becomes subject to restrictions on the amount of
such a category of liabilities or assets which it may hold, then, if Bank
so elects by notice to Borrower, the undertaking of Bank to make such
Eurodollar Loans, or to renew the Eurodollar Base Rate or to convert any
interest rate option to the Eurodollar Base Rate shall be suspended until
the date such applicable regulatory change ceases to be in effect, and
Borrower shall on the last day of the then current Interest Period for such
affected outstanding Loans pay such Loans in accordance with this Credit
Agreement.
(c) Determinations and allocations by Bank for purposes of this Part
of the effect of any applicable regulatory change on its costs of making or
maintaining such Loans or on amounts receivable by it in respect of such
Loans, and of the additional amounts required to compensate Bank in respect
of any Additional Costs, shall be conclusive, provided that such
determinations are made in good faith on a reasonable basis.
2.9 Limitation on Types of Loans. Anything herein to the contrary
----------------------------
notwithstanding, if Bank determines (which determination shall be conclusive)
that the relevant rates of interest which are the basis of the Eurodollar Base
Rate do not adequately cover the cost to Bank of making or maintaining the
Eurodollar Loans, then Bank shall give Borrower prompt notice thereof, and so
long as such condition remains in effect, Bank shall be under no obligation to
make such Loans and Borrower shall, on the last day(s) of the then current
Interest Period(s) for the outstanding Loans of the affected type, pay such
Loans in accordance with this Credit Agreement.
2.10 Illegality. Notwithstanding any other provision in this Credit
----------
Agreement, in the event that it becomes unlawful for Bank to (a) honor its
undertaking to make Eurodollar Loans hereunder, or (b) maintain such Eurodollar
Loans hereunder, then Bank shall promptly notify Borrower thereof and Bank's
undertaking to make such Loans shall be suspended until such time as Bank may
again make and maintain such affected Loans and interest rate option, and
Borrower shall, on the last day(s) of the then current Interest Period(s) for
the outstanding Eurodollar Loans (or on such earlier date as Bank may specify to
Borrower, due to the illegality of maintaining such Loans), pay such Loans in
accordance with this Credit Agreement.
2.11 Compensation. Borrower shall pay to Bank, upon the request of Bank and
------------
within fifteen (15) days of such request, such amount or amounts as shall be
sufficient (in the reasonable opinion of Bank) to compensate it for any loss,
cost or expense which Bank determines is attributable to:
<PAGE>
10
(a) any payment or prepayment of a Eurodollar Loan, where such payment
or prepayment occurs on a date other than the last day of an Interest
Period for the respective Loans (whether by reason of demand by Bank for
payment or otherwise); or
(b) any failure by Borrower to, on the date specified therefor in the
relevant notice under this Credit Agreement, enter into a Eurodollar Loan.
Without limiting the foregoing, such compensation shall include an amount equal
to the excess, if any, of (i) the amount of interest which otherwise would have
accrued on the principal amount so paid or prepaid or not borrowed for the
period from and including the date of such payment or prepayment or failure to
borrow to but excluding the last day of the then current Interest Period for
such Loan (or, in the case of a failure to borrow to but excluding the last day
of the Interest Period for such Loan which would have commenced on the date
specified therefor in the relevant notice) at the applicable rate of interest
for such Loan provided for herein over (ii) the amount of interest (as
reasonably determined by Bank) the Reference Bank would have bid in the London
interbank market (if such Loan is a Eurodollar Loan) for U.S. Dollar deposits
for amounts comparable to such principal amount and maturities comparable to
such Interest Period. A determination of the Bank as to the amounts payable
pursuant to this Part shall be conclusive absent manifest error.
2.12 Survival. The undertaking of Borrower under this Part 2 shall survive
--------
the repayment of the Credit Loans.
PART 3. [RESERVED]
- ------ ----------
PART 4. PAYMENT TERMS
- ------ -------------
4.1 Payments. All payments of principal of and interest on the Note shall
--------
be made by Borrower when due on or prior to 2:00 p.m. (New York time) at an
office of Bank in lawful money of the United States of America and in
immediately available funds.
4.2 Late Payments.
-------------
(a) Any overdue payments of principal of and, to the extent permitted
by law, overdue payments of interest on any Loan or any other amount
becoming due hereunder shall bear interest, payable on demand, for each day
until paid at a rate per annum (computed on the basis of a year of 360 days
and actual days elapsed) equal to the Prime Rate in effect on such day plus
2%.
(b) Late charges may be added to the amount owing on any future
payment, and such assessment and/or collection of late charges shall in no
way impair Bank's right to pursue any other remedies upon default.
(c) The imposition of any late charge shall not preclude the exercise
by Bank of any other right or remedy it may have.
<PAGE>
11
4.3 Post-Default Rate of Interest. If the Note is not paid at maturity,
-----------------------------
whether maturity occurs by lapse of time or acceleration, the outstanding
principal of that Note, thereafter until paid, shall bear interest each day at
the Post-Default Rate.
4.4 Calculation of Interest. Interest on the Note shall be calculated on
-----------------------
an actual/360 day basis (i.e., interest for each day is computed by multiplying
the principal amount outstanding by the interest rate and dividing by 360) and
includes any time extended by reason of Saturdays, Sundays and holidays.
Changes in the interest rate resulting from changes in the Prime Rate shall be
effective at the opening of business on the day on which the change in such
Prime Rate is effective.
4.5 Application of Payments. All payments made hereunder shall be applied,
-----------------------
first, to fees and expenses, then to late charges, then to accrued and unpaid
interest and the balance, if any, to unpaid principal.
4.6 Certain Notices. Notices by Borrower to Bank of borrowings under the
---------------
Credit Note and of prepayments of the Loans shall be irrevocable and shall be
effective only if received by Bank not later than 11:00 a.m. New York time on
the date, or the number of days prior to the date, of the relevant borrowing,
prepayment or the first day of such Interest Period specified below:
Type of Notice Date or Number of Days Prior
-------------- ----------------------------
Borrowing or prepayment of
Prime Rate Loans Same Business Day
Borrowing or prepayment of
Eurodollar Loans 3 Business Days
PART 5. COLLATERAL SECURITY
- ------ -------------------
5.1 All debts, liabilities and obligations of Borrower under this Credit
Agreement and the Note shall be secured by unlimited guarantees of payment of
each domestic Subsidiary of the Borrower in form satisfactory to the Bank.
5.2 As additional collateral security for the payment of the Note and of
any and all other obligations and liabilities of Borrower to Bank, whether due
or to become due, direct or contingent, now existing or hereafter arising, and
however created or acquired, Bank shall at all times have and is hereby given a
security interest in and a lien upon and right of offset against all moneys,
deposit balances, securities or other property or interest therein of Borrower
now or at any time after the date of this Credit Agreement held or received by
or for or left in the possession or control of Bank, whether for safekeeping,
custody, transmission, collection, pledge or for any other or different purpose.
<PAGE>
12
PART 6. CONDITIONS PRECEDENT
--------------------
6.1 Representations and Warranties. The obligation of Bank to make any
------------------------------
Loan under this Credit Agreement is subject to the accuracy of the
representations and warranties contained in Part 6 as of the dates of this
Credit Agreement and of each Loan. Each such representation and warranty shall
be true on and as of the date of each Loan hereunder with the same effect as
though such representations and warranties had been made on and as of such date;
and on each such date no Event of Default and no condition, event or act which,
with the giving of notice or the lapse of time, or both, would constitute an
Event of Default shall have occurred and be continuing or shall exist.
6.2 Execution and Delivery of Documents and Opinion of Counsel. As further
----------------------------------------------------------
conditions precedent to any Loan under this Credit Agreement, Borrower shall
deliver to Bank at or before the time of the execution and delivery of this
Credit Agreement all documents which Bank may reasonably require, executed and
in a form acceptable to Bank, including, without limitation, the following:
(a) An opinion of counsel for Borrower and any Guarantor, dated as of
the date of this Credit Agreement and in form satisfactory to Bank;
(b) The Certificate of Borrower's Secretary and Borrowing Resolutions
in form reasonably satisfactory to Bank.
PART 7. REPRESENTATIONS AND WARRANTIES
- ------ ------------------------------
Borrower represents and warrants the following, as of the dates of this
Credit Agreement, and of each Loan.
7.1 Existence, Ownership and Legal Power.
-----------------------------------
(a) Borrower is an organization duly organized, validly existing and
in good standing under the laws of the state of its origination. It is duly
qualified to do business and is in good standing in all jurisdictions in
which it owns substantial properties or in which it conducts substantial
business or in which any of its activities make such qualification
necessary and where the failure to be so qualified would have a material
adverse effect upon its financial condition.
(b) Borrower owns the Subsidiaries listed on Schedule 7.1 hereto, each
of which is duly organized, validly existing and in good standing under the
laws of the countries of their originations and is duly qualified to do
business in all jurisdictions in which each owns substantial properties or
conducts substantial business or in which any of their activities make such
qualification necessary and where the failure to be so qualified would have
a material adverse effect upon its financial condition. Borrower owns no
other Subsidiaries. Borrower's record and beneficial ownership of each
Subsidiary is free from any restriction, security interest, or other lien.
<PAGE>
13
(c) Borrower has all requisite power and authority under the laws of
the state of its origination to carry on its business and to enter into and
carry out the terms of this Credit Agreement, the Note and the Collateral
Documents.
7.2 Right to Act. Neither the execution and delivery of this Credit
------------
Agreement, the Note, or the Collateral Documents, the consummation of any
transaction contemplated by those documents, nor compliance with their terms and
provisions will:
(a) conflict with or result in a breach of any of the terms,
conditions or provisions of its or any Subsidiary's Organizational
Agreements, any law or any regulation, order, writ, injunction or decree of
any court or governmental instrumentality, or any agreement or instrument
to which Borrower or any Subsidiary is a party or is subject or by which
properties of Borrower or any Subsidiary may be bound;
(b) result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever, upon any of Borrower's or any
Subsidiary's property or assets; or
(c) require the consent of any Person.
7.3 Approval by Necessary Organizational Action. The execution and
-------------------------------------------
delivery of the Credit Agreement and the Collateral Documents, the making of the
borrowings contemplated or permitted by the Credit Agreement, and the execution,
issuance and delivery of the Note to evidence the borrowings have each been duly
authorized by all necessary organizational action on the part of Borrower. The
Credit Agreement, the Credit Note and the Collateral Documents have been duly
and validly executed and delivered by Borrower. They constitute the valid and
legally binding agreements of Borrower enforceable in accordance with their
terms, except as may be limited by (a) bankruptcy, insolvency, or other laws of
general application relating to or affecting the enforcement of creditors'
rights and remedies generally and (b) the exercise of judicial discretion in
accordance with general principles of equity.
7.4 Financial Statements.
--------------------
(a) Each financial statement and all other related information
furnished to Bank by Borrower have been prepared in accordance with
generally accepted accounting principles and practices consistently applied
in the preparation of Borrower's and any Subsidiaries' previous financial
statements, are true and complete in all material respects, and fairly
present Borrower's and any Subsidiaries' financial condition and results of
operations as of the date of each statement or other information and for
the respective period stated. There has been no material change in
Borrower's financial condition, properties, business or operations since
the date of Borrower's financial statements.
(b) Borrower has delivered to Bank copies of its most recent annual
and interim financial statements.
7.5 Litigation; Regulatory Compliance. Except as may be described in the
---------------------------------
opinion of counsel delivered pursuant to Part 6.2(a):
<PAGE>
14
(a) There are no actions, suits or proceedings pending or threatened
against or affecting Borrower or any Subsidiary before any court or before
any federal, state, provincial, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which involve the possibility of any judgment or liability not covered in
full by insurance or which could in one case or in the aggregate result in
any material adverse change in the business, operations, property, assets
or financial condition of Borrower and its Subsidiaries taken as a whole;
and
(b) Neither Borrower nor any Subsidiaries are in default with respect
to any order, writ, injunction or decree of any court, arbitrator or
federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign.
7.6 ERISA Compliance. Neither Borrower nor any Subsidiary has incurred any
----------------
material accumulated funding deficiency within the meaning of the Employee
Retirement Income Security Act of 1974, as amended from time to time, and the
regulations thereunder. The Pension Benefit Guaranty Corporation has not
asserted that Borrower or any Subsidiary has incurred any material liability in
connection with any employee pension benefit plan. No lien has been attached and
no Person has threatened to attach a lien on any property of Borrower or any
Subsidiary as a result of Borrower's or any Subsidiary's failing to comply with
such act or regulations.
7.7 Title and Freedom from Liens. Borrower and any Subsidiaries have good,
----------------------------
marketable and indefeasible title to all of its and their properties and assets,
real and personal, free and clear of all liens and encumbrances, except for the
following:
(a) in the case of real properties, easements, restrictions,
exceptions, reservations or defects which, in the aggregate, do not
interfere materially with the continued use of such properties for the
purposes for which they are used and do not affect materially the value
thereof;
(b) pledges or deposits to secure obligations under workers'
compensation laws or similar legislation or to secure performance in
connection with bids, tenders and contracts (other than contracts for the
payment of borrowed money) to which Borrower or any Subsidiary is a party;
(c) deposits to secure public or statutory obligations of Borrower and
any Subsidiaries;
(d) materialmen's, mechanics', carriers', workers' or other like liens
arising in the ordinary course of business, or deposits of cash or United
States obligations to obtain the release of such liens;
(e) mortgages, liens, security interests or encumbrances granted to
Bank or as set out in Schedule A to this Credit Agreement;
<PAGE>
15
(f) liens for taxes not yet due or liens for taxes being contested in
good faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of the Borrower in accordance with
generally accepted accounting principles;
(g) liens on personal property leased by the Borrower under operating
leases;
(h) pledges of or liens on manufactured products as security for any
drafts or bills of exchange drawn in connection with the importation of
such manufactured products in the ordinary course of business;
(i) liens under Article 2 of the Uniform Commercial Code that are
special property interests in goods identified as goods to which a contract
refers;
(j) liens under Article 9 of the Uniform Commercial Code that are
purchase money security interests; and
(k) liens securing lease obligations that have been or should be, in
accordance with generally accepted accounting principles, capitalized on
the books of the Borrower.
7.8 Absence of Default. No Event of Default as described in this Credit
------------------
Agreement and no condition, event or act which, with the giving of notice or the
lapse of time or both, would constitute an Event of Default has occurred and is
continuing or will exist.
7.9 Taxes. Borrower and any Subsidiaries have filed all tax returns
-----
required to be filed by any jurisdiction, and have paid any taxes, assessments
and governmental charges and levies which have become due except those being
contested in good faith by appropriate and timely proceedings, and with respect
to which reserves have been provided or are otherwise available.
7.10 Contractual Obligations and Debt to Shareholders. Neither Borrower nor
------------------------------------------------
any Subsidiary is indebted (whether or not such Indebtedness is now due and
payable) to any shareholder, director, officer or partner, as applicable, of
Borrower or any Subsidiary, except for Indebtedness for current salaries and
expenses not yet due and except for Indebtedness, set forth in Schedule B to
this Credit Agreement, which is Subordinated Debt.
7.11 Existing Debts. Borrower has no Indebtedness except for (a)
--------------
Indebtedness permitted under section 8.6 and (b) other Indebtedness set forth in
Schedule B to this Credit Agreement.
7.12 Margin Stock. Borrower is not engaged principally, or as one of its
------------
important activities, in the business of extending or arranging for the
extension of credit for the purpose of purchasing or carrying "margin security"
or "margin Stock" (as defined in Regulations G and U issued by the Board of
Governors of the Federal Reserve System). Borrower does not own or intend to
carry or purchase any "margin security" or "margin Stock". Borrower will not
use the proceeds of any Loan to purchase or carry (or refinance any borrowings
the proceeds of which were used to purchase or carry) any "margin security" or
"margin Stock".
<PAGE>
16
7.13 Compliance with Conditions Precedent. Borrower has (a) executed and
------------------------------------
delivered to Bank the documents described in Part 6.2 and Schedule B hereto; (b)
obtained and delivered to Bank the Opinion of Counsel described in Part 6.2; and
(c) otherwise complied with all other conditions hereto.
PART 8. COVENANTS
- ------ ---------
Borrower will perform and observe each of the following provisions while
this Credit Agreement remains in effect and thereafter until the principal of
and interest on the Loans are paid in full, unless Bank otherwise consents in
writing.
8.1 Financial Information.
---------------------
(a) Borrower will furnish Bank annually within ninety (90) days after
and as at the close of each fiscal year its audited financial statements,
including, without limitation, consolidated balance sheets and statements
of operations and earnings and changes in financial position, each examined
and reported upon by an independent certified public accounting firm
satisfactory to Bank, and prepared in accordance with generally accepted
accounting principles consistently applied, and the report of such
accountants shall not contain any qualification or disclaimer of opinion by
reason of audit limitations imposed by Borrower. Such financial statements
shall be accompanied by a certificate of the accountants that, based on the
fiscal year-end statements, Borrower is not in default hereunder.
(b) Borrower will furnish to Bank within forth five (45) days after and
as at the close of each fiscal quarter (except the last quarter of each
fiscal year) its interim financial statements, including, without
limitation, consolidated and consolidating balance sheets and related
statements of operations and earnings and changes in financial position of
Borrower for the previous fiscal quarter and from the beginning of the
fiscal year to the end of such fiscal quarter, together with comparisons to
the previous year, if appropriate, and to budget projections, prepared by
Borrower's accounting staff in accordance with generally accepted
accounting principles consistently applied, except for the absence of
footnotes and subject to normal year-end adjustments. Such financial
statements shall be accompanied by a certificate of Borrower's chief
financial officer that, based on such statements, Borrower is not in
default hereunder.
(c) Borrower will furnish Bank with any and all information regarding
Borrower's business, condition or operations, financial or otherwise which
Borrower furnishes to any other creditor. This information shall be
furnished to Bank at the same time it is furnished to that creditor.
(d) Borrower will immediately furnish Bank with such further
information regarding Borrower's business, condition, property, assets or
operations, financial or otherwise, as Bank may from time to time
reasonably request, all prepared in form and detail satisfactory to Bank.
(e) Borrower will at all times maintain true and complete records and
books of account including, without limiting the generality of the
foregoing, appropriate reserves for possible losses
<PAGE>
17
and liabilities, all in accordance with generally accepted accounting
principles consistently applied.
8.2 Inspection of Borrower's Property and Records. Borrower shall permit,
---------------------------------------------
and cause any Subsidiary to permit, representatives of Bank (a) to visit and
inspect any of the properties of Borrower or any Subsidiary, (b) to examine its
or their corporate or partnership books and records, (c) to make extracts or
copies of such books and records, and (d) to discuss its or their affairs,
finances and accounts with its or their officers or partners, as applicable.
The foregoing may be done at any time within regular business hours upon
reasonable advance notice.
8.3 Preservation of Borrower's Existence and Business.
-------------------------------------------------
(a) Borrower will preserve and keep in full force and effect Borrower's
existence, rights, licenses and franchises and those of any Subsidiaries,
necessary and material to Borrower's and Subsidiaries' operations taken as
a whole.
(b) Borrower will not make or permit to be made any material change in
the nature of Borrower's business or operations.
8.4 Incurrence of Indebtedness. Borrower will not borrow any money,
--------------------------
directly or indirectly, and will not incur, create, permit to exist or assume
any Indebtedness, nor permit any Subsidiary to incur, create, permit to exist or
assume, directly or indirectly, any Indebtedness, except:
(a) unsecured current liabilities incurred upon customary terms (which
shall not include any borrowing, trade acceptances or notes given in
settlement of trade Indebtedness) in the ordinary course of business and
not more than sixty (60) days overdue;
(b) Indebtedness for taxes, assessments and governmental charges or
levies not yet due and payable;
(c) Subordinated Debt;
(d) existing Indebtedness as specified in Schedule B attached to this
Credit Agreement, which Indebtedness is not to be renewed, modified or
extended except with the express written approval of Bank;
(e) Indebtedness secured by liens permitted under Section 8.7;
(f) Indebtedness owed to Bank; and
(g) Indebtedness permitted under Section 8.6.
8.5 Payment of Debts and Obligations. Borrower will cause to be paid and
--------------------------------
discharged all its obligations when due and all lawful taxes, assessments and
governmental charges or levies imposed upon Borrower or any Subsidiary, or upon
any property, real, personal or mixed, belonging to Borrower or
<PAGE>
18
any Subsidiaries, or upon any part thereof, before the same shall become in
default, as well as all lawful claims for labor, materials and supplies which,
if unpaid, might become a lien or charge upon the property or any part of it.
Notwithstanding the previous sentence, neither Borrower nor any Subsidiary shall
be required to cause to be paid and discharged any obligation, tax, assessment,
charge, levy or claim so long as its validity is contested in the normal course
of business and in good faith by appropriate and timely proceedings and Borrower
or any Subsidiary, as the case may be, sets aside on its books adequate reserves
with respect to each tax, assessment, charge, levy or claim so contested, nor
shall Borrower nor any Subsidiary be required to pay or discharge any trade
Indebtedness which is not past its stated due date by more than thirty (30)
days.
8.6 Loans and Guaranties by Borrower. Borrower will not loan or make
--------------------------------
advances to, or guarantee, endorse or otherwise be or become liable or
contingently liable in connection with the obligations or Indebtedness of any
other Person, including any Subsidiary, directly or indirectly, or permit any
Subsidiary to do so, except:
(a) as an endorser of negotiable instruments for the payment of money
deposited to Borrower's bank account for collection in the ordinary course
of business;
(b) trade credit extended in the ordinary course of Borrower's
business; and
(c) advances made in the usual course of business to officers and
employees of Borrower for travel and other out-of-pocket expenses incurred
by them on behalf of Borrower in connection with that business.
8.7 Liens and Other Encumbrances. Borrower will not (and will not permit
----------------------------
any Subsidiary to) mortgage, pledge, assign or otherwise encumber or permit to
be encumbered any of Borrower's or any Subsidiary's real or personal properties,
whether now owned or hereafter acquired, or acquire or agree to acquire any
property or assets upon conditional sale or other title retention agreement,
except for (a) security interests and mortgages granted to Bank, (b) purchase
money security interests and purchase money mortgages granted by Borrower in the
course of purchasing property, provided that such mortgage or security interest
shall be restricted to the property being purchased and that the Indebtedness
secured thereby shall not exceed one hundred percent (100%) of the purchase
price of the property, and (c) pledges and deposits made in the ordinary course
of business to secure obligations under workers' compensation laws or similar
laws. The above provision limiting liens against Borrower's property will not
apply to liens existing on the date of this Credit Agreement as set out in
Schedule A attached hereto or any other liens listed in Section 7.7.
8.8 Accounts. Borrower will not sell, discount or otherwise transfer, or
--------
permit any Subsidiary to sell, discount or otherwise transfer, with or without
recourse, any Accounts.
8.9 Insurance Coverage. Borrower will maintain, and cause any Subsidiaries
------------------
to maintain, insurance from duly licensed and responsible insurers on all
property of Borrower and any Subsidiaries to its full insurable value, except to
the extent limited by applicable insurance law. This insurance shall be against
risks of fire and all other risks as fall within "extended coverage" as that
term is generally understood in the insurance industry. Borrower shall also
maintain, and cause any Subsidiaries to
<PAGE>
19
maintain, additional insurance in such amounts and against such risks,
including, without limitation, product liability, personal injury, property
damage, and workers' compensation, as is usually carried by owners of similar
businesses of similar size and profits or as Bank may reasonably require.
8.10 Litigation. Borrower will promptly notify Bank in writing of the
----------
commencement of any litigation in excess of Ten Thousand Dollars ($10,000.00),
singularly or cumulatively, to which Borrower, or any Subsidiary, may be a
party, except for litigation in which Borrower's contingent liability is fully
covered by insurance. Borrower will immediately notify Bank in writing of any
judgment against Borrower in excess of Ten Thousand Dollars $10,000.00.
8.11 ERISA Compliance. Borrower will not (a) incur any accumulated funding
----------------
deficiency within the meaning of the Employee Retirement Income Security Act of
1974, as amended from time to time and the regulations thereunder, equal to 5%
of Consolidated Tangible Net Worth or (b) incur any liability of comparable size
to the Pension Benefit Guaranty Corporation.
8.12 FLSA Compliance. Borrower will and will cause any Subsidiary to comply
---------------
with the provisions of the Fair Labor Standards Act of 1938, as amended.
8.13 Compliance with All Laws, Etc. Borrower will not be, nor will it
------------------------------
permit any Subsidiary to be, in violation of any law or regulation, order, writ,
injunction or decree of any court or governmental instrumentality or in breach
of any agreement or instrument to which Borrower or any Subsidiary is subject or
in default thereunder except where such breach or violation would not have a
material adverse effect on Borrower and its Subsidiaries taken as a whole.
8.14 Mergers, Acquisitions, Bulk Sales and Reorganization. Except for
----------------------------------------------------
Permitted Acquisitions, Borrower will not enter into or be a party to any
merger, consolidation or reorganization, or permit any Subsidiary to do so, or
sell, transfer, convey, lease or otherwise dispose of all or substantially all
of Borrower's or any Subsidiary's capital assets or business; provided, however,
that this Part does not limit in any way the making of leases by Borrower, as
lessor, of Borrower's products, programs or other inventory in the ordinary
course of Borrower's business; and provided further that any Wholly-owned
Subsidiary may be merged into Borrower or another Wholly-owned Subsidiary.
Except for Permitted Acquisitions, Borrower will not enter into or be a party to
any agreement to acquire the Stock or assets of a corporation or any part
thereof or issue its Stock in exchange for the assets or Stock of a corporation
or any part thereof.
8.15 Subsidiaries.
------------
(a) Borrower will not organize or cause to exist any Subsidiaries,
except for the Subsidiaries listed in Part 7.1(b) of this Credit Agreement,
without Bank's prior written consent, which consent may be conditioned,
without limitation, upon the granting by such Subsidiary of a guaranty of
payment of the Note and all other Indebtedness of Borrower to Bank.
(b) Borrower will not sell, convey, transfer, assign, pledge or
otherwise encumber any of the Stock of any Subsidiary to any Person.
<PAGE>
20
8.16 Ownership of Securities. Borrower will not make or hold any investment
-----------------------
in any securities of any kind other than ownership of Stock of Subsidiaries, be
or become a party to any joint venture or partnership, unless it shall have
obtained Bank's written consent following at least thirty (30) days' prior
written notice to Bank, or make or keep outstanding any advance or loan except
as permitted pursuant to and under Part 8.6. The foregoing provision shall not
apply to any investment in direct obligations of the United States of America,
certificates of deposit issued by a member bank of the Federal Reserve System,
or any investment in commercial paper which at the time of such investment is
assigned the highest quality rating in accordance with the rating systems
employed by either Moody's Investors Service, Inc. or Standard & Poor's
Corporation.
8.17 Notice to Bank of Default. Borrower will immediately notify Bank in
-------------------------
writing with full details if (a) any event occurs or any condition exists which
constitutes, or which but for a requirement of lapse of time or notice or both
would constitute, an Event of Default under Part 9.1, or which is likely to
materially and adversely affect the financial condition or operations of
Borrower or of any Subsidiary or (b) any representation or warranty made in this
Credit Agreement or in any writing related to it may for any reason cease in any
material respect to be true and complete.
8.18 Financial Covenants. Measured as of the end of each fiscal quarter,
-------------------
Borrower will not
(a) Permit the ratio of Total Funded Debt to EBITDA to be at any time
greater than 1.50 to 1.
(b) Permit Consolidated Net Worth to be at any time less than the sum of
(i) Consolidated Net Worth as of September 30, 1997, (ii) fifty percent
(50%) of positive Consolidated Net Income for the fiscal quarter then
ended, plus (iii) one hundred percent (100%) of the increase in
Consolidated Net Worth for the current fiscal year resulting from the
issuance of equity securities in such fiscal year.
(c) Permit at any time the ratio of (i) EBITDA minus Capital Expenditures,
to (ii) Current Debt Service plus taxes, to be less than 2.5 to 1.
(d) Permit the Consolidated Net Income (after inclusion of non-recurring
restructuring costs) of Borrower and any Subsidiaries to be less than zero
(0) as at the last day of any two consecutive fiscal quarters.
8.19 Year 2000. Borrower will cause any reprogramming required to permit
----------
the proper functioning in all material respects, in and following the year 2000,
of (i) Borrower's computer systems and (ii) equipment containing embedded
microchips (including systems and equipment supplied by others or with which
Borrower's systems interface) and the testing of all such systems and equipment,
as so reprogrammed, to be completed by June 1, 1999. The cost to Borrower of
such reprogramming and testing and of the reasonably foreseeable consequences of
year 2000 to Borrower (including, without limitation, reprogramming errors and
the failure of others' systems or equipment) will not result in an Event of
Default or have a material adverse effect on Borrower. Except for such of the
reprogramming referred to in the preceding sentence as may be necessary, the
computer and management information systems of Borrower and its Subsidiaries are
and, with ordinary course upgrading and maintenance, will continue to be,
sufficient to permit Borrower to conduct its business without a material adverse
effect.
<PAGE>
21
PART 9. DEFAULT
- ------ -------
9.1 Events of Default. Each of the following shall constitute an Event of
-----------------
Default under this Credit Agreement:
(a) Borrower fails to pay any principal or interest owing under this
Credit Agreement or the Note within five (5) Business Days after the same
is due and payable;
(b) Borrower defaults in the performance of any other covenant,
condition, or provision in this Credit Agreement, the Note or any of the
Collateral Documents, or any Guarantor defaults in the performance of any
covenant, condition, or provision of the Guaranty or any of the Collateral
Documents, and Borrower or the Guarantor, as the case may be, does not
remedy that default within a period of thirty (30) days after written
notice to Borrower from Bank or the holder of the Note;
(c) Any representation or warranty made by Borrower or Guarantor in
this Credit Agreement or the Collateral Documents or any certificate or
financial statement furnished to Bank is false or misleading in any
material respect as of the time made or furnished;
(d) Borrower, any of Borrower's Affiliates or any Guarantor defaults in
any payment of the principal of or interest on any obligation(s) for
borrowed money or evidences of Indebtedness (other than hereunder) in the
aggregate principal amount of more than $100,000, whether owing to Bank or
any other Person and including Subordinated Debt, or in the performance of
any other term or condition contained in any agreement under which any such
obligation(s) or evidences of Indebtedness is created, and such default(s)
shall continue beyond the period of grace, if any, specified therein,
regardless of whether such obligation or Indebtedness is actually
accelerated and, in the case of Subordinated Debt, regardless of whether
payment upon such acceleration is postponed pursuant to the terms of such
subordination;
(e) Any event occurs or condition exists which, with notice or lapse of
time or both, would make any employee pension or benefit plan of Borrower,
any Subsidiary or any Guarantor subject to termination under subsections
(1), (2) and (3) of Section 4042(a) of the Employee Retirement Income
Security Act of 1974 or Borrower, any Subsidiary, any Guarantor or any of
their respective plan administrators shall have received notice from the
Pension Benefit Guaranty Corporation indicating that it has made a
determination that any employee pension benefit plan of Borrower, any
Subsidiary or any Guarantor is subject to termination under Section
4042(a)(4) of said Act, or Borrower, any Subsidiary or any Guarantor is
subject to employer's liability under Sections 4062, 4063, or 4064 of said
Act, in each case under said Act as now or hereafter amended;
(f) Final judgments in the aggregate amount of Ten Thousand Dollars
($10,000.00) or more at any one time outstanding are rendered against
Borrower, any Subsidiary or any Guarantor and remain unsatisfied for a
period of sixty (60) days thereafter.
<PAGE>
22
(g) Borrower, any Subsidiary or any Guarantor is generally not paying
its debts, respectively, as they become due;
(h) Borrower, any Subsidiary or any Guarantor makes an assignment for
the benefit of creditors, commences (as the debtor) any case in bankruptcy,
or commences (as the debtor) any proceeding under any other insolvency law;
(i) A case in bankruptcy or any proceeding under any insolvency law is
commenced against Borrower, any Subsidiary or any Guarantor (as the debtor
in such case or proceeding) and a court having jurisdiction in the premises
enters an order for relief against Borrower, the Subsidiary or the
Guarantor in such case or proceeding and that order is not overturned or
stayed within sixty (60) days of entry, or such case or proceeding is
consented to by Borrower, the Subsidiary or the Guarantor, or Borrower, the
Subsidiary or the Guarantor consents to or admits the material allegations
against it in any such case or proceeding; and
(j) A trustee, receiver, agent or custodian (however named) is
appointed or authorized to take charge of substantially all of the property
of Borrower, any Subsidiary or any Guarantor for the purpose of enforcing a
lien against such property for the benefit of creditors and the order, if
any, appointing the trustee, receiver, agent or custodian is not overturned
or stayed within sixty (60) days of entry.
9.2 Optional Acceleration. If one or more Events of Default occur under
---------------------
Part 9.1(a), (b), (c), (d), (e) or (f) above which is not cured as provided or
waived by Bank in writing, Bank shall be entitled, by written or telegraphic
notice to Borrower, to terminate the Commitment and declare the Note and
interest accrued thereon and all liabilities of Borrower under this Credit
Agreement to be forthwith due and payable. The Note shall then become due and
payable without presentment, demand, protest or notice of any kind, all of which
are hereby expressly waived.
9.3 Automatic Acceleration. If one or more Events of Default occur under
----------------------
Part 9.1(g), (h), (i) or (j) above, then the Commitment shall automatically and
forthwith terminate and the Note and interest accrued thereon and all
liabilities of Borrower under this Credit Agreement to Bank shall automatically
become forthwith due and payable in full. The Note shall then become due and
payable without presentment, demand, protest or notice of any kind, all of which
are hereby expressly waived.
9.4 Acceleration of Other Obligations to Bank. If the Note becomes due and
-----------------------------------------
payable under the terms of this Part, then each and every other note of Borrower
payable to Bank will also become forthwith due and payable, without presentment,
demand, protest or notice of any kind, all of which are expressly waived.
<PAGE>
23
PART 10. MISCELLANEOUS
- ------- -------------
10.1 Waivers. No delay or failure of Bank in exercising any right, power or
-------
privilege under this Credit Agreement will affect that right, power or
privilege. No single or partial exercise, abandonment, or discontinuance of
steps to enforce a right, power or privilege under this Credit Agreement will
preclude Bank from any further exercise of that, or of any other, right, power
or privilege. The rights and remedies of Bank under this Credit Agreement are
cumulative and, notwithstanding Part 10.7, not exclusive of any rights or
remedies which it would otherwise have. Any waiver, permit, consent or approval
of any kind or character on the part of Bank of any breach or default under this
Credit Agreement or any such waiver of any representation, warranty, provision
or condition of this Credit Agreement must be in a writing executed by Bank and
shall be effective only to the extent specifically set forth in that writing.
10.2 Banker's Lien/Set-Off. Nothing in this Credit Agreement shall be
---------------------
deemed as a waiver or prohibition of Bank's rights of banker's lien or set-off.
10.3 Notices. All notices, statements, requests and demands given to or
-------
made upon any party hereto in accordance with the provisions of this Credit
Agreement shall be deemed to have been given or made (a) if mailed, two (2)
Business Days after such writing shall have been deposited in the mail, postage
pre-paid, (b) if telecopied, upon receipt of the transmission provided that the
teletransmission device used shall be capable of creating a written record of
the notice and its receipt, (c) if sent by overnight courier, one (1) Business
Day after such writing shall have been deposited with the overnight courier,
charges prepaid or (d) in the case of telegraphic notice, when delivered to the
telegraph company, charges prepaid, addressed to Bank and to Borrower at their
respective addresses set forth in this Credit Agreement (or to such address or
telecopier number as either party may hereafter furnish to the other party in
writing for such purpose) or in accordance with any unrevoked written direction
from any party to the other party hereto.
10.4 Costs. Borrower agrees (a) to pay Bank's reasonable documentation fee
-----
and all out-of-pocket expenses incurred in connection with the preparation,
execution, and delivery of this Credit Agreement, the Note, the Collateral
Documents and all other documentation relating to the Credit Agreement and any
amendments hereto or thereto; (b) to pay all costs and expenses (including
reasonable attorney's fees, both outside counsel and the allocated cost of in-
house counsel), if any, in connection with the enforcement or collection of this
Credit Agreement, the Note and the Collateral Documents arising after the
occurrence of any event which with notice or lapse of time would constitute an
Event of Default, unless such occurrence is cured by Borrower within any
applicable grace period or such reimbursement is not required by the terms of
any waiver granted by Bank in respect of such occurrence, as well as any and all
stamp and other taxes, and (c) to save Bank harmless from any and all
liabilities with respect to or resulting from any delay or omission to pay such
taxes, if any, which may be payable or determined to be payable in connection
with the execution and delivery of this Credit Agreement, the Note or the
Collateral Documents. The obligations of Borrower under this paragraph shall
survive the payment of the Note.
10.5 Litigation. In the event of litigation under this Credit Agreement,
----------
Borrower agrees to submit to the jurisdiction of the courts of appropriate
jurisdiction in the State of New York and to the venue of the courts located in
the county where Bank is located, as stated in this Credit Agreement.
<PAGE>
24
Borrower agrees that Bank may serve process on it by certified mail mailed to
its principal place of business as stated in this Credit Agreement without prior
attempt at personal or substituted service. BORROWER WAIVES ANY RIGHT TO TRIAL
BY JURY OF ANY ISSUE CONNECTED WITH THIS CREDIT AGREEMENT, THE NOTE OR THE
COLLATERAL DOCUMENTS, OR ANY OTHER DOCUMENTATION RELATING THERETO, OR THE
ENFORCEMENT OF ANY OF THOSE DOCUMENTS OR INSTRUMENTS. BORROWER WAIVES THE RIGHT
TO INTERPOSE COUNTERCLAIMS OF ANY NATURE, EXCEPT COMPULSORY COUNTERCLAIMS.
10.6 New York Law. This Credit Agreement and the Note issued hereunder
------------
shall be deemed to be contracts under the laws of the State of New York, and for
all purposes shall be governed by and construed in accordance with the laws of
that State, provided, however, that nothing herein shall be deemed a waiver by
Bank of any rights under any federal law establishing rates of interest which
may be charged by a national bank.
10.7 Compliance with Usury Laws. Notwithstanding any other provision of
--------------------------
this Credit Agreement, Borrower shall not be required to pay any amount pursuant
to this Credit Agreement which is in excess of the maximum amount permitted
under applicable law. It is the intention of the parties hereto to conform
strictly to any applicable usury law, and it is agreed that if any amount
contracted for, chargeable or receivable under this Credit Agreement shall
exceed the maximum amount permitted under any such law, any such excess shall be
deemed a mistake and canceled automatically and, if theretofore paid, shall be
refunded to Borrower.
10.8 Entire Agreement/Amendment. This Credit Agreement, and the documents
--------------------------
executed and delivered pursuant hereto, constitute the entire agreement between
the parties. None of the terms or provisions hereof or thereof may be altered,
modified, or amended except by an agreement in writing signed by Bank and
Borrower. If any provision of this Credit Agreement shall be held invalid under
any applicable laws, that provision's invalidity shall not affect any other
provision of this Credit Agreement that can be given effect without the invalid
provision.
10.9 Counterparts. This Credit Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument.
10.10 Successors and Assigns. This Credit Agreement shall be binding upon
----------------------
and inure to the benefit of Bank and Borrower and their respective successors
and assigns, except that Borrower may not assign or transfer its rights
hereunder without Bank's prior written consent.
Notwithstanding anything to the contrary contained herein, Bank may at any
time assign all or any portion of its rights under this Credit Agreement, the
Note and the Collateral Documents to a Federal Reserve Bank as collateral in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System and the applicable operating circular of such Federal Reserve Bank.
10.11 Headings. The headings to Parts appearing in this Credit Agreement
--------
have been inserted for the purpose of convenience and ready reference. They do
not purport to, and shall not be deemed to, define, limit or extend the scope or
intent of the Parts to which they apply.
<PAGE>
25
10.12 Interpretation. In the event any of the terms, provisions and
--------------
conditions of this Credit Agreement are inconsistent with the terms, provisions
and conditions of any of the Collateral Documents, the terms, provisions and
conditions of this Credit Agreement shall control.
IN WITNESS WHEREOF, the parties hereto, by their duly authorized officers
or partners, as applicable, have executed this Credit Agreement as of the day
and year first above written.
THE CHASE MANHATTAN BANK
By:
-----------------------------------
Its:
----------------------------------
PRI AUTOMATION, INC.
By:
-----------------------------------
Its:
----------------------------------
<PAGE>
26
EXHIBIT A
CREDIT NOTE
Billerica, Massachusetts
$20,000,000 Date: June 16, 1998
FOR VALUE RECEIVED, the undersigned ("Borrower") hereby promises to pay to
the order of THE CHASE MANHATTAN BANK ("Bank") at an office at 999 Broad Street,
Bridgeport, Connecticut 06604, on June 16, 2000 the principal sum of Twenty
Million and no/100 Dollars ($20,000,000) or, if less, the last sum shown in the
"Unpaid Principal Balance" Column on the grid attached to this Note, which
represents all Loans made by Bank to Borrower from time to time pursuant to a
Revolving Credit Agreement dated as of June 16, 1998 between Bank and Borrower
("Credit Agreement").
Interest on this Credit Note shall be calculated on an actual/360 day basis
(i.e., interest for each day is computed by multiplying the principal amount
outstanding by the interest rate and dividing by 360) and including any time
extended by reason of Saturdays, Sundays and holidays. Accrued interest shall
be payable as set forth in Section 2.4 of the Credit Agreement.
Bank shall maintain records of the date, amount, interest rate option and
Interest Period for each borrowing under and pursuant to Part 2 of the Credit
Agreement and this Credit Note, as well as the date and amount of each
prepayment of principal hereof. Prior to any transfer of this Credit Note (or,
at the discretion of Bank, at any other time), Bank may endorse the attached
grid portion of this Note with an appropriate notation reflecting the Credit
Loans, any payments attributable thereto and the initials or other identifying
symbol of the person making the notation. Borrower agrees that such books and
records of Bank showing the amounts outstanding hereunder shall be prima facie
evidence of the loans made hereunder. Any failure by Bank to endorse the grid
portion of this Credit Note attached hereto shall not negate the obligation of
Borrower to repay all amounts due and owing hereunder.
This Credit Note is the Credit Note referred to in, is entitled to the
benefits of, and is subject to the Credit Agreement. Reference is made to the
Credit Agreement for a statement of its terms and provisions which, among other
things, contain provisions for repayment and the acceleration of the maturity
hereof upon the happening of certain stated events. All capitalized words and
phrases in this Credit Note have the meanings respectively given to them in the
Credit Agreement except as otherwise defined in this Credit Note.
This Credit Note is governed by and construed in accordance with the laws
of the State of New York.
PRI AUTOMATION, INC.
By:
------------------------
Its:
---------------------------
<PAGE>
Amount of
Date Principal
Made, Renewed, Unpaid Notation
Converted, Amount of Interest Interest Converted, Principal Made
or Paid Loan Rate Period or Paid Balance By
=============================================================================
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
=============================================================================
Attached to and made a part of the Credit Note, dated June 16, 1998, executed by
PRI AUTOMATION, INC., and payable to the order of THE CHASE MANHATTAN BANK.
<PAGE>
-28-
SCHEDULE A
TO
REVOLVING CREDIT AGREEMENT
DATED AS OF JUNE 16, 1998
SCHEDULE OF LIENS AND ENCUMBRANCES
(AS OF ________________________, 19____)
Original
Lienholder Property Amount of Date of Balance
Lienholder Address Affected Lien Lien Outstanding
- ---------- ---------- -------- --------- ------- -----------
<PAGE>
SCHEDULE B
TO
REVOLVING CREDIT AGREEMENT
DATED AS OF JUNE 16, 1998
SCHEDULE OF EXISTING INDEBTEDNESS
(AS OF __________________, 19_____)
Creditor Type of Original Date of Balance
Creditor Address Transaction Amount Indebtedness Outstanding
- -------- -------- ----------- -------- ------------ -----------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-28-1998
<CASH> 34,472
<SECURITIES> 4,647
<RECEIVABLES> 36,110
<ALLOWANCES> (3,090)
<INVENTORY> 37,173
<CURRENT-ASSETS> 132,302
<PP&E> 30,372
<DEPRECIATION> (12,432)
<TOTAL-ASSETS> 155,925
<CURRENT-LIABILITIES> 37,826
<BONDS> 0
0
0
<COMMON> 197
<OTHER-SE> 117,762
<TOTAL-LIABILITY-AND-EQUITY> 155,925
<SALES> 150,558
<TOTAL-REVENUES> 150,558
<CGS> 93,130
<TOTAL-COSTS> 93,130
<OTHER-EXPENSES> 72,848<F1>
<LOSS-PROVISION> 790
<INTEREST-EXPENSE> 24,000
<INCOME-PRETAX> (14,953)
<INCOME-TAX> (1,980)
<INCOME-CONTINUING> (12,973)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,973)
<EPS-PRIMARY> (0.66)
<EPS-DILUTED> (0.66)
<FN>
<F1>Other expenses include $8,417 of acquired in-process research and
development costs and $8,953 of merger costs and special charges.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-29-1997
<CASH> 31,810
<SECURITIES> 3,273
<RECEIVABLES> 48,302
<ALLOWANCES> 0
<INVENTORY> 31,941
<CURRENT-ASSETS> 140,179
<PP&E> 18,620
<DEPRECIATION> (7,042)
<TOTAL-ASSETS> 156,408
<CURRENT-LIABILITIES> 36,507
<BONDS> 0
0
0
<COMMON> 194
<OTHER-SE> 119,538
<TOTAL-LIABILITY-AND-EQUITY> 156,408
<SALES> 149,546
<TOTAL-REVENUES> 149,546
<CGS> 83,307
<TOTAL-COSTS> 83,307
<OTHER-EXPENSES> 42,253
<LOSS-PROVISION> 300
<INTEREST-EXPENSE> 15,000
<INCOME-PRETAX> 24,806
<INCOME-TAX> 6,486
<INCOME-CONTINUING> 18,338
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,338
<EPS-PRIMARY> 0.96
<EPS-DILUTED> 0.91
</TABLE>
