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SECURITIES AND EXCHANGE COMMISSION |
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WASHINGTON, D.C. 20549 |
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FORM 10-K |
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x ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange |
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Act of 1934 for the Year Ended December 31, 2013. |
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o TRANSITION PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange |
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Act of 1934 for the transition period from ______ to ______. |
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COMMISSION FILE NO. (0-16577) |
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CYBEROPTICS CORPORATION |
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(Exact name of registrant as specified in its charter) |
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Minnesota |
41-1472057 |
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(State
or other jurisdiction of |
(I.R.S.
Employer |
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5900 Golden Hills Drive |
55416 |
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(Address of principal executive offices) |
(Zip Code) |
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(763) 542-5000 |
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(Registrant’s telephone number, including area code) |
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Securities registered pursuant to Section 12(b) of the
Exchange Act: Title of each class: Common Stock, no par value
Name of Exchange: NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Exchange Act: None
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. |
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YES o NO þ |
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. |
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YES o NO þ |
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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 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. |
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Indicate by check mark
whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). |
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ |
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Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer” or “large accelerated filer” in Rule 12b-2 of the Exchange Act. |
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Large accelerated filer o |
Accelerated filer o |
Non-accelerated filer o |
Smaller Reporting Company þ |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes o No þ
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $39,386,083.
As of February 28, 2014, there were 6,512,238 shares of the registrant’s Common Stock, no par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The responses to Part III items 10, 11, 12, 13 and 14 herein are
incorporated by reference to certain information in the Company’s definitive
Proxy Statement for its Annual Meeting of Shareholders to be held May 19, 2014.
CYBEROPTICS
CORPORATION
FORM 10-K
For the Fiscal Year Ended December 31, 2013
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ITEM 1. DESCRIPTION OF BUSINESS
Background
CyberOptics Corporation was founded in 1984 and is a leading provider of high-precision, proprietary 3D sensors for the electronics and general metrology markets. Our headquarters are located at 5900 Golden Hills Drive in Golden Valley, Minnesota. Our website address is www.cyberoptics.com. You can access, free of charge, our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K and any other amendments to those reports, at our website, or at the Commission’s website at www.sec.gov. Proxy materials for our upcoming 2014 annual shareholders meeting to be held on May 19, 2014 will be available electronically via the internet at the following address: http://www.idelivercommunications.com/proxy/cybe.
Our objective is to be the global technology leader in high precision three-dimensional (3D) sensors. We intend to deliver profitable growth by developing and manufacturing high precision proprietary 3D sensors and leveraging them in our key vertical markets of surface mount technology (SMT), semiconductor and general purpose metrology.
Our sensors and inspection systems assist the global SMT and semiconductor industries in meeting their rigorous demands for manufacturing quality. Using a variety of proprietary technologies such as lasers, optics and machine vision, combined with software, electronics and mechanical design, our products enable manufacturers to increase production volume, product yields and quality by measuring the characteristics and placement of components during the SMT electronic circuit board assembly process or by providing SMT electronic circuit board and semiconductor manufacturers with key metrics related to their manufacturing processes that allow them to improve production volumes and yields.
Most of our products (79% of revenue in 2013) are developed and sold for use in SMT electronic circuit board assembly or with equipment used in SMT electronic circuit board assembly. We sell products in these markets both as sensor components that are incorporated into products manufactured by other companies for sale to circuit board assembly companies, and as complete stand-alone inspection systems that are sold directly to circuit board assembly companies.
Our SMT sensor products are sold to manufacturers of pick-and-place machines to align electronic surface mount components during placement on the circuit board and to solder paste screen printer companies to align stencils with circuit boards. We also sell sensors to a manufacturer of photovoltaic equipment to perform accurate high-speed wafer alignment measurements within the wafer print nest and for fuel cell manufacturing.
Our SMT inspection system products are sold to electronic manufacturing services (EMS) and other manufacturers of SMT electronic circuit boards to control quality as in-line systems. These system products are used by manufacturers to measure screen printed solder paste, to inspect circuit boards and components after component placement, to confirm proper placement after full assembly of circuit boards and to inspect solder joints on printed circuit boards. Our embedded inspection sensors are sold to manufacturers of pick-and-place machines for integration into their equipment and offer some, but not all, of the inspection functionality of our SMT inspection systems. Manufacturers of DRAM and Flash memory also use our system products to inspect assembly of their memory modules.
Our semiconductor products assist with yield improvement and tool uptime in the semiconductor wafer fabrication process by providing highly accurate measurements of critical process factors. These measurements are impossible or very difficult to obtain without powering down the wafer fabrication equipment. Customers who use our products have better yields, through-put and tool up-time. Our products are more accurate when compared to the various manual techniques historically used by semiconductor manufacturers to obtain critical wafer fabrication process measurements.
On March 14, 2014, we acquired substantially all of the assets of Laser Design, Inc. (LDI), a 3D metrology company headquartered in Minneapolis, Minnesota for aggregate consideration of $2.7 million cash, plus the assumption of certain current liabilities. With revenues of approximately $6.0 million, LDI provides scanning systems and services to the estimated $825 million global 3D scanner and services metrology market. Global demand for 3D scanning is growing as this technology is deployed increasingly in markets ranging from automotive and aerospace to medical and consumer electronics.
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Market Conditions–Recent Developments of the Business
We experienced reduced year over year demand for our surface mount technology (SMT) sensor and system products in 2013 due to weak conditions in the SMT capital equipment market, the sharp downturn in the laptop personal computer market where we historically have sold more of our SMT inspection systems, and slower than anticipated market acceptance of our new automated optical inspection (AOI) products. Reductions in sales of SMT sensor and system products were offset in part by higher sales of our WaferSense® semiconductor products, which grew by over 20% in 2013 to $5.7 million.
We have taken concrete steps to address our losses and move towards revenue growth and profitability. In November 2013, we reduced our workforce by almost 20%, mainly impacting employees working in the area of SMT inspection systems where we experienced large revenue declines in 2013. Critical engineering employees working on key next generation technologies and products were not impacted. Recent product introductions mark our first steps toward strengthening our competitive position in our current markets, particularly in the mobile computing and high performance segments of the SMT inspection systems market. We are encouraged by initial acceptance of our new SE600 solder paste inspection (SPI) system, which we believe has the improved performance and usability we need to gain SPI market share. We recorded our first sales of the SE600 SPI system in the fourth quarter of 2013. The SE600 is doing very well in a number of customer evaluations, including head to head competition against the industry leading SPI supplier, which makes us believe that we are capable of gaining share in the SPI market. We also continued to post solid sales of our new SE500ULTRATM SPI system, which offers a 30% increase in inspection speed for high-volume production runs. We have earmarked additional funds to expand our marketing efforts, and have committed resources to developing new SMT products for conformal coating and memory inspection and will be launching a new WaferSense product for particle monitoring in reticle size.
We are developing a new high speed metrology grade 3D measurement technology that we expect to be market ready in 2014. Although our first commercial application of this technology is expected to be in our 3D AOI SMT inspection system, we also intend to expand sales of this technology into adjacent targeted markets that require high precision optical 3D inspection. Our acquisition of LDI is part of our strategic repositioning as a high-precision 3D sensor technology company, and provides us with access to the growing market for general purpose 3D metrology. The addition of LDI also will enable us to leverage the 3D sensor technology that we are developing in-house.
We are targeting double digit revenue growth in 2014 and 2015, excluding the revenue impact from the acquisition of LDI. Based on our outlook for higher sales and reduced expenses given our recent workforce reduction, we anticipate a significantly reduced operating loss in 2014. With cash and marketable securities of $23.2 million at the end of 2013, we believe we have the resources required to attain our growth objectives over the next several years.
Our ability to achieve our forecast and to implement our strategy effectively is subject to numerous uncertainties and risks, including the risks identified in Item 1A of this Annual Report on Form 10-K. We cannot assure you that our efforts will be successful.
Objective
Our vision is to be the global technology leader in high precision three-dimensional (3D) sensors. Our strategy is to deliver profitable growth by developing and manufacturing high precision proprietary 3D sensors and leveraging them in our key vertical markets of surface mount technology (SMT), semiconductor and general purpose metrology.
Our objective in the SMT market is to be the leading supplier of full-line defect monitoring and process control solutions that improve the quality and efficiency of our customers. We intend to further diversify and improve the performance and ease of use of our SPI and AOI products to expand in markets and geographies, including Europe and the Americas, where rigorous performance demands are essential. We eventually intend to tie these products and other new products designed for SMT production together as a full-line process control solution.
Our objective in the semiconductor market is to continue to invest in our WaferSense product line, a family of wireless, wafer-like precision measurement tools for in-situ setup, calibration and process optimization in semiconductor processing equipment. Our first WaferSense product, the Automatic Leveling Sensor (ALS) was introduced late in 2004. Since that time, we have introduced several new additions to the WaferSense family of products, including sensors for gapping (AGS), teaching (ATS), vibration (AVS) and particles (APS) that improve tool up-time and yield for semiconductor manufacturers. We intend to continue to enhance and expand the WaferSense product line in the future. In 2014, we intend to further leverage our particle sensing technology by launching a particle sensor in a reticle shaped form factor (ReticleSenseTM). The wireless, real-time capability of ReticleSense allows users to quickly identify geographic particle sources in reticle environments.
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Our acquisition of LDI is part of our strategic re-positioning as a high-precision 3D sensor technology company, and provides us with access to the growing market for general purpose 3D metrology. Global demand for 3D scanning is growing as this technology is deployed increasingly in markets ranging from automotive and aerospace to medical and consumer electronics. The addition of LDI also will enable us to leverage the 3D sensor technology that we are developing in-house. One of our objectives is to further leverage our 3D sensor technology by expanding into other high-growth markets both organically and through acquisition.
OPERATIONS AND PRODUCTS
We develop, manufacture and sell intelligent, non-contact sensors and systems for process control and inspection. Our products are used primarily in the SMT electronic circuit board assembly and semiconductor fabrication industries and enable manufacturers to increase operating efficiencies, product yields and quality. In addition to proprietary hardware designs that combine precision optics, various light sources and multiple detectors, our products incorporate software that controls the hardware and filters and converts raw data into application specific information. Our product offerings are sold to original equipment manufacturers (OEMs) and end-user customers who use our SMT sensors, inspection systems and WaferSense products for process and quality control in the circuit board manufacturing and semiconductor fabrication processes.
SMT Electronic Assembly Alignment Sensors
Our SMT electronic assembly alignment sensor products, which had historically generated the largest component of our sales until 2011, is a family of alignment sensors that are customized and incorporated into the equipment manufactured by our customers for use in SMT circuit board assembly. We work closely with our original equipment manufacturer customers to integrate sensors into their equipment.
Sales of these products, including service repairs, to Juki Corporation accounted for approximately 18% of our revenue in 2013 and 13% of our revenue in 2012. Sales of these products, including service repairs, to Assembleon B.V. accounted for approximately 7% of our revenue in 2013 and 12% of our revenue in 2012. Our revenues and operations are currently heavily influenced by the level of purchases from these two customers, reflecting their success in the market for pick-and-place machines, the cyclical nature of the SMT production industry and their ability to accurately forecast production requirements and need for our sensors.
LaserAlign®. Our LaserAlign sensor family has accounted for the vast majority of our sales in the SMT electronic assembly alignment sensors product line. These sensors are primarily sold for incorporation into pick-and-place machines manufactured and sold by a number of different OEM customers for use in SMT production lines.
The LaserAlign family of products aligns both large and extremely small surface mount and through-hole components, known as chip capacitors and resistors, during transport on a pick-and-place machine prior to placement. LaserAlign sensors are incorporated into the placement heads of pick-and-place machines to ensure accurate component placement at high production speeds. Various high-speed pick-and-place machines use between one and twenty LaserAlign sensors per machine. LaserAlign integrates an intelligent sensor, composed of a laser, optics and detectors with a microprocessor and software for making specific measurements. LaserAlign enables quick and accurate alignment of each component as it is being transported by the pick-and-place arm for surface mount or through-hole assembly. Using non-contact technology, LaserAlign facilitates orientation and placement of components at higher speeds than can be achieved using conventional mechanical or machine vision component centering systems.
The LaserAlign sensor is offered in several different configurations to satisfy the requirements of the machines on which it is used. The latest version of the LaserAlign sensor technology was introduced in 2013 as a sixth generation sensor for Juki Corporation. Revenue from new product shipments of LaserAlign sensors has been a principal contributor to revenue during the past five years and accounted for 20% of our revenue in 2013 and 18% of our revenue in 2012.
BoardAlign Camera (BA Camera). The BA Camera, which is incorporated directly into the placement head of a pick-and-place machine identifies fiducial markings on a circuit board and aligns the board in the pick-and-place machine prior to component placement. The BA Camera was first introduced in a sensor for Assembleon B.V. during 2003 and a second generation BA Camera, which was introduced in 2012, has been incorporated into the latest version of Assembleon B.V.’s component placement machine. Revenue from shipments of BA Camera sensors to Assembleon B.V. accounted for 4% of our revenue in 2013 and 6% in 2012.
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InPrinter Inspection Camera. The InPrinter Inspection Camera, which is mounted directly in screen printers manufactured by DEK International GmbH, identifies fiducial markings on a circuit board to ensure accurate board registration prior to placement of solder paste, as well as to provide an upgraded capability for 2D solder paste and stencil inspection. The InPrinter Inspection Camera was introduced for DEK International GmbH during the third quarter of 2005. Revenue from shipments of the InPrinter Inspection Camera accounted for 5% of our revenue in 2013 and 3% in 2012.
Photovoltaic and Fuel Cell Alignment Sensors
Solar Wafer Alignment Camera. The Solar Wafer Alignment Camera performs accurate high-speed alignment measurements within the wafer print nest. This camera also has the ability to perform traditional wafer edge alignment of both monocrystalline and polycrystalline wafer materials. The Solar Wafer Alignment Camera was introduced for DEK International GmbH during the first quarter of 2010. DEK is also using the sensor for fuel cell applications. Revenue from shipments of the Solar Wafer Alignment Camera accounted for 1% of our revenue in 2013 and less than 1% of our revenue in 2012.
Embedded and OEM Inspection Solutions
Embedded Process Verification. Juki Corporation, our largest LaserAlign customer, has incorporated our embedded process verification, or EPV®, inspection technology into its KE-2070, KE-2080, FX and new RX-6 pick-and-place machines. Equipped with our EPV inspection technology, these platforms are the industry’s first pick-and-place machines capable of inspecting for the presence or absence of electronic components on SMT circuit boards as they are placed. With EPV inspection technology, Juki’s platforms are the only systems in the world that can visualize feeder action during the electronic component placement process with images of both component pick-and-placement and movie mode. EPV also provides line engineers with a tool for root cause failure analysis during the assembly process to improve circuit board yields and minimize costly rework or scrap. Our EPV technology is comprised of six ultra-small cameras mounted on a placement head for on-the-fly imaging with no cycle time penalty for the inspection process. The resulting inspection for missing components on the SMT circuit board operates at the full placement speed of the pick-and-place machine. The Juki platforms also will continue to deploy our LaserAlign sensors to ensure proper alignment and positioning of electronic components during circuit board assembly. Revenue from shipments of EPV accounted for 2% of our revenue in 2013 and less than 1% of our revenue in 2012.
3D Solder Paste Inspection – Viscom OEM. Early in 2011, we entered into an agreement with Viscom GmbH to integrate our 3D solder paste inspection technology into Viscom’s solder paste inspection platform. Sales of our 3D solder paste inspection sensor to Viscom began in the second half of 2011, and accounted for less than 1% of our revenue in 2013 and 2% of revenue in 2012.
SMT Inspection System Products
Our SMT inspection system products are used in the SMT electronic assembly industry for process control and inspection. These systems are sold directly to end-user manufacturing customers that use them in a production line or along-side a production line to maintain process and quality control. Our products incorporate proprietary sensors, off the shelf, translation or robotics hardware and conveyors and complete computer systems or processors with internally developed software.
Solder Paste Inspection (SPI) Products
We began selling in-line solder paste measurement machines in the mid-1990’s and have continued to develop and evolve our SPI family of products since then. In 2013, we introduced a new 3D solder paste inspection system, the SE600, which utilizes a dual-illumination sensor and an enhanced user interface.
SE600. The SE600 is an in-line system based on a dual-illumination sensor that measures in three dimensions (3D) the amount of solder paste applied to the circuit board after the first step of the SMT circuit board assembly process. Because of the small size of the components that must be placed on each pad of solder paste and the density of components placed on the circuit board, a significant amount of SMT assembly problems are related to the quality of solder paste deposition. Misplaced solder paste, excess or inadequate amounts of paste can lead to improper connections or bridges between leads causing an entire circuit board to malfunction. The SE600 inspects the height, area and volume of 100% of a circuit board at production line speeds and with resolution that allows it to measure the smallest chip scale packages and micro ball array component sites. The SE600 can be integrated into most SMT production lines, providing real time quality control immediately after a printed circuit board leaves the screen printer and before component placement commences.
SE500ULTRA. The SE500 was first introduced in 2009. In 2013, we introduced our latest-generation SE500 SPI system, the SE500ULTRA. The SE500ULTRA is based on the same proprietary 3D inspection technology as the SE600, but utilizes a single illumination sensor. The SE500ULTRA inspects at faster speeds than the SE600 and is intended for use in high-volume production environments. Because the SE500ULTRA prioritizes speed, it does not provide the same level of resolution and measurement performance as the SE600.
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SE500II. The SE500II is based on our proprietary 3D inspection technology and is targeted at a different segment of the market; those customers requiring solder paste inspection, but not the full functionality and superior measurement performance of our SE600 or SE500ULTRA products.
Revenues from shipments of our SPI products accounted for 20% of our revenue in 2013 and 17% of our revenue in 2012.
Automated Optical Inspection (AOI) Products
We introduced our first in-line AOI products, the Flex series, in the fourth quarter of 2000, and have continued to develop and evolve our AOI offerings since then. These products inspect circuit boards after component placement to determine whether all components are present and have been placed correctly and can also be used to measure the quality of solder joints after reflow. We introduced our latest generation AOI system, the QX600, in the second quarter of 2013.
QX600. Our next generation QX600 AOI system features our strobe inspection module (SIM) sensor technology and advanced Autonomous Image Interpretation (Ai2) software, which offers an industry leading level of low false call performance. The system was designed to provide significantly improved resolution and performance required for accurately inspecting the smallest circuit board components used in smart phones, tablets and other applications requiring higher resolution due to smaller component sizes. In 2013 and 2012, we introduced significant software enhancements for all of our AOI products that improve set-up and programming time and ease of use for the customer. Our QX600 is also available in a version that can accommodate larger circuit board sizes.
QX500. We market our QX500 AOI systems for production lines requiring faster inspection speeds. The QX500 also features our SIM sensor technology and advanced Ai2 software. The QX500 does not offer the resolution capability of the QX600, but was instead designed to provide the fastest AOI inspection times currently available in the market and also an industry leading level of low false call performance. The QX500 can also accommodate dual production lanes and larger circuit board sizes.
QX100 and QX100i. In 2012, we developed a new off-line AOI tabletop system (the QX100) and a lower cost in-line AOI system (the QX100i) based on the common SIM sensor technology used in our other QX AOI products. The QX100 is used for off-line inspection typically found in low volume high mix production environments not requiring 100% in-line inspection. These types of inspection environments are more prevalent in the Americas and European markets.
Revenues from shipments of our AOI products accounted for 21% of our revenue in 2013 and 31% of our revenue in 2012.
Semiconductor Products
Our principal semiconductor products, the WaferSense family of products, are a series of wireless sensors that provide measurements of critical factors in the semiconductor fabrication process. Other semiconductor products include sensors that inspect the presence and orientation of semiconductor wafers in cassettes and FOUPS during the fabrication process, and frame grabber and machine vision subsystems. We sell our semiconductor products to both OEM’s and end-user customers through a network of independent sales representatives. Sales of our semiconductor products constituted 21% of our revenue in 2013 and 15% of our revenue in 2012.
WaferSense Sensors. We designed our WaferSense family of sensors to go where wafers go in semiconductor fabrication and provide measurements of critical factors that are currently impossible or extremely difficult to obtain without powering down the fabrication process equipment. Because the user is not required to break down semiconductor fabrication equipment when using our WaferSense products, our customers tell us that significant time is saved and accuracy is increased compared to the manual techniques currently used by many customers when checking the process parameters measured by our WaferSense products. As a result of WaferSense technology, up-time, through-put and process yield for semiconductor fabrication equipment is improved.
We introduced our first WaferSense product in late 2004 and have since continued to add new products to the WaferSense family. The automatic leveling sensor (ALS) is a wireless, vacuum-compatible sensor that can be placed in cassettes, FOUPS, on end effectors, aligners, in load locks and process chambers used in semiconductor fabrication to ensure that all stations are level and coplanar. The automatic gapping sensor (AGS) is a gapping tool that measures the gap in three places between the shower head and pedestal in semiconductor process equipment. The automatic teaching sensor (ATS), measures X-Y-Z offset from robotic transfers of wafers to the pedestal in semiconductor process equipment. The amount of gap and offset after robotic transfer of wafers to the shower pedestal can affect film thickness and uniformity when material is deposited on semiconductor wafers, impacting quality and product yields. The automatic vibration sensor (AVS) measures X-Y-Z acceleration for shock and vibration, which can generate wafer particles, scratches or wafer breakage, thereby reducing yield. The automatic particle sensor (APS), introduced in 2012, allows engineers to efficiently detect and classify particles and their exact sources in a process as wafers are transferred, slit valves actuate and chambers are cycled, pumped down and purged. APS is designed to be compatible with front-ends, coater/developer tracks, and deposition and etch equipment. We have continued to enhance our WaferSense product line by introducing a comprehensive set of offerings to support the semiconductor industry’s new 450mm wafer initiative. In 2014, we intend to further leverage our particle sensing technology by launching a particle sensor in a reticle shaped form factor (ReticleSense). The wireless, real-time capability of ReticleSense allows users to quickly identify geographic particle sources in reticle environments.
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Wafer Mapping and Alignment Sensors. We manufacture and sell laser based reflective sensors that improve the performance of robotic wafer handling equipment. During the fabrication process, semiconductor wafers are stored in slotted cassettes during transport to various fabrication tools. Robotic equipment removes the wafers from the cassettes and inserts them into a fabrication tool. Our wafer mapping sensors inspect for the presence of wafers in the cassettes and determine if the wafer is properly present and located in the cassette.
Frame Grabber Products and Machine Vision Subsystems. Frame grabber products are a machine vision component that captures, digitizes, and stores video images. These products are currently sold into a broad array of applications in a number of different industries, with an emphasis on semiconductor customers. We offer both digital and analog versions of frame grabbers under the Imagenation brand.
Markets and Customers
We sell the vast majority of our products into the electronics manufacturing markets (79% of total revenue in 2013). The value of automation is high in these markets because the products produced have high unit costs and are manufactured at speeds too high for effective human intervention. Moreover, the trend toward smaller electronic devices with higher circuit densities, smaller circuit paths and extremely small components requires manufacturing and testing equipment capable of extremely accurate alignment and multidimensional measurement such as achieved using non-contact optical sensors. Trends in the SMT market include further efforts to reduce the cost of the manufacturing process, with continued movement to low cost regions with equipment operated by less skilled engineers.
Our SMT alignment and inspection sensors are sold to OEM’s serving the SMT circuit board assembly market and our SPI and AOI inspection systems are sold to end-user electronic assembly manufacturers in this market. Our AOI and SPI inspection system sales occur in all global geographies and are split fairly evenly between the Americas, Europe and Asia where a significant portion of the worldwide production capacity for circuit board assembly occurs. We manufacture our SMT sensors, including those used in our inspection systems and all of our semiconductor products in our Minneapolis, Minnesota headquarters facility. All final assembly and integration for our inspection system products takes place in our Singapore facility.
We sell our SMT sensor and inspection system products worldwide to many of the leading manufacturers of electronic circuit board assembly equipment, manufacturers of semiconductor DRAM memory and end-user electronic assembly manufacturers, including Asian original design manufacturers (ODM’s) and electronic manufacturing service providers (EMS’s), who manufacture cell phones, smart phones, notebook computers and server boards, among other electronic devices. We have sales and service offices in China and Singapore to serve the market for manufacturing production equipment in Asia. Our sales and service office in the United Kingdom serves the European market and we have sales and service team members based out of our home office in Minneapolis to serve the Americas market. We have partnered with Viscom, a German distributor with significant sales to the automotive industry, to better penetrate the European markets and with newer high performance products intend to expand our marketing efforts, particularly in the Americas and Europe.
Our semiconductor products accounted for 21% of our revenue in 2013. This market has many of the same characteristics as the SMT electronics assembly market and requires non-contact optical measurement tools that enable the production of more complex, higher density and smaller semiconductor devices. Our WaferSense family of precision measurement tools for process optimization in semiconductor processing equipment is sold directly to semiconductor fabrication facilities or through semiconductor capital equipment manufacturers to semiconductor fabrication facilities for use by process and equipment engineers during the production of semiconductor wafers. The world’s largest semiconductor manufacturers purchase our products. We sell our wafer mapping and alignment sensors to manufacturers of equipment that transport wafers during the semiconductor manufacturing (front-end fabrication) process.
Export sales represent a large percentage of our total sales because the majority of new worldwide electronics and semiconductor capacity is being added outside the United States. In addition, a significant portion of our export sales to Europe include SMT electronic assembly alignment sensors that ultimately are sold by our OEM customer into Asia.
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The following table sets forth the percentage of total sales revenue represented by total export sales (sales for delivery to countries other than the United States, including sales delivered through distributors) by location during the past two years:
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December 31, |
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2013 |
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2012 |
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Asia |
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48 |
% |
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51 |
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Europe |
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26 |
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30 |
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Other export sales (1) |
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4 |
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5 |
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(1) Includes export sales in the Americas, primarily export sales to Canada, Mexico and Latin America.
See Note 13 to our Consolidated Financial Statements contained in Item 8 of this Form 10-K. Most of our international export sales are negotiated, invoiced and paid in U.S. dollars. We manufacture our SMT system products in Singapore and a portion of our raw material purchases are denominated in Singapore dollars. We also have R&D and sales personnel located in Singapore and sales offices located in other parts of the world. Although currency fluctuations do not significantly affect our revenue, they can impact our costs and influence the price competitiveness of our products and the willingness of existing and potential customers to purchase units.
Sales and Marketing
Our SMT electronic assembly alignment and inspection sensors are sold to large OEM customers by direct sales staff located in Minnesota. Our inspection system products are primarily sold through independent representatives and distributors managed by direct sales personnel located in Singapore, as well as in the United Kingdom, U.S. and China. We have agreements with 43 independent representatives and distributors who focus on sales and service of our stand-alone system products to end-user customers. These agreements cover North and South America (13), Europe (12) and China and the rest of Asia (18).
We have established a separate worldwide sales representative organization for our WaferSense semiconductor products. We currently have agreements in place or in process with sales representatives in the U.S. (3), Europe (3) and the Pacific Rim (5). Our wafer mapping semiconductor products are sold to large OEM customers by a direct sales staff located in Oregon. We sell our semiconductor frame grabber products through direct sales staff located in Oregon, and through 13 sales representatives located throughout the world. These representatives are not under contract, but are authorized to sell frame grabber products and in many cases act as system integrators for our products.
We market our products through appearances at industry trade shows, advertising in industry journals, articles published in industry and technical journals and on the Internet. In addition, we have strategic relationships with certain key customers that serve as highly visible references.
Backlog
Our products are typically shipped two weeks to two months after the receipt of an order. Product backlog was $4.1 million on December 31, 2013, compared to $2.6 million on December 31, 2012. Backlog totaling $3.1 million is deliverable in the first quarter of 2014. Sales of some SMT inspection system products may require customer acceptance due to performance or other acceptance criteria included in the terms of sale. For these SMT product sales, revenue is recognized at the time of customer acceptance. Although our business is generally not of a highly seasonal nature, sales may vary based on the capital procurement practices in the electronics manufacturing and semiconductor industries. For example, production capacity expansion for anticipated holiday or back to school demands can result in higher levels of sales in our second and third quarters. Moreover, the second and third quarters tend to mark the peak buying periods for our Asian ODM customers. However, we are not able to quantify with any level of precision, the impact of these events on our sales in any given quarterly period. Our scheduled backlog at any time may vary significantly based on the timing of orders from OEM customers. Accordingly, backlog may not be an accurate indicator of performance in the future.
Research and Development
We differentiate our products primarily on the basis of customer benefits afforded by the use of clever and proprietary technology and on our ability to combine several different technical disciplines to address industry and customer needs. In addition, we actively seek ongoing strategic customer relationships with leading product innovators in our served markets and actively investigate the needs of, and seek input from, these customers to identify opportunities to improve manufacturing processes. Our engineers have frequent interactions with our customers to ensure adoption of current technologies. In some instances, we receive funding from these customers through development contracts that provide the customer with an exclusive selling period but allow us to retain technology and distribution rights.
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We commit substantial resources to the development of important next-generation products that, we believe, will position us to capture additional market share in our key SMT and semiconductor vertical markets. We maintain our commitment to research and development and product development even during periods when our markets are weak. During the past year, research and development efforts have been focused on a number of activities that are critical to our future growth and success, including the following:
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Development of our Multi-Reflection Suppression (MRS) technology, a high speed metrology grade 3D measurement capability using propriety components and algorithms that we believe will solve many of the reflecting issues impacting all triangulation sensor technologies. We anticipate that our first commercial application of this technology will be in a 3D AOI inspection system we intend to launch in the second half of 2014. |
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Continued development of our AOI and SPI product families. In 2013, we introduced our next generation SE600 SPI system and our next generation QX600 AOI system, both designed with significantly improved resolution and performance required for accurately inspecting the smallest circuit board components used in smart phones, tablets and other applications requiring higher resolution due to smaller component sizes. We also introduced our new SE500ULTRA SPI system which offers a 30% increase in inspection speed for high-volume production environments. |
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Began work on a new inspection system for conformal coating that leverages our SIM sensor technology and advanced Ai2 software. Use of conformal coating on circuit boards is growing, particularly in the automotive, medical, smartphone and tablet segments of SMT electronic circuit board assembly. |
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Continued enhancement of our WaferSense line of products by introducing a comprehensive set of offerings to support the semiconductor industry’s new 450mm wafer initiative. We also began development of a new particle sensor in a reticle shaped form factor (ReticleSense) that leverages our current particle sensing technology. The wireless, real-time capability of ReticleSense allows users to quickly identify geographic particle sources in reticle environments. |
Research and development expenses were $7.5 million in 2013 and $7.7 million in 2012. These amounts represented 23% of revenues in 2013 and 19% in 2012. Research and development expenses consist primarily of salaries, project materials, contract labor and other costs associated with ongoing product development and enhancement efforts. Research and development resource utilization is centrally managed based on market opportunities and the status of individual projects. In November 2013, we reduced our workforce by almost 20%, or approximately 30 employees, mainly impacting those employees working in the area of SMT inspection systems. Critical engineering employees working on key next generation technologies and products were not impacted.
Manufacturing
Our SMT electronic assembly alignment and inspection sensor products and our semiconductor sensor products are assembled at our Minneapolis, Minnesota headquarters facility. Our SMT inspection system products are assembled in Singapore. Much of our product manufacturing, which is primarily circuit board manufacturing, lens manufacturing and metal parts production, is contracted with outside suppliers. Our production personnel inspect incoming parts, perform final assembly, calibrate and perform final quality control testing of finished products. Our products are not well suited for the large production runs that would justify the capital investment necessary for complete internal manufacturing.
A variety of components used in our products are available only from single sources and involve relatively long order cycles, in some cases over one year. We believe we have identified alternative assembly contractors for most of our subassemblies. Use of those alternative contractors could require substantial rework of the product designs, resulting in periods during which we could not satisfy customer orders. An actual change in such contractors would likely require a period of training and testing. Accordingly, an interruption in a supply relationship or the production capacity of one or more of such contractors could result in the inability to deliver one or more products for a period of several months. To help prevent delays in the shipment of our products, we maintain in inventory, or on scheduled delivery from suppliers, what we believe to be a sufficient amount of certain components based on forecasted demand (forecast extends a minimum of 6 months).
Competition
We face competition from a number of companies in the machine vision, image processing and inspection systems market, some of which are larger and have greater financial resources.
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Our SMT electronic assembly alignment and inspection sensor products face competition in the market for alignment and inspection on pick-and-place machines primarily from manufacturers of vision (camera and software based) systems. Potential competitors in these markets include Cognex Corporation and the vision systems developed by OEMs using their own design staff for incorporation into their products. We compete in this market based on our ability to custom design products with stringent physical form requirements, speed, flexibility, low cost and ease of control. Although advances in vision systems have reduced some of the advantages of our products in some configurations, we continue to believe that our SMT electronic assembly alignment sensor products compete favorably on the basis of these factors and that our sensor products are better suited to align the smaller electronic component sizes currently available in the market.
The primary competition for sales of our SPI systems has been from Asian based companies such as KohYoung Technology (Korea), Parmi (Korea) and Test Research, Inc. (Taiwan). Because our SMT inspection system products have historically been sold to customers that produce laptop computers, the increase in tablet and other mobile computing devices and the decline in laptop sales have impacted capital purchasing of those customers and our sales. We believe our new SE600 SPI offering, with significantly improved resolution and performance required for accurately inspecting the smallest circuit board components used in smart phones, tablets and other applications requiring higher resolution due to smaller component sizes, will appeal to manufacturers of those devices, thereby helping us to gain market share.
Our AOI systems face competition from a large number of AOI companies, the most significant being MirTec, Ltd. (Korea), KohYoung Technology (Korea), Viscom (Germany), Test Research, Inc. (Taiwan) and Saki Corporation (Japan). Sales of AOI systems were hit particularly hard by the shift in the electronics market away from laptop computers. The AOI market accounts for approximately two-thirds of the total inspection systems market. We believe that our SIM sensor technology and Ai2 software used in our QX family of products is differentiated from the competition and that these products compete effectively in this market based on cost, ease of use at rapid production line speeds and the low rate of false calls. We also believe that our new QX600 AOI inspection system products addresses market segments outside the laptop computer space.
The electronics manufacturing market has become increasingly competitive and concentrated in large global EMS and ODM companies, allowing them to drive more competition into the market and command more favorable terms when purchasing from suppliers, including capital equipment suppliers like CyberOptics. Due to the increased level of competition, we have been required to decrease the price of our SPI and AOI systems in some markets. These same pricing pressures also impact our OEM customers for our SMT alignment sensors, who in turn ask us to design newer products at a lower price point to allow them to remain competitive in the marketplace. We respond to these pricing pressures through continuous investment in research and development of cost reduced products with new features and enhancements that command better pricing in the market. We believe that the new SMT sensor and system products that we plan to introduce, particularly those based on our new 3D measurement technology, will strengthen our future competitive position, resulting in market share increases, and that technology trends toward smaller components and increased production speeds will continue to drive demand in the future.
We believe our WaferSense products are unique to the marketplace and primarily face competition from the manual techniques currently used by most customers to monitor their semiconductor fabrication equipment. Because the user is not required to break down semiconductor fabrication equipment, or pressurize a vacuum chamber, we believe that our WaferSense products will save significant time and increase measurement accuracy over the manual techniques currently used by customers and will improve tool up-time, through-put and process yield.
Although we believe our current products offer several advantages in terms of price and suitability for specific applications and although we have attempted to protect the proprietary nature of such products, it is possible that any of our products could be duplicated by other companies in the same general market.
Employees
As of December 31, 2013, we had 144 full-time employees worldwide, including 31 in sales, marketing and customer support, 44 in manufacturing, purchasing and production operations, 53 in engineering, research and development, and 16 in finance, administration and information services. Of these employees, 86 are located at our corporate headquarters in Minneapolis and 58 are located in other offices (5 in the United Kingdom, 2 in Oregon, 1 in California, 43 in Singapore, 3 in China, 2 in Taiwan and 2 in Japan). To date, we have been successful in attracting and retaining qualified technical personnel, although there can be no assurance that this success will continue. None of our employees are covered by collective bargaining agreements or are members of a union.
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Proprietary Protection
We rely on the technical expertise and know-how of our personnel and trade secret protection, as well as on patents, to maintain our competitive position. We attempt to protect intellectual property by restricting access to proprietary methods by a combination of technical and internal security measures. In addition, we make use of non-disclosure agreements with customers, consultants, suppliers and employees. Nevertheless, there can be no assurance that any of the above measures will be adequate to protect our proprietary technology.
We hold 69 patents (46 U.S. and 23 foreign) on a number of technologies, including those used in our 3D MRS technology, LaserAlign products, SIM sensor technology, inspection systems, embedded inspection technology and other products. Some of the patents relate to equipment such as pick-and-place machines, into which our products are integrated. In addition, we have 40 pending patents (14 U.S. and 26 foreign). We protect the proprietary nature of our software primarily through copyright and license agreements, but also through close integration with our hardware offerings. We utilize 14 registered trademarks (6 U.S. and 8 foreign) and have no trademark registrations pending. We also have 8 domain names and several common law trademarks. It is our policy to protect the proprietary nature of our new product developments whenever they are likely to become significant sources of revenue. No guarantee can be given that we will be able to obtain patent or other protection for other products.
As the number of our products increases and the functionality of those products expands, we may become increasingly subject to attempts to duplicate our proprietary technology and to infringement claims. In addition, although we do not believe that any of our products infringe the rights of others, there can be no assurance that third parties will not assert infringement claims in the future or that any such assertion will not require us to enter into a royalty arrangement or result in litigation.
Government Regulation
Many of our products contain lasers. Products containing lasers are classified as either, Class I, Class II or Class IIIb Laser Products under applicable rules and regulations of the Center for Devices and Radiological Health (CDRH) of the Food and Drug Administration. Such regulations generally require a self-certification procedure pursuant to which a manufacturer must file with the CDRH with respect to each product incorporating a laser device, periodic reporting of sales and purchases and compliance with product labeling standards. Our lasers are generally not harmful to human tissue, but could result in injury if directed into the eyes of an individual or otherwise misused. We are not aware of any incident involving injury or a claim of injury from our laser devices and believe that our sensors and sensor systems comply with all applicable laws for the manufacture of laser devices.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended, or the Dodd-Frank Act, the SEC adopted new disclosure requirements for public companies using certain minerals and metals, known as “conflict minerals”, in their products. Under these rules, we are required to perform due diligence and disclose our efforts to prevent the sourcing of such conflict minerals from the Democratic Republic of Congo or adjoining countries. These conflict minerals are commonly used in the manufacture of semiconductor devices. As a result of these new regulations, we expect to incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the conflict minerals used in our products. These new requirements could also adversely affect the sourcing, availability and pricing of such minerals as used in the manufacture of our products and the pool of suppliers who provide “conflict free” metals may be limited. As a result, we may not be able to obtain materials for our products in sufficient quantities or at competitive prices. In addition, since our supply chain is complex, we may not be able to sufficiently verify the origins of all metals used in our products and confirm that they are “conflict free,” which may adversely affect our reputations with our customers and shareholders.
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Our operations are subject to a number of risks and uncertainties that may affect our financial results, and the accuracy of the forward looking statements we make in this Form 10-K. We make statements regarding anticipated product introductions and performance, changes in markets, customers and customer order rates, expenditures in research and development, growth in revenue and improvement in profits, taxation levels, the effects of pricing, and competition, all of which represent our expectations and beliefs about future events. Our actual results may vary from these expectations because of a number of factors that affect our business, the most important of which include the following:
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Our business has been and will continue to be significantly impacted by the global economy and uncertainty in the outlook for the global economy makes it more likely that our actual results will differ materially from expectations. In 2009, the world economy experienced the worst economic recession since the great depression of the 1930’s. The severe economic conditions were brought about by extreme disruptions in global credit and financial markets including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. These economic uncertainties affect businesses such as ours in a number of ways, making it difficult to accurately forecast and plan our future business activities. Further political instability or uncertainty could cause new tightening of credit in financial markets, may lead consumers and businesses to postpone spending, and may cause our customers to cancel, decrease or delay their existing and future orders with us. In addition, financial difficulties experienced by our suppliers or distributors could result in product delays, increased accounts receivable defaults and inventory challenges. The OEM’s to which we sell our sensors supply SMT manufacturers, and those manufacturers, as well as the circuit board manufacturers that purchase our SMT inspection system products directly, are largely dependent on continued demand for consumer and commercial electronics, including cell phones, smart phones and computers. Demand for electronics is a function of the health of the economies in the United States and around the world. Our results would be adversely affected in the future, if these economies were to move into recession. |
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Our operating results have varied, and will likely continue to vary significantly, from quarter to quarter, causing volatility in our stock price. Our quarterly operating results have varied in the past and will likely continue to vary significantly from quarter to quarter, causing volatility in our stock price. Some of the factors that may influence our operating results and subject our stock to price and volume fluctuations include changes in customer demand for our sensors and inspection systems, which is influenced by economic conditions in the SMT and semiconductor device industries, demand for products that use circuit boards and semiconductors, market acceptance of our products and those developed by our customers, competition, seasonal variations in customer demand, the timing, cancellation or delay of customer orders, shipments and acceptance, product development costs, including increased research, development, engineering and marketing expenses associated with our introduction of new products and product enhancements. |
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Our operating results and financial position could be negatively affected by acquisitions, including our recently announced acquisition of Laser Design, Inc. On March 14, 2014, we acquired substantially all of the assets of Laser Design, Inc. (LDI), a 3D metrology company located in Minneapolis, Minnesota, for aggregate consideration of $2.7 million cash, plus the assumption of certain current liabilities. If the LDI business does not perform as anticipated, we may be forced to incur additional expense to enhance its development, sales or marketing capabilities, negatively impacting our earnings and financial position. In addition, we may be unable to successfully integrate LDI or other businesses that we choose to acquire in the future in a cost-effective and non-disruptive manner. Business acquisitions present a number of risks, including: |
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diversion of management’s attention from daily operational matters, current products and customers; |
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lack of synergy, or the inability to realize expected synergies; |
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failure to commercialize or meet the expected performance of the new technology or business; |
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failure to retain key employees and customer or supplier relationships; |
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lower-than-expected market opportunities or market acceptance of any new products; and |
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unexpected reduction of sales of existing products by new products. |
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Our failure to realize the intended benefits of one or more acquisitions could have a material adverse effect on our business, liquidity, financial position and/or results of operations, including our assumption of unforeseen contingent liabilities. |
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Sales to our largest OEM customers constituted a significant portion of our revenue in 2013 and loss of either of these customers, or a decline in the customer’s business, would have a materially adverse impact on our results of operations. Sales to our two principal OEM sensor customers constituted 24% of our total revenue in 2013. Although we do not anticipate any impact on the level of business we conduct with them, our largest OEM customer, and a third OEM customer, have completed or are nearing completion of business combination transactions that could impact our business relationships. If the order rates of these customers are negatively impacted by global economic events beyond their control, competitive factors, or if they or new owners or management choose sensors or inspection systems manufactured by other suppliers, or otherwise terminate their relationships with us, our long-term results of operations would be significantly adversely affected. |
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The market for capital equipment for the electronics industry in which we operate is cyclical and we cannot predict with precision when market downturns will occur. We operate in a cyclical market–the electronics capital equipment market–that periodically adjusts independent of global economic conditions. We have been unable to predict with accuracy the timing or magnitude of periodic downturns in this market. These downturns, particularly the severe downturns in electronics production markets from 2001 through 2003, and from 2008 through 2009, have severely affected our operations and generated several years of unprofitable operations. Ultimately, we have difficulty determining the duration or severity of any market downturns, the strength of any subsequent recoveries, and the long-term impact that the market may have on our business. |
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World events beyond our control may affect our operations. Our operations and markets could be negatively affected by world events that effect economies and commerce in countries, such as China, Singapore and Japan, in which we do business. Natural disasters, such as the tsunami and earthquake that hit Japan and the floods that hit Thailand in 2011, have affected travel patterns and accessibility in these countries in the past and other natural occurrences, such as a bird flu outbreak, could affect the business we do in these countries in the future. Further, these countries may be affected by economic forces that are different from the forces that affect the United States and change the amount of business we conduct. |
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We generate approximately three quarters of our revenue from export sales that are subject to risks of international operations. Our export sales are subject to many of the risks of international operations including: |
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currency controls and fluctuations in currency exchange rates; |
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changes in local market business requirements and increased cost and development time required to modify and translate our products for local markets; |
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inability to recruit qualified personnel in a specific country or region; |
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difficulty in establishing and maintaining relationships with local vendors; |
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differing foreign technical standards; |
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differing regulatory requirements; |
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export restrictions and controls, tariffs and other trade barriers; |
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reduced protection for intellectual property rights; |
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changes in political and economic conditions; |
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potentially adverse tax assessments; and |
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terrorism, disease, or other events that may affect local economies and access. |
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Our development and assembly operations in Singapore, and our sales operations in Asia, are subject to unique risks because of the remote nature of the operations. Our Singapore development and manufacturing operations, and our Asian sales operations, present a number of risks related to the retention of personnel, management of product development and operations, management and access to customer and distributor interactions, control over administrative and business processes, regulatory and legal issues we may encounter and other matters relating to foreign operations. We cannot be certain that we will be able to retain software development and management personnel in Singapore, and sales personnel in other territories, who are reliable and who will accept employment terms that are attractive. Although most components for our system products are more readily available in Singapore, some of the hardware components used in our system products necessary for manufacture in Singapore may be difficult to import at efficient rates. Our financial performance, ability to serve our customers and ability to manufacture and sell products could be negatively impacted if we are unable to retain our Asian based employees, if it costs more than expected to retain these employees or hire other experienced employees in a timely manner, if we are unable to manage these employees appropriately, or if we are unable to locate suitable sources of supply for our products manufactured in Asia. |
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We price our products in U.S. dollars, and as a result, our products may have difficulty competing in periods of increasing strength of the dollar. Most of our international export sales are negotiated, invoiced and paid in U.S. dollars, and accordingly, currency fluctuations do not affect our revenue per unit. However, significant fluctuations in the value of the U.S. dollar relative to other currencies could have an impact on the price competitiveness of our products relative to foreign competitors, which could impact the willingness of customers to purchase our products and have an impact on our results of operations. |
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Because of our significant operations in Singapore, our costs are negatively impacted when the U.S. dollar weakens relative to the Singapore dollar. A significant portion of our cost of revenues, research and development and sales and marketing costs are denominated in the Singapore dollar. In addition, other sales and marketing costs are denominated in British Pounds Sterling and the Chinese Yuan, resulting from our sales offices located in the UK and China. Our costs will increase, and our results will be negatively impacted in future periods, if the U.S. dollar weakens relative to the currencies of these countries. |
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We enter into foreign exchange forward contracts to hedge against the effect of exchange rate fluctuations on cash flows denominated in foreign currencies associated with our subsidiary in Singapore, which may result in losses. At December 31, 2013, our open foreign exchange forward contracts were in an unrealized loss position equal to $58,000 on a pre-tax basis due to a strengthening of the U.S. dollar in relation to the Singapore dollar in 2013. If the exchange rate between the U.S. dollar and the Singapore dollar were to remain unchanged over the next twelve months, we would realize this loss through our statement of operations. However, because we do not fully hedge all of our future anticipated cash flows in Singapore dollars, the portion of our costs that we do not hedge would be lower in relation to recent quarters. If the U.S. dollar were to weaken in future periods in relation to the Singapore dollar, the unrealized loss on our open foreign exchange forward contracts would be reduced, but costs that are not hedged would increase. The ultimate impact of any fluctuation in the relationship between the U.S. dollar and Singapore dollar is dependent on the level of Singapore denominated cash flows in future periods. |
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Our products could become obsolete. Our current products, as well as the products we have under development, are designed to operate with the technology that we believe currently exists or may exist for electronic components, printed circuit boards, memory modules, photovoltaic wafers and semiconductor manufacturing. The technology for these components and the consumer products into which they are incorporated change rapidly and, because it takes considerable time to develop new products, we must anticipate consumer and industry trends, as well as technological developments, in order to effectively compete. For example, our sales of SPI and AOI systems were negatively impacted in 2013 by ongoing changes in the electronics market, as consumers continue to favor smart phones, tablets and other mobile computer devices, in lieu of purchasing new laptop computers. While we have historically had success selling our inspection system offerings to manufacturers of notebook computers in China, manufacturers of mobile computing devices like smart phones and tablets have tended to prefer the offerings of our competitors. Further, because we do not have unlimited development resources, we might choose to forgo the pursuit of what becomes a leading technology or market and devote our resources to technologies and markets that are less successful. If we incorrectly anticipate technology developments or market trends, or have inadequate resources to develop our products to deal with changes in technology and markets, our products could become obsolete. |
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Advances in the SMT electronics assembly alignment sensor market have eliminated some of the advantages of our sensors. Our SMT electronic assembly alignment sensor products compete with products made by larger machine vision companies, other optical sensor companies, and by solutions internally developed by our customers. Advances in machine vision technology in recent years have eliminated some, but not all, of the advantages that have differentiated our products from some of these competitors, and advances in other technologies could eliminate other advantages. |
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The market for surface mount capital equipment has become more mature and price competitive, negatively impacting our margins. The electronics capital equipment market for surface mount technologies is becoming more mature, resulting in increased price pressure on suppliers of equipment. Consequently, our SMT electronic assembly inspection systems and alignment sensor products have become subject to increased levels of price competition and competition from other suppliers and technologies, including suppliers in Asia who have specifically designed their products to compete favorably against our products. |
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Because of the high cost of changing equipment, customers in our markets are sometimes resistant to purchasing our products even if they are superior. We believe that, because of the high cost of installation and integration of new inspection equipment into production lines, once an SMT customer has selected a vendor’s capital equipment, the customer generally relies upon that capital equipment and, to the extent possible, subsequent generations of the same vendor’s equipment. Accordingly, unless our systems offer performance or cost advantages that outweigh the expense of installing and integrating new systems, it may be difficult for us to achieve significant sales to a customer that currently uses a competitor’s equipment. |
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Competitors in Asia may be able to compete favorably with us based on lower production, employee costs and in some cases, governmental support. We compete with large multinational companies when selling our inspection system products, many of which are able to take advantage of greater financial resources and larger sales distribution networks. We also compete with new Asian based suppliers, many of which may have lower overall production and employee costs and are willing to offer their products at lower selling prices to customers. Further, we believe some competitors receive government sponsored research and manufacturing assistance that can cause their relative cost of development of new products to be lower, and are under less market pressure to forgo the short-term income impact of concentrated investment in research and development. |
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We are exposed to credit risk through sales to our OEM customers and distributors of our stand-alone system products. We sell our products through three key OEM customers, and usually have significant credit exposure with respect to these customers. In addition, we sell our stand-alone inspection system products through a network of international distributors. These distributors tend to be smaller in size with limited financial resources and access to capital. Although these distributors do not hold our products in inventory for re-sale, we are exposed to credit risk and would incur losses if they are unable to pay for the products they have purchased from us. |
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We are dependent upon outside suppliers for components of our products, and delays in or unavailability of those components would adversely affect our results. We use outside contractors to manufacture the components used in many of our products and some of the components we order require significant lead times that could affect our ability to sell our products if not available. In addition, if these components do not meet stringent quality requirements or become subject to obsolescence, there could be delays in product availability, and we could be required to make significant investments in designing replacement components. |
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We may fail to adequately protect our intellectual property and, therefore, lose our competitive advantage. Our future success and competitive position depend in part upon our ability to obtain and maintain proprietary technology for our principal product families, and we rely, in part, on patent and trade secret law and confidentiality agreements to protect that technology. If we fail to adequately protect our intellectual property, our competitors may be able to duplicate and enhance what we have created. We own or have licensed a number of patents, and have filed applications for additional patents. Any of our pending patent applications may be rejected, and we may be unable to develop additional proprietary technology that is patentable in the future. In addition, the patents that we do own or that have been issued or licensed to us may not provide us with competitive advantages and may be challenged by third parties. Further, third parties may also design around these patents. In addition to patent protection, we rely upon trade secret protection for our confidential and proprietary information and technology. We routinely enter into confidentiality agreements with our employees and other third parties. Even though these agreements are in place there can be no assurances that trade secrets and proprietary information will not be disclosed, that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets, or that we can fully protect our trade secrets and proprietary information. Violations by others of our confidentiality agreements and the loss of employees who have specialized knowledge and expertise could harm our competitive position and cause our sales and operating results to decline as a result of increased competition. Costly and time-consuming litigation might be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection might adversely affect our ability to continue our research or bring products to market. |
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Protection of our intellectual property rights, or the efforts of third parties to enforce their own intellectual property rights against us, may result in costly and time-consuming litigation, substantial damages, lost product sales and/or the loss of important intellectual property rights. We may be required to initiate litigation in order to enforce any patents issued to or licensed by us, or to determine the scope or validity of a third party’s patent or other proprietary rights. Any litigation, regardless of outcome, could be expensive and time consuming, and could subject us to significant liabilities or require us to re-engineer our products or obtain expensive licenses from third parties. There can be no assurance that any patents issued to or licensed by us will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide us with a competitive advantage. In addition, our commercial success depends in part on our ability to avoid infringing or misappropriating patents or other proprietary rights owned by third parties. From time to time, we may receive communications from third parties asserting that our products infringe, or may infringe, the proprietary rights of these third parties. These claims of infringement may lead to protracted and costly litigation, which could require us to pay substantial damages or have the sale of our products stopped by an injunction. Infringement claims could also cause product delays or require us to redesign our products and these delays could result in the loss of substantial revenues. We may also be required to obtain a license from the third party or cease activities utilizing the third party’s proprietary rights. We may not be able to enter into such a license or such a license may not be available on commercially reasonable terms. Accordingly, the loss of important intellectual property rights could hinder our ability to sell our products, or make the sale of these products more expensive. |
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Our efforts to protect our intellectual property may be less effective in certain foreign countries, where intellectual property rights are not as well protected as in the United States. The laws of some foreign countries do not protect our proprietary rights to as great an extent as do the laws of the United States, and many U.S. companies have encountered substantial problems in protecting their proprietary rights against infringement abroad. Consequently, there is a risk that we may be unable to adequately protect our proprietary rights in certain foreign countries. If this occurs, it would be easier for our competitors to develop and sell competing products in these countries. |
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The absence of significant market liquidity in our common stock could impact the ability of our shareholders to purchase and sell larger blocks, the attractiveness of our stock to institutional shareholders, and the market value of our common stock. There were 6,496,805 shares of our common stock outstanding as of December 31, 2013. Although our common stock is traded in the NASDAQ Global Market, in part because of the number of shares we have outstanding and available for trading, the daily trading volume in our stock is low, averaging less than 60,000 shares per day. Shareholders wishing to purchase or sell larger blocks of stock may not be able to do so quickly, and disposal by any shareholder of a significant block of stock could adversely affect the sale price in the marketplace. Further, institutional investors often have policies against investment in stock that is illiquid, and many institutional investors may elect not to purchase or hold our stock because of the inability to dispose of it. The reduced institutional interest, as well as the lack of current evaluations by securities analysts, has had and can be expected to continue to have a further adverse impact on the market price and liquidity of our common stock. |
|
17
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
We lease a 50,724 square foot mixed office and warehouse facility built to our specifications in Golden Valley, Minnesota, which functions as our corporate headquarters and primary manufacturing facility for our SMT and semiconductor sensor products, including the sensors used in our inspection system products. Our lease for the Golden Valley facility expires December 31, 2018, contains an escalation clause and two renewal options of three years each.
We lease a 19,805 square foot mixed office and warehouse facility in Singapore that serves as a sales, development and final assembly and integration facility for our inspection system products. Our lease for the Singapore facility expires July 24, 2016, contains an escalation clause and one three year renewal option. As of December 31, 2013, we also have operating leases in the United Kingdom and China, which expire in June 2018 and September 2014, respectively. We believe that our leased facilities are adequate for our anticipated needs for the foreseeable future.
We are not currently subject to any material pending or threatened legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
None.
18
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the Nasdaq Global Market. The following table sets forth, for the fiscal periods indicated, the high and low sales prices for our common stock as reported by the Nasdaq Global Market. These prices do not reflect adjustments for retail markups, markdowns or commissions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
2012 |
|
||||||||
|
Quarter |
|
High |
|
Low |
|
High |
|
Low |
|
||||
|
First |
|
$ |
7.90 |
|
$ |
5.98 |
|
$ |
9.75 |
|
$ |
7.29 |
|
|
Second |
|
$ |
6.90 |
|
$ |
5.26 |
|
$ |
10.21 |
|
$ |
7.81 |
|
|
Third |
|
$ |
6.82 |
|
$ |
5.42 |
|
$ |
8.64 |
|
$ |
6.06 |
|
|
Fourth |
|
$ |
6.60 |
|
$ |
4.91 |
|
$ |
8.12 |
|
$ |
6.17 |
|
As of February 28, 2014, there were approximately 200 holders of record of our common stock and approximately 3,000 beneficial holders. We have never paid a dividend on our common stock. Dividends are payable at the discretion of the Board of Directors out of funds legally available. Our Board has no current intention of paying dividends.
Company repurchase of equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
(a) |
|
(b) |
|
(c) |
|
(d) |
|
||||
|
October 1, 2013 to October 31, 2013 |
|
|
110,853 |
|
$ |
5.63 |
|
|
110,853 |
|
$ |
341,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2013 to November 30, 2013 |
|
|
66,800 |
|
$ |
5.11 |
|
|
66,800 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
177,653 |
|
$ |
5.43 |
|
|
177,653 |
|
$ |
— |
|
|
|
|
|
(1) |
On October 30, 2012, we publicly announced a $3.0 million share repurchase program. We adopted a 10b5-1 trading plan to implement the program. As of December 31, 2013 the plan was completed and no further share repurchases will be made under the October 30, 2012 program. The amount reflected in column (d) represents the dollar value of shares that remain to be repurchased under the plan. |
ITEM 6. SELECTED FINANCIAL DATA
Not applicable
19
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Two Years Ended December 31, 2013:
General Overview
Our products are sold primarily into the electronics assembly, DRAM and flash memory, and semiconductor fabrication capital equipment markets. We sell products in these markets both to original equipment manufacturers of production equipment and to end-user customers that assemble circuit boards and semiconductor wafers and devices.
We experienced reduced year over year demand for our surface mount technology (SMT) sensor and system products in 2013 due to weak conditions in the SMT capital equipment market, the sharp downturn in the laptop personal computer market where we historically have sold more of our SMT inspection systems, and slower than anticipated market acceptance of our new automated optical inspection (AOI) products. Customer acceptance of our new QX600 AOI inspection system products, which are expected to address market segments outside the laptop computer space, have been somewhat impacted by aggressive marketing by competitors. Reductions in sales of SMT sensor and system products were offset in part by higher sales of our WaferSense® semiconductor products, which grew by over 20% in 2013 to $5.7 million.
We have taken concrete steps to address our losses and move towards revenue growth and profitability. In November 2013, we reduced our workforce by almost 20%, mainly impacting employees working in the area of SMT inspection systems where we experienced large revenue declines in 2013. Critical engineering employees working on key next generation technologies and products were not impacted. Recent product introductions mark our first steps toward strengthening our competitive position in our current markets, particularly in the mobile computing and high performance segments of the SMT inspection systems market. We are encouraged by initial acceptance of our new SE600 solder paste inspection (SPI) system, which we believe has the improved performance and usability we need to gain SPI market share. We recorded our first sales of the SE600 SPI system in the fourth quarter of 2013. The SE600 is doing very well in a number of customer evaluations, including head to head competition against the industry leading SPI supplier, which makes us believe we are capable of gaining share in the SPI market. We also continued to post solid sales of our new SE500ULTRA SPI system, which offers a 30% increase in inspection speed for high-volume production runs. We have earmarked additional funds to expand our marketing efforts, and have committed resources to developing new SMT products for conformal coating and memory inspection and will be launching a new WaferSense product for particle monitoring in reticle size.
We are developing a new high speed metrology grade 3D measurement technology that we expect to be market ready in 2014. Our first commercial application of this technology is expected to be in a 3D AOI SMT inspection system that we anticipate launching by the end of 2014. We also intend to expand sales of this technology into adjacent targeted markets that require high precision optical 3D inspection. On March 14, 2014, we acquired substantially all of the assets of Laser Design Services, Inc. (LDI) a $6.0 million provider of 3D scanning products and measurement services headquartered in Minneapolis, Minnesota for aggregate consideration of $2.7 million cash, plus the assumption of certain current liabilities. The acquisition of LDI is part of our strategic repositioning as a high-precision 3D sensor technology company, and provides us with access to the growing market for general purpose 3D metrology. The addition of LDI also will enable us to leverage the 3D sensor technology that we are developing in-house.
We are targeting double digit revenue growth in 2014 and 2015, excluding the revenue impact from the acquisition of LDI. Based on our outlook for higher sales and reduced expenses given our recent workforce reduction, we anticipate a significantly reduced operating loss in 2014. With cash and marketable securities of $23.2 million at the end of 2013, we believe we have the resources required to attain our growth objectives over the next several years.
Our ability to achieve our forecast and to implement our strategy effectively is subject to numerous uncertainties and risks, including the risks identified in Item 1A of this Report on Form 10-K. We cannot assure you that our efforts will be successful.
20
Revenues
Our revenues decreased by 20% to $33.3 million in 2013 from $41.6 million in 2012 and decreased by 32% in 2012 from $61.1 million in 2011. The following table sets forth, for the years indicated, revenues by product line (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2013 |
|
2012 |
|
2011 |
|
|||
|
SMT Sensors |
|
$ |
10,792 |
|
$ |
13,187 |
|
$ |
20,844 |
|
|
Semiconductor Sensors |
|
|
7,096 |
|
|
6,363 |
|
|
6,940 |
|
|
SMT Inspection Systems |
|
|
15,420 |
|
|
22,094 |
|
|
33,303 |
|
|
Total |
|
$ |
33,308 |
|
$ |
41,644 |
|
$ |
61,087 |
|
Revenue from sales of SMT sensors decreased by $2.4 million or 18% to $10.8 million in 2013, and decreased by $7.7 million, or 37%, to $13.2 million in 2012, from $20.8 million in 2011. The decrease in sales of SMT sensors in 2013 and 2012 resulted largely from a sluggish global economy and weak SMT market conditions, causing manufacturers to delay plans for new capacity expansion. Our SMT sensor customers were also impacted by increased competition and particularly difficult conditions in key geographies. We anticipate new product introductions by SMT sensor customers will increase our sales of SMT sensors in future periods. In addition, sales of solar wafer alignment cameras for the photovoltaic cell market were minimal in 2013 and 2012, down from $2.1 million in 2011, reflecting the continued impact of over-capacity in the solar market.
Revenue from sales of our semiconductor sensors increased by $733,000 or 12% to $7.1 million in 2013, and decreased by $577,000, or 8%, to $6.4 million in 2012, from $6.9 million in 2011. The increase in sales of semiconductor products in 2013 was driven by higher sales of WaferSense products. Sales of these products were up 20% in 2013 to $5.7 million. Sales of WaferSense products in 2012 were roughly flat on a year over year basis at $4.8 million, mainly due to weak market conditions late in the year. We anticipate that the increased marketing we are devoting to WaferSense products will result in growing market awareness of these products and enhanced sales. The decrease in sales of semiconductor sensors in 2012 was driven by weak market conditions and continuing declines in sales of older wafer mapper and frame grabber products. We anticipate that sales of these products will continue to slowly decline in the future, given that the products are mature, and any new investment is expected to be minimal.
Revenue from sales of our SMT inspection system products decreased by $6.7 million or 30% to $15.4 million in 2013, and decreased by $11.2 million, or 34%, to $22.1 million in 2012, from $33.3 million in 2011. Revenue from sales of SPI systems decreased by $576,000 or 8% to $6.7 million in 2013, and decreased by $8.6 million, or 54%, to $7.2 million in 2012, from $15.8 million in 2011. Revenue from sales of AOI systems decreased by $5.8 million or 46% to $7.0 million in 2013, and decreased by $2.9 million, or 18%, to $12.8 million in 2012, from $15.7 million in 2011.
Sales of SMT inspection systems in 2013 and 2012 were impacted by weak conditions in the SMT capital equipment market, the sharp down-turn in the laptop computer market and slower than anticipated market acceptance of our new AOI products. Because our SMT inspection system products have historically been sold to customers that produce laptop computers, the increase in tablet and other mobile computing devices and decline in laptop sales, has impacted capital purchasing of those customers and our sales. Sales of AOI systems were hit particularly hard by the shift in the electronics market away from laptop computers. The AOI market accounts for approximately two-thirds of the total inspection systems market. Although we have designed our new QX600 AOI inspection system products to address market segments outside the laptop computer space, acceptance of those systems has been somewhat impacted by aggressive marketing by competitors. We believe that new system products that we plan to introduce, particularly those based on our new 3D measurement technology, will strengthen our future competitive position in the SMT inspection systems market, resulting in market share increases, and that technology trends toward smaller components and increased production speeds will continue to drive demand in the future.
Export revenue totaled $26.0 million or 78% of total revenue in 2013, compared to $35.5 million or 85% of total revenue in 2012. Export revenue as a percentage of total revenue declined in 2013 because export sales of SMT sensors were lower in 2013 when compared to 2012. In addition, lower sales of inspection systems in China due to the shift in the electronics market away from laptop computers also impacted our export revenue.
Cost of Revenues and Gross Margin
Cost of revenue decreased by $4.8 million or 20% to $18.7 million in 2013 from $23.5 million in 2012, and decreased by $9.6 million or 29% in 2012, from $33.0 million in 2011. The decreases in cost of revenue were due to the corresponding sales decreases of 20% in 2013 and 32% in 2012. Items included in cost of revenue that fluctuate with the level of sales include raw materials, direct labor and factory overhead costs. Total gross margin as a percentage of sales was 44% in both 2013 and 2012.
21
Gross margin as a percentage of SMT and semiconductor sensor sales was 51% in 2013, compared to 47% in 2012, and 52% in 2011. The increase in gross margin percentage in 2013 was due largely to proportionately more sales of higher margin WaferSense products and initial sales of higher margin next generation SMT sensors, combined with a reduction in sales of older, lower margin sensor products. Gross margins in 2013 have also benefited from the efficiencies resulting from our restructuring activities last year. The decrease in gross margin percentage in 2012 was due largely to sluggish sales of certain higher margin SMT sensors, including the absence of revenues from solar wafer alignment cameras. Factory de-leverage also had an impact on gross margins in 2012.
Gross margin as a percentage of SMT inspection systems sales was 38% in 2013, compared to 41% in both 2012 and 2011. The decrease in gross margin percentage in 2013 was due largely to the shift in sales mix of our SMT inspection systems to lower margin SPI systems and away from higher margin QX AOI systems. Sales of our 2D AOI systems were hit particularly hard by the shift in the electronics market away from laptop computers and by our competitors stressing the importance of 3D versus 2D AOI.
Our markets are highly price competitive, particularly the electronic assembly market, resulting in continual pressure on our gross margins. We compensate for pricing pressure by introducing new products with more features and improved performance and through manufacturing cost reduction programs. For example, our latest SMT inspection system products combine a reduction in cost with enhanced performance. Other recently introduced products, including our next generation SMT and WaferSense sensors have more favorable margins than many of our existing products.
Operating Expenses
Operating expenses as a percentage of revenue were higher in 2013 when compared to 2012 due to the year over year decline in our revenue. We implemented restructuring actions in the fourth quarter of 2013 to reduce our expenses given the recent revenue declines.
Research and development expenses were $7.5 million or 23% of revenue in 2013, $7.7 million or 19% of revenue in 2012 and $7.8 million or 13% of revenue in 2011. The slight decrease in research and development expense in 2013 resulted from lower wages and benefits due to our 2013 and 2012 restructuring activities, offset in part by research and development efforts for new products, including our QX600 AOI system, our next-generation SE600 SPI system and development of our new MRS high speed metrology grade 3D measurement technology. The slight decrease in research and development expenses in 2012 resulted from savings of $200,000 related to consolidation of research and development for our semiconductor products in Minneapolis, lower project costs for proto-types and consulting, offset in part by higher expenses for additional wages, benefits and headcount additions to strengthen our inspection systems product development team.
Selling, general and administrative expenses were $12.3 million or 37% of revenue in 2013, $12.8 million or 31% of revenue in 2012 and $14.5 million or 24% of revenue in 2011. The decrease in selling, general and administrative expense in 2013 was due to a reduction in commissions for third party sales representatives due to the decline in SMT system sales, efficiencies from our restructuring activities last year, offset in part by an increase in professional fees related to our acquisition of LDI. The $1.7 million or 12% decrease in selling, general and administrative expense in 2012 was due to a reduction in commissions for third party sales representatives of $712,000, and a reduction in internal sales commissions and incentive bonuses of $715,000, resulting from the 32% decline in 2012 sales. Selling, general and administrative expense was reduced by $171,000 in 2013 and $73,000 in 2012 due to a reduction in our allowance for doubtful accounts, resulting from partial recovery of a receivable we reserved for in 2009.
Restructuring and Severance Costs
In the fourth quarter of 2013, we initiated a plan to reduce our global workforce by approximately 30 employees. Expenses for contract workers were also reduced. The workforce reduction was undertaken in response to soft sales, particularly SMT inspection systems, in order to strengthen our commitment to cost control, minimize losses and to improve focus on market support for our products. Annual expense savings starting in the first quarter of 2014 associated with the global workforce reduction and other cost containment actions is anticipated to total approximately $2.0 million. Critical engineering employees working on key next generation technologies and products were not impacted. A portion of the anticipated savings may be used to fund new growth initiatives in future periods. Restructuring and severance expense in the fourth quarter of 2013, primarily resulting from the workforce reduction, totaled $952,000.
In the third quarter of 2012, we consolidated research and development for our semiconductor products into our Minneapolis headquarters facility, resulting in a $217,000 restructuring charge for severance and relocation expenses. We believe this move streamlined our business and provided our sensor engineers in Minneapolis with more efficient access to our WaferSense technology and products. Additional severance costs of $523,000 were incurred in the fourth quarter of 2012 when we reduced our global workforce by approximately 10% or 20 employees in response to the sluggish economy and weak SMT, semiconductor and solar market conditions.
22
A summary of our restructuring accrual follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Fourth Quarter |
|
Fourth Quarter |
|
Semi R&D |
|
Total |
|
||||
|
Balance, December 31, 2011 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Cost incurred |
|
|
— |
|
|
523 |
|
|
217 |
|
|
740 |
|
|
Payments made |
|
|
— |
|
|
331 |
|
|
217 |
|
|
548 |
|
|
Balance, December 31, 2012 |
|
|
— |
|
|
192 |
|
|
— |
|
|
192 |
|
|
Cost incurred |
|
|
952 |
|
|
— |
|
|
— |
|
|
952 |
|
|
Payments made |
|
|
441 |
|
|
192 |
|
|
— |
|
|
633 |
|
|
Balance, December 31, 2013 |
|
$ |
511 |
|
$ |
— |
|
$ |
— |
|
$ |
511 |
|
The remaining accrued severance in the amount of $511,000 at December 31, 2013 will be paid prior to July 1, 2014.
Interest Income and Other
Interest income and other includes interest earned on investments and gains and losses associated with foreign currency transactions, including intercompany financing transactions associated with our subsidiaries in the United Kingdom and Singapore. We recognized a loss from foreign currency transactions, primarily intercompany financing transactions, of $117,000 in 2013, compared to a loss from foreign currency transactions of $11,000 in the prior year. In 2012, we also recognized a $42,000 permanent impairment loss on our investment in an equity security.
Provision for Income Taxes and Effective Income Tax Rate
We recorded an income tax benefit of $186,000 in 2013 reflecting an effective tax rate of 2.9%. The benefit resulted from a $536,000 reduction in our reserve for income taxes due to the expiration of the statute of limitations for various tax exposures, offset in part by the related impact on deferred taxes and our valuation allowance, minimal state income tax expense and foreign income tax expense associated with our subsidiaries in the United Kingdom and China. At December 31, 2013, we carried a full valuation allowance for all of our United States and Singapore based deferred tax assets. The valuation allowances may be reversed once our operations and outlook materially strengthen.
We recorded income tax expense of $3.6 million in 2012 because of the $5.7 million non-cash charge we recorded as a valuation allowance against substantially all of our United States and Singapore based deferred tax assets due to the decline in our level of profitability and near term financial outlook.
We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. Our 2012 and 2011 federal income tax returns are still subject to examination by the Internal Revenue Service. During 2012, the Internal Revenue Service completed an audit of our 2010 federal income tax return. The audit resulted in no change to our reported level of taxable income or income tax liability, and had no impact on our financial condition. The statute of limitations for examination of our federal returns for years prior to 2010 expired in 2013. We are no longer subject to state and local income tax examinations by tax authorities for years before 2009.
Liquidity and Capital Resources
Our cash and cash equivalents decreased by $4.2 million in 2013, principally resulting from $2.2 million of cash used in operating activities, $1.7 million of proceeds from maturities and sales of marketable securities, net of purchases of marketable securities, purchases of fixed asset and capitalized patent costs totaling $749,000, and $3.0 million of cash used to repurchase common stock. Our cash and cash equivalents fluctuate in part because of maturities of marketable securities, and investment of cash balances in marketable securities, or from other sources of cash. Accordingly, we believe the combined balances of cash and marketable securities provide a more reliable indication of our available liquidity. Combined balances of cash and marketable securities decreased by $6.0 million to $23.2 million as of December 31, 2013 from $29.2 million as of December 31, 2012.
23
Operating activities used $2.2 million of cash in 2013. Cash used by operations included the net loss of $6.2 million, which included non-cash expenses totaling $2.5 million for depreciation and amortization, provision for doubtful accounts, deferred taxes, non-cash losses from foreign currency transactions, realized losses on available-for-sale securities transactions and stock compensation expenses. Changes in operating assets and liabilities providing cash included decreases in inventories of $561,000, collection of the $1.3 million of income tax refunds previously recorded as a receivable, and an increase in accounts payable of $182,000. Changes in operating assets and liabilities using cash included an increase in accounts receivable of $382,000 and a decrease in accrued expenses of $253,000. The reduction in inventories was due to improved sales forecasting and better inventory management. The increase in accounts payable was due to the timing of year-end inventory purchases and vendor payments. The increase in accounts receivable was due to higher sales in the fourth quarter of 2013 compared to the fourth quarter of 2012. Accrued expenses were lower due to a reduction in our reserve for income taxes offset in part by higher restructuring accruals at December 31, 2013.
Operations provided virtually no cash in 2012, reflecting our net loss of $6.7 million, offset in part by non-cash expenses totaling $7.0 million for depreciation and amortization, provision for doubtful accounts, deferred income taxes, non-cash gains from foreign currency transactions, unrealized loss on available-for-sale equity security and stock compensation costs. Deferred income tax expense of $4.8 million, resulting from the valuation allowance we recorded in 2012, was the largest component of total non-cash expenses. Changes in operating assets and liabilities providing cash included decreases in accounts receivable of $5.9 million. Changes in operating assets and liabilities using cash included increases in inventory of $1.8 million, increases in refundable income taxes of $1.1 million, decreases in accounts payable of $1.7 million, decreases in advance customer payments of $299,000 and decreases in accrued expenses of $1.4 million. The decrease in accounts receivable and advance customer payments resulted from substantially lower sales levels and activity in the fourth quarter of 2012, compared to the fourth quarter of 2011. Inventories increased as 2012 sales levels were lower than anticipated. Higher income tax refunds receivable were due to income tax payments made in 2012 and an increase in refundable income taxes resulting from our loss in 2012. Accrued expenses and other liabilities decreased due to lower commission and incentive compensation accruals, resulting from lower levels of revenue and profitability, and payment of 2011 incentive compensation accruals in 2012. The decrease in accounts payable in 2012 resulted from a significant reduction in new raw material purchases as we worked to reduce inventory levels resulting from lower than anticipated sales.
Investing activities provided $991,000 of cash in 2013, compared to using $6.7 million of cash in 2012. Changes in the level of investment in marketable securities, resulting from the purchases, sales and maturities of those securities provided $1.7 million of cash in 2013, compared to using $5.2 million of cash in 2012. We used $749,000 of cash in 2013 for the purchase of fixed assets and capitalized patent costs, compared to using $1.5 million of cash for this purpose in 2012. The higher level of fixed asset purchases in 2012 was due to new network storage equipment, office improvement and research and development test equipment.
Financing activities used $2.9 million of cash in 2013, compared to providing $145,000 of cash in 2012. Common stock repurchases totaled $3.0 million in 2013, compared to $21,000 in 2012. Our share repurchase program concluded in the fourth quarter of 2013 and no further repurchases are anticipated. Cash received from financing activities in 2013 and 2012 include proceeds from the exercise of employee stock options and issuance of common stock under our Employee Stock Purchase Plan.
At December 31, 2013, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of establishing off-balance sheet arrangements or other contractually narrow or limited purposes.
Except for obligations under facility leases and purchase contracts, we had no material commitments for expenditures as of December 31, 2013. Purchase commitments for inventory can vary based on the volume of revenue and resulting inventory requirements. We entered into a new lease for our existing facility in Singapore that will run for a period of 36 months from July 2013 through July 2016. Our rent expense under the new lease will increase by approximately $60,000 per year. In March 2014, we acquired substantially all of the assets of LDI for aggregate consideration of $2.7 million cash, plus the assumption of certain current liabilities. We continually evaluate investment opportunities that come to our attention and could make another significant commitment in the future.
Our cash, cash equivalents and marketable securities totaled $23.2 million at December 31, 2013. We believe that on-hand cash, cash equivalents and marketable securities, coupled with anticipated future cash flow from operations, will be adequate to fund our cash flow needs for the foreseeable future, including contractual obligations discussed above.
Inflation and Foreign Currency Transactions
Changes in our revenues have resulted primarily because of changes in the level of unit shipments due to competitive factors and the relative strength or weakness of the worldwide electronics and semiconductor fabrication capital equipment markets. We believe that inflation has not had a significant effect on our operations.
24
Most of our international export sales are negotiated, invoiced and paid in U.S. dollars. We manufacture our SMT inspection system products in Singapore and a portion of our raw material purchases are denominated in Singapore dollars. We also have R&D and sales personnel located in Singapore and sales offices located in other parts of the world. Although currency fluctuations do not significantly affect our revenue, they can impact our costs and influence the price competitiveness of our products and the willingness of existing and potential customers to purchase units.
We enter into foreign exchange forward contracts to hedge against the effect of exchange rate fluctuations on cash flows denominated in foreign currencies associated with our subsidiary in Singapore. These transactions are designated as cash flow hedges. The effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period during which the hedged transaction affects earnings. The maximum length of time over which we hedge our exposure to the variability in future cash flows is 12 months and, accordingly, at December 31, 2013, all of our open foreign exchange forward contracts had maturities of one year or less. The dollar equivalent gross notional amount of our foreign exchange forward contracts designated as cash flow hedges at December 31, 2013 was approximately $6.5 million.
At December 31, 2013, our open foreign exchange forward contracts were in an unrealized loss position equal to $58,000 on a pre-tax basis due to a strengthening of the U.S. dollar in relation to the Singapore dollar during the time from when we first entered into these contracts through December 31, 2013. If the exchange rate between the U.S. dollar and the Singapore dollar were to remain unchanged over the next twelve months, we would realize this pre-tax loss through our statement of operations. If the U.S. dollar were to further strengthen, the unrealized losses on our open foreign exchange forward contracts would increase. However, if the U.S. dollar strengthens, our costs, when converted from Singapore dollars to U.S. dollars, would decline, and because we do not fully hedge all of our future anticipated cash flows that are denominated in Singapore dollars, the decline in costs would normally exceed the increased loss from hedging. Conversely, if the U.S. dollar were to weaken in future periods in relation to the Singapore dollar, the loss on our open foreign exchange forward contracts would be reduced, but our costs would increase and the increased costs in U.S. dollar terms would normally exceed the reduction in the loss from hedging. The ultimate impact of any fluctuation in the relationship between the U.S. dollar and Singapore dollar is dependent on the level of Singapore denominated cash flows in future periods.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates, including those related to revenue recognition, bad debts, warranty obligations, inventory valuation, intangible assets, and income taxes. We base these estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. The estimates and judgments that we believe have the most effect on our reported financial position and results of operations are as follows:
Revenue Recognition.
Revenue from all customers, including distributors, is recognized when all significant contractual obligations have been satisfied and collection of the resulting receivable is reasonably assured. Generally, revenues are recognized upon shipment under FOB shipping point terms, and include shipping and handling costs. Estimated returns and warranty costs are recorded at the time of sale. Sales of some surface mount technology (SMT) system products may require customer acceptance due to performance or other acceptance criteria included in the terms of sale. For these SMT product sales, revenue is recognized at the time of customer acceptance. Our multiple deliverable arrangements typically include the sale of an SMT inspection system, installation and training, and in some cases, an extended warranty. Revenue from installation and training are recognized as the services are provided. Revenue from extended warranties is recognized ratably over the warranty period.
When a sale involves multiple elements, revenue is allocated to each respective element at inception of an arrangement using the relative selling price method. Selling price is determined based on a selling price hierarchy, consisting of vendor specific objective evidence (VSOE), third party evidence or estimated selling price. Management’s best estimate of the selling price of an SMT machine is based on the cost build-up of the product and a reasonable margin based on geographic location and market conditions. We use VSOE to establish fair value for extended warranty, installation and training services. If VSOE is not available to establish fair value for extended warranty, installation and training services, we estimate a selling price based on the cost-build-up for the particular service and a reasonable gross margin. Costs related to products delivered are recognized in the period revenue is recognized. Cost of revenues consists primarily of direct labor, manufacturing overhead, raw materials and components and excludes amortization of intangible assets.
25
Allowance for Doubtful Accounts.
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. In making the determination of the appropriate allowance for doubtful accounts, we consider specific accounts, historical write-offs, changes in customer relationships and credit worthiness and concentrations of credit risk. Specific accounts receivable are written-off once a determination is made that the account is uncollectible. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The allowance for doubtful accounts is $705,000 at December 31, 2013 and $775,000 at December 31, 2012.
Allowance for Warranty Expenses.
We provide for the estimated cost of product warranties at the time revenue is recognized. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of component suppliers, warranty obligations are affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from our estimates, revisions to the estimated warranty liability would be required. The allowance for warranties was $513,000 at December 31, 2013 and $694,000 at December 31, 2012.
Inventory Write Downs.
We write down inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. We formulate our assumptions regarding future demand and market conditions based on order trends and input from customers regarding their future requirements. If actual market conditions are less favorable than those projected, or if in the future we decide to discontinue sales and marketing of any of our products, additional inventory write-downs may be required. Excess and obsolete inventories have been written down by $757,000 at December 31, 2013 and $489,000 at December 31, 2012.
Valuation of Intangible and Long-Lived Assets.
We assess the impairment of identifiable intangible assets, long lived assets and related goodwill whenever events or changes in circumstances indicate the carrying value may not be recoverable. In addition, goodwill is tested for impairment annually. Factors we consider important, which could trigger an impairment review include the following:
|
|
|
|
|
|
• |
Significant under-performance relative to expected historical or projected future operating results. |
|
|
• |
Significant changes in the manner of our use of the acquired assets or the strategy for our overall business. |
|
|
• |
Significant negative industry or economic trends. |
|
|
• |
Significant decline in our stock price for a sustained period; and our market capitalization relative to net book value. |
|
|
• |
For intangible and long-lived assets, if the carrying value exceeds the undiscounted cash flows from such asset. |
|
|
• |
For goodwill, if the carrying value of our net assets (net book value) exceeds fair value. |
When we determine that the carrying value of intangibles, long-lived assets and related goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure any potential impairment based on a projected discounted cash flow method using a discount rate that we believe is commensurate with the risk inherent in our current business model. Annually, we also test for impairment of goodwill by estimating our fair value utilizing the income approach. The income approach is a valuation technique under which we estimate future cash flows using financial forecasts. Future estimated cash flows are discounted to their present value to calculate fair value. When considering fair value, we also give consideration to the control premium in excess of our current market capitalization that might be obtained from a third party acquirer. These assumptions require significant judgment and actual results may differ from assumed or estimated amounts.
At December 31, 2013 and 2012 we have goodwill equal to $569,000. Our recent analyses performed in 2013 and 2012 indicate that this goodwill is not impaired. However, our conclusion could change in the future, if our assumptions about future economic conditions, revenue growth or profitability change. Any resulting impairment charge could have a material effect on our financial position and results of operations in the future.
26
Income Taxes.
Significant judgment is required in determining worldwide income tax expense based upon tax laws in the various jurisdictions in which we operate. We have established reserves for uncertain tax positions by applying the “more likely than not” threshold (i.e., a likelihood of occurrence greater than fifty percent). The recognition threshold is met when an entity concludes that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination by the relevant taxing authority. Those tax positions failing to qualify for initial recognition are recognized in the first interim period in which they meet the more likely than not standard, or are resolved through negotiation or litigation with the taxing authority, or upon expiration of the statute of limitations. De-recognition of a tax position that was previously recognized occurs when an entity subsequently determines that a tax position no longer meets the more likely than not threshold of being sustained. All tax positions are analyzed periodically and adjustments are made as events warrant modification, such as the completion of audits or the expiration of statutes of limitations, which may result in future charges or credits to income tax expense.
As part of the process of preparing consolidated financial statements, management is required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating the current tax liability, as well as assessing temporary differences arising from the different treatment of items for financial statement and tax purposes. These differences result in deferred tax assets and liabilities, which are recorded on our balance sheet.
We currently have significant deferred tax assets as a result of temporary differences between taxable income on our tax returns and U.S. GAAP income, research and development tax credit carry forwards and federal, state and foreign net operating loss carry forwards. A deferred tax asset generally represents future tax benefits to be received when temporary differences previously reported in our financial statements become deductible for income tax purposes, or when net operating loss carry forwards or credits are applied against future taxable income, or when tax credit carry forwards are utilized on our tax returns. We assess the realizability of our deferred tax assets and the need for a valuation allowance based on the guidance provided in current financial accounting standards.
Significant judgment is required in determining the realizability of our deferred tax assets. The assessment of whether valuation allowances are required considers, among other matters, the nature, frequency and severity of any current and cumulative losses, forecasts of future profitability, the duration of statutory carry forward periods, our experience with loss carry forwards not expiring unused and tax planning alternatives.
At December 31, 2013 we concluded that a $9.6 million valuation allowance is needed for all of our United States and Singapore based deferred tax assets due to the decline in our level of profitability and our near term financial outlook. In analyzing the need for a valuation allowance, we first considered our history of cumulative operating results for income tax purposes over the past three years in each of the tax jurisdictions where we operate, our financial performance in recent quarters, statutory carry forward periods and tax planning alternatives. Finally, we considered both our near and long-term financial outlook and timing regarding when we might return to profitability. After considering all available evidence both positive and negative, we concluded that the valuation allowance is needed for all of our U.S. and Singapore based deferred tax assets. A similar analysis was performed in 2012, resulting in a $6.3 million valuation allowance at December 31, 2012 for substantially all of our U.S. and Singapore based deferred tax assets.
Deferred tax assets at December 31, 2013, include $156,000 for net operating loss carry forwards incurred in the UK by CyberOptics Ltd., which was acquired in 1999. A valuation allowance has not been recorded against these deferred tax assets. The utilization of these net operating loss carry forwards is dependent on CyberOptics Ltd.’s ability to generate sufficient UK taxable income during the carry forward period.
Derivatives and Hedging.
We enter into foreign exchange forward contracts to hedge against the effect of exchange rate fluctuations on cash flows denominated in foreign currencies associated with our subsidiary in Singapore. These transactions are designated as cash flow hedges and are recorded in the accompanying balance sheet at fair value. The effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. The maximum length of time over which we hedge our exposure to the variability in future cash flows is 12 months. Accordingly, at December 31, 2013 and December 31, 2012, all of our open foreign exchange forward contracts had maturities of one year or less. The dollar equivalent gross notional amount of our foreign exchange forward contracts designated as cash flow hedges was approximately $6.5 million at December 31, 2013 and $8.3 million at December 31, 2012.
27
We estimate hedge ineffectiveness on a quarterly basis by considering the difference between the prices of a hypothetical forward contract maturing on the last day of a given month, to the prices of a series of hypothetically perfect daily forward contracts. Hedge ineffectiveness and the amounts excluded from effectiveness testing recognized in earnings on cash flow hedges were not material for the years ended December 31, 2013 and 2012. At December 31, 2013, the fair value of our foreign exchange forward contracts representing a loss in the amount of $58,000 was recorded in accrued expenses in the accompanying consolidated balance sheet. At December 31, 2012, the fair value of foreign exchange forward contracts representing a gain in the amount of $153,000 was recorded in other current assets in the accompanying consolidated balance sheet.
The fair value for our foreign exchange forward contracts is based on foreign currency spot and forward rates obtained from reputable financial institutions with resulting valuations periodically validated by obtaining foreign currency spot rates and forward quotes from other industry standard sources or third party or counterparty quotes.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED
BALANCE SHEETS
CYBEROPTICS
CORPORATION
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|
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
||
|
(In thousands, except share information) |
|
2013 |
|
2012 |
|
||
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,101 |
|
$ |
7,340 |
|
|
Marketable securities |
|
|
9,402 |
|
|
11,438 |
|
|
Accounts receivable, less allowance for doubtful accounts of $705 at December 31, 2013 and $775 at December 31, 2012 |
|
|
6,562 |
|
|
6,129 |
|
|
Inventories |
|
|
11,331 |
|
|
12,533 |
|
|
Income tax refunds receivable |
|
|
— |
|
|
1,325 |
|
|
Other current assets |
|
|
1,104 |
|
|
1,338 |
|
|
Deferred tax assets |
|
|
77 |
|
|
100 |
|
|
Total current assets |
|
|
31,577 |
|
|
40,203 |
|
|
|
|
|
|
|
|
|
|
|
Marketable securities, long-term |
|
|
10,742 |
|
|
10,435 |
|
|
Equipment and leasehold improvements, net |
|
|
1,272 |
|
|
1,719 |
|
|
Intangible and other assets, net |
|
|
136 |
|
|
189 |
|
|
Goodwill |
|
|
569 |
|
|
569 |
|
|
Other assets |
|
|
194 |
|
|
142 |
|
|
Deferred tax assets |
|
|
85 |
|
|
363 |
|
|
Total assets |
|
$ |
44,575 |
|
$ |
53,620 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
2,630 |
|
$ |
2,476 |
|
|
Advance customer payments |
|
|
552 |
|
|
563 |
|
|
Accrued expenses |
|
|
2,241 |
|
|
1,840 |
|
|
Deferred tax liability |
|
|
— |
|
|
29 |
|
|
Total current liabilities |
|
|
5,423 |
|
|
4,908 |
|
|
|
|
|
|
|
|
|
|
|
Deferred rent |
|
|
352 |
|
|
408 |
|
|
Deferred warranty revenue |
|
|
165 |
|
|
146 |
|
|
Deferred tax liability |
|
|
6 |
|
|
— |
|
|
Reserve for income taxes |
|
|
150 |
|
|
686 |
|
|
Total liabilities |
|
|
6,096 |
|
|
6,148 |
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock, no par value, 5,000,000 shares authorized, none outstanding |
|
|
— |
|
|
— |
|
|
Common stock, no par value, 25,000,000 shares authorized, 6,496,805 shares issued and outstanding at December 31, 2013 and 6,969,772 shares issued and outstanding at December 31, 2012 |
|
|
28,968 |
|
|
31,410 |
|
|
Accumulated other comprehensive loss |
|
|
(540 |
) |
|
(157 |
) |
|
Retained earnings |
|
|
10,051 |
|
|
16,219 |
|
|
Total stockholders’ equity |
|
|
38,479 |
|
|
47,472 |
|
|
Total liabilities and stockholders’ equity |
|
$ |
44,575 |
|
$ |
53,620 |
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
29
CONSOLIDATED
STATEMENTS OF OPERATIONS
CYBEROPTICS
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
||||
|
(In thousands, except per share amounts) |
|
2013 |
|
2012 |
|
||
|
Revenues |
|
$ |
33,308 |
|
$ |
41,644 |
|
|
Cost of revenues |
|
|
18,658 |
|
|
23,465 |
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
14,650 |
|
|
18,179 |
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses |
|
|
7,519 |
|
|
7,748 |
|
|
Selling, general and administrative expenses |
|
|
12,345 |
|
|
12,802 |
|
|
Restructuring and severance costs |
|
|
952 |
|
|
740 |
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(6,166 |
) |
|
(3,111 |
) |
|
|
|
|
|
|
|
|
|
|
Interest income and other |
|
|
(188 |
) |
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(6,354 |
) |
|
(3,135 |
) |
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit) |
|
|
(186 |
) |
|
3,576 |
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(6,168 |
) |
$ |
(6,711 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss per share – Basic |
|
$ |
(0.91 |
) |
$ |
(0.97 |
) |
|
Net loss per share – Diluted |
|
$ |
(0.91 |
) |
$ |
(0.97 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding – Basic |
|
|
6,798 |
|
|
6,946 |
|
|
Weighted average shares outstanding – Diluted |
|
|
6,798 |
|
|
6,946 |
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
30
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
CYBEROPTICS
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
||||
|
(In thousands) |
|
2013 |
|
2012 |
|
||
|
Net loss |
|
$ |
(6,168 |
) |
$ |
(6,711 |
) |
|
Other comprehensive income (loss), before tax: |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(211 |
) |
|
376 |
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on available-for-sale securities: |
|
|
|
|
|
|
|
|
Unrealized gains (losses) |
|
|
34 |
|
|
(79 |
) |
|
Reclassification adjustment for other-than-temporary impairment included in net loss |
|
|
— |
|
|
42 |
|
|
Reclassification adjustment for (gains) losses included in net loss |
|
|
21 |
|
|
(8 |
) |
|
Total unrealized gains (losses) on available-for-sales securities |
|
|
55 |
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on foreign exchange forward contracts: |
|
|
|
|
|
|
|
|
Unrealized gains (losses) |
|
|
(280 |
) |
|
591 |
|
|
Reclassification adjustment for losses included in net loss |
|
|
53 |
|
|
74 |
|
|
Total unrealized gains (losses) on foreign exchange forward contracts |
|
|
(227 |
) |
|
665 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), before tax |
|
|
(383 |
) |
|
996 |
|
|
Income tax provision related to items of other comprehensive income (loss) |
|
|
— |
|
|
227 |
|
|
Other comprehensive income (loss), net of tax |
|
|
(383 |
) |
|
769 |
|
|
Total comprehensive loss |
|
$ |
(6,551 |
) |
$ |
(5,942 |
) |
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
31
CONSOLIDATED
STATEMENTS OF CASH FLOWS
CYBEROPTICS
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
||||
|
(In thousands) |
|
2013 |
|
2012 |
|
||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(6,168 |
) |
$ |
(6,711 |
) |
|
Adjustments to reconcile net loss to net cash provided by (used in)
operating |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,673 |
|
|
1,843 |
|
|
Provision for doubtful accounts |
|
|
(51 |
) |
|
(165 |
) |
|
Deferred taxes |
|
|
279 |
|
|
4,808 |
|
|
Foreign currency transaction (gains) losses |
|
|
87 |
|
|
(12 |
) |
|
Realized (gains) losses on available-for-sale securities |
|
|
21 |
|
|
(8 |
) |
|
Unrealized loss on available-for-sale equity security |
|
|
— |
|
|
42 |
|
|
Stock compensation costs |
|
|
447 |
|
|
449 |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(382 |
) |
|
5,945 |
|
|
Inventories |
|
|
561 |
|
|
(1,801 |
) |
|
Income tax refunds receivable |
|
|
1,325 |
|
|
(1,129 |
) |
|
Other assets |
|
|
31 |
|
|
154 |
|
|
Accounts payable |
|
|
182 |
|
|
(1,696 |
) |
|
Advance customer payments |
|
|
8 |
|
|
(299 |
) |
|
Accrued expenses |
|
|
(253 |
) |
|
(1,412 |
) |
|
Net cash provided by (used in) operating activities |
|
|
(2,240 |
) |
|
8 |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from maturities of available-for-sale marketable securities |
|
|
8,341 |
|
|
13,241 |
|
|
Proceeds from sales of available-for-sale marketable securities |
|
|
5,047 |
|
|
3,154 |
|
|
Purchases of available-for-sale marketable securities |
|
|
(11,648 |
) |
|
(21,630 |
) |
|
Additions to equipment and leasehold improvements |
|
|
(681 |
) |
|
(1,350 |
) |
|
Additions to patents |
|
|
(68 |
) |
|
(113 |
) |
|
Net cash provided by (used in) investing activities |
|
|
991 |
|
|
(6,698 |
) |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options |
|
|
25 |
|
|
27 |
|
|
Common stock repurchases |
|
|
(2,979 |
) |
|
(21 |
) |
|
Proceeds from issuance of common stock under employee stock purchase plan |
|
|
65 |
|
|
139 |
|
|
Net cash provided by (used in) financing activities |
|
|
(2,889 |
) |
|
145 |
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange rate changes on cash and cash equivalents |
|
|
(101 |
) |
|
94 |
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(4,239 |
) |
|
(6,451 |
) |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents – beginning of period |
|
|
7,340 |
|
|
13,791 |
|
|
Cash and cash equivalents – end of period |
|
$ |
3,101 |
|
$ |
7,340 |
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
32
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
CYBEROPTICS
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Accumulated Other Comprehensive |
|
Retained |
|
Total Stockholders’ |
|
|||||||
|
(In thousands) |
|
Shares |
|
Amount |
|
Income (Loss) |
|
Earnings |
|
Equity |
|
|||||
|
BALANCE, DECEMBER 31, 2011 |
|
|
6,933 |
|
$ |
30,965 |
|
$ |
(926 |
) |
$ |
22,930 |
|
$ |
52,969 |
|
|
Excess tax benefit from exercise of stock options, net of deferred tax shortfall related to stock options and restricted stock units |
|
|
— |
|
|
(149 |
) |
|
— |
|
|
— |
|
|
(149 |
) |
|
Exercise of stock options, vesting of restricted stock units, net of shares exchanged as payment |
|
|
15 |
|
|
27 |
|
|
— |
|
|
— |
|
|
27 |
|
|
Share issuances for compensation purposes |
|
|
5 |
|
|
41 |
|
|
— |
|
|
— |
|
|
41 |
|
|
Stock compensation |
|
|
— |
|
|
408 |
|
|
— |
|
|
— |
|
|
408 |
|
|
Issuance of common stock under Employee Stock Purchase Plan |
|
|
20 |
|
|
139 |
|
|
— |
|
|
— |
|
|
139 |
|
|
Repurchase of common stock |
|
|
(3 |
) |
|
(21 |
) |
|
— |
|
|
— |
|
|
(21 |
) |
|
Market value adjustments of marketable securities, net of reclassification adjustment |
|
|
— |
|
|
— |
|
|
(41 |
) |
|
— |
|
|
(41 |
) |
|
Unrealized gain on foreign exchange forward contracts, net of reclassification adjustment |
|
|
— |
|
|
— |
|
|
434 |
|
|
— |
|
|
434 |
|
|
Cumulative translation adjustment |
|
|
— |
|
|
— |
|
|
376 |
|
|
— |
|
|
376 |
|
|
Net loss |
|
|
— |
|
|
— |
|
|
— |
|
|
(6,711 |
) |
|
(6,711 |
) |
|
BALANCE, DECEMBER 31, 2012 |
|
|
6,970 |
|
$ |
31,410 |
|
$ |
(157 |
) |
$ |
16,219 |
|
$ |
47,472 |
|
|
Exercise of stock options, vesting of restricted stock units, net of shares exchanged as payment |
|
|
18 |
|
|
25 |
|
|
— |
|
|
— |
|
|
25 |
|
|
Share issuances for compensation purposes |
|
|
5 |
|
|
30 |
|
|
— |
|
|
— |
|
|
30 |
|
|
Stock compensation |
|
|
— |
|
|
417 |
|
|
— |
|
|
— |
|
|
417 |
|
|
Issuance of common stock under Employee Stock Purchase Plan |
|
|
13 |
|
|
65 |
|
|
— |
|
|
— |
|
|
65 |
|
|
Repurchase of common stock |
|
|
(509 |
) |
|
(2,979 |
) |
|
— |
|
|
— |
|
|
(2,979 |
) |
|
Market value adjustments of marketable securities, net of reclassification adjustment |
|
|
— |
|
|
— |
|
|
55 |
|
|
— |
|
|
55 |
|
|
Unrealized loss on foreign exchange forward contracts, net of reclassification adjustment |
|
|
— |
|
|
— |
|
|
(227 |
) |
|
— |
|
|
(227 |
) |
|
Cumulative translation adjustment |
|
|
— |
|
|
— |
|
|
(211 |
) |
|
— |
|
|
(211 |
) |
|
Net loss |
|
|
— |
|
|
— |
|
|
— |
|
|
(6,168 |
) |
|
(6,168 |
) |
|
BALANCE, DECEMBER 31, 2013 |
|
|
6,497 |
|
$ |
28,968 |
|
$ |
(540 |
) |
$ |
10,051 |
|
$ |
38,479 |
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
33
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
NOTE 1 – BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
We are a leading global
supplier of sensors and inspection systems that provide process yield and
throughput improvement solutions for the global electronic assembly and
semiconductor capital equipment markets.
Principles of Consolidation
The consolidated financial
statements include the accounts of CyberOptics Corporation and its wholly-owned
subsidiaries. In these Notes to the Consolidated Financial Statements, these
companies are collectively referred to as “CyberOptics,” “we,” “us,” or “our.”
All significant inter-company accounts and transactions have been eliminated in
consolidation.
Use of Estimates
The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
significantly from those estimates.
Cash Equivalents
We consider all highly
liquid investments purchased with an original maturity of 90 days or less to be
cash equivalents. Cash and cash equivalents consist of funds maintained in
demand deposit accounts, money market accounts, corporate debt instruments and
U.S. government backed obligations. Some cash and cash equivalent balances may
exceed federally insured limits.
Marketable Securities
All marketable securities
are classified as available-for-sale and consist of U.S. government backed
obligations, certificates of deposit, corporate debt instruments, asset backed
securities or equity securities. Marketable securities are classified as
short-term or long-term in the balance sheet based on their maturity date and
expectations regarding sales.
Available-for-sale securities are carried at fair value, with unrealized gains and losses reported as a separate component of stockholders’ equity until realized. These fair values are primarily determined using quoted market prices. The carrying amounts of securities, for purposes of computing unrealized gains and losses, are determined by specific identification. The cost of securities sold is also determined by specific identification.
We monitor the carrying value of our investments compared to their fair value to determine whether an other-than-temporary impairment has occurred. If a decline in fair value is determined to be other-than-temporary, an impairment charge related to that specific investment is recorded in current operations.
Cash and marketable securities held by foreign subsidiaries totaled $903,000 at December 31, 2013 and $3,585,000 at December 31, 2012.
Inventories
Inventories are stated at
the lower of cost or market, with cost determined using the first-in, first-out
(FIFO) method. Appropriate consideration is given to deterioration,
obsolescence, and other factors in evaluating net realizable value.
Demonstration inventories are stated at cost less accumulated amortization,
generally based on a 36 month useful life.
Accumulated amortization for demonstration inventories totaled $908,000 at December 31, 2013 and $897,000 at December 31, 2012.
Allowance for Doubtful Accounts
Allowances for doubtful
accounts are maintained for estimated losses resulting from the inability of
our customers to make required payments. In making the determination of the
appropriate allowance for doubtful accounts, we consider specific accounts,
historical write-offs, changes in customer relationships and credit worthiness
and concentrations of credit risk. Specific accounts receivable are written-off
once a determination is made that the account is uncollectible.
34
Equipment and Leasehold
Improvements
Equipment and leasehold
improvements are stated at cost. Significant additions or improvements
extending asset lives are capitalized, while repairs and maintenance are
charged to expense as incurred. In-progress costs are capitalized with
depreciation beginning when assets are placed in service. Depreciation is
recorded using the straight-line method over the estimated useful lives of the
equipment, ranging from three to ten years. Leasehold improvements are
amortized using the straight-line method over the shorter of the asset useful
life or the underlying lease term. Gains or losses on dispositions are included
in current operations.
Goodwill
Goodwill represents the
excess of purchase price over the fair value of net assets acquired in a
business combination. We evaluate the carrying value of goodwill during the
fourth quarter of each year and between annual evaluations if events occur or
circumstances change that indicate goodwill might be impaired. Goodwill is
tested by comparing our fair value, as determined based on our future estimated
discounted cash flows, to our net book value.
Patents
Patents consist of legal and
patent registration costs for protection of our proprietary technology. We
amortize patent costs on a straight-line basis, based upon their estimated
life.
Long Lived Assets
Intangible assets subject to
amortization and other long lived assets are reviewed for impairment when
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. An impairment loss would be recognized when
future undiscounted cash flows expected to result from use of the asset and
eventual disposition are less than the carrying amount.
Revenue Recognition
Revenue from all customers,
including distributors, is recognized when all significant contractual
obligations have been satisfied and collection of the resulting receivable is
reasonably assured. Generally, revenues are recognized upon shipment under FOB
shipping point terms, and include shipping and handling costs. Taxes collected from customers and remitted
to governmental authorities are excluded from revenues. Estimated
returns and warranty costs are recorded at the time of sale. Sales of some SMT
system products may require customer acceptance due to performance or other
acceptance criteria included in the terms of sale. For these SMT product sales,
revenue is recognized at the time of customer acceptance. Our multiple
deliverable arrangements typically include the sale of an SMT inspection
system, installation and training, and in some cases, an extended warranty.
Revenue from installation and training and extended warranty are recognized as
the services are provided, typically within one month of shipment in the case
of installation and training. Extended warranties are typically for a second or
third year of coverage beyond the basic one year warranty included with all SMT
sales.
When a sale involves multiple elements, revenue is allocated to each respective element at inception of an arrangement using the relative selling price method. Selling price is determined based on a selling price hierarchy, consisting of vendor specific objective evidence (VSOE), third party evidence or estimated selling price. Management’s best estimate of the selling price of an SMT machine is based on the cost build-up of the product and a reasonable margin based on geographic location and market conditions. We use VSOE to establish selling price for extended warranty, installation and training services. If VSOE is not available to establish selling price for extended warranty, installation and training services, we estimate a selling price based on the cost build-up for the particular service and a reasonable gross margin. Costs related to products delivered are recognized in the period revenue is recognized. Cost of revenues consists primarily of direct labor, manufacturing overhead, raw materials and components and excludes amortization of intangible assets.
Foreign Currency Translation
Financial position and
results of operations of our international subsidiaries are measured using
local currency as their functional currency. Assets and liabilities of these
operations are translated at the exchange rates in effect at each fiscal
year-end. Statements of operations accounts are translated at the average rates
of exchange prevailing during the year. Translation adjustments arising from
the use of differing exchange rates from period to period are included as a
cumulative translation adjustment in stockholders’ equity.
Foreign Currency Transactions
Foreign currency transaction
gains and losses are included in interest income and other in the statement of
operations. We recognized foreign currency transaction losses of $117,000 in
2013 and $11,000 in 2012.
35
Research and Development
Research and development
(R&D) costs, including software development, are expensed when incurred.
Software development costs are required to be expensed until the point that
technological feasibility and proven marketability of the product are
established; costs otherwise capitalizable after such point also are expensed
because they are insignificant. All other R&D costs are expensed as
incurred. R&D expenses consist primarily of salaries, project materials,
contract labor and other costs associated with ongoing product development and
enhancement efforts.
Derivatives and Hedging
We enter into foreign
exchange forward contracts to hedge against the effect of exchange rate
fluctuations on cash flows denominated in foreign currencies associated with
our subsidiary in Singapore. These transactions are designated as cash flow
hedges and are recorded in the accompanying balance sheet at fair value. The
effective portion of the gain or loss on the derivative is reported as a
component of other comprehensive income (loss) and reclassified into earnings
in the same period during which the hedged transaction affects earnings. Gains
and losses on the derivative representing either hedge ineffectiveness or hedge
components excluded from the assessment of effectiveness are recognized in
current earnings. Cash flows from derivative instruments are classified in the
statement of cash flows in the same category as the cash flows from the items
subject to designated hedge relationships.
Advertising Costs
We expense all advertising
costs as incurred. Advertising expense incurred was $113,000 in 2013 and
$96,000 in 2012.
Warranty Costs
We provide for the estimated
cost of product warranties (which generally cover products for one year) at the
time revenue is recognized.
Income Taxes
We evaluate uncertain tax
positions using the “more likely than not” threshold (i.e., a likelihood of
occurrence greater than fifty percent). The recognition threshold is met when
an entity concludes that a tax position, based solely on its technical merits,
is more likely than not to be sustained upon examination by the relevant taxing
authority. Those tax positions failing to qualify for initial recognition are
classified as a gross unrecognized tax benefit until the first interim period
in which they meet the more likely than not standard, or are resolved through
negotiation or litigation with the taxing authority, or upon expiration of the
statute of limitations. De-recognition of a tax position that was previously
recognized occurs when an entity subsequently determines that a tax position no
longer meets the more likely than not threshold of being sustained.
Only the portion of the unrecognized tax benefit that is expected to be paid within one year is classified as a current liability. As a result, liabilities expected to be resolved without the payment of cash (e.g. resolution due to the expiration of the statute of limitations) or are not expected to be paid within one year are not classified as current. It is our policy to record estimated interest and penalties as income tax expense and tax credits as a reduction in income tax expense.
Deferred income taxes are recorded to reflect the tax consequences in future years of differences between the financial reporting and tax bases of assets and liabilities. Income tax expense is the sum of the tax currently payable and the change in the deferred tax assets and liabilities during the period, excluding changes in deferred tax assets recorded to equity and goodwill. Valuation allowances are established when, in the opinion of management, there is uncertainty that some portion or all of the deferred tax assets will not be realized. We assess the realizability of our deferred tax assets and the need for a valuation allowance based on all positive and negative evidence.
Net Loss Per Share
Net loss per
basic and diluted share is computed by dividing net loss by the weighted
average number of common shares outstanding during the period. Common
equivalent shares consist of common shares to be issued upon exercise of stock
options, restricted stock units and from participation in our employee stock
purchase plan, as calculated using the treasury stock method. All potentially
dilutive common equivalent shares are excluded from the calculation of net loss
per diluted share due to their anti-dilutive effect.
Fair Value of Financial Instruments
The carrying
amounts of financial instruments such as cash equivalents, accounts receivable,
income tax refunds receivable, other assets, accounts payable, accrued expenses
and other current liabilities approximate their related fair values due to the
short-term maturities of these instruments.
36
Stock-Based Compensation
All equity-based payments to
employees, including grants of employee stock options, are required to be
recognized as an expense in our consolidated statements of operations based on
the grant date fair value of the award. We utilize the straight-line method of
expense recognition over the award’s service period for our graded vesting
options. The fair value of stock options has been determined using the
Black-Scholes model. The compensation expense recognized for all equity based
awards is net of estimated forfeitures, which is based on historical data. We
have classified equity based compensation within our statement of operations in
the same manner as our cash based employee compensation costs. We elected to
use the alternative transition guidance known as the “short-cut method” to
determine our pool of windfall tax benefits at January 1, 2006.
See Note 6 to the Consolidated Financial Statements for additional information on stock-based compensation.
Recent Accounting Developments
In February 2013, the FASB
issued amended disclosure requirements for amounts classified out of other
comprehensive income to improve the transparency of reporting these
reclassifications (ASU No. 2013-02, Comprehensive
Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other
Comprehensive Income). The amended guidance requires an entity to
provide information about the amounts reclassified out of accumulated other
comprehensive income by component. In addition, an entity is required to
present, either on the face of the statement where net income is presented or
in the notes, significant amounts reclassified out of accumulated other
comprehensive income by the respective line items of net income but only if the
amount reclassified is required under U.S. GAAP to be reclassified to net
income in its entirety in the same reporting period. For other amounts that are
not required under U.S. GAAP to be reclassified in their entirety to net
income, an entity is required to cross-reference to other disclosures required
under U.S. GAAP that provide additional detail about those amounts. We adopted
the amended guidance effective January 1, 2013. Our adoption of the amended
disclosure requirements will have no impact on our consolidated financial
results as the amendments relate only to changes in financial statement
presentation.
In July 2013, the FASB issued guidance regarding the presentation of an unrecognized tax benefit when a net operating loss carry forward, a similar tax loss, or a tax credit carry forward exists (ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry forward, a Similar Tax Loss, or a Tax Credit Carry forward Exists). Under certain circumstances, unrecognized tax benefits should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carry forward, a similar tax loss, or a tax credit carry forward. The guidance is a change in financial statement presentation only and has no material impact on consolidated financial results. The guidance is effective beginning January 1, 2014 on either a prospective or retrospective basis.
NOTE 2 – MARKETABLE SECURITIES
Our investments in marketable securities are classified as available-for-sale and consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013 |
|
||||||||||
|
(In thousands) |
|
Cost |
|
Unrealized |
|
Unrealized |
|
Fair Value |
|
||||
|
Short-Term |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations |
|
$ |
6,299 |
|
$ |
10 |
|
$ |
— |
|
$ |
6,309 |
|
|
Corporate debt securities and certificates of deposit |
|
|
3,091 |
|
|
2 |
|
|
— |
|
|
3,093 |
|
|
Marketable securities – short-term |
|
$ |
9,390 |
|
$ |
12 |
|
$ |
— |
|
$ |
9,402 |
|
|
Long-Term |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations |
|
$ |
4,783 |
|
$ |
7 |
|
$ |
— |
|
$ |
4,790 |
|
|
Corporate debt securities and certificates of deposit |
|
|
3,417 |
|
|
1 |
|
|
(5 |
) |
|
3,413 |
|
|
Asset backed securities |
|
|
2,474 |
|
|
2 |
|
|
(1 |
) |
|
2,475 |
|
|
Equity security |
|
|
42 |
|
|
22 |
|
|
— |
|
|
64 |
|
|
Marketable securities – long-term |
|
$ |
10,716 |
|
$ |
32 |
|
$ |
(6 |
) |
$ |
10,742 |
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012 |
|
||||||||||
|
(In thousands) |
|
Cost |
|
Unrealized |
|
Unrealized |
|
Fair Value |
|
||||
|
Short-Term |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations |
|
$ |
7,358 |
|
$ |
10 |
|
$ |
(35 |
) |
$ |
7,333 |
|
|
Corporate debt securities and certificates of deposit |
|
|
4,100 |
|
|
5 |
|
|
— |
|
|
4,105 |
|
|
Marketable securities – short-term |
|
$ |
11,458 |
|
$ |
15 |
|
$ |
(35 |
) |
$ |
11,438 |
|
|
Long-Term |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations |
|
$ |
9,033 |
|
$ |
23 |
|
$ |
(23 |
) |
$ |
9,033 |
|
|
Corporate debt securities and certificates of deposit |
|
|
1,192 |
|
|
4 |
|
|
(1 |
) |
|
1,195 |
|
|
Asset back securities |
|
|
165 |
|
|
— |
|
|
— |
|
|
165 |
|
|
Equity security |
|
|
42 |
|
|
— |
|
|
— |
|
|
42 |
|
|
Marketable securities – long-term |
|
$ |
10,432 |
|
$ |
27 |
|
$ |
(24 |
) |
$ |
10,435 |
|
Our investments in marketable debt securities all have maturities of less than five years. At December 31, 2013, marketable debt securities valued at $15,587,000 were in an unrealized gain position totaling $22,000 and marketable debt securities valued at $4,493,000 were in an unrealized loss position totaling $6,000 (all had been in an unrealized loss position for less than twelve months). At December 31, 2012, marketable debt securities valued at $19,012,000 were in an unrealized gain position totaling $42,000 and marketable debt securities valued at $2,819,000 were in an unrealized loss position totaling $59,000 (all had been in an unrealized loss position for less than twelve months).
At December 31, 2013, our equity security valued at $64,000 was in a $22,000 unrealized gain position. In 2012, we recognized a $42,000 impairment charge for our equity security resulting from a decline in market value which we determined to be other than temporary.
Net pre-tax unrealized gains for marketable securities of $38,000 at December 31, 2013 and net pre-tax unrealized losses for marketable securities of $17,000 at December 31, 2012 were recorded as a component of accumulated other comprehensive loss in stockholders’ equity. We received proceeds from the sale of marketable securities of $5,047,000 in 2013 and $3,154,000 in 2012. Gains and losses from the sale of marketable securities totaled a $21,000 loss in 2013 and an $8,000 gain in 2012.
Investments in marketable securities classified as cash equivalents of $327,000 at December 31, 2013 and $2,824,000 at December 31, 2012 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013 |
|
||||||||||
|
(In thousands) |
|
Cost |
|
Unrealized |
|
Unrealized |
|
Recorded |
|
||||
|
Corporate debt securities and certificates of deposit |
|
$ |
327 |
|
$ |
— |
|
$ |
— |
|
$ |
327 |
|
|
|
|
$ |
327 |
|
$ |
— |
|
$ |
— |
|
$ |
327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012 |
|
||||||||||
|
(In thousands) |
|
Cost |
|
Unrealized |
|
Unrealized |
|
Recorded |
|
||||
|
Corporate debt securities and certificates of deposit |
|
$ |
2,824 |
|
$ |
— |
|
$ |
— |
|
$ |
2,824 |
|
|
|
|
$ |
2,824 |
|
$ |
— |
|
$ |
— |
|
$ |
2,824 |
|
NOTE 3 – DERIVATIVES
We enter into foreign exchange forward contracts to hedge against the effect of exchange rate fluctuations on cash flows denominated in foreign currencies associated with our subsidiary in Singapore. These transactions are designated as cash flow hedges and are recorded in the accompanying balance sheet at fair value. The effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. Hedge ineffectiveness and the amounts excluded from effectiveness testing recognized in earnings on cash flow hedges were not material for the years ended December 31, 2013 and December 31, 2012.
38
The maximum length of time over which we hedge our exposure to the variability in future cash flows is 12 months. Accordingly, at December 31, 2013 and December 31, 2012, all of our open foreign exchange forward contracts had maturities of one year or less. The dollar equivalent gross notional amount of our foreign exchange forward contracts designated as cash flow hedges was approximately $6.5 million at December 31, 2013 and $8.3 million at December 31, 2012.
Reclassifications of amounts from accumulated other comprehensive loss into earnings include accumulated gains (losses) at the time earnings are impacted by the forecasted transaction. The location in the consolidated statements of operations and consolidated statements of comprehensive loss and amounts of gains and losses related to derivative instruments designated as cash flow hedges are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2013 |
|
|||||||
|
(In thousands) |
|
Pretax Loss Recognized |
|
Pretax Loss Recognized |
|
Ineffective Portion of |
|
|||
|
Cost of revenues |
|
$ |
(169 |
) |
$ |
(16 |
) |
$ |
— |
|
|
Research and development |
|
|
(63 |
) |
|
(20 |
) |
|
— |
|
|
Selling, general and administrative |
|
|
(48 |
) |
|
(17 |
) |
|
— |
|
|
Total |
|
$ |
(280 |
) |
$ |
(53 |
) |
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2012 |
|
|||||||
|
(In thousands) |
|
Pretax Loss Recognized |
|
Pretax Loss Recognized |
|
Ineffective Portion of |
|
|||
|
Cost of revenues |
|
$ |
410 |
|
$ |
(57 |
) |
$ |
— |
|
|
Research and development |
|
|
103 |
|
|
(12 |
) |
|
— |
|
|
Selling, general and administrative |
|
|
78 |
|
|
(5 |
) |
|
— |
|
|
Total |
|
$ |
591 |
|
$ |
(74 |
) |
$ |
— |
|
Amounts recorded in accumulated other comprehensive loss for the after tax net unrealized gain or loss associated with cash flow hedging instruments was a loss of $116,000 as of December 31, 2013 and a gain of $111,000 as of December 31, 2012. We expect to reclassify the December 31, 2013 pre-tax net unrealized loss of $60,000 recorded in accumulated other comprehensive loss to earnings over the next 12 months with the impact offset by cash flows from underlying hedged items. The fair value of our foreign exchange forward contracts representing a loss in the amount of $58,000 as of December 31, 2013 has been recorded in accrued expenses. The fair value of our foreign exchange forward contracts representing a gain in the amount of $153,000 as of December 31, 2012 has been recorded in other current assets.
Additional information with respect to the impact of derivative instruments on other comprehensive income (loss) is included in Note 4. Additional information with respect to the fair value of derivative instruments is included in Note 5.
Our foreign exchange forward contracts contain credit risk to the extent that our bank counter-parties may be unable to meet the terms of the agreements. We minimize such risk by limiting our counter-parties to major financial institutions. We do not expect material losses as a result of defaults by other parties.
39
NOTE 4 – COMPREHENSIVE INCOME (LOSS)
Taxes related to items of other comprehensive income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
Year Ended |
|
||||||||||||||
|
(In thousands) |
|
Before Tax |
|
Tax Effect |
|
Net of Tax |
|
Before Tax |
|
Tax Effect |
|
Net of Tax |
|
||||||
|
Foreign currency translation adjustments |
|
$ |
(211 |
) |
$ |
— |
|
$ |
(211 |
) |
$ |
376 |
|
$ |
— |
|
$ |
376 |
|
|
Net changes related to available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) |
|
|
34 |
|
|
— |
|
|
34 |
|
|
(79 |
) |
|
(18 |
) |
|
(61 |
) |
|
Reclassification adjustment for other-than-temporary impairment loss included in net loss |
|
|
— |
|
|
— |
|
|
— |
|
|
42 |
|
|
15 |
|
|
27 |
|
|
Reclassification adjustment for (gains) losses included in net loss |
|
|
21 |
|
|
— |
|
|
21 |
|
|
(8 |
) |
|
(1 |
) |
|
(7 |
) |
|
Total net changes related to available-for-sale securities |
|
|
55 |
|
|
— |
|
|
55 |
|
|
(45 |
) |
|
(4 |
) |
|
(41 |
) |
|
Net changes related to foreign exchange forward contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) |
|
|
(280 |
) |
|
— |
|
|
(280 |
) |
|
591 |
|
|
206 |
|
|
385 |
|
|
Reclassification adjustment for losses included in net loss |
|
|
53 |
|
|
— |
|
|
53 |
|
|
74 |
|
|
25 |
|
|
49 |
|
|
Total net changes related to foreign exchange forward contracts |
|
|
(227 |
) |
|
— |
|
|
(227 |
) |
|
665 |
|
|
231 |
|
|
434 |
|
|
Other comprehensive income (loss) |
|
$ |
(383 |
) |
$ |
— |
|
$ |
(383 |
) |
$ |
996 |
|
$ |
227 |
|
$ |
769 |
|
Reclassification adjustments are made to avoid double counting for items included in comprehensive income (loss) that are also recorded as part of net loss. Reclassifications to earnings related to cash flow hedging instruments are discussed in Note 3. Income taxes are not provided for foreign currency translation adjustments relating to permanent investments in international subsidiaries. We have recorded a valuation allowance against all of our United States and Singapore based deferred tax assets. Accordingly, we do not expect to record a tax provision for items of other comprehensive income (loss) until such time as the valuation allowance is substantially reduced. The effect of the reclassifications from comprehensive income (loss) to earnings by line items is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about Components |
|
|
|
|
|
|
|
|
Affected Line Item in the Statements of Operations |
|
|
|
|
Year Ended |
|
|
|
|
||||
|
(In thousands) |
|
2013 |
|
2012 |
|
|
|
|
||
|
Unrealized gains (losses) on available-for-sale securities |
|
$ |
(21 |
) |
$ |
8 |
|
|
Interest income and other |
|
|
|
|
|
— |
|
|
1 |
|
|
Income tax provision (benefit) |
|
|
|
|
$ |
(21 |
) |
$ |
7 |
|
|
Net of tax |
|
|
Unrealized losses on foreign exchange forward contracts |
|
$ |
(16 |
) |
$ |
(57 |
) |
|
Cost of revenues |
|
|
|
|
|
(20 |
) |
|
(12 |
) |
|
Research and development expenses |
|
|
|
|
|
(17 |
) |
|
(5 |
) |
|
Selling, general and administrative expenses |
|
|
|
|
|
(53 |
) |
|
(74 |
) |
|
Total before tax |
|
|
|
|
|
— |
|
|
(25 |
) |
|
Income tax provision (benefit) |
|
|
|
|
$ |
(53 |
) |
$ |
(49 |
) |
|
Net of tax |
|
40
At December 31, 2013 and December 31, 2012 components of accumulated other comprehensive loss is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Foreign |
|
Available- |
|
Foreign |
|
Accumulated |
|
||||
|
Balances at December 31, 2011 |
|
$ |
(621 |
) |
$ |
18 |
|
$ |
(323 |
) |
$ |
(926 |
) |
|
Other comprehensive income (loss) before reclassifications |
|
|
376 |
|
|
(61 |
) |
|
385 |
|
|
700 |
|
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
— |
|
|
20 |
|
|
49 |
|
|
69 |
|
|
Total change for the period |
|
|
376 |
|
|
(41 |
) |
|
434 |
|
|
769 |
|
|
Balances at December 31, 2012 |
|
$ |
(245 |
) |
$ |
(23 |
) |
$ |
111 |
|
$ |
(157 |
) |
|
Other comprehensive income (loss) before reclassifications |
|
|
(211 |
) |
|
34 |
|
|
(280 |
) |
|
(457 |
) |
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
— |
|
|
21 |
|
|
53 |
|
|
74 |
|
|
Total change for the period |
|
|
(211 |
) |
|
55 |
|
|
(227 |
) |
|
(383 |
) |
|
Balances at December 31, 2013 |
|
$ |
(456 |
) |
$ |
32 |
|
$ |
(116 |
) |
$ |
(540 |
) |
NOTE 5 – FAIR VALUE MEASUREMENTS
We determine the fair value of our assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. We use a fair value hierarchy with three levels of inputs, of which the first two are considered observable and the last unobservable, to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1). The next highest priority is based on quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in non-active markets or other observable inputs (Level 2). The lowest priority is given to unobservable inputs (Level 3). The following provides information regarding fair value measurements for our marketable securities and foreign exchange forward contracts as of December 31, 2013 and December 31, 2012 according to the three-level fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at |
|
||||||||
|
(In thousands) |
|
Balance December 31, 2013 |
|
Quoted Prices |
|
Significant |
|
Significant |
|
||||
|
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations |
|
$ |
11,099 |
|
$ |
— |
|
$ |
11,099 |
|
$ |
— |
|
|
Corporate debt securities and certificates of deposit |
|
|
6,506 |
|
|
— |
|
|
6,506 |
|
|
— |
|
|
Asset backed securities |
|
|
2,475 |
|
|
— |
|
|
2,475 |
|
|
— |
|
|
Equity security |
|
|
64 |
|
|
64 |
|
|
— |
|
|
— |
|
|
Total marketable securities |
|
$ |
20,144 |
|
$ |
64 |
|
$ |
20,080 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments-liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts |
|
$ |
58 |
|
$ |
— |
|
$ |
58 |
|
$ |
— |
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at |
|
||||||||||
|
(In thousands) |
|
Balance December 31, 2012 |
|
Quoted Prices |
|
Significant |
|
Significant |
|
||||
|
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations |
|
$ |
16,366 |
|
$ |
— |
|
$ |
16,366 |
|
$ |
— |
|
|
Corporate debt securities and certificates of deposit |
|
|
5,300 |
|
|
— |
|
|
5,300 |
|
|
— |
|
|
Asset backed securities |
|
|
165 |
|
|
— |
|
|
165 |
|
|
— |
|
|
Equity security |
|
|
42 |
|
|
42 |
|
|
— |
|
|
— |
|
|
Total marketable securities |
|
$ |
21,873 |
|
$ |
42 |
|
$ |
21,831 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments-assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts |
|
$ |
153 |
|
$ |
— |
|
$ |
153 |
|
$ |
— |
|
During the years ended December 31, 2013 and 2012 there were no transfers within the three level hierarchy. A significant transfer is recognized when the inputs used to value a security have been changed which merit a transfer between the disclosed levels of the valuation hierarchy.
The fair value for our U.S. government and agency obligations, corporate debt securities and certificates of deposit and asset backed securities are determined based on valuations provided by external investment managers who obtain them from a variety of industry standard data providers. The fair value for our equity security is based on a quoted market price obtained from an active market.
The fair value for our foreign exchange forward contracts is based on foreign currency spot and forward rates obtained from reputable financial institutions with resulting valuations periodically validated by obtaining foreign currency spot rate and forward quotes from other industry standard sources or third party or counterparty quotes. The fair value of our foreign exchange forward contracts representing a loss in the amount of $58,000 as of December 31, 2013 has been recorded in accrued expenses. The fair value of our foreign exchange forward contracts representing a gain in the amount of $153,000 as of December 31, 2012 has been recorded in other current assets.
The carrying amounts of financial instruments such as cash equivalents, accounts receivable, income tax refunds receivable, other assets, accounts payable, and all current liabilities approximate their related fair values due to the short-term maturities of these instruments. Non-financial assets such as equipment and leasehold improvements, goodwill and intangible assets are subject to non-recurring fair value measurements if they are deemed impaired. We had no re-measurements of non-financial assets to fair value in 2013 or 2012.
NOTE 6 – ACCOUNTING FOR STOCK-BASED COMPENSATION
Share Based Compensation Information
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2013 |
|
2012 |
|
||
|
Pre-tax equity compensation expense |
|
$ |
447 |
|
$ |
449 |
|
|
Income tax benefits related to equity based compensation |
|
$ |
— |
|
$ |
— |
|
Pre-tax equity based compensation expense for 2013 includes $373,000 for stock options and restricted stock units, $44,000 for our employee stock purchase plan, and $30,000 for 5,000 shares issued to board members for compensation purposes (weighted average grant date fair value of $6.08). Pre-tax equity based compensation expense for 2012 includes $354,000 for stock options and restricted stock units, $54,000 for our employee stock purchase plan, and $41,000 for 5,000 shares issued to board members for compensation purposes (weighted average grant date fair value of $8.17).
We use historical data to estimate pre-vesting forfeitures. At December 31, 2013, the total unrecognized compensation cost related to non-vested equity based compensation arrangements was $674,000 and the related weighted average period over which it is expected to be recognized is 2.22 years. The total fair value of shares that vested in 2013 was $267,000 and in 2012 was $178,000.
42
The fair value of stock options granted to our employees was estimated on the date of grant using the Black-Scholes model. The Black-Scholes valuation model incorporates ranges of assumptions that are disclosed in the table below. The risk-free interest rate is based on the United States Treasury yield curve at the time of grant with a remaining term equal to the expected life of the awards. We estimated the expected term for our graded vesting options, representing the length of time in years that the options are expected to be outstanding, using historical experience. Expected volatility was computed based on historical fluctuations in the daily price of our common stock.
For stock options granted in the two year period ended December 31, 2013, we utilized the fair value of our common stock on the date of grant and employed the following key assumptions in computing fair value using the Black-Scholes option-pricing model:
|
|
|
|
|
|
|
|
|
2013 |
|
2012 |
|
Risk-free interest rates |
|
1.51% |
|
0.70% - 0.86% |
|
Expected life in years |
|
5.31 - 5.48 |
|
4.95 - 5.20 |
|
Expected volatility |
|
46.58% |
|
45.81% - 46.47% |
|
Dividend yield |
|
0.00% |
|
0.00% |
|
Weighted average fair value on grant date |
|
$2.34 |
|
$3.01 |
Stock Options
We have two stock incentive plans that are administered under the supervision of the Compensation Committee of the Board of Directors. As of December 31, 2013, there are 1,022,799 shares of common stock reserved in the aggregate for issuance of options and other stock based benefits under these plans, including restricted stock units and share grants to employees, officers and others. Reserved shares underlying canceled options are available for future grant under our active plan. Options are granted at an option price per share equal to or greater than the market value of our common stock on the date of grant. Generally, options granted to employees vest over a four-year period and expire seven or ten years after the date of grant. The plans allow for option holders to tender shares of our common stock as consideration for the option price, provided that the tendered shares have been held by the option holder at least six months. As of December 31, 2013, there were 389,373 shares of common stock available under this plan for future issuance to employees, officers and others.
The following is a summary of stock option activity for the year ended December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
Weighted Average Exercise |
|
||
|
Outstanding, December 31, 2012 |
|
|
544,153 |
|
$ |
8.68 |
|
|
Granted |
|
|
86,750 |
|
|
5.39 |
|
|
Exercised |
|
|
(5,000 |
) |
|
4.99 |
|
|
Expired |
|
|
(38,170 |
) |
|
11.09 |
|
|
Forfeited |
|
|
(1,250 |
) |
|
8.71 |
|
|
Outstanding, December 31, 2013 |
|
|
586,483 |
|
$ |
8.07 |
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2013 |
|
|
338,197 |
|
$ |
8.92 |
|
The intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price. For options outstanding at December 31, 2013, the weighted average remaining contractual term of all outstanding options was 4.00 years and their aggregate intrinsic value was $255,000. At December 31, 2013, the weighted average remaining contractual term of options that were exercisable was 2.71 years and their aggregate intrinsic value was $168,000. The aggregate intrinsic value of stock options exercised was $4,300 in 2013 and $10,000 in 2012. We received proceeds of $25,000 from the exercise of stock options in 2013. No tax benefit was realized from the exercise of these stock options. New shares are issued for all option exercises, upon vesting of restricted stock units, for share issuances to board members and others or for issuances under our Employee Stock Purchase Plan.
43
Restricted Stock Units
Our 1998 Stock Incentive Plan also permits our Compensation Committee to grant other stock-based benefits, including restricted stock units. Restricted stock units are valued at a price equal to the market value of our common stock on the date of grant, vest over a four year period provided the employee is still working for the company and entitle the holders to one share of our common stock for each restricted stock unit. There were 15,750 restricted stock units granted in 2013 and their weighted average grant date fair value was $5.39 each. There were 36,528 restricted stock units granted in 2012 and their weighted average grant date fair value was $7.37 each. The aggregate fair value of outstanding restricted stock units based on the closing share price of our common stock as of December 31, 2013 was $300,000. The aggregate fair value of restricted stock units that vested, based on the closing share price of our common stock on the vesting date, was $78,000 for the year ended December 31, 2013 and $69,000 for the year ended December 31, 2012.
A summary of activity in non-vested restricted stock units for the year ended December 31, 2013 is as follows:
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock units |
|
Shares |
|
Weighted Average Grant Date |
|
||
|
Non-vested at December 31, 2012 |
|
|
44,555 |
|
$ |
7.61 |
|
|
Granted |
|
|
15,750 |
|
|
5.39 |
|
|
Vested |
|
|
(12,946 |
) |
|
7.76 |
|
|
Forfeited |
|
|
(416 |
) |
|
8.71 |
|
|
Non-vested at December 31, 2013 |
|
|
46,943 |
|
$ |
6.82 |
|
Employee Stock Purchase Plan
We have an Employee Stock Purchase Plan available to eligible U.S. employees. Under terms of the plan, eligible employees may designate from 1% to 10% of their compensation to be withheld through payroll deductions, up to a maximum of $6,500 in each plan year, for the purchase of common stock at 85% of the lower of the market value of our common stock on the first or last day of the offering period. There were 12,656 shares issued under this plan in the year ended December 31, 2013 and 19,759 shares issued in the year ended December 31, 2012. As of December 31, 2013, 153,926 shares remain available for future issuance under this plan.
Stock Grant Plan for Non-Employee Directors
Our stock grant plan for non-employee directors provides for automatic grants of 1,000 shares of our common stock to each of our non-employee directors upon their re-election to the Board of Directors. The plan provides for a total of 30,000 shares of our common stock for issuance to directors and will expire on May 19, 2018. Share issuances under the stock grant plan for non-employee directors were 5,000 shares of common stock in the year ended December 31, 2013 and 5,000 shares in the year ended December 31, 2012. The shares issued in 2013 had a fair market value on the date of grant equal to $30,000. The shares issued in 2012 had a fair market value on the date of grant equal to $41,000. As of December 31, 2013, 6,000 shares of common stock are reserved in the aggregate for future issuance under this plan.
NOTE 7 – NET LOSS PER SHARE
Net loss per basic and diluted share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Common equivalent shares consist of common shares to be issued upon exercise of stock options, restricted stock units and from participation in our employee stock purchase plan, as calculated using the treasury stock method. All potentially dilutive common equivalent shares are excluded from the calculation of net loss per diluted share due to their anti-dilutive effect. As a result, no common equivalent shares were included in the calculation of net loss per diluted share for the years ended December 31, 2013 or December 31, 2012. The components of net loss per basic and diluted share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands except per share amounts) |
|
Net Loss |
|
Weighted Average Shares Outstanding |
|
Per Share Amount |
|
|||
|
Year Ended December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(6,168 |
) |
|
6,798 |
|
$ |
(0.91 |
) |
|
Dilutive effect of common equivalent shares |
|
|
— |
|
|
— |
|
|
— |
|
|
Dilutive |
|
$ |
(6,168 |
) |
|
6,798 |
|
$ |
(0.91 |
) |
44
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands except per share amounts) |
|
Net Loss |
|
Weighted Average Shares Outstanding |
|
Per Share Amount |
|
|||
|
Year Ended December 31, 2012: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(6,711 |
) |
|
6,946 |
|
$ |
(0.97 |
) |
|
Dilutive effect of common equivalent shares |
|
|
— |
|
|
— |
|
|
— |
|
|
Dilutive |
|
$ |
(6,711 |
) |
|
6,946 |
|
$ |
(0.97 |
) |
The calculation of diluted net loss per common share excludes 614,000 potentially dilutive shares for the year ended December 31, 2013 and 592,000 potentially dilutive shares for the year ended December 31, 2012, because their effect would be anti-dilutive.
NOTE 8 – OTHER FINANCIAL STATEMENT DATA
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
||||
|
(In thousands) |
|
2013 |
|
2012 |
|
||
|
Raw materials and purchased parts |
|
$ |
6,690 |
|
$ |
8,152 |
|
|
Work in process |
|
|
1,135 |
|
|
1,322 |
|
|
Finished goods |
|
|
3,506 |
|
|
3,059 |
|
|
Total inventories |
|
$ |
11,331 |
|
$ |
12,533 |
|
Equipment and leasehold improvements consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
||||
|
(In thousands) |
|
2013 |
|
2012 |
|
||
|
Equipment |
|
$ |
10,265 |
|
$ |
10,800 |
|
|
Leasehold improvements |
|
|
1,598 |
|
|
1,538 |
|
|
|
|
|
11,863 |
|
|
12,338 |
|
|
Accumulated depreciation and amortization |
|
|
(10,591 |
) |
|
(10,619 |
) |
|
|
|
$ |
1,272 |
|
$ |
1,719 |
|
Total depreciation and amortization expense related to equipment and leasehold improvements was $949,000 for the year ended December 31, 2013 and $958,000 for the year ended December 31, 2012.
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013 |
|
December 31, 2012 |
|
||||||||||||||
|
(In thousands) |
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net |
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net |
|
||||||
|
Patents |
|
$ |
2,915 |
|
$ |
(2,779 |
) |
$ |
136 |
|
$ |
2,847 |
|
$ |
(2,658 |
) |
$ |
189 |
|
Amortization expense for the years ended December 31, 2013 and 2012 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
||||
|
(In thousands) |
|
2013 |
|
2012 |
|
||
|
Patents |
|
$ |
121 |
|
$ |
154 |
|
As of December 31, 2013, the weighted average remaining life for our patents was approximately 2.1 years. Amortization of patents has been classified as research and development expense in the accompanying statement of operations. Estimated aggregate amortization expense based on current patent costs for the next three years is expected to be as follows: $81,000 in 2014, $42,000 in 2015, and $13,000 in 2016.
45
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
||||
|
(In thousands) |
|
2013 |
|
2012 |
|
||
|
Wages and benefits |
|
$ |
862 |
|
$ |
770 |
|
|
Warranty liability |
|
|
513 |
|
|
694 |
|
|
Restructuring and severance costs |
|
|
511 |
|
|
192 |
|
|
Other |
|
|
355 |
|
|
184 |
|
|
|
|
$ |
2,241 |
|
$ |
1,840 |
|
Warranty costs:
We provide for the estimated cost of product warranties, which generally are for one year, at the time revenue is recognized. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of component suppliers, warranty obligations are affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from our estimates, revisions to the estimated warranty liability would be required and could be material. Our warranty liability is included as a component of accrued expenses. At the end of each reporting period we revise our estimated warranty liability based on these factors.
A reconciliation of the changes in our estimated warranty liability is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
||||
|
(In thousands) |
|
2013 |
|
2012 |
|
||
|
Balance at beginning of period |
|
$ |
694 |
|
$ |
985 |
|
|
Accrual for warranties |
|
|
642 |
|
|
745 |
|
|
Warranty revision |
|
|
(5 |
) |
|
(2 |
) |
|
Settlements made during the period |
|
|
(818 |
) |
|
(1,034 |
) |
|
Balance at end of period |
|
$ |
513 |
|
$ |
694 |
|
Deferred warranty revenue:
The current portion of our deferred warranty revenue is included as a component of advance customer payments. A reconciliation of the changes in our deferred warranty revenue is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
||||
|
(In thousands) |
|
2013 |
|
2012 |
|
||
|
Balance at beginning of period |
|
$ |
582 |
|
$ |
806 |
|
|
Revenue deferrals |
|
|
299 |
|
|
230 |
|
|
Amortization of deferred revenue |
|
|
(437 |
) |
|
(454 |
) |
|
Total deferred warranty revenue |
|
|
444 |
|
|
582 |
|
|
Current portion of deferred warranty revenue |
|
|
(279 |
) |
|
(436 |
) |
|
Long-term deferred warranty revenue |
|
$ |
165 |
|
$ |
146 |
|
NOTE 9 – GOODWILL
We assess our goodwill for impairment in the fourth quarter of each year, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In each quarter of 2013, our stock market capitalization fell below our net book value for a period of more than 30 days, indicating that the value of our goodwill might be impaired.
In evaluating whether goodwill was impaired, we compared our fair value to our net book value or carrying value (Step 1 of the impairment test). In calculating fair value, we used the income approach. The income approach is a valuation technique under which we estimate future cash flows using financial forecasts. Future estimated cash flows are discounted to their present value to calculate fair value. When considering fair value, we also gave consideration to the control premium in excess of our current market capitalization that might be obtained from a third party acquirer. In the situation where net book value or carrying value exceeds fair value, the amount of impairment loss must be measured. The measurement of impairment (Step 2 of the impairment test) is calculated by determining the implied fair value of goodwill, which equals the excess of any remaining fair value over the fair values assigned to other assets and liabilities. Goodwill impairment is measured as the excess of the carrying amount of goodwill over its implied fair value.
46
In determining fair value under the income approach, our expected cash flows are affected by various assumptions. Fair value on a discounted cash flow basis uses our business plan and projections as the basis for expected future cash flow forecasts, with an estimation of residual growth rates thereafter. For our 2013 and 2012 goodwill impairment tests we utilized a 15% discount rate and our terminal value was based on a multiple equal to 6 times our projected future earnings before interest, taxes, depreciation and amortization. We believe the significant assumptions used in our 2013 and 2012 goodwill impairment tests, including a 15% discount rate, are reflective of the assumptions currently used in the marketplace to evaluate fair value. Our recent analyses indicate that our goodwill at December 31, 2013 and 2012 in the amount of $569,000 is not impaired.
NOTE 10 – INCOME TAXES
Loss before income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
||||
|
(In thousands) |
|
2013 |
|
2012 |
|
||
|
Sources of income (loss) before income taxes: |
|
|
|
|
|
|
|
|
United States |
|
$ |
(7,636 |
) |
$ |
(4,717 |
) |
|
Foreign |
|
|
1,282 |
|
|
1,582 |
|
|
Total loss before income taxes |
|
$ |
(6,354 |
) |
$ |
(3,135 |
) |
The provision (benefit) for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
||||
|
(In thousands) |
|
2013 |
|
2012 |
|
||
|
Current: |
|
|
|
|
|
|
|
|
Federal |
|
$ |
(448 |
) |
$ |
(1,010 |
) |
|
State |
|
|
28 |
|
|
(3 |
) |
|
Foreign |
|
|
(45 |
) |
|
(219 |
) |
|
Total current |
|
$ |
(465 |
) |
$ |
(1,232 |
) |
|
Deferred: |
|
|
|
|
|
|
|
|
Federal |
|
$ |
122 |
|
$ |
4,377 |
|
|
State |
|
|
— |
|
|
409 |
|
|
Foreign |
|
|
157 |
|
|
22 |
|
|
Total deferred |
|
$ |
279 |
|
$ |
4,808 |
|
|
Total provision (benefit) for income taxes |
|
$ |
(186 |
) |
$ |
3,576 |
|
A reconciliation of the statutory rate to the effective income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
||||
|
|
|
2013 |
|
2012 |
|
||
|
Federal statutory rate |
|
|
34.0 |
% |
|
34.0 |
% |
|
State income taxes, net of federal benefit |
|
|
0.7 |
|
|
1.0 |
|
|
Domestic manufacturing tax deduction |
|
|
— |
|
|
(4.7 |
) |
|
U.S. Subpart F income |
|
|
(0.7 |
) |
|
(1.8 |
) |
|
Stock based compensation |
|
|
— |
|
|
(0.5 |
) |
|
Research and experimentation credit |
|
|
1.6 |
|
|
— |
|
|
Foreign rate difference |
|
|
7.2 |
|
|
37.9 |
|
|
Reserve for income taxes |
|
|
7.1 |
|
|
1.8 |
|
|
Valuation allowance |
|
|
(45.9 |
) |
|
(181.1 |
) |
|
Other, net |
|
|
(1.1 |
) |
|
(0.6 |
) |
|
Effective tax rate |
|
|
2.9 |
% |
|
(114.0 |
)% |
Our effective tax rate for 2013 and 2012 reflects the impact of having a significant portion of our operations in Singapore where corporate income tax rates are substantially lower than the United States. Lower tax rates in foreign jurisdictions negatively impacted our income tax rate by 7.2% in 2013 and 37.9% in 2012.
47
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (“UTB”) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
||||
|
(In thousands) |
|
2013 |
|
2012 |
|
||
|
Gross UTB balance at beginning of year |
|
$ |
1,500 |
|
$ |
1,599 |
|
|
Additions based on tax positions related to the current year |
|
|
188 |
|
|
92 |
|
|
Additions for tax positions of prior years |
|
|
123 |
|
|
39 |
|
|
Reductions for tax positions of prior years |
|
|
(45 |
) |
|
(75 |
) |
|
Reductions due to lapse of applicable statute of limitations |
|
|
(358 |
) |
|
(155 |
) |
|
Gross UTB balance at end of year |
|
$ |
1,408 |
|
$ |
1,500 |
|
|
Net UTB balance at end of year |
|
$ |
150 |
|
$ |
686 |
|
The ending net UTB results from adjusting the gross balance for items such as federal, state, and non-U.S. deferred items, interest and penalties, and deductible taxes. The net UTB is a long-term income tax reserve within our Consolidated Balance Sheets. We recognize interest and penalties related to unrecognized tax benefits in tax expense. Accrued interest and penalties on a gross basis were $12,000 as of December 31, 2013 and $169,000 as of December 31, 2012.
During the year ended December 31, 2013 we recorded a $450,000 decrease in liabilities for uncertain tax positions that was recorded as income tax benefit. Estimated gross interest and penalties included in this amount total $158,000. During the year ended December 31, 2012 we recorded a $56,000 decrease in liabilities for uncertain tax positions that was recorded as income tax benefit. Estimated gross interest and penalties included in this amount total $23,000.
We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. Our 2012 and 2011 federal income tax returns are still subject to examination by the Internal Revenue Service. During 2012, the Internal Revenue Service completed an audit of our 2010 federal income tax return. The audit resulted in no change to our reported level of taxable income or income tax liability, and had no impact on our financial condition. The statute of limitations for examination of our federal returns for years prior to 2010 expired in 2013. We are no longer subject to state and local income tax examinations by tax authorities for years before 2009.
Deferred tax assets and liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013 |
|
December 31, 2012 |
|
||||||||
|
(In thousands) |
|
Assets |
|
Liabilities |
|
Assets |
|
Liabilities |
|
||||
|
Fixed asset and intangible amortization, net |
|
$ |
520 |
|
$ |
75 |
|
$ |
683 |
|
$ |
109 |
|
|
Inventory allowances |
|
|
636 |
|
|
— |
|
|
466 |
|
|
15 |
|
|
Accrued liabilities |
|
|
287 |
|
|
— |
|
|
328 |
|
|
— |
|
|
Warranty accrual |
|
|
178 |
|
|
— |
|
|
241 |
|
|
— |
|
|
Deferred revenue |
|
|
419 |
|
|
— |
|
|
332 |
|
|
— |
|
|
Accounts receivable allowance |
|
|
244 |
|
|
— |
|
|
269 |
|
|
— |
|
|
Federal and state tax credits |
|
|
3,014 |
|
|
— |
|
|
2,569 |
|
|
— |
|
|
Federal and state net operating loss carry forwards |
|
|
3,138 |
|
|
— |
|
|
634 |
|
|
— |
|
|
Foreign net operating loss carry forwards |
|
|
838 |
|
|
— |
|
|
882 |
|
|
— |
|
|
Stock based compensation |
|
|
437 |
|
|
— |
|
|
411 |
|
|
— |
|
|
Unrealized gains and losses - other comprehensive income (loss) |
|
|
8 |
|
|
— |
|
|
7 |
|
|
72 |
|
|
Other, net |
|
|
139 |
|
|
— |
|
|
141 |
|
|
— |
|
|
Subtotal |
|
|
9,858 |
|
|
75 |
|
|
6,963 |
|
|
196 |
|
|
Valuation allowance |
|
|
(9,627 |
) |
|
— |
|
|
(6,333 |
) |
|
— |
|
|
Total deferred tax assets and liabilities |
|
$ |
231 |
|
$ |
75 |
|
$ |
630 |
|
$ |
196 |
|
We currently have significant deferred tax assets as a result of temporary differences between taxable income on our tax returns and U.S. GAAP income, research and development tax credit carry forwards and federal, state and foreign net operating loss carry forwards. A deferred tax asset generally represents future tax benefits to be received when temporary differences previously reported in our financial statements become deductible for income tax purposes, or when net operating loss carry forwards are applied against future taxable income, or when tax credit carry forwards are utilized on our tax returns. We assess the realizability of our deferred tax assets and the need for a valuation allowance based on the guidance provided in current financial accounting standards.
48
Significant judgment is required in determining the realizability of our deferred tax assets. The assessment of whether valuation allowances are required considers, among other matters, the nature, frequency and severity of any current and cumulative losses, forecasts of future profitability, the duration of statutory carry forward periods, our experience with loss carry forwards not expiring unused and tax planning alternatives.
We have concluded that a valuation allowance is needed for all of our United States and Singapore based deferred tax assets due to the losses we have sustained since 2011 and our near term financial outlook. In analyzing the need for a valuation allowance, we considered our history of operating results for income tax purposes over the past three years in each of the tax jurisdictions where we operate, statutory carry forward periods and tax planning alternatives. Finally, we considered both our near and long-term financial outlook and timing regarding when we might return to profitability. After considering all available evidence both positive and negative, we concluded that the valuation allowance is needed for all of our U.S. and Singapore based deferred tax assets. A similar analysis was performed in 2012, resulting in a valuation allowance at December 31, 2012 for substantially all of our United States and Singapore based deferred tax assets. We reduced our valuation allowance by $178,000 in 2012 for the effect of various state tax credit carry forwards that expired unused. At December 31, 2013, we had federal R&D tax credit carryforwards of $3,213,000 that will begin to expire in 2019 and a federal net operating loss carry forward of $8,242,000 that will expire begin to expire in 2022, if unused.
Deferred tax assets at December 31, 2013, include $156,000 for net operating loss carry forwards incurred in the UK by CyberOptics Ltd., which was acquired in 1999. A valuation allowance has not been recorded against these deferred tax assets. The utilization of these net operating loss carry forwards is dependent on CyberOptics Ltd.’s ability to generate sufficient UK taxable income during the carry forward period. We reduced our deferred tax asset for UK net operating loss carry forwards by $8,000 in 2013 and $14,000 in 2012 due to reductions in the future UK income tax rate.
Cash refunds received for income taxes, net of payments, were $1,269,000 for the year ended December 31, 2013. Cash payments for income taxes, net of refunds received, were $170,000 for the year ended December 31, 2012.
Management is considering a repatriation of some portion of the undistributed earnings of its Singapore based subsidiary. Any such repatriation is not expected to have a significant impact on our financial position or results of operations.
NOTE 11 – OPERATING LEASES
We lease a 50,724 square foot mixed office and warehouse facility in Golden Valley, Minnesota. The lease has a term of 90 months and expires on December 31, 2018. The lease contains an escalation clause and two renewal options of three years each. Rental expense, including the effects of lease incentives, is recognized on a straight-line basis over the term of the lease. We are also required to pay insurance, property taxes and other operating expenses related to the leased facility.
We lease a 19,805 square foot mixed office and warehouse facility in Singapore. The lease for our facility in Singapore expires in July 2016, contains an escalation clause and one three year renewal option. Rental expense is recognized on a straight-line basis over the three year lease term. In addition, we lease facilities for the operations of our other subsidiaries under operating leases that expire at various times through June 2018.
Total rent expense was $1,141,000 for the year ended December 31, 2013 and $1,160,000 for the year ended December 31, 2012. At December 31, 2013, the future minimum lease payments required under non-cancelable operating lease agreements are as follows:
|
|
|
|
|
|
|
Year ending December 31, |
|
(In thousands) |
|
|
|
2014 |
|
$ |
782 |
|
|
2015 |
|
|
782 |
|
|
2016 |
|
|
651 |
|
|
2017 |
|
|
482 |
|
|
2018 |
|
|
495 |
|
|
Total |
|
$ |
3,192 |
|
49
NOTE 12 – 401(K) AND OTHER DEFINED CONTRIBUTION PLANS
We have a retirement savings plan pursuant to Section 401(k) of the Internal Revenue Code (the Code), whereby eligible employees may contribute a portion of their earnings, not to exceed annual amounts allowed under the Code. In addition, we may also make contributions at the discretion of the Board of Directors. We provided matching contributions to employees totaling $218,000 in 2013 and $246,000 in 2012.
We also contribute to defined contribution retirement savings plans on behalf of our employees in the United Kingdom. We made contributions to these plans totaling $39,000 in 2013 and $35,000 in 2012.
NOTE 13 – SIGNIFICANT CUSTOMERS, GEOGRAPHIC AREAS, AND BUSINESS SEGMENTS
The following summarizes our revenue by product line:
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2013 |
|
2012 |
|
||
|
SMT Sensors |
|
$ |
10,792 |
|
$ |
13,187 |
|
|
Semiconductor Sensors |
|
|
7,096 |
|
|
6,363 |
|
|
SMT Inspection Systems |
|
|
15,420 |
|
|
22,094 |
|
|
Total |
|
$ |
33,308 |
|
$ |
41,644 |
|
The following summarizes certain significant customer information:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Significant Customer |
|
Revenues |
|
Percentage of Revenues |
|
|||
|
Year ended December 31, 2013 |
|
|
A |
|
$ |
5,870 |
|
|
18 |
% |
|
|
|
|
B |
|
$ |
2,257 |
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2012 |
|
|
A |
|
$ |
5,428 |
|
|
13 |
% |
|
|
|
|
B |
|
$ |
4,886 |
|
|
12 |
% |
As of December 31, 2013, accounts receivable from significant customer A were $578,000 and accounts receivable from significant customer B were $604,000. As of December 31, 2012, accounts receivable from significant customer A were $312,000 and accounts receivable from significant customer B were $414,000.
Our LaserAlign® sensor family has historically accounted for a significant portion of our revenues and profitability. Revenue from product shipments of LaserAlign sensors accounted for 20% of our total revenue in 2013 and 18% of our total revenue in 2012. Our revenue, results of operations and cash flows would be negatively impacted if our LaserAlign customers are unsuccessful selling the products into which our sensors are incorporated, design their products to function without our sensors, purchase sensors from other suppliers, or otherwise terminate their relationships with us.
Export sales as a percentage of total sales were 78% for the year ended December 31, 2013 and 85% for the year ended December 31, 2012. Export sales are attributed to the country where the product is shipped. Substantially all of our export sales are negotiated, invoiced and paid in U.S. dollars.
Revenue by geographic area is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
||||
|
(In thousands) |
|
2013 |
|
2012 |
|
||
|
United States |
|
$ |
7,339 |
|
$ |
6,165 |
|
|
Americas |
|
|
999 |
|
|
1,511 |
|
|
Netherlands |
|
|
2,257 |
|
|
4,920 |
|
|
Other Europe |
|
|
6,505 |
|
|
7,435 |
|
|
China |
|
|
2,645 |
|
|
8,356 |
|
|
Japan |
|
|
6,690 |
|
|
6,403 |
|
|
Other Asia |
|
|
6,465 |
|
|
6,273 |
|
|
Other |
|
|
408 |
|
|
581 |
|
|
Total export sales |
|
$ |
33,308 |
|
$ |
41,644 |
|
50
Long-lived assets include equipment and leasehold improvements attributable to each geographic area’s operations. Long-lived assets at December 31, 2013 and 2012 are as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2013 |
|
2012 |
|
||
|
Long-lived assets: |
|
|
|
|
|
|
|
|
United States |
|
$ |
816 |
|
$ |
929 |
|
|
Europe |
|
|
23 |
|
|
5 |
|
|
Asia and other |
|
|
433 |
|
|
785 |
|
|
Total long-lived assets |
|
$ |
1,272 |
|
$ |
1,719 |
|
NOTE 14 – RESTRUCTURING AND SEVERANCE COSTS
In the fourth quarter of 2013, we initiated a plan to reduce our global workforce by approximately 30 employees. Expenses for contract workers were also reduced. The workforce reduction was undertaken in response to soft sales, particularly SMT inspection systems, in order to strengthen our commitment to cost control, minimize losses and to improve focus on market support for our products. Restructuring and severance expenses in the fourth quarter of 2013, primarily resulting from the workforce reduction, totaled $952,000.
In the third quarter of 2012, we consolidated research and development for our semiconductor products into our Minneapolis headquarters facility, resulting in a $217,000 restructuring charge for severance and relocation expenses. We believe this move streamlined our business and provided our sensor engineers in Minneapolis with more efficient access to our WaferSense® technology and products. Additional severance costs of $523,000 were incurred in the fourth quarter of 2012 when we reduced our global workforce by approximately 10% or 20 employees in response to the sluggish economy and weak SMT, semiconductor and solar market conditions.
A summary of our restructuring accrual follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Fourth Quarter |
|
Fourth Quarter |
|
Semi R&D |
|
Total |
|
||||
|
Balance, December 31, 2011 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Cost incurred |
|
|
— |
|
|
523 |
|
|
217 |
|
|
740 |
|
|
Payments made |
|
|
— |
|
|
331 |
|
|
217 |
|
|
548 |
|
|
Balance, December 31, 2012 |
|
|
— |
|
|
192 |
|
|
— |
|
|
192 |
|
|
Cost incurred |
|
|
952 |
|
|
— |
|
|
— |
|
|
952 |
|
|
Payments made |
|
|
441 |
|
|
192 |
|
|
— |
|
|
633 |
|
|
Balance, December 31, 2013 |
|
$ |
511 |
|
$ |
— |
|
$ |
— |
|
$ |
511 |
|
The remaining accrued severance in the amount of $511,000 at December 31, 2013 will be paid prior to July 1, 2014.
NOTE 15 – CONTINGENCIES
We are periodically a defendant in miscellaneous claims and disputes in the ordinary course of business. While the outcome of these matters cannot be predicted with certainty, management presently believes the disposition of these matters will not have a material effect on our financial position, results of operations or cash flows.
In the normal course of business to facilitate sales of our products and services, we at times indemnify other parties, including customers, with respect to certain matters. In these instances, we have agreed to hold the other parties harmless against losses arising out of intellectual property infringement or other types of claims. These agreements may limit the time within which an indemnification claim can be made, and almost always limit the amount of the claim. It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made, if any, under these agreements have not had a material impact on our operating results, financial position or cash flows.
51
NOTE 16 – SHARE REPURCHASE
In October 2012 our Board of Directors authorized a $3.0 million share repurchase program. We adopted a 10b5-1 trading plan to implement the program. In 2013, we spent $3.0 million to repurchase 508,535 shares of our common stock. The share repurchase program concluded in the fourth quarter of 2013 and no more share repurchases will be made under the October 2012 authorization.
NOTE 17 – SUBSEQUENT EVENT - ACQUISITION
On March 14, 2014 we acquired substantially all of the assets of Laser Design, Inc. (LDI), a privately held company based in Minneapolis, Minnesota for aggregate consideration of $2.7 million in cash plus the assumption of certain current liabilities. With revenues of approximately $6.0 million, LDI provides scanning systems and services to the global 3D scanner and services metrology market.
The assets acquired consist primarily of accounts receivable, inventory, equipment, intangibles and contract rights. At the date of issuance of the financial statements, the initial business combination accounting was not complete for this acquisition. The impact of the acquisition is not expected to be material to our consolidated financial position or results of operations.
NOTE 18 – QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
March 31 |
|
June 30 |
|
September 30 |
|
December 31 |
|
||||
|
Revenues |
|
$ |
6,713 |
|
$ |
9,317 |
|
$ |
8,726 |
|
$ |
8,552 |
|
|
Gross margin |
|
|
2,939 |
|
|
4,074 |
|
|
4,006 |
|
|
3,631 |
|
|
Loss from operations (2) |
|
|
(2,024 |
) |
|
(1,171 |
) |
|
(961 |
) |
|
(2,010 |
) |
|
Net loss |
|
|
(2,146 |
) |
|
(1,200 |
) |
|
(774 |
) |
|
(2,048 |
) |
|
Net loss per share - Basic (1) |
|
|
(0.31 |
) |
|
(0.17 |
) |
|
(0.11 |
) |
|
(0.31 |
) |
|
Net loss per share - Diluted (1) |
|
|
(0.31 |
) |
|
(0.17 |
) |
|
(0.11 |
) |
|
(0.31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
March 31 |
|
June 30 |
|
September 30 |
|
December 31 |
|
||||
|
Revenues |
|
$ |
11,280 |
|
$ |
13,003 |
|
$ |
11,558 |
|
$ |
5,803 |
|
|
Gross margin |
|
|
5,235 |
|
|
5,529 |
|
|
5,081 |
|
|
2,334 |
|
|
Income (loss) from operations (3) |
|
|
92 |
|
|
98 |
|
|
(589 |
) |
|
(2,712 |
) |
|
Net income (loss) (4) |
|
|
92 |
|
|
143 |
|
|
(447 |
) |
|
(6,499 |
) |
|
Net income (loss) per share - Basic (1) |
|
|
0.01 |
|
|
0.02 |
|
|
(0.06 |
) |
|
(0.93 |
) |
|
Net income (loss) per share - Diluted (1) |
|
|
0.01 |
|
|
0.02 |
|
|
(0.06 |
) |
|
(0.93 |
) |
|
|
|
|
(1) |
The summation of quarterly per share amounts may not equal the calculation for the full year, as each quarterly calculation is performed discretely. |
|
(2) |
Includes a restructuring and severance charge of $952,000 in the fourth quarter of 2013. |
|
(3) |
Includes restructuring charges of $217,000 in the third quarter and $523,000 in the fourth quarter of 2012. |
|
(4) |
Includes a $5.7 million non-cash charge in the fourth quarter of 2012 to record a valuation allowance against our deferred tax assets. |
52
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors and Stockholders
CyberOptics Corporation
We have audited the accompanying consolidated balance sheets of CyberOptics Corporation (a Minnesota corporation) and subsidiaries (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CyberOptics Corporation and subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America.
GRANT THORNTON LLP
Minneapolis,
Minnesota
March 28, 2014
53
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
NONE.
ITEM 9A. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.
(i). MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in the Securities Exchange Act of 1934 Rule 13a-15(f), and for performing an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2013. Internal control over financial reporting is a process designed by, or under the supervision of, the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (GAAP) and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the registrant; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the registrant’s assets that could have a material effect on the financial statements.
Management performed an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2013 based upon criteria in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment, management determined that the Company’s internal control over financial reporting was effective as of December 31, 2013 based on the criteria in Internal Control-Integrated Framework issued by the COSO.
Because the Company is a smaller reporting company, this annual report on Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.
(ii). During the quarter ended December 31, 2013, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
NONE.
54
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information contained under the headings “Proposal I–Election of Directors,” “Information About our Board of Directors and its Committees and Other Corporate Governance Matters” and “Section 16(a) Beneficial Ownership Reporting Compliance” of the Company’s definitive proxy statement for its annual meeting of shareholders to be held May 19, 2014 (hereafter, the Proxy Statement), is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the headings “Information About our Board of Directors and its Committees and Other Corporate Governance Matters–Compensation of Independent Directors,” and “Executive Compensation” of the Proxy Statement is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information contained under the heading “Shares Outstanding” of the Proxy Statement is hereby incorporated by reference.
The following table describes shares of our common stock that are available as of December 31, 2013 for purchase under outstanding stock-based awards, or reserved for issuance under stock-based awards or other rights that may be granted in the future, under our equity compensation plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Category |
|
(a) |
|
(b) |
|
(c) |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Equity compensation plans approved by security holders |
|
|
|
|
|
|
|
|
|
|
|
1998 Stock Incentive Plan (1) |
|
|
561,426 |
|
$ |
6.53 |
|
|
389,373 |
|
|
Stock Option Plan for Non-Employee Directors |
|
|
72,000 |
|
|
14.80 |
|
|
— |
|
|
Stock Grant Plan for Non-Employee Directors |
|
|
N/A |
|
|
N/A |
|
|
6,000 |
|
|
Employee Stock Purchase Plan (2) |
|
|
N/A |
|
|
N/A |
|
|
153,926 |
|
|
Total |
|
|
633,426 |
|
$ |
7.47 |
|
|
549,299 |
|
|
|
|
|
(1) |
In addition to options, shares may be issued in the form of restricted stock awards, performance awards and other stock-based awards. |
|
(2) |
Shares are issued based on employees’ elections to participate in the plan. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information under the headings “Information About our Board of Directors and its Committees and Other Corporate Governance Matters –Committees of Our Board–Audit Committee” of the Proxy Statement is hereby incorporated by reference.
55
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information under the heading “Independent Accountants and Payment of Fees” and “Information About our Board of Directors and its Committees and Other Corporate Governance Matters –Committees of Our Board–Audit Committee” of the Proxy Statement is hereby incorporated by reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements: The Consolidated Financial Statements included in Item 8 to this Form 10-K consist of the following:
|
|
|
|
|
Consolidated Balance Sheets as of December 31, 2013 and 2012. |
|
|
Consolidated Statements of Operations for the years ended December 31, 2013 and 2012. |
|
|
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2013 and 2012. |
|
|
Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012. |
|
|
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2013 and 2012. |
|
|
Notes to the Consolidated Financial Statements. |
56
|
|
|
|
|
|||
|
|
(b) |
LIST OF EXHIBITS |
||||
|
|
|
|
|
|
||
|
Exhibit Number |
|
Description |
|
|||
|
|
|
|
|
|
||
|
|
2.0 |
|
Asset purchase agreement by and among LDI Acquisition Corp., Laser Design Inc., GKS Services Corp., Innovative Design Group, Inc. 3D Scanning Technologies, Ltd., and certain shareholders of Laser Design, Inc. dated as of January 14, 2014. |
|
||
|
|
|
|
|
|
||
|
|
3.1 |
|
Articles of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997). |
|
||
|
|
|
|
|
|
||
|
|
3.2 |
|
Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the current report on Form 8-K dated September 8, 2008). |
|
||
|
|
|
|
|
|
||
|
|
4.1 |
|
CyberOptics Corporation Stock Option Plan for Non-Employee Directors, as amended (incorporated by reference to Exhibit 4.2 of the Company’s Registration Statement on Form S-8 filed August 10, 2006 (file no 333-136500)). |
|
||
|
|
|
|
|
|
||
|
|
4.2 |
|
CyberOptics Corporation 1998 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 filed August 14, 2012 (file no. 333-183296)). |
|
||
|
|
|
|
|
|
||
|
|
4.3 |
|
CyberOptics Corporation Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-8 filed August 10, 2011 (file no 333-176196)). |
|
||
|
|
|
|
|
|
||
|
|
4.4 |
|
CyberOptics Corporation Stock Grant Plan for Non-Employee Directors (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-8 filed August 14, 2008 (file no 333-153015)). |
|
||
|
|
|
|
|
|
||
|
|
10.1 |
|
Lease Agreement between FirstCal Industrial 2 Acquisitions LLC and the Company dated March 27, 2006 (incorporated by reference to Exhibit 10.1 to the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2006). |
|
||
|
|
|
|
|
|
||
|
|
10.2 |
|
First Amendment to Lease effective as of March 14, 2011, by and between Hines REIT Minneapolis Industrial, LLC and CyberOptics Corporation (incorporated by reference to Exhibit 10.1 to the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2011). |
|
||
|
|
|
|
|
|
||
|
* |
10.3 |
|
Severance Pay Agreement with Kathleen P. Iverson (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K dated May 19, 2008). |
|
||
|
|
|
|
|
|
||
|
* |
10.4 |
|
Severance Pay Agreement with Jeffrey A. Bertelsen (incorporated by reference to Exhibit 10.3 to the current report on Form 8-K dated May 19, 2008). |
|
||
|
|
|
|
|
|
||
|
* |
10.5 |
|
Amendment to Severance Pay Agreement with Jeffrey A. Bertelsen (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K dated May 18, 2009). |
|
||
57
|
|
|
|
|
|
|
10.6 |
|
Tenancy Agreement between NIDEC Component Technology Co. LTD and CyberOptics PTE LTD (Singapore) Term 15 May 2011 to 24 July 2013 (incorporated by reference to Exhibit 10.1 to the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2010). |
|
|
|
|
|
|
* |
10.7 |
|
Severance Pay Agreement with Daniel Good (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010). |
|
|
|
|
|
|
* |
10.8 |
|
Amendment to Severance Pay Agreement with Kathleen P. Iverson (incorporated by reference to Exhibit 10.8 to the Company’s annual report on Form 10-K for the year ended December 31, 2011). |
|
|
|
|
|
|
* |
10.9 |
|
Clarification to Severance Pay Agreement with Jeffrey A. Bertelsen (incorporated by reference to Exhibit 10.9 to the Company’s annual report on From 10-K for the year ended December 31, 2011). |
|
|
|
|
|
|
* |
10.10 |
|
Clarification to Severance Pay Agreement with Daniel Good (incorporated by reference to Exhibit 10.10 to the Company’s annual report on From 10-K for the year ended December 31, 2011). |
|
|
|
|
|
|
* |
10.11 |
|
Separation agreement with Kathleen P. Iverson dated December 20, 2013 |
|
|
|
|
|
|
* |
10.12 |
|
Employment agreement with Subodh Kulkarni dated January 13, 2014 |
|
|
|
|
|
|
|
10.13 |
|
Tenancy agreement between RBC Investor Services Trust Singapore Limited and CyberOptics Singapore Private Limited dated April 4, 2013 (incorporated by reference to Exhibit 10 to the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2013). |
|
|
|
|
|
|
|
21.0 |
|
Subsidiaries of the Company. |
|
|
|
|
|
|
|
23.1 |
|
Consent of Independent Registered Public Accounting Firm. |
|
|
|
|
|
|
|
31.1 |
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
31.2 |
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
32.0 |
|
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
101 |
|
Financial statements formatted in Extensible Business Reporting Language: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statement of Operations, (iii) the Consolidated Statements of Comprehensive Loss, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Stockholder’s Equity, and (vi) the Notes to the Consolidated Financial Statements. |
* Management Contract or Compensatory Plan or Arrangement
58
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
CYBEROPTICS CORPORATION |
|
|
|
|
|
/s/ SUBODH KULKARNI |
|
|
By Subodh Kulkarni, Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Name |
|
Title |
|
Date |
|
|
|
|
|
|
|
/s/ SUBODH KULKARNI |
|
President and CEO |
|
March 28, 2014 |
|
Subodh Kulkarni |
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ ALEX B. CIMOCHOWSKI |
|
Director |
|
March 28, 2014 |
|
Alex B. Cimochowski |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ MICHAEL M. SELZER, JR. |
|
Director |
|
March 28, 2014 |
|
Michael M. Selzer, Jr. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ IRENE M. QUALTERS |
|
Director |
|
March 28, 2014 |
|
Irene M. Qualters |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ CRAIG D. GATES |
|
Director |
|
March 28, 2014 |
|
Craig D. Gates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ JEFFREY A. BERTELSEN |
|
Vice President, CFO, and COO |
|
March 28, 2014 |
|
Jeffrey A. Bertelsen |
|
(Principal Financial Officer |
|
|
|
|
|
and Principal Accounting Officer) |
|
|
59
Exhibit 2.0
Execution Version
ASSET PURCHASE AGREEMENT
BY AND AMONG
LDI ACQUISITION CORP.,
LASER DESIGN, INC.,
GKS SERVICES CORP.,
INNOVATIVE DESIGN GROUP, INC.,
3D SCANNING TECHNOLIGIES, LTD., AND
CERTAIN SHAREHOLDERS OF LASER DESIGN, INC.
dated as of
January 14, 2014
TABLE OF CONTENTS
|
|
|
|
ARTICLE I DEFINITIONS |
1 |
|
|
|
|
ARTICLE II ASSETS AND LIABILITIES |
9 |
|
|
|
|
Section 2.01 Purchase and Sale of Assets |
9 |
|
Section 2.02 Excluded Assets |
11 |
|
Section 2.03 Assumed Liabilities |
11 |
|
Section 2.04 Excluded Liabilities |
12 |
|
Section 2.05 Third Party Consents |
13 |
|
|
|
|
ARTICLE III CLOSING; PURCHASE PRICE |
14 |
|
|
|
|
Section 3.01 Closing |
14 |
|
Section 3.02 Purchase Price |
16 |
|
Section 3.03 Purchase Price Adjustment |
16 |
|
Section 3.04 Allocation of Purchase Price |
19 |
|
Section 3.05 Withholding Tax |
19 |
|
|
|
|
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER ENTITIES |
19 |
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Section 4.01 Organization and Qualification of Seller Entities |
19 |
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Section 4.02 Authority of Seller Entities |
20 |
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Section 4.03 No Conflicts; Consents |
20 |
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Section 4.04 Capitalization of Seller |
21 |
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Section 4.05 No Subsidiaries |
21 |
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Section 4.06 Financial Statements |
21 |
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Section 4.07 Undisclosed Liabilities |
22 |
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Section 4.08 Absence of Certain Changes, Events and Conditions |
22 |
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Section 4.09 Material Contracts |
24 |
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Section 4.10 Title to Purchased Assets |
25 |
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Section 4.11 Condition and Sufficiency of Assets |
26 |
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Section 4.12 Real Property |
26 |
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Section 4.13 Intellectual Property |
27 |
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Section 4.14 Inventory |
27 |
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Section 4.15 Accounts Receivable |
28 |
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Section 4.16 Customers and Suppliers |
28 |
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Section 4.17 Insurance |
28 |
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Section 4.18 Legal Proceedings; Governmental Orders |
29 |
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Section 4.19 Compliance With Laws; Permits |
29 |
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Section 4.20 Environmental Matters |
30 |
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Section 4.21 Employee Benefit Matters |
31 |
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Section 4.22 Employment Matters |
32 |
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Section 4.23 Taxes |
33 |
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Section 4.24 Brokers |
34 |
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Section 4.25 Questionable Payments |
34 |
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Section 4.26 Full Disclosure |
35 |
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ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS |
35 |
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Section 5.01 Ownership |
35 |
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Section 5.02 Organization and Qualification of Shareholder |
35 |
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Section 5.03 No Conflicts; Consents |
35 |
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Section 5.04 Brokers |
36 |
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Section 5.05 Legal Proceedings |
36 |
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Section 5.06 Representation by Counsel |
36 |
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ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BUYER |
36 |
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Section 6.01 Organization and Authority of Buyer |
36 |
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Section 6.02 No Conflicts; Consents |
36 |
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Section 6.03 Brokers |
37 |
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Section 6.04 Sufficiency of Funds |
37 |
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ARTICLE VII COVENANTS |
37 |
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Section 7.01 Conduct of Business Prior to the Closing |
37 |
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Section 7.02 Access to Information |
38 |
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Section 7.03 Updating the Seller Disclosure Schedule |
38 |
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Section 7.04 No Solicitation |
38 |
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Section 7.05 Notice of Certain Events |
39 |
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Section 7.06 Employees and Employee Benefits |
40 |
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Section 7.07 Non-competition; Non-solicitation |
40 |
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Section 7.08 Confidentiality |
41 |
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Section 7.09 Approvals and Consents |
42 |
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Section 7.10 Closing Conditions |
42 |
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Section 7.11 Public Announcements |
42 |
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Section 7.12 Bulk Sales Laws |
43 |
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Section 7.13 Receivables |
43 |
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Section 7.14 Transfer Taxes |
43 |
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Section 7.15 Seller Existence |
43 |
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Section 7.16 Shareholder Vote |
43 |
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Section 7.17 Information Statement |
43 |
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Section 7.18 Further Assurances |
44 |
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ARTICLE VIII CONDITIONS TO CLOSING |
44 |
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Section 8.01 Conditions to Obligations of Buyer |
44 |
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Section 8.02 Conditions to Obligations of Seller |
45 |
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Section 8.03 Frustration of Closing Conditions |
46 |
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ARTICLE IX TERMINATION |
46 |
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Section 9.01 Termination |
46 |
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Section 9.02 Effect of Termination |
47 |
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ARTICLE X INDEMNIFICATION |
48 |
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Section 10.01 Survival |
48 |
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Section 10.02 Indemnification By Seller |
48 |
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Section 10.03 Indemnification By Buyer |
49 |
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Section 10.04 Certain Limitations |
49 |
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Section 10.05 Indemnification Procedures |
50 |
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Section 10.06 Payments |
52 |
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Section 10.07 Tax Treatment of Indemnification Payments |
53 |
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Section 10.08 Effect of Investigation |
53 |
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Section 10.09 Exclusive Remedies |
53 |
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ARTICLE XI MISCELLANEOUS |
53 |
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Section 11.01 Expenses |
53 |
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Section 11.02 Notices |
54 |
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Section 11.03 Interpretation |
54 |
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Section 11.04 Headings |
55 |
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Section 11.05 Severability |
55 |
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Section 11.06 Entire Agreement |
55 |
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Section 11.07 Successors and Assigns |
55 |
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Section 11.08 No Third-party Beneficiaries |
56 |
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Section 11.09 Amendment and Modification; Waiver |
56 |
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Section 11.10 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial |
56 |
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Section 11.11 Specific Performance |
57 |
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Section 11.12 Counterparts |
57 |
EXHIBITS
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EXHIBIT A: |
Equipment carried as Inventory. |
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EXHIBIT B: |
Form of Escrow Agreement |
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EXHIBIT C: |
Form of Bill of Sale |
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EXHIBIT D: |
Form of Assignment and Assumption Agreement |
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EXHIBIT E: |
Form of Intellectual Property Assignment |
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EXHIBIT F: |
Form of Assignment and Assumption of Lease |
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EXHIBIT G: |
Allocation Schedule |
SCHEDULES
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SCHEDULE 7.09(C) |
New Contracts |
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SCHEDULE 7.09(D) |
Terminated Contracts |
iii
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this “Agreement”), dated as of January 14, 2014, is entered into between LDI Acquisition Corp., a Minnesota corporation (“Buyer”), Laser Design, Inc., a Minnesota corporation (“Seller”), GKS Services Corp. , a Minnesota corporation (“GKS”) Innovative Design Group, Inc., a Minnesota corporation (“Innovative Design”), 3D Scanning Technologies, Ltd. , a Nevada corporation (“3D Scanning”, and together with Seller, GKS and Innovative Design, the “Seller Entities”) and certain shareholders of Seller set forth on the signature pages hereto (the “Shareholders”).
RECITALS
WHEREAS, Seller owns, directly or indirectly, 100% of the outstanding capital stock of GKS, 3D Leasing and 3D Scanning;
WHEREAS, the Seller Entities wish to sell and assign to Buyer, and Buyer wishes to purchase and assume from the Seller Entities, substantially all the assets, and certain specified liabilities, of the Seller Entities, subject to the terms and conditions set forth herein;
WHEREAS, the Shareholders own 74.3% of the outstanding capital stock of Seller and will indirectly receive the benefit of the proceeds to be received by Seller from consummation of the transaction contemplated hereby;
WHEREAS, the Board of Directors of each Seller Entity have each determined that this Agreement and the transactions contemplated hereby are advisable and in the best interests of such corporation and its respective shareholders; and
WHEREAS, C. Martin Schuster, Armando Alonso and J.L. Dethier (the “Principal Executives”) have entered into employment agreements with Buyer (collectively, the “Employment Arrangements”), which shall be effective upon the Closing.
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The following terms have the meanings specified or referred to in this Article I:
“Accounts Receivable” has the meaning set forth in Section 2.01(a).
“Action” means any claim, action, cause of action, demand, lawsuit, arbitration, inquiry, audit, notice of violation, proceeding, litigation, citation, summons, subpoena or investigation of any nature, civil, criminal, administrative, regulatory or otherwise, whether at law or in equity.
“Acquisition Proposal” has the meaning set forth in Section 7.04(a).
“Adjustment” has the meaning set forth in Section 3.02(b).
“Affiliate” of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
“Agreement” has the meaning set forth in the preamble.
“Allocation Schedule” has the meaning set forth in Section 3.04.
“Annual Financial Statements” has the meaning set forth in Section 4.06.
“Anti-Bribery Laws” has the meaning set forth in Section 4.25(a).
“Assigned Contracts” has the meaning set forth in Section 2.01(c).
“Assignment and Assumption Agreement” has the meaning set forth in Section 3.01(b)(iv)(B).
“Assignment and Assumption of Lease” has the meaning set forth in Section 3.01(b)(iv)(D).
“Assumed Liabilities” has the meaning set forth in Section 2.03.
“Balance Sheet” has the meaning set forth in Section 4.06.
“Balance Sheet Date” has the meaning set forth in Section 4.06.
“Benefit Plan” has the meaning set forth in Section 4.21(a).
“Bill of Sale” has the meaning set forth in Section 3.01(b)(iv)(A).
“Board Recommendation” has the meaning set forth in Section 7.17(b).
“Books and Records” has the meaning set forth in Section 2.01(m).
“Business” means the business in which the Seller Entities are engaged.
“Business Day” means any day except Saturday, Sunday or any other day on which commercial banks located in Minneapolis, Minnesota are authorized or required by Law to be closed for business.
“Buyer” has the meaning set forth in the preamble.
“Buyer Exclusions” has the meaning set forth in Section 10.04(b).
“Buyer Fundamental Representations” has the meaning set forth in Section 10.01.
“Buyer Indemnitees” has the meaning set forth in Section 10.02.
“Cap” has the meaning set forth in Section 10.04(c).
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“CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.
“Closing” has the meaning set forth in Section 3.01(a).
“Closing Date” has the meaning set forth in Section 3.01(a).
“Closing Working Capital” means the sum of (a) a positive amount equal to the consolidated current assets of the Seller Entities to the extent acquired pursuant to the terms of this Agreement, as calculated in accordance with GAAP determined as of immediately prior to the Closing, plus (b) a negative amount equal to the current liabilities of the Seller Entities to the extent assumed pursuant to the terms of this Agreement, as calculated in accordance with GAAP determined as of immediately prior to the Closing, plus (c) to the extent not included in clause (a) above and remaining an Purchased Asset at Closing, a positive amount equal to the balances for the equipment carried as inventory on the balance sheet of the Seller set forth in the attached Exhibit A.
“Code” means the Internal Revenue Code of 1986, as amended.
“Contracts” means all contracts, leases, deeds, mortgages, licenses, instruments, notes, commitments, undertakings, indentures, joint ventures and all other agreements, commitments and binding arrangements, whether written or oral.
“Deductible” has the meaning set forth in Section 10.04(a).
“Direct Claim” has the meaning set forth in Section 10.05(d).
“Disclosure Schedules” means the Disclosure Schedules delivered by the Seller Entities concurrently with the execution and delivery of this Agreement.
“Employee Plan” has the meaning set forth in Section 4.21(a).
“Employment Arrangements” has the meaning set forth in the recitals.
“Encumbrance” means any charge, claim, community property interest, pledge, condition, equitable interest, lien (statutory or other), option, security interest, mortgage, easement, encroachment, right of way, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.
“Environmental Claim” means any Action, Governmental Order, lien, fine, penalty, or, as to each, any settlement or judgment arising therefrom, by or from any Person alleging liability of whatever kind or nature (including liability or responsibility for the costs of enforcement proceedings, investigations, cleanup, governmental response, removal or remediation, natural resources damages, property damages, personal injuries, medical monitoring, penalties, contribution, indemnification and injunctive relief) arising out of, based on or resulting from: (a) the presence, Release of, or exposure to, any Hazardous Materials; or (b) any actual or alleged non-compliance with any Environmental Law or term or condition of any Environmental Permit.
3
“Environmental Law” means any applicable Law, and any Governmental Order or binding agreement with any Governmental Authority: (a) relating to pollution (or the cleanup thereof) or the protection of natural resources, endangered or threatened species, human health or safety, or the environment (including ambient air, soil, surface water or groundwater, or subsurface strata); or (b) concerning the presence of, exposure to, or the management, manufacture, use, containment, storage, recycling, reclamation, reuse, treatment, generation, discharge, transportation, processing, production, disposal or remediation of any Hazardous Materials. The term “Environmental Law” includes the following (including their implementing regulations and any state analogs): CERCLA; the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§ 6901 et seq. (“RCRA”); the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control Act of 1976, as amended, 15 U.S.C. §§ 2601 et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001 et seq.; the Clean Air Act of 1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C. §§ 7401 et seq.; and the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. §§ 651 et seq.
“Environmental Notice” means any written directive, notice of violation or infraction, or notice respecting any Environmental Claim relating to actual or alleged non-compliance with any Environmental Law or any term or condition of any Environmental Permit.
“Environmental Permit” means any Permit, letter, clearance, consent, waiver, closure, exemption, decision or other action required under or issued, granted, given, authorized by or made pursuant to Environmental Law.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.
“ERISA Affiliate” has the meaning set forth in Section 4.21(a).
“Escrow Agent” means Wilmington Trust, N.A..
“Escrow Agreement” means the Escrow Agreement among Buyer, Seller and the Escrow Agent, in substantially the form attached hereto as Exhibit B.
“Escrow Amount” means the sum of $250,000 to be deposited with the Escrow Agent and held in escrow pursuant to the Escrow Agreement.
“Escrow Fund” has the meaning set forth in Section 3.01(b)(ii).
“Estimated Balance Sheet” has the meaning set forth in Section 3.03(a).
“Estimated Purchase Price” has the meaning set forth in Section 3.03(a).
“Estimated Schedule” has the meaning set forth in Section 3.03(a).
“Excluded Assets” has the meaning set forth in Section 2.02.
“Excluded Contracts” has the meaning set forth in Section 2.02(b).
“Excluded Liabilities” has the meaning set forth in Section 2.04.
4
“Final Balance Sheet” has the meaning set forth in Section 3.03(b)(i).
“Final Purchase Price” has the meaning set forth in Section 3.03(b)(i).
“Financial Statements” has the meaning set forth in Section 4.06.
“GAAP” means United States generally accepted accounting principles in effect from time to time.
“Governmental Authority” means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of Law), or any arbitrator, court or tribunal of competent jurisdiction.
“Governmental Order” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.
“Hazardous Materials” means (i) hazardous materials, hazardous substances, extremely hazardous substances, hazardous wastes, infectious wastes, acute hazardous wastes, toxic substances, contaminants or pollutants, as those terms are defined by CERCLA, RCRA and any other Environmental and Safety Requirements; (ii) petroleum, including crude oil or any fraction thereof; (iii) any radioactive material, including any source, special nuclear, or by product material as defined in 42 U.S.C. § 2011 et seq.; (iv) asbestos in any form or condition; and (v) any substance that contains regulated levels of polychlorinated biphenyls.
“Indebtedness” means, as of immediately prior to the Closing, the outstanding principal amount of, accrued and unpaid interest on, and other outstanding payment obligations arising under any obligations of the Seller Entities or any of their Subsidiaries consisting of: (a) indebtedness for borrowed money, whether current, short-term or long-term and whether secured or unsecured, or for the deferred purchase price of property or services (including any “earn-out” or similar payments but excluding trade payables incurred in the ordinary course of business), and any related accrued interest, fees and prepayment penalties; (b) indebtedness evidenced by any note, bond, debenture or other debt security, and any related accrued interest, fees and prepayment penalties; (c) any indebtedness referred to in clauses (a) and (b) above of any Person that is either guaranteed (including under any “keep well” or similar arrangement) by, or secured by any Encumbrance upon any property or asset owned by, the Seller Entities, in each case, as of such date; (d) deferred rent liabilities recorded in accordance with GAAP; (e) any liability in respect of banker’s acceptances or letters of credit (but, in each case, only to the extent and in the amount drawn); and (f) any liability under interest rate swap, hedging or similar agreements. For the avoidance of doubt, “Indebtedness” shall not include: (i) any liabilities taken into account in the calculation of Closing Working Capital; or (ii) any amounts included in the Transaction Expenses.
“Indemnified Party” has the meaning set forth in Section 10.05.
“Indemnifying Party” has the meaning set forth in Section 10.05.
5
“Independent Auditor” has the meaning set forth in Section 3.03(b)(vi).
“Insurance Policies” has the meaning set forth in Section 4.17.
“Intellectual Property” means all intellectual property and other similar proprietary rights in any jurisdiction worldwide, whether registered or unregistered, including such rights in and to: (i) trademarks, trade dress, service marks, certification marks, logos, slogans, trade names, brand names, corporate names, assumed names, business names and all other indicia of origin, including the goodwill of the business symbolized thereby; (ii) issued patents and pending patent applications, and any and all divisions, continuations, continuations in part, reissues, continuing patent applications, reexaminations, and extensions thereof, any counterparts claiming priority therefrom, utility models, patents of importation/confirmation, certificates of invention, certificates of registration and like rights; inventions, invention disclosures, discoveries and improvements, whether or not patentable; (iii) published and unpublished works of authorship, whether copyrightable or not (including databases and other compilation information), copyrights therein and thereto, and registrations and applications therefore, and all renewals, extensions, restorations and reversions thereof; (iv) trade secrets (including those trade secrets defined in the United States Uniform Trade Secrets Act and under corresponding foreign Law), formulas, compositions, processes, techniques, business and technical information, know-how, non-public information, and confidential and proprietary information (including customer, financial medical and other personal information) and rights to limit the use or disclosure thereof by any Person; (v) computer software, including data files, source and object code, application programming, user interfaces, manuals, databases and other software related specifications and documentation; (vi) uniform resource locators, domain names and social media account names or identifiers; (vii) rights of privacy or publicity; and (viii) all other intellectual and related proprietary rights, whether protected, created or arising by operation of Law.
“Intellectual Property Assets” means all Intellectual Property that is owned by the Seller Entities.
“Intellectual Property Assignments” has the meaning set forth in Section 3.01(b)(iv)(C).
“Intellectual Property Licenses” means all licenses, sublicenses and other agreements by or through which other Persons, including Seller’s Affiliates, grant the Seller Entities exclusive or non-exclusive rights or interests in or to any Intellectual Property.
“Intellectual Property Registrations” means all Intellectual Property Assets that are subject to any issuance, registration, application or other filing by, to or with any Governmental Authority or authorized private registrar in any jurisdiction, including registered trademarks, domain names and copyrights, issued and reissued patents and pending applications for any of the foregoing.
“Interim Balance Sheet” has the meaning set forth in Section 4.06.
“Interim Balance Sheet Date” has the meaning set forth in Section 4.06.
“Interim Financial Statements” has the meaning set forth in Section 4.06.
“Inventory” has the meaning set forth in Section 2.01(b).
6
“Knowledge of Seller or Seller’s Knowledge” or any other similar knowledge qualification, means the actual knowledge of any director or officer (or person holding a similar management position) of any Seller Entity and any Shareholder and such knowledge as would be obtained by any such Person after reasonable due inquiry.
“Law” means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, other requirement or rule of law of any Governmental Authority.
“Leased Real Property” has the meaning set forth in Section 4.12(b).
“Leases” has the meaning set forth in Section 4.12(b).
“Liabilities” means liabilities, obligations or commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured or otherwise.
“Losses” means losses, damages, liabilities, deficiencies, Actions, judgments, interest, awards, penalties, fines, costs or expenses of whatever kind (including reasonable legal and accounting fees and expenses, the cost of enforcing any right to indemnification hereunder and the cost of pursuing any insurance providers).
“Material Adverse Effect” means any event, occurrence, fact, condition or change that is, or could reasonably be expected to become, individually or in the aggregate, materially adverse to (a) the business, results of operations, prospects, condition (financial or otherwise) or assets of the Seller Entities, (b) the value of the Purchased Assets, or (c) the ability of the Seller Entities or any Shareholder to consummate the transactions contemplated hereby; provided, however, that “Material Adverse Effect” shall not include any event, occurrence, fact, condition or change, directly or indirectly, arising out of or attributable to: (i) any changes, conditions or effects in the United States economies or securities or financial markets in general; (ii) changes, conditions or effects that generally affect the industries in which the Seller Entities operate; or (iii) conditions caused by acts of terrorism or war (whether or not declared); provided further, however, that any event, occurrence, fact, condition or change referred to in clauses (i) through (iii) immediately above shall be taken into account in determining whether a Material Adverse Effect has occurred or could reasonably be expected to occur to the extent that such event, occurrence, fact, condition or change has a disproportionate effect on the Seller Entities as compared to other Persons.
“Material Contracts” has the meaning set forth in Section 4.09(a).
“Material Customers” has the meaning set forth in Section 4.16(a).
“Material Suppliers” has the meaning set forth in Section 4.16(b).
“MBCA” has the meaning set forth in Section 4.02(a).
“Multiple Employer Plan” has the meaning set forth in Section 4.21(c).
“Multiemployer Plan” has the meaning set forth in Section 4.21(b).
“Objection Notice” has the meaning set forth in Section 3.03(b)(v).
7
“Outside Date” has the meaning set forth in Section 9.01(b).
“Permits” means all permits, licenses, franchises, approvals, authorizations, registrations, certificates, variances and similar rights obtained, or required to be obtained, from Governmental Authorities.
“Permitted Encumbrances” has the meaning set forth in Section 4.10.
“Person” means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association or other entity.
“Post-Closing Adjustment” has the meaning set forth in Section 3.03(b)(iii).
“Post-Closing Tax Period” means any taxable period beginning after the Closing Date and, with respect to any taxable period beginning before and ending after the Closing Date, the portion of such taxable period beginning after the Closing Date.
“Pre-Closing Tax Period” means any taxable period ending on or before the Closing Date and, with respect to any taxable period beginning before and ending after the Closing Date, the portion of such taxable period ending on and including the Closing Date.
“Purchase Price” has the meaning set forth in Section 3.02(a).
“Purchased Assets” has the meaning set forth in Section 2.01.
“Release” means any actual or threatened release, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, abandonment, disposing or allowing to escape or migrate into or through the environment (including ambient air (indoor or outdoor), surface water, groundwater, land surface or subsurface strata or within any building, structure, facility or fixture).
“Representative” means, with respect to any Person, any and all directors, officers, employees, consultants, financial advisors, counsel, accountants and other agents of such Person.
“Restraint” has the meaning set forth in Section 8.01(d).
“Restricted Business” means any aspect of the business in which the Seller Entities are engaged, or propose to engage in, as of the Closing Date.
“Restricted Period” has the meaning set forth in Section 7.07(a).
“Restricted Person” has the meaning set forth in Section 7.07(a).
“Review Period” has the meaning set forth in Section 3.03(b)(iv).
“Seller” has the meaning set forth in the preamble.
“Seller Exclusions” has the meaning set forth in Section 10.04(a)
“Seller Fundamental Representations” has the meaning set forth in Section 10.01.
“Seller Indemnifying Party” has the meaning set forth in Section 10.02.
“Seller Indemnitees” has the meaning set forth in Section 10.03.
8
“Shareholder Approval” has the meaning set forth in Section 4.02(b).
“Shareholder Indemnity Liability” has the meaning set forth in Section 10.06.
“Special Meeting” has the meaning set forth in Section 7.17(a).
“Special Representations” has the meaning set forth in Section 10.01.
“Subsidiary” has the meaning set forth in Section 4.05.
“Tangible Personal Property” has the meaning set forth in Section 2.01(f).
“Taxes” means all federal, state, local, foreign and other income, gross receipts, sales, use, production, ad valorem, transfer, documentary, franchise, registration, profits, license, lease, service, service use, withholding, payroll, employment, unemployment, estimated, excise, severance, environmental, stamp, occupation, premium, property (real or personal), real property gains, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.
“Tax Return” means any return, declaration, report, claim for refund, information return or statement or other document relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
“Territory” means any country that the Seller Entities are conducting the Business as of the Closing Date and any country that the Seller Entities conducted the Business in the 3 years prior to the Closing Date.
“Third Party Claim” has the meaning set forth in Section 10.05(a).
“Transaction Documents” means this Agreement, the Escrow Agreement, the Bill of Sale, the Assignment and Assumption Agreement, Intellectual Property Assignment, Assignment and Assumption of Leases and the other agreements, instruments and documents required to be delivered at the Closing.
“Transaction Expenses” has the meaning set forth in Section 4.07.
“Transferred Employees” has the meaning set forth in Section 7.06(e).
“Union” has the meaning set forth in Section 4.22(b).
“WARN Act” means the federal Worker Adjustment and Retraining Notification Act of 1988, and similar state, local and foreign laws related to plant closings, relocations, mass layoffs and employment losses.
ARTICLE II
ASSETS AND LIABILITIES
Section 2.01 Purchase and Sale of Assets. Subject to the terms and conditions set forth herein, at the Closing, the Seller Entities shall sell, assign, transfer, convey and deliver to Buyer, and Buyer shall purchase from the Seller Entities, free and clear of any Encumbrances other than Permitted Encumbrances, all of the Seller Entities’ right, title and interest in, to and under all of
9
the assets, properties and rights of every kind and nature, whether real, personal or mixed, tangible or intangible (including goodwill), wherever located and whether now existing or hereafter, which relate to, or are used or held for use in connection with, the Business (other than the Excluded Assets) (collectively, the “Purchased Assets”), including the following:
(a) all accounts or notes receivable held by any Seller Entity, and any security, claim, remedy or other right related to any of the foregoing (“Accounts Receivable”);
(b) all inventory, finished goods, raw materials, work in progress, packaging, supplies, parts and other inventories (“Inventory”);
(c) all Contracts (i) by which any of the Purchased Assets are bound or affected or (ii) to which any Seller Entity is a party or by which it is bound in connection with the Business or the Purchased Assets, in each case, other than the Excluded Contracts (the “Assigned Contracts”);
(d) all software, computer programs or data in computerized form (whether in object code, source code or other form) licensed to the Seller Entities;
(e) all Intellectual Property Assets;
(f) all furniture, fixtures, equipment, machinery, tools, vehicles, office equipment, supplies, computers, telephones and other tangible personal property (the “Tangible Personal Property”);
(g) all Leased Real Property;
(h) all Permits, including Environmental Permits, including those listed on Section 4.19(b) and Section 4.20(b) of the Disclosure Schedules;
(i) all rights to any Actions of any nature available to or being pursued by any Seller Entity to the extent related to the Business, the Purchased Assets or the Assumed Liabilities, whether arising by way of counterclaim or otherwise;
(j) all prepaid expenses, credits, advance payments, claims, security, refunds, rights of recovery, rights of set-off, rights of recoupment, deposits, charges, sums and fees (including any such item relating to the payment of Taxes);
(k) all of the Seller Entities’ rights under warranties, indemnities and all similar rights against third parties to the extent related to any Purchased Assets;
(l) all insurance benefits, including rights and proceeds, arising from or relating to the Business, the Purchased Assets or the Assumed Liabilities;
(m) originals, or where not available, copies of all books and records, including, but not limited to, books of account, ledgers and general, financial and accounting records, machinery and equipment maintenance files, customer lists, customer purchasing histories, price lists, distribution lists, supplier lists, production data, quality control records and procedures, customer complaints and inquiry files, research and development files, records and data (including all correspondence with any Governmental Authority), sales material and records
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(including pricing history, total sales, terms and conditions of sale, sales and pricing policies and practices), strategic plans, internal financial statements, marketing and promotional surveys, material and research and intellectual property files relating to the Intellectual Property Assets and the Intellectual Property Licenses, whether in written or electronic form (“Books and Records”); and
(n) all goodwill and the going concern value of the Business.
Section 2.02 Excluded Assets. Notwithstanding the foregoing, the Purchased Assets shall not include the following assets (collectively, the “Excluded Assets”):
(a) all cash and cash equivalents;
(b) all Contracts set forth on Section 2.02(b) of the Disclosure Schedules (the “Excluded Contracts”);
(c) the corporate seals, organizational documents, minute books, stock books, Tax Returns, books of account or other records having to do with the corporate organization of the Seller Entities;
(d) all Subsidiaries of the Seller Entities;
(e) all Benefit Plans and assets attributable thereto;
(f) the assets, properties and rights specifically set forth on Section 2.02(f) of the Disclosure Schedules; and
(g) the rights which accrue or will accrue to the Seller Entities under the Transaction Documents.
Section 2.03 Assumed Liabilities. Subject to the terms and conditions set forth herein, Buyer shall assume and agree to pay, perform and discharge only the following Liabilities of the Seller Entities (collectively, the “Assumed Liabilities”), and no other Liabilities:
(a) all trade accounts payable to third parties by the Seller Entities in connection with the Business that remain unpaid as of the Closing Date and that either are reflected on the Interim Balance Sheet Date or arose in the ordinary course of business consistent with past practice since the Interim Balance Sheet Date (to the extent such liabilities will be set forth in the Estimated Balance Sheet and the Final Balance Sheet);
(b) all Liabilities in respect of the Assigned Contracts, including customer deposits and accrued expenses, but only to the extent that such Liabilities thereunder are required to be performed after the Closing Date, were incurred in the ordinary course of business, and do not relate to any failure to perform, improper performance, warranty or other breach, default or violation by any Seller Entity on or prior to the Closing;
(c) Liabilities of the Seller Entities to the Transferred Employees (i) for accrued vacation set forth in Section 2.03(c) of the Disclosure Schedules, and (ii) to the extent included in the calculation of Closing Working Capital, claims for wages and benefits as of the Closing Date; and
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(d) those Liabilities of the Seller Entities set forth on Section 2.03(d) of the Disclosure Schedules.
Section 2.04 Excluded Liabilities. Notwithstanding the provisions of Section 2.03 or any other provision in this Agreement to the contrary, Buyer shall not assume and shall not be responsible to pay, perform or discharge any Liabilities of the Seller Entities or any of their Affiliates of any kind or nature whatsoever other than the Assumed Liabilities (the “Excluded Liabilities”). The Seller Entities shall, and shall cause each of their Affiliates to, pay and satisfy in due course all Excluded Liabilities which they are obligated to pay and satisfy. Without limiting the generality of the foregoing, the Excluded Liabilities shall include, but not be limited to, the following:
(a) any Liabilities of the Seller Entities arising or incurred in connection with the negotiation, preparation, investigation and performance of this Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby, including the Transaction Expenses;
(b) any Liability for (i) Taxes of the Seller Entities (or any stockholder or Affiliate of the Seller Entities) or relating to the Business, the Purchased Assets or the Assumed Liabilities for any Pre-Closing Tax Period; (ii) Taxes that arise out of the consummation of the transactions contemplated hereby or that are the responsibility of the Seller Entities pursuant to this Agreement; or (iii) other Taxes of the Seller Entities (or any stockholder or Affiliate of the Seller Entities) of any kind or description (including any Liability for Taxes of the Seller Entities (or any stockholder or Affiliate of the Seller Entities) that becomes a Liability of Buyer under any common law doctrine of de facto merger or transferee or successor liability or otherwise by operation of contract or Law);
(c) any Liabilities relating to or arising out of the Excluded Assets;
(d) any Liabilities in respect of any pending or threatened Action arising out of, relating to or otherwise in respect of the operation of the Business or the Purchased Assets to the extent such Action relates to such operation on or prior to the Closing Date;
(e) any product Liability or similar claim for injury to a Person or property which arises out of or is based upon any express or implied representation, warranty, agreement or guaranty made by any Seller Entity, or by reason of the improper performance or malfunctioning of a product, improper design or manufacture, failure to adequately package, label or warn of hazards or other related product defects of any products at any time manufactured or sold or any service performed by, or under contract with, any Seller Entity;
(f) any recall, design defect or similar claims of any products manufactured or sold or any service performed by any Seller Entity;
(g) any Liabilities of any Seller Entity arising under or in connection with any Benefit Plan providing benefits to any present or former employee of any Seller Entity;
(h) any Liabilities of any Seller Entity (to the extent not explicitly assumed pursuant to Section 2.03) to or for any present or former employees, officers, directors, retirees,
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independent contractors or consultants of any Seller Entity (except as explicitly set forth in the Employment Arrangements), including any Liabilities associated with any claims for wages or other benefits, bonuses, accrued vacation, workers’ compensation, severance, retention, termination or other payments, including claims for deferred compensation to the Principal Executives;
(i) any Environmental Claims, or Liabilities under Environmental Laws, to the extent arising out of or relating to facts, circumstances or conditions existing on or prior to the Closing or otherwise to the extent arising out of any actions or omissions of any Seller Entity;
(j) any trade accounts payable of any Seller Entity (i) to the extent not accounted for on the Interim Balance Sheet, the Estimated Balance Sheet or the Final Balance Sheet; (ii) which constitute intercompany payables owing to Affiliates of any Seller Entity; (iii) which constitute debt, loans or credit facilities to financial institutions; or (iv) which did not arise in the ordinary course of business;
(k) any Liabilities of the Business relating or arising from unfulfilled commitments, quotations, purchase orders, customer orders or work orders that (i) do not constitute part of the Purchased Assets issued by the Business’ customers to any Seller Entity on or before the Closing; (ii) did not arise in the ordinary course of business; or (iii) are not validly and effectively assigned to Buyer pursuant to this Agreement;
(l) any Liabilities to indemnify, reimburse or advance amounts to any present or former officer, director, employee or agent of any Seller Entity (including with respect to any breach of fiduciary obligations by same), except for indemnification of same pursuant to Section 10.03 as Seller Indemnitees;
(m) any Liabilities under the Excluded Contracts or any other Contracts, including Intellectual Property Licenses, (i) which are not validly and effectively assigned to Buyer pursuant to this Agreement; (ii) which do not conform to the representations and warranties with respect thereto contained in this Agreement; or (iii) to the extent such Liabilities arise out of or relate to a breach by any Seller Entity of such Contracts prior to Closing;
(n) any Liabilities associated with indebtedness for borrowed money, loans or credit facilities of any Seller Entity and/or the Business regardless of whether outstanding, contractually committed or otherwise, and regardless of owing to a financial institution or any other Person; and
(o) any Liabilities arising out of, in respect of or in connection with the failure by any Seller Entity or any of their Affiliates to comply with any Law or Governmental Order.
Section 2.05 Third Party Consents. To the extent that a Seller Entity’s rights under any Contract or Permit constituting a Purchased Asset, or any other Purchased Asset, may not be assigned to Buyer without the consent of another Person which has not been obtained, this Agreement shall not constitute an agreement to assign the same if an attempted assignment would constitute a breach thereof or be unlawful, and the Seller Entities, at their expense, shall use their reasonable best efforts to obtain any such required consent(s) as promptly as possible. If any such consent shall not be obtained or if any attempted assignment would be ineffective or
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would impair Buyer’s rights under the Purchased Asset in question so that Buyer would not in effect acquire the benefit of all such rights, the Seller Entities, to the maximum extent permitted by law and the Purchased Asset, shall act after the Closing as Buyer’s agents in order to obtain for it the benefits thereunder and shall cooperate, to the maximum extent permitted by Law and the Purchased Asset, with Buyer in any other reasonable arrangement designed to provide such benefits to Buyer. Notwithstanding any provision in this Section 2.05 to the contrary, Buyer shall not be deemed to have waived its rights under Section 3.01(b)(iv)(I) hereof unless and until Buyer provides written waivers thereof.
ARTICLE III
CLOSING; PURCHASE PRICE
Section 3.01 Closing.
(a) Subject to the terms and conditions of this Agreement, the consummation of the transactions contemplated by this Agreement (the “Closing”) shall take place at the Minneapolis offices of Dorsey & Whitney on the third Business Day following the satisfaction or waiver (to the extent permitted by applicable Law) of the conditions set forth in Article VIII (other than those conditions that by their terms are to be satisfied at Closing, but subject to such satisfaction or waiver), or at such other time and place as the parties mutually agree in writing. Such date is herein referred to as the “Closing Date.”
(b) At the Closing:
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(i) Buyer shall pay the Estimated Purchase Price, less the Escrow Amount and less the Indebtedness, by wire transfer of immediately available funds to Seller; |
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(ii) Seller and Buyer shall each execute the Escrow Agreement and Buyer shall deliver the Escrow Amount (which amount, as reduced from time to time through distributions and increased from time to time by dividends and earnings in accordance with the Escrow Agreement, is hereinafter referred to as the “Escrow Fund”), by wire transfer of immediately available funds, to the Escrow Agent on behalf of Seller; |
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(iii) Buyer shall pay (or cause to be paid), by wire transfer of immediately available funds the Indebtedness, if any, in accordance with pay off letters provided by Seller with respect to such Indebtedness prior to the Closing Date; |
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(iv) Seller shall deliver to Buyer: |
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(A) a bill of sale in substantially the form attached hereto as Exhibit C (the “Bill of Sale”) and duly executed by each Seller Entity, transferring the tangible personal property included in the Purchased Assets to Buyer; |
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(B) an assignment and assumption agreement in substantially the form attached hereto as Exhibit D (the “Assignment and Assumption Agreement”) and duly executed by each Seller Entity, effecting the |
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assignment to and assumption by Buyer of the Purchased Assets and the Assumed Liabilities; |
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(C) an assignments in substantially the form attached hereto as Exhibit E (the “Intellectual Property Assignments”) and duly executed by the applicable Seller Entity, transferring all of such Seller Entity’s right, title and interest in and to the Intellectual Property Assets to Buyer; |
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(D) with respect to each Lease, an Assignment and Assumption of Lease in substantially the form attached hereto as Exhibit F (each, an “Assignment and Assumption of Lease”) and duly executed by the applicable Seller Entity; |
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(E) Buyer’s standard form of invention assignment agreement, duly executed by each Transferred Employee; |
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(F) a certificate, dated as of the Closing Date, of the Secretary or corollary executive officer of each Seller Entity certifying (1) that attached thereto is a complete and correct copy of the certificate of incorporation and bylaws for such Seller Entity, as amended to date, a complete and correct copy of resolutions adopted by the board of directors and the stockholders of such Seller Entity authorizing the execution, delivery and performance of this Agreement and all other Transaction Documents and the consummation of the transactions contemplated hereunder and thereunder, and that such certificate of incorporation, bylaws and resolutions have not been amended or modified in any respect and remain in full force and effect as of the date hereof, and (2) the incumbency and specimen signature with respect to the officers of each Seller Entity executing this Agreement and any other Transaction Documents; |
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(G) evidence, in form and substance reasonably satisfactory to Buyer, of the release of all Encumbrances on the Purchased Assets other than Permitted Encumbrances and Encumbrances referenced in the payoff letters evidencing the aggregate amount of Indebtedness outstanding as of the Closing Date (including any interest accrued thereon and any prepayment or similar penalties and expenses associated with the payment of such Indebtedness on the Closing Date) and an agreement that, if such aggregate amount so identified is paid in accordance with such payoff letters on the Closing Date, such Indebtedness shall be repaid in full and that all Encumbrances shall be released; |
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(H) evidence, in form and substance reasonably satisfactory to Buyer, that all payables of each Seller Entity to any of such Seller Entity’s Affiliates, directors, employees, officers or stockholders and any of their respective Affiliates have been satisfied and repaid in full; |
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(I) executed counterparts of all approvals, consents and waivers that are listed on Section 4.03; |
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(J) executed copies of releases, in a form reasonably acceptable to Buyer, from each Principal Executive, releasing Seller from all liability for any deferred compensation (including salary, severance and vacation pay); |
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(K) a certificate pursuant to Treasury Regulations Section 1.1445-2(b) that no Seller Entity is a foreign person within the meaning of Section 1445 of the Code duly executed by each Seller Entity; and |
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(L) such other customary instruments of transfer, assumption, filings or documents, in form and substance reasonably satisfactory to Buyer, as may be required to give effect to this Agreement. |
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(v) At the Closing, Buyer shall deliver to Seller the following: |
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(A) the Assignment and Assumption Agreement duly executed by Buyer; |
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(B) with respect to each Lease, an Assignment and Assumption of Lease duly executed by Buyer; and |
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(C) such other customary instruments of transfer, assumption, filings or documents, in form and substance reasonably satisfactory to Seller, as may be required to give effect to this Agreement. |
Section 3.02 Purchase Price.
(a) On the terms and subject to the conditions of this Agreement, the total purchase price to be paid by Buyer for the Purchased Assets shall be $2,650,000, as adjusted as set forth in Section 3.02(b) and in accordance with Section 3.03 (the “Purchase Price”), plus the assumption of the Assumed Liabilities.
(b) The Purchase Price specified in Section 3.02(a) shall be adjusted as follows (the “Adjustments”):
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(i) if the Closing Working Capital is less than $2,225,000, such Purchase Price shall be reduced by the dollar amount by which the Closing Working Capital is less than $2,225,000; and |
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(ii) if the Closing Working Capital is greater than $2,250,000, such Purchase Price shall be increased by the dollar amount by which the Closing Working Capital is more than $2,225,000. |
Section 3.03 Purchase Price Adjustment.
(a) Pre-Closing Adjustment. At least three (3) Business Days prior to the anticipated Closing Date, Seller shall prepare and deliver to Buyer (A) an estimated consolidated balance sheet for the Business as of immediately prior to the Closing (the “Estimated Balance Sheet”), (B) a schedule (the “Estimated Schedule”) which sets forth, in reasonable detail, a good faith estimate of each of the Adjustments and a calculation of the Purchase Price based on the
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foregoing (the “Estimated Purchase Price”), and (C) a certificate executed by the Chief Financial Officer of Seller certifying the foregoing good faith estimates.
(b) Post-Closing Adjustment.
(i) As soon as reasonably practicable, but in no event later than ninety (90) days after the Closing Date, Buyer shall prepare and cause to be delivered to the Seller its calculation of the Purchase Price after giving effect to the Adjustments (the “Final Purchase Price”), setting forth, in reasonable detail, a good faith calculation, as of immediately prior to the Closing, of the final amounts for each of the Adjustments set forth in Section 3.02(b), and (ii) a consolidated balance sheet for the Business as of immediately prior to the Closing (the “Final Balance Sheet”).
(ii) The Final Balance Sheet shall be prepared, and all of the Adjustments (and the individual elements thereof, as applicable) used to calculate the Final Purchase Price shall be determined, in accordance with GAAP, and on a basis consistent with the accounting methods, practices and procedures used to prepare the Annual Financial Statements for Seller’s fiscal year ended December 31, 2012 insofar as such practices are consistent with GAAP (including appropriate closing adjustments, as if the Closing were at a fiscal year end), subject to the terms and conditions of this Agreement.
(iii) If the Estimated Purchase Price is greater than the Final Purchase Price, the Purchase Price shall be adjusted downward dollar-for-dollar and Seller shall pay to Buyer the amount of such reduction, and (B) if the Estimated Purchase Price is less than the Final Purchase Price, the Purchase Price shall be adjusted upward dollar-for-dollar and Buyer shall pay to Seller the amount of such increase (each a “Post-Closing Adjustment”). Any Post-Closing Adjustment shall be paid by wire transfer of immediately available funds to an account designated by the party receiving payment within three (3) Business Days after the final determination of the amount of such reduction or increase in the Purchase Price in accordance with this Section 3.03; provided, however, that Buyer may, at its sole discretion, elect to recover the amount of any such shortfall from either the Escrow Fund or directly from the Seller Entities.
(iv) Upon receipt of the Final Balance Sheet and calculation of the Final Purchase Price, Seller and its accountants (subject to reasonable confidentiality restrictions) shall be permitted during the succeeding thirty (30) day period (the “Review Period”) reasonable access, upon reasonable notice, to the books and records of Buyer and any documents, schedules or workpapers used by Buyer in the preparation of the Final Balance Sheet and in calculating the Final Purchase Price.
(v) If Seller disagrees with the calculation of the Final Purchase Price, on or prior to the last day of the Review Period, Seller shall notify Buyer in writing of such disagreement with the calculation of the Final Purchase Price, which notice shall set forth any such disagreement in reasonable detail, the specific item of the calculation in the Final Purchase Price to which such disagreement relates and the specific (and
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reasonable) basis for each such disagreement (the “Objection Notice”). If Seller fails to deliver the Objection Notice within the Review Period, Buyer’s calculation of the Final Purchase Price shall be deemed to have been accepted by Seller and shall be final and binding and used in computing the Post-Closing Adjustment. If Seller delivers the Objection Notice within the Review Period, subject to Section 3.03(b)(vi) below, Buyer and Seller shall negotiate in good faith to resolve any such disagreement, and any resolution agreed to in writing by Buyer and Seller shall be final and binding upon the parties hereto.
(vi) If Buyer and the Seller are unable to resolve any disagreement as contemplated by Section 3.03(b)(v) within 30 days after delivery of the Objection Notice, then Buyer and Seller shall submit the matter for resolution to CliftonLarsonAllen LLP or, if CliftonLarsonAllen LLP refuses to accept such appointment, another mutually agreeable independent accounting firm (the “Independent Auditor”), who shall, acting as experts and not as arbitrators, resolve the dispute set forth in the Objection Notice. The fees, costs and expenses of the Independent Auditor shall be borne by the parties in proportion to the relative amount each party’s determination has been modified. For example, if Seller challenges the calculation of the Final Purchase Price by an amount of $100,000, but the Independent Auditor determines that Seller has a valid claim for only $40,000, Buyer shall bear forty percent (40%) of the fees and expenses of the Independent Auditor and Seller shall bear the other sixty (60%) of such fees and expenses.
(vii) The parties shall instruct the Independent Auditor to consider only those items and amounts which are identified in the Objection Notice as being items which Buyer and Seller are unable to resolve. Further, the Independent Auditor’s determination shall be based solely on the relevant work papers and books and records relating to the Seller Entities and the written information provided by Buyer and Seller, which are in accordance with the terms and procedures set forth in this Agreement (i.e., not on the basis of an independent review), and the Independent Auditor shall not conduct additional discovery in any form.
(viii) The parties shall jointly instruct the Independent Auditor to make a determination as soon as practicable within thirty (30) days (or such other time as the parties hereto shall agree in writing) after its engagement (i) whether or not the Final Balance Sheet and the Final Purchase Price was calculated in accordance with the terms of this Agreement or, alternatively, (ii) only with respect to the disputed items submitted to the Independent Auditor, to what extent (if any) the Final Purchase Price requires adjustment. The Independent Auditor shall provide the parties with a written explanation in reasonable detail of each such required adjustment, including the basis therefor. All negotiations pursuant to this Section 3.03(b) shall be treated as compromise and settlement negotiations for purposes of Rule 408 of the Federal Rules of Evidence and comparable state rules of evidence, and all negotiations and submissions to the Independent Auditor shall be treated as confidential information. The Independent Auditor shall be bound by a mutually agreeable confidentiality agreement. The
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procedures of this Section 3.03(b) are exclusive and, except as set forth below, the determination of the Independent Auditor shall be final and binding on the parties. The decision rendered pursuant to this Section 3.03(b)(viii) may be filed as a judgment in any court of competent jurisdiction. Either party may seek specific enforcement or take other necessary legal action to enforce any decision under this Section 3.03(b)(viii). The other party’s only defense to such a request for specific enforcement or other legal action shall be fraud by or upon the Independent Auditor. Absent such fraud, such other party shall reimburse the party seeking enforcement for its expenses related to such enforcement.
(c) Adjustments for Tax Purposes. Any payments made pursuant to Section 3.03 shall be treated as an adjustment to the Purchase Price by the parties for Tax purposes, unless otherwise required by Law.
Section 3.04 Allocation of Purchase Price. The Seller Entities and Buyer agree that the Purchase Price and the Assumed Liabilities (plus other relevant items) shall be allocated among the Purchased Assets for all purposes (including Tax and financial accounting) as shown on the allocation schedule attached hereto as Exhibit G (the “Allocation Schedule”). Any adjustments to the Purchase Price pursuant to Section 3.03 herein shall be allocated in a manner consistent with the Allocation Schedule.
Section 3.05 Withholding Tax. Buyer shall be entitled to deduct and withhold from the Purchase Price all Taxes that Buyer may be required to deduct and withhold under any provision of Tax Law. All such withheld amounts shall be treated as delivered to Seller hereunder.
Except as set forth in the correspondingly numbered Section of the Disclosure Schedules, the Seller Entities represent and warrant to Buyer that the statements contained in this Article IV are true and correct as of the date hereof.
Section 4.01 Organization and Qualification of Seller Entities. Each Seller Entity is a corporation duly organized, validly existing and in good standing under the Laws of the state of its incorporation. Each Seller Entity has full corporate power and authority to own, operate or lease the properties and assets now owned, operated or leased by it and to carry on the Business as currently conducted. Section 4.01 of the Disclosure Schedules sets forth each jurisdiction in which Each Seller Entity is licensed or qualified to do business, and each Seller Entity is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the ownership of the Purchased Assets or the operation of the Business as currently conducted makes such licensing or qualification necessary, except such jurisdictions where failure to be so qualified would not, individually or in the aggregate, have a Material Adverse Effect..
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Section 4.02 Authority of Seller Entities.
(a) Seller has full corporate power and authority to enter into this Agreement and the other Transaction Documents to which it is a party, and, subject to receipt of the Shareholder Approval, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Seller of this Agreement and any other Transaction Document to which it is a party, the performance by Seller of its obligations hereunder and thereunder and the consummation by Seller of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of Seller, except for sending notices to shareholders of Seller pertaining to the exercise of dissenters’ rights under Minnesota Business Corporation Act (the “MBCA”) and receipt of the Shareholder Approval. The board of directors of Seller has unanimously determined that the transactions contemplated by this Agreement are in the best interests of Seller and its shareholders, has approved, in accordance with Section 661 of the MBCA, this Agreement and declared its advisability, and has unanimously recommended that the shareholders of Seller adopt this Agreement and approve the transactions contemplated hereby and such approval has not been amended, rescinded or modified.
(b) The sole required approval of the shareholders of Seller of this Agreement and the transactions contemplated hereby is the approval of the holders of at least a majority of the outstanding shares of Common Shares and Series A Preferred Shares voting together as a single class (the “Shareholder Approval”).
(c) Each Seller Entity other than Seller has full corporate power and authority to enter into this Agreement and the other Transaction Documents to which it is a party, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by each Seller Entity other than Seller of this Agreement and any other Transaction Document to which it is a party, the performance by each Seller Entity other than Seller of its obligations hereunder and thereunder and the consummation by each Seller Entity other than Seller of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of such Seller Entity.
(d) This Agreement has been duly executed and delivered by each Seller Entity, and (assuming due authorization, execution and delivery by Buyer) this Agreement constitutes a legal, valid and binding obligation of such Seller Entity enforceable against such Seller Entity in accordance with its terms. When each other Transaction Document to which each Seller Entity is or will be a party has been duly executed and delivered by such Seller Entity (assuming due authorization, execution and delivery by each other party thereto), such Transaction Document will constitute a legal and binding obligation of such Seller Entity enforceable against it in accordance with its terms.
Section 4.03 No Conflicts; Consents. The execution, delivery and performance by each Seller Entity of this Agreement and the other Transaction Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (a) conflict with or result in a violation or breach of, or default under, any provision of the certificate
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of incorporation, bylaws or other organizational documents of such Seller Entity; (b) conflict with or result in a violation or breach of any provision of any Law or Governmental Order applicable to such Seller Entity, the Business or the Purchased Assets; (c) except as set forth in Section 4.03 of the Disclosure Schedules, require the consent of, notice to, or other action by any Person under, conflict with, result in a violation or breach of, constitute a default or an event that, with or without notice or lapse of time or both, would constitute a default under, result in the acceleration of or create in any party the right to accelerate, terminate, modify or cancel any Contract or Permit to which such Seller Entity is a party or by which such Seller Entity or the Business is bound or to which any of the Purchased Assets are subject (including any Assigned Contract); or (d) result in the creation or imposition of any Encumbrance other than Permitted Encumbrances on the Purchased Assets. No consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to any Seller Entity in connection with the execution and delivery of this Agreement or any of the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby.
Section 4.04 Capitalization of Seller. The authorized capital stock of Seller consists of 25,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock, of which 20,938,566 shares of Common Stock and 2,000 shares of Preferred Stock are issued and outstanding. Seller has no other securities outstanding that would be entitled to vote on the approval of transactions contemplated by this Agreement. The beneficial and record ownership of the issued and outstanding capital stock of Seller is set forth in Section 4.04 of the Disclosure Schedule.
Section 4.05 No Subsidiaries. Except as set forth in Section 4.05 of the Disclosure Schedules, no Seller Entity owns, has any interest in any shares of, or has an ownership interest in, any other Person (all such Persons listed in Section 4.05, the “Subsidiaries”). Except for GKS and 3D Scanning, neither the Subsidiaries, nor any assets of operations of the Subsidiaries, are used in or necessary for the operation of the Business
Section 4.06 Financial Statements. Complete copies of the financial statements consisting of the balance sheet of the Business as at December 31 in each of the years 2012, 2011 and 2010 and the related statements of income and retained earnings, stockholders’ equity and cash flow for the years then ended, with the accountant’s review report thereto (the “Annual Financial Statements”), and unaudited financial statements consisting of the balance sheet of the Business as at November 30, 2013 and the related statements of income and retained earnings and cash flow for the eleven-month period then ended (the “Interim Financial Statements” and together with the Annual Financial Statements, the “Financial Statements”) have been delivered to Buyer. The Financial Statements (x) were prepared in accordance with GAAP (except as noted in the Accountant’s review report thereto) applied on a consistent basis for the periods involved, and (y) present fairly, in all material respects, the consolidated financial condition of the Seller Entities as of the dates thereof and the results of operations and cash flows for the periods then ended, except that the Interim Financial Statements do not contain footnotes and are
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subject to normal year-end adjustments that will not be material in amount or effect, either individually or in the aggregate. The Financial Statements have been prepared from, and are in accordance with, the books and records of the Seller Entities, which books and records are complete and correct in all material respects and have been regularly kept and maintained in accordance with the Seller Entities’ normal and customary practices. The balance sheet of the Business as of December 31, 2012 is referred to herein as the “Balance Sheet” and the date thereof as the “Balance Sheet Date” and the balance sheet of the Business as of November 30, 2013 is referred to herein as the “Interim Balance Sheet” and the date thereof as the “Interim Balance Sheet Date”. The Seller Entities maintain a standard system of accounting for the Business established and administered in accordance with GAAP (except as noted above).
Section 4.07 Undisclosed Liabilities. None of the Seller Entities has any obligations or liabilities (whether accrued or unaccrued, asserted or unasserted, known or unknown, matured or unmatured, absolute or contingent, or otherwise, and including liabilities as a guarantor or otherwise with respect to the obligations of others) except (a) those which are adequately reflected or reserved against in the Interim Financial Statements, (b) those which have been incurred in the ordinary course of business consistent with past practice since the Interim Balance Sheet Date (to the extent such liabilities will be set forth in the Estimated Balance Sheet and the Final Balance Sheet), (c) liabilities disclosed in Section 4.07 of the Disclosure Schedules and (d) the fees and expenses of or paid or payable by the Seller Entities in connection the Transaction Documents, including the fees and expenses of Soffer Charbonnet Law Group, PLLC and any other advisors engaged by the Seller Entities in connection with the transactions contemplated herein, which have not been paid as of immediately prior to the Closing (the “Transaction Expenses”).
Section 4.08 Absence of Certain Changes, Events and Conditions. Except as set forth in Section 4.08(a-t) of the Disclosure Schedules, since the Interim Balance Sheet Date there has not been any:
(a) event, occurrence or development that has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;
(b) declaration or payment of any dividends or distributions on or in respect of any of any Seller Entity’s capital stock or redemption, purchase or acquisition of any Seller Entity’s capital stock;
(c) amendment or restatement to the organizational documents of any Seller Entity;
(d) material change in any method of accounting or accounting practice for the Business, except as required by GAAP or as disclosed in the notes to the Financial Statements;
(e) material change in cash management practices and policies, practices and procedures with respect to collection of Accounts Receivable, establishment of reserves for uncollectible Accounts Receivable, accrual of Accounts Receivable, inventory control, prepayment of expenses, payment of trade accounts payable, accrual of other expenses, deferral of revenue and acceptance of customer deposits;
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(f) entry into any Contract that would constitute a Material Contract;
(g) incurrence, assumption or guarantee of any indebtedness for borrowed money in connection with the Business except unsecured current obligations and Liabilities incurred in the ordinary course of business consistent with past practice;
(h) transfer, assignment, sale or other disposition of any of the Purchased Assets shown or reflected in the Balance Sheet, except for the sale of Inventory in the ordinary course of business;
(i) cancellation of any debts or claims or amendment, termination or waiver of any rights constituting (or that would have constituted prior to such action) Purchased Assets;
(j) transfer, assignment or grant of any license or sublicense of any material rights under or with respect to any Intellectual Property Assets or Intellectual Property Licenses (or any assets or licenses that would have constituted Intellectual Property Assets or Intellectual Property Licenses prior to such action);
(k) material damage, destruction or loss, or any material interruption in use, of any Purchased Assets (or any assets that would have constituted Purchased Assets prior to such event), whether or not covered by insurance;
(l) acceleration, termination, material modification to or cancellation of any Assigned Contract or Permit (or any contract or permit that would have constituted an Assigned Contract or Permit prior to such action);
(m) material capital expenditures which would constitute an Assumed Liability;
(n) imposition of any Encumbrance upon any of the Purchased Assets;
(o) (i) grant of any bonuses, whether monetary or otherwise, or increase in any wages, salary, severance, pension or other compensation or benefits in respect of any employees, officers, directors, independent contractors or consultants of the Business, other than as provided for in any written agreements or required by applicable Law, (ii) change in the terms of employment for any employee of the Business or any termination of any employees for which the aggregate annual compensation (including salary, bonus and any other compensation) exceeds $10,000, or (iii) action to accelerate the vesting or payment of any compensation or benefit for any employee, officer, director, consultant or independent contractor of the Business;
(p) adoption, modification or termination of any: (i) employment, severance, retention or other agreement with an employee of the Business, (ii) Benefit Plan, or (iii) collective bargaining or other agreement with a Union, in each case whether written or oral;
(q) loans to (or forgiveness of any loan to), or entry into any other transaction with, any directors, officers or employees of the Business;
(r) adoption of any plan of merger, consolidation, reorganization, liquidation or dissolution or filing of a petition in bankruptcy under any provisions of federal or state bankruptcy Law or consent to the filing of any bankruptcy petition against it under any similar Law;
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(s) purchase, lease or other acquisition of the right to own, use or lease any property or assets in connection with the Business for an amount in excess of $10,000, individually or in the aggregate (in the case of a lease, for the entire term of the lease, not including any option term), except for purchases of Inventory or supplies in the ordinary course of business consistent with past practice;
(t) agreements or commitments to do any of the foregoing referred to in clauses (a) – (s).
Section 4.09 Material Contracts.
(a) Section 4.09(a) of the Disclosure Schedules sets forth, by applicable subsection, a correct and complete list of the following Contracts (x) by which any of the Purchased Assets are bound or affected or (y) to which any Seller Entity is a party or by which any Seller Entity is bound in connection with the Business or the Purchased Assets (hereinafter referred to as the “Material Contracts”):
(i) each Contract or group of related Contracts involving an annual commitment or annual payment by a Seller Entity of more than $25,000, individually or in the aggregate;
(ii) all Contracts that require any Seller Entity to purchase or sell a stated portion of the requirements or outputs of the Business or that contain “take or pay” provisions;
(iii) all Contracts that provide for the indemnification of any Person or the assumption of any Tax, environmental or other Liability of any Person;
(iv) all Contracts that relate to the acquisition or disposition of any business, a material amount of stock, equity or assets of any other Person or any real property (whether by merger, sale of stock, sale of assets or otherwise);
(v) all broker, distributor, dealer, manufacturer’s representative, franchise, agency, sales representative, sales promotion, market research, marketing consulting and advertising Contracts;
(vi) all employment Contracts and consulting Contracts;
(vii) except for Contracts relating to trade receivables, all Contracts relating to indebtedness (including guarantees);
(viii) all Contracts with any Governmental Authority;
(ix) all Contracts that limit or purport to limit the ability of any Seller Entity to compete in any line of business or with any Person or in any geographic area or during any period of time or that contain “most favored nations” or similar preferential pricing terms;
(x) all joint venture, partnership or similar Contracts;
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(xi) all Contracts between or among any Seller Entity on the one hand and any Shareholder, any other shareholder or Affiliate of any Seller Entity or any Affiliate of any such Person (other than such Seller Entity) on the other hand;
(xii) all Contracts for the sale of any of the Purchased Assets or for the grant to any Person of any option, right of first refusal or preferential or similar right to purchase any of the Purchased Assets;
(xiii) all powers of attorney with respect to the Business or any Purchased Asset;
(xiv) all collective bargaining agreements or Contracts with any Union;
(xv) all Intellectual Property Licenses;
(xvi) all licenses, sublicenses and other agreements pursuant to which any Seller Entity grants rights or authority to any Person with respect to any Intellectual Property;
(xvii) all Leases; and
(xviii) any other Contract that is material to any Seller Entity or the Business and not previously disclosed pursuant to this Section 4.09.
(b) Each Material Contract is valid, binding and enforceable against the applicable Seller Entity in accordance with its terms and is in full force and effect. No Seller Entity nor, to Seller’s Knowledge any other party thereto, is in breach of or default under (or is alleged to be in breach of or default under), or has provided or received any notice of breach or of any intention to terminate, any Material Contract. No event or circumstance has occurred that would constitute an event of default under any Material Contract or result in a termination thereof or would cause or permit the acceleration or other changes of any right or obligation or the loss of any benefit thereunder. No Seller Entity has any present expectation or intention of not fully performing any material obligation pursuant to any Material Contract in a manner that would result in a breach of such Material Contract. To Seller’s Knowledge, there is no anticipated material breach by any other party to any Material Contract. There are no material disputes pending or threatened under any Contract included in the Purchased Assets.
(c) Complete and correct copies of each Material Contract (including all modifications, amendments and supplements thereto and waivers thereunder) have been made available to Buyer.
Section 4.10 Title to Purchased Assets. The Seller Entities have good and valid title to, or a valid leasehold interest in, all of the Purchased Assets. All such Purchased Assets (including leasehold interests) are free and clear of Encumbrances except for the following (collectively referred to as “Permitted Encumbrances”):
(a) bank/lender liens set forth in Section 4.10(a) of the Disclosure Schedules, and carriers’, warehouseman’s, mechanics’, materialmen’s and repairmen’s liens which have arisen
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in the ordinary course and securing obligations incurred prior to the Closing Date that are not delinquent and that will be paid and discharged in the ordinary course of business;
(b) Encumbrances imposed or promulgated by Laws with respect to real property and improvements, including zoning regulations, that, singularly or in the aggregate, will not interfere with the ownership, use or operation of such real property; or
(c) Encumbrances for Taxes that are not yet due and payable.
Section 4.11 Condition and Sufficiency of Assets. The buildings, plants, structures, furniture, fixtures, machinery, equipment, vehicles and other items of tangible personal property included in the Purchased Assets are in good operating condition and repair, and are adequate for the uses to which they are being put, and none of such buildings, plants, structures, furniture, fixtures, machinery, equipment, vehicles and other items of tangible personal property is in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or cost. The Purchased Assets are sufficient for the continued conduct of the Business after the Closing in substantially the same manner as conducted prior to the Closing and constitute all of the rights, property and assets necessary to conduct the Business as currently conducted. None of the Excluded Assets are material to, or necessary for the conduct of, the Business.
Section 4.12 Real Property.
(a) No Seller Entity owns, nor has ever owned, any real property.
(b) Section 4.12(b) of the Disclosure Schedules sets forth each parcel of real property leased by any Seller Entity (together with all rights, title and interest of any Seller Entity in and to leasehold improvements relating thereto, including, but not limited to, security deposits, reserves or prepaid rents paid in connection therewith, collectively, the “Leased Real Property”), and a true and complete list of all leases, subleases, licenses, concessions and other agreements (whether written or oral), including all amendments, extensions renewals, guaranties and other agreements with respect thereto, pursuant to which any Seller Entity holds any Leased Real Property (collectively, the “Leases”). With respect to each Lease:
(i) the Seller Entities enjoy peaceful and undisturbed possession of the Leased Real Property;
(ii) no Seller Entity has subleased, assigned or otherwise granted to any Person the right to use or occupy such Leased Real Property or any portion thereof; and
(iii) no Seller Entity has pledged, mortgaged or otherwise granted an Encumbrance on its leasehold interest in any Leased Real Property.
(c) No Seller Entity has received any written notice of (i) violations of building codes and/or zoning ordinances or other governmental or regulatory Laws affecting the Leased Real Property, (ii) existing, pending or threatened condemnation proceedings affecting the Leased Real Property, or (iii) existing, pending or threatened zoning, building code or other moratorium
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proceedings, or similar matters which could reasonably be expected to adversely affect the ability to operate the Leased Real Property as currently operated. Neither the whole nor any material portion of any Leased Real Property has been damaged or destroyed by fire or other casualty.
(d) The Leased Real Property is sufficient for the continued conduct of the Business after the Closing in substantially the same manner as conducted prior to the Closing and constitutes all of the real property necessary to conduct the Business as currently conducted.
Section 4.13 Intellectual Property.
(a) Section 4.13(a) of the Disclosure Schedules lists all (i) Intellectual Property Registrations and (ii) Intellectual Property Assets that are not registered but that are used in or material to the operation of the Business, in each case stating the owner. All required filings and fees related to the Intellectual Property Registrations have been timely filed with and paid to the relevant Governmental Authorities and authorized registrars, and all Intellectual Property Registrations are otherwise in good standing. True and complete copies of file histories, documents, certificates, office actions, correspondence and other materials related to all Intellectual Property Registrations have been made available to Buyer.
(b) The Seller Entities exclusively own all right, title and interest in and to the Intellectual Property Assets, free and clear of Encumbrances, other than Permitted Encumbrances. Without limiting the generality of the foregoing, the Seller Entities have entered into binding, written agreements, each in substantially the form provided to Buyer, with every current and former employee of the Seller Entities, and with every current and former independent contractor, whereby such employees and independent contractors (i) assign to the Seller Entities any ownership interest and right they may have in the Intellectual Property Assets; and (ii) acknowledge the Seller Entities’ exclusive ownership of all Intellectual Property Assets. The Seller Entities are in full compliance with all legal requirements applicable to the Intellectual Property Assets and the Seller Entities’ ownership and use thereof.
(c) The Intellectual Property Assets and Intellectual Property Licenses as currently or formerly owned, licensed or used by the Seller Entities or proposed to be used by Buyer, and the conduct of the Business as currently and formerly conducted by the Seller Entities and proposed to be conducted by Buyer have not, do not and will not, to Seller’s Knowledge, infringe, violate or misappropriate the Intellectual Property of any Person. The Seller Entities have not received any communication, and no Action has been instituted, settled or, to Seller’s Knowledge, threatened that alleges any such infringement, violation or misappropriation, and none of the Intellectual Property are subject to any outstanding Governmental Order.
(d) To the Knowledge of Seller, no Person has infringed, violated or misappropriated, or is infringing, violating or misappropriating, any Intellectual Property Assets.
Section 4.14 Inventory. Except as set forth in Section 4.14 of the Disclosure Schedule, all Inventory, whether or not reflected in the Balance Sheet, consists of a quality and quantity usable and salable in the ordinary course of business consistent with past practice, except for obsolete, damaged, defective or slow-moving items that have been written off or written down to
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fair market value or for which adequate reserves have been established. All Inventory is owned by the Seller Entities free and clear of all Encumbrances, and no Inventory is held on a consignment basis. The quantities of each item of Inventory (whether raw materials, work-in-process or finished goods) are not excessive, but are reasonable in the present circumstances of the Seller Entities.
Section 4.15 Accounts Receivable. Except as set forth in the Interim Balance Sheet, the Accounts Receivable reflected on the Interim Balance Sheet (and when delivered, the Estimated Balance Sheet, and when finalized in accordance with Section 3.02(b), the Final Balance Sheet) (a) have arisen from bona fide transactions entered into by the Seller Entities involving the sale of goods or the rendering of services in the ordinary course of business consistent with past practice; (b) constitute only valid, undisputed claims of the Seller Entities not subject to claims of set-off or other defenses or counterclaims other than normal cash discounts accrued in the ordinary course of business consistent with past practice; and (c) subject to a reserve for bad debts shown on the Interim Balance Sheet (and when delivered, the Estimated Balance Sheet and when finalized in accordance with Section 3.02(b), the Final Balance Sheet) are collectible in full in accordance with their terms. The reserve for bad debts shown on the Interim Balance Sheet (and when delivered, the Estimated Balance Sheet, and when finalized in accordance with Section 3.02(b), the Final Balance Sheet) have been determined in accordance with GAAP (except as noted in Section 4.06), consistently applied, subject to normal year-end adjustments and the absence of disclosures normally made in footnotes.
Section 4.16 Customers and Suppliers.
(a) Section 4.16(a) of the Disclosure Schedules sets forth a true and complete list of the largest ten (10) customers of each Seller Entity during (i) the twelve (12) month period ended December 31, 2012, and (ii) the nine (9) month period ended September 30, 2013 together with the dollar amount of such goods and services purchased from such Seller Entity by such customers during such time period (collectively, the “Material Customers”).
(b) Section 4.16(b) of the Disclosure Schedules sets forth a true and complete list of the largest five (5) suppliers of goods or services to each Seller Entity during (i) the twelve (12) month period ended December 31, 2012 and (ii) the nine (9) month period ended September 30, 2013 together with the dollar amount of such goods and services purchased by such Seller Entity from such suppliers during each such time period (collectively, the “Material Suppliers”).
(c) No Material Customer or Material Suppler (x) has indicated that it will terminate, not renew, cancel or substantially decrease its business with the Business or (y) has asserted a claim or notice of breach or default in writing against any Seller Entity or any of their Affiliates.
Section 4.17 Insurance. Section 4.17 of the Disclosure Schedules sets forth (a) a true and complete list of all current policies or binders of fire, liability, product liability, umbrella liability, real and personal property, workers’ compensation, vehicular, fiduciary liability and other casualty and property insurance maintained by each Seller Entity, and all such policies or binders maintained by any Seller Entity’s Affiliates and relating to the Business, the Purchased
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Assets or the Assumed Liabilities (collectively, the “Insurance Policies”); and (b) with respect to the Business, the Purchased Assets or the Assumed Liabilities, a list of all pending claims and the claims history for the past three years. Except as set forth on Section 4.17 of the Disclosure Schedules, there are no claims of any Seller Entity or otherwise related to the Business, the Purchased Assets or the Assumed Liabilities pending under any of the Insurance Policies as to which coverage has been questioned, denied or disputed or in respect of which there is an outstanding reservation of rights. Neither any Seller Entity nor any of their Affiliates have received any written notice of cancellation of, premium increase with respect to, or alteration of coverage under, any of the Insurance Policies. All premiums due on the Insurance Policies have either been timely paid or, if not yet due, accrued. All the Insurance Policies (a) are in full force and effect and enforceable in accordance with their terms; (b) are provided by carriers who are financially solvent; and (c) have not been subject to any lapse in coverage. No Seller Entity nor, to Seller’s Knowledge, any of their Affiliates are in default under, or have otherwise failed to comply with, in any material respect, any provision contained in any of the Insurance Policy. The Insurance Policies are of the type and in the amounts customarily carried by Persons conducting a business similar to the Business and are sufficient for compliance with all applicable Laws and Contracts to which the Seller Entity or their Affiliates are party or by which they are bound. True and complete copies of the Insurance Policies have been made available to Buyer.
Section 4.18 Legal Proceedings; Governmental Orders.
(a) Except as set forth in Section 4.18(a) of the Disclosure Schedules, there are no Actions pending or, to Seller’s Knowledge, threatened against or otherwise affecting or involving the Seller Entities, the Business, the Purchased Assets or the Assumed Liabilities, or against any of the Seller Entities’ officers or directors. There are no such Actions pending or, to Seller’s Knowledge, threatened challenging the validity or enforceability of this Agreement. None of the Seller Entities are subject to any judgments, decrees, injunctions, required undertakings, corrective action plans or orders of any Governmental Authority.
Section 4.19 Compliance With Laws; Permits.
(a) Each Seller Entity has complied, and is now complying, in all material respects with all applicable Laws.
(b) Each Seller Entity has complied, and is now complying, with all applicable export control, import and trade embargo Laws in connection with any actual or proposed transaction
(c) All Permits required for the Seller Entities to conduct the Business as currently conducted or for the ownership and use of the Purchased Assets have been obtained by the Seller Entities and are valid and in full force and effect. All fees and charges with respect to such Permits as of the date hereof have been paid in full. Section 4.19(b) of the Disclosure Schedules lists all current Permits issued to the Seller Entities or any of their Affiliates which are related to the conduct of the Business as currently conducted or the ownership and use of the Purchased Assets, including Person holding such Permit, the names of the Permits and their respective dates of issuance and expiration. No event has occurred that, with or without notice or lapse of time or
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both, would reasonably be expected to result in the revocation, suspension, lapse or limitation of any Permit set forth in Section 4.19(b) of the Disclosure Schedules.
Section 4.20 Environmental Matters.
(a) Each Seller Entity has been, and currently is, in compliance in all material respects with all Environmental Laws. No Seller Entity nor any of their Affiliates has received from any Person any: (i) Environmental Notice or Environmental Claim; or (ii) written request for information pursuant to Environmental Law.
(b) Each Seller Entity has obtained and is in material compliance with all Environmental Permits (each of which is disclosed in Section 4.20(b) of the Disclosure Schedules) necessary for or used in the conduct of the Business as currently conducted or the ownership, lease, operation or use of the Purchased Assets and all such Environmental Permits are in full force and effect in accordance with Environmental Law, and to Seller’s Knowledge, no condition, event or circumstance exist that might prevent or impede, after the Closing Date, the conduct of the Business as currently conducted or the ownership, lease, operation or use of the Purchased Assets. With respect to any such Environmental Permits, each Seller Entity has undertaken all measures necessary to facilitate transferability of the same to Buyer, and, to Seller’s Knowledge, no condition, event or circumstance exist that might prevent or impede the transferability of the same to Buyer, nor has any Seller Entity received any Environmental Notice or written communication regarding any material adverse change in the status or terms and conditions of the same.
(c) None of the Business or the Purchased Assets, or to Seller’s Knowledge any real property currently or formerly leased or operated by a Seller Entity is listed on, or has been proposed for listing on, the National Priorities List (or CERCLIS) under CERCLA, or any similar state list.
(d) There has been no Release of Hazardous Materials by the Seller Entities in contravention of Environmental Law with respect to the Business or the Purchased Assets or, to Seller’s Knowledge, any real property currently or formerly leased or operated by a Seller Entity or used in the operation of the Business, and no Seller Entity has received an Environmental Notice that any of the Business or the Purchased Assets or real property currently or formerly leased or operated by a Seller Entity or used in the operation of the Business (including soils, groundwater, surface water, buildings and other structure located thereon) has been contaminated with any Hazardous Material which could reasonably be expected to result in an Environmental Claim against, or a violation of Environmental Law or term of any Environmental Permit by, a Seller Entity or any of their Affiliates.
(e) Section 4.20(e) of the Disclosure Schedules contains a complete and accurate list of all active or abandoned aboveground or underground storage tanks owned or operated by a Seller Entity or used in the Business and owned or operated by any of their Affiliates.
(f) Section 4.20(f) of the Disclosure Schedules contains a complete and accurate list of all off-site Hazardous Materials treatment, storage, or disposal facilities or locations used by a Seller Entity, any predecessors as to which a Seller Entity may retain liability or, with respect to
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the Business, any of the Seller Entities’ Affiliates, and none of these facilities or locations has been placed or proposed for placement on the National Priorities List (or CERCLIS) under CERCLA, or any similar state list, and no Seller Entity nor any of their Affiliates have received any Environmental Notice regarding potential liabilities with respect to such off-site Hazardous Materials treatment, storage, or disposal facilities or locations.
(g) No Seller Entity nor, with respect to the Business, any of their Affiliates has retained or assumed, by contract or operation of Law, any liabilities or obligations of third parties under Environmental Law.
(h) Seller has provided or otherwise made available to Buyer and listed in Section 4.20(h) of the Disclosure Schedules: (i) any and all environmental reports, studies, audits, records, sampling data, site assessments, risk assessments, economic models and other similar documents with respect to the Business or the Purchased Assets or any real property currently or formerly leased or operated by a Seller Entity or used in the operation of the Business which are in the possession or control of a Seller Entity related to compliance with Environmental Laws, Environmental Claims or an Environmental Notice or the Release of Hazardous Materials; and (ii) any and all material documents concerning planned or anticipated capital expenditures required to reduce, offset, limit or otherwise control pollution and/or emissions, manage waste or otherwise ensure compliance with current or future Environmental Laws (including costs of remediation, pollution control equipment and operational changes).
(i) To Seller’s Knowledge, no condition, event or circumstance exists concerning the Release or regulation of Hazardous Materials that might, after the Closing Date, prevent, impede or materially increase the costs associated with the ownership, lease, operation, performance or use of the Business or the Purchased Assets as currently carried out.
Section 4.21 Employee Benefit Matters. Except as set forth in Section 4.21 of the Disclosure Schedules,
(a) The Seller Entities and their ERISA Affiliates do not maintain or have any obligations under or liabilities with respect to an Employee Plan. An “Employee Plan” shall mean all plans and incentives (including those described under Section 3(3) of ERISA, Section 6039D of the Code, and all other arrangements (including, but without limitation, incentive, nonqualified, severance, and equity plans) intended to provide or providing benefits to any employee, former employee, director, or other individual performing services maintained by the Seller Entities or their ERISA Affiliates or to which they have any obligation or liability (even if they did not maintain such Employee Plan). An “ERISA Affiliate” shall mean any entity under common control (as described under Section 414(b), (c), (m), or (o) of the Code) with the Seller and any entity that may be responsible for a Liability under Title IV of ERISA.
(b) The Seller Entities and their ERISA Affiliates do not participate in, have not participated in during the last seven years, and have no obligation or Liability under a Multiemployer Plan. A “Multiemployer Plan” shall have the meaning provided under Section 3(37) of ERISA.
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(c) The Seller Entities and their ERISA Affiliates do not participate in, have not participated in during the last seven years, and have no obligation or Liability under a Multiple Employer Plan. A “Multiple Employer Plan” shall have the meanings provided under Section 413(c) of the Code or Section 3(40) of ERISA.
(d) The Seller Entities and their ERISA Affiliates have not (i) incurred or reasonably expect to incur any liability under ERISA, the Code, or any other applicable Law; (ii) incurred any withdrawal liability with respect to any Multiemployer Plan or Multiple Employer Plan; or (iii) engaged in any transaction which would give rise to liability under Title IV of ERISA.
(e) The Seller Entities and their ERISA Affiliates do not provide any post-termination or retiree health or welfare benefits other than as required under Section 601 et. seq. of ERISA.
Section 4.22 Employment Matters.
(a) The Seller Entities do not employ any common law employees. All individuals performing services for the Seller and Selling Entity are leased employees under a leased employee agreement with a third party. Section 4.22(a) of the Disclosure Schedules contains a list of all leased employees and all other individuals performing services for the Seller and Seller Entities in any capacity (as leased employee, independent contractor, or other capacity) and lists the following: (i) name; (ii) title or position (including approximate hours worked per week); (iii) date the individual started providing services; (iv) current rate of compensation paid to the individual or to a third party for the individual’s services. Except as set forth in Section 4.22(a) of the Disclosure Schedules, as of the date hereof, all amounts due with respect to all individuals performing services for the Seller Entities performed on or prior to the date hereof have been paid in full.
(b) No Seller Entity is, nor has been, a party to, bound by, or negotiating any collective bargaining agreement or other Contract with a union, works council or labor organization (collectively, “Union”), and there is not, and has not been, any Union representing or purporting to represent any employee of a Seller Entity, and, to Seller’s Knowledge, no Union or group of employees is seeking or has sought to organize employees for the purpose of collective bargaining. No Seller Entity has a duty to bargain with any Union.
(c) Except as set forth on Section 4.22(c) of the Disclosure Schedule, for the past six (6) years, the Seller Entities are and have been in compliance with all applicable laws regarding employment and employment practices, and those laws relating to terms and conditions of employment, wages and hours, and plant closing, occupational safety and health, collection and payment of withholding and/or social security Taxes and any similar Tax, labor relations, equal employment opportunities, fair employment practices, employment discrimination, harassment, retaliation, reasonable accommodation, disability rights or benefits, immigration, overtime compensation, child labor, hiring, promotion and termination of employees, working conditions, meal and break periods, privacy, health and safety, workers’ compensation, leaves of absence and unemployment insurance and workers’ compensation and is not engaged, nor has it engaged, in any unfair labor practices. Except as set forth on Section 4.22(c) of the Disclosure Schedule,
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for the past six (6) years, the Seller Entities do not have and have not had any (i) unfair labor practice charges or complaints pending or threatened against them before the National Labor Relations Board; (ii) labor grievances or arbitrations pending or threatened against them; (iii) charges pending or threatened against them before the Equal Employment Opportunity Commission or any state or local agency responsible for the investigation or prevention of unlawful employment practices; (iv) investigations, charges or claims made or pending or threatened against them by the Occupational Safety and Health Administration or any comparable state or local agency; (v) investigations, charges or claims made or pending or threatened against them by the United States Department of Labor or any other state or local agency with authority to investigate claims or charges in any way relating to hours of employment or wages; (vi) investigations, charges or claims made or pending or threatened against them by the Office of Federal Contract Compliance or any corresponding state agency; (vii) labor strike, slowdown, walk-out, lockout, or work stoppage that occurred or was threatened against it; and (viii) knowledge of the occurrence of any union organizational effort or representation petition.
Section 4.23 Taxes. Except as set forth in Section 4.23 of the Disclosure Schedules,
(a) All Tax Returns required to be filed by the Seller Entities for any Pre-Closing Tax Period have been timely filed. Such Tax Returns are true, complete and correct in all respects. All Taxes due and owing by the Seller Entities (whether or not shown on any Tax Return) have been timely paid.
(b) The Seller Entities have withheld and paid each Tax required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, customer, shareholder or other party, and complied with all information reporting and backup withholding provisions of applicable Law.
(c) No extensions or waivers of statutes of limitations have been given or requested with respect to any Taxes of the Seller Entities.
(d) All deficiencies asserted, or assessments made, against the Seller Entities as a result of any examinations by any taxing authority have been fully paid.
(e) No Seller Entity is a party to any Action by any taxing authority. There are no pending or threatened Actions by any taxing authority.
(f) There are no Encumbrances for Taxes upon any of the Purchased Assets nor is any taxing authority in the process of imposing any Encumbrances for Taxes on any of the Purchased Assets (other than for current Taxes not yet due and payable).
(g) No Seller Entity is a “foreign person” as that term is used in Treasury Regulations Section 1.1445-2.
(h) No Seller Entity is, nor has been, a party to, or a promoter of, a “reportable transaction” within the meaning of Section 6707A(c)(1) of the Code and Treasury Regulations Section 1.6011 4(b).
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Section 4.24 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement or any other Transaction Document based upon arrangements made by or on behalf of Seller.
Section 4.25 Questionable Payments.
(a) No Seller Entity nor any Subsidiaries (nor any of their respective officers and directors and, to Seller’s Knowledge, any employees, representatives, agents, consultants, or distributors), directly or indirectly: (i) has used or is using any funds for any illegal contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) has used or is using any funds for any direct or indirect unlawful payment to any foreign or domestic government official or employee; (iii) has violated or is violating any provision of, or any rule or regulation issued under, (A) the US Foreign Corrupt Practices Act of 1977, 15 U.S.C. §§ 78dd-1, et seq., (B) the US Travel Act, 18 U.S.C. § 1952, (C) any applicable Laws enacted in any applicable jurisdiction in connection with, or arising under, the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, or (D) any other law, rule, regulation, or other legally binding measure of any foreign or domestic jurisdiction of similar effect or that relates to bribery or corruption (collectively, “Anti-Bribery Laws”); (iv) has failed to maintain complete and accurate books and records as required by applicable Anti-Bribery Laws; (v) has established or maintained, or is maintaining, any unlawful fund of corporate monies or other properties; (vi) has made, offered to make, promised to make, ratified or authorized the payment or giving, directly or indirectly, of any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment, gift or anything of value to a foreign or domestic government official or employee to secure or attempt to secure any improper business advantage (within the meaning of such term under any applicable Anti-Bribery Law) or to obtain or retain business; or (vii) has otherwise taken any action that has caused, or would reasonably be expected to cause any Seller Entities or any Subsidiaries to be in violation of any applicable Anti-Bribery Law.
(b) The Seller Entities have instituted and maintain policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued compliance with Anti- Bribery Laws to which they or any of the Subsidiaries are subject.
(c) There is no Action pending or, to Seller’s Knowledge, threatened, against any Seller Entity or any of the Subsidiaries, that could reasonably be expected to result in any liability on the part of any Seller Entity or any Subsidiary under any Anti-Bribery Laws to which the Seller Entities or any Subsidiary is subject. None of the Seller Entities nor any Subsidiary (nor any of their respective directors, officers, executives, employees, agents, distributors, consultants or other representatives), is party to or otherwise subject to the terms of any Corporate Integrity Agreement, Non-prosecution Agreement, Deferred Prosecution Agreement or any other arrangement similar to any of the foregoing arising from or otherwise relating to any such Action.
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Section 4.26 Full Disclosure. No representation or warranty by Seller in this Agreement and no statement contained in the Disclosure Schedules to this Agreement or any certificate or other document furnished or to be furnished to Buyer pursuant to this Agreement contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances in which they are made, not misleading. Without limiting the generality of the foregoing, Seller Entities will not be deemed to have made to Buyer any representation or warranty other than as expressly made in this Article IV.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each Shareholder represents and warrants, on a joint and several basis, to Buyer that the statements contained in this Article V are true and correct as of the date hereof.
Section 5.01 Ownership. Such Shareholder owns, beneficially and of record, the number of shares of Seller set forth opposite such Shareholder’s name in Section 4.04 of the Disclosure Schedule, free and clear of any and all Encumbrances. Such shares represent the percentage of voting power set forth opposite such Shareholder’s name on Section 4.04 of the Disclosure Schedule.
Section 5.02 Organization and Qualification of Shareholder.
(a) Such Shareholder has all requisite power and authority to enter into this Agreement and the other Transaction Documents to which such Shareholder is a party, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby.
(b) The execution and delivery by such Shareholder of this Agreement and any other Transaction Document to which such Shareholder is a party, the performance by such Shareholder of its obligations hereunder and thereunder and the consummation by such Shareholder of the transactions contemplated hereby and thereby have been duly authorized by all requisite action on the part of such Shareholder. This Agreement and the other Transaction Documents to which such Shareholder is a party have been duly executed and delivered by such Shareholder, and (assuming due authorization, execution and delivery by Buyer) this Agreement and the other Transaction Documents to which such Shareholder is a party constitute legal, valid and binding obligations of such Shareholder enforceable against such Shareholder in accordance with their terms.
Section 5.03 No Conflicts; Consents. The execution, delivery and performance by such Shareholder of this Agreement and the other Transaction Documents to which such Shareholder is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (a) conflict with or result in a violation or breach of any provision of any Law or Governmental Order applicable to such Shareholder; or (b) require the consent, notice or other action by any Person under any Contract to which such Shareholder is a party. No consent,
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approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to such Shareholder in connection with the execution and delivery of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby.
Section 5.04 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement or any other Transaction Document based upon arrangements made by or on behalf of such Shareholder.
Section 5.05 Legal Proceedings. There are no Actions pending or threatened against or by such Shareholder or any Affiliate of such Shareholder that challenge or seek to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement. No event has occurred or circumstances exist that may give rise or serve as a basis for any such Action.
Section 5.06 Representation by Counsel. Such Shareholder has either been represented by counsel with respect to this Agreement and the other Transaction Documents or has been advised of the opportunity to engage counsel with respect thereto and has declined to do so.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that the statements contained in this Article VI are true and correct as of the date hereof.
Section 6.01 Organization and Authority of Buyer. Buyer is a corporation duly organized, validly existing and in good standing under the Laws of the State of Minnesota. Buyer has all requisite power and authority to enter into this Agreement and the other Transaction Documents to which Buyer is a party, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Buyer of this Agreement and any other Transaction Document to which Buyer is a party, the performance by Buyer of its obligations hereunder and thereunder and the consummation by Buyer of the transactions contemplated hereby and thereby have been duly authorized by all requisite action on the part of Buyer. This Agreement and the other Transaction Documents to which Buyer is a party have been duly executed and delivered by Buyer, and (assuming due authorization, execution and delivery by each other party thereto) this Agreement and the other Transaction Documents to which Buyer is a party constitute legal, valid and binding obligations of Buyer enforceable against Buyer in accordance with its terms..
Section 6.02 No Conflicts; Consents. The execution, delivery and performance by Buyer of this Agreement and the other Transaction Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (a) conflict with or result in a violation or breach of, or default under, any provision of the organizational documents of Buyer; or (b) conflict with or result in a violation or breach of any
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provision of any Law or Governmental Order applicable to Buyer. No consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to Buyer in connection with the execution and delivery of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby, except for such consents, approvals, Permits, Governmental Orders, declarations, filings or notices which, in the aggregate, would not have a material adverse effect on Buyer.
Section 6.03 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement or any other Transaction Document based upon arrangements made by or on behalf of Buyer.
Section 6.04 Sufficiency of Funds. Buyer has sufficient cash on hand or other sources of immediately available funds to enable it to make payment of the Purchase Price and consummate the transactions contemplated by this Agreement.
ARTICLE VII
COVENANTS
Section 7.01 Conduct of Business Prior to the Closing. From the date hereof until the Closing, except as otherwise provided in this Agreement or consented to in writing by Buyer, Seller shall (x) conduct the Business in the ordinary course of business consistent with past practice; and (y) use reasonable best efforts to maintain and preserve intact its current Business organization, operations and franchise and to preserve the rights, franchises, goodwill and relationships of its employees, customers, lenders, suppliers, distributors, regulators and others having relationships with the Business. Without limiting the foregoing, from the date hereof until the Closing Date, Seller shall:
(a) preserve and maintain all Permits required for the conduct of the Business as currently conducted or the ownership and use of the Purchased Assets;
(b) pay the debts, Taxes and other obligations of the Business when due;
(c) continue to collect Accounts Receivable in a manner consistent with past practice, without discounting such Accounts Receivable;
(d) maintain the properties and assets included in the Purchased Assets in the same condition as they were on the date of this Agreement, subject to reasonable wear and tear;
(e) continue in full force and effect without modification all Insurance Policies, except as required by applicable Law;
(f) defend and protect the properties and assets included in the Purchased Assets from infringement or usurpation;
(g) perform all of its obligations under all Assigned Contracts;
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(h) maintain the Books and Records in accordance with past practice;
(i) comply in all material respects with all Laws applicable to the conduct of the Business or the ownership and use of the Purchased Assets; and
(j) not take or permit any action that would cause any of the changes, events or conditions described in Section 4.08 to occur, except that Seller may pay dividends on outstanding shares of Seller’s Preferred Stock in accordance with the terms of such Preferred Stock.
Section 7.02 Access to Information. From the date hereof until the Closing, each Seller Entity shall (a) afford Buyer and its Representatives full and free access to and the right to inspect all of the Leased Real Property, properties, assets, premises, Books and Records, Contracts and other documents and data related to the Business; (b) furnish Buyer and its Representatives with such financial, operating and other data and information related to the Business as Buyer or any of its Representatives may reasonably request; and (c) instruct the Representatives of the Seller Entities to cooperate with Buyer in its investigation of the Business. Any investigation pursuant to this Section 7.02 shall be conducted in such manner as not to interfere unreasonably with the conduct of the Business. No investigation by Buyer or other information received by Buyer shall operate as a waiver or otherwise affect any representation, warranty or agreement given or made by any Seller Entity in this Agreement.
Section 7.03 Updating the Seller Disclosure Schedule If any event, condition, fact or circumstance that is required to be disclosed pursuant to Article IV would require a change to the Seller Disclosure Schedule if the Seller Disclosure Schedule were dated as of the date of the occurrence, existence or discovery of such event, condition, fact or circumstance, then Seller shall promptly deliver to Buyer an update to the Seller Disclosure Schedule specifying such change and shall use its best efforts to remedy same, as applicable; provided, however, that no such update shall be deemed to supplement or amend the Seller Disclosure Schedule for the purpose of (i) determining the accuracy of any of the representations and warranties made by Seller in this Agreement or (ii) determining whether any of the conditions set forth in Article VIII have been satisfied.
Section 7.04 No Solicitation.
(a) No Seller Entity shall, nor shall authorize or permit any of their Affiliates or any of their Representatives to, directly or indirectly, (i) encourage, solicit, initiate, facilitate or continue inquiries regarding an Acquisition Proposal; (ii) enter into discussions or negotiations with, or provide any information to, any Person concerning a possible Acquisition Proposal; or (iii) enter into any agreements or other instruments (whether or not binding) regarding an Acquisition Proposal. Each Seller Entity shall immediately cease and cause to be terminated, and shall cause its Affiliates and all of its and their Representatives to immediately cease and cause to be terminated, all existing discussions or negotiations with any Persons conducted heretofore with respect to, or that could lead to, an Acquisition Proposal. For purposes hereof, “Acquisition Proposal” means any inquiry, proposal or offer from any Person (other than Buyer or any of its
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Affiliates) relating to the direct or indirect disposition, whether by sale of assets or capital stock, by merger or otherwise, of all or any portion of the Business or the Purchased Assets.
(b) In addition to the other obligations under this Section 7.04, each Seller Entity shall promptly (and in any event within three Business Days after receipt thereof by such Seller Entity or its Representatives) advise Buyer orally and in writing of any Acquisition Proposal, any request for information with respect to any Acquisition Proposal, or any inquiry with respect to or which could reasonably be expected to result in an Acquisition Proposal, the material terms and conditions of such request, Acquisition Proposal or inquiry, and the identity of the Person making the same.
(c) Each Seller Entity agrees that the rights and remedies for noncompliance with this Section 7.04 shall include having such provision specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach shall cause irreparable injury to Buyer and that money damages would not provide an adequate remedy to Buyer.
Section 7.05 Notice of Certain Events.
(a) From the date hereof until the Closing, each Seller Entity shall promptly notify Buyer in writing of:
(i) any fact, circumstance, event or action the existence, occurrence or taking of which (A) has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (B) has resulted in, or could reasonably be expected to result in, any representation or warranty made by any Seller Entity hereunder not being true and correct or (C) has resulted in, or could reasonably be expected to result in, the failure of any of the conditions set forth in Article VIII to be satisfied;
(ii) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement;
(iii) any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; and
(iv) any Actions commenced or, to Seller’s Knowledge, threatened against, relating to or involving or otherwise affecting the Business, the Purchased Assets or the Assumed Liabilities that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 4.18 or that relates to the consummation of the transactions contemplated by this Agreement.
(b) Buyer’s receipt of information pursuant to this Section 7.05 shall not operate as a waiver or otherwise affect any representation, warranty or agreement given or made by the Seller Entities in this Agreement (including for purposes of Article X) and shall not be deemed to amend or supplement the Disclosure Schedules.
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Section 7.06 Employees and Employee Benefits.
(a) On the Closing Date, the Seller Entities shall terminate any leased employee agreement with a third party.
(b) To the extent the Seller Entities have any Employee Plans; the Seller Entities shall retain all obligations and liabilities related to such Employee Plans. Buyer does not assume any of Seller Entities’ Employee Plans or any obligations or liabilities of such Employee Plans. Buyer shall not have any obligations or liabilities under any Employee Plan or to the Seller Entities, their ERISA Affiliates, or any of their employees, former employees, or beneficiaries with respect to any Employee Plan.
(c) Between the date hereof and the Closing Date, the Seller Entities shall cooperate with Buyer to provide information that Buyer may reasonably request regarding the employees of the Business and allow Buyer to interview such employees. At Buyer’s sole discretion, on the Closing Date, Buyer may offer employment to any or all of the employees of the Business, either with Buyer or pursuant to a leased employee agreement with a third party and in each case, on an “at will” basis.
(d) The Seller Entities shall remain solely responsible for the satisfaction of all claims for compensation and benefits for services provided to the Seller Entities. The Seller Entities shall pay, or cause to be paid, all such amounts to the appropriate persons as and when due.
(e) Each employee of the Business who, in connection with the Closing, either becomes employed by Buyer or becomes employed by a third party pursuant to a leased employee agreement with Buyer (a “Transferred Employee”) shall be given service credit for the purpose of eligibility under the group health plan; provided, however, that (i) such credit shall be given pursuant to payroll or plan records, at the election of Buyer, in its sole and absolute discretion; and (ii) such service crediting shall not be given under Buyer’s 401(k) plan or any other defined contribution retirement plan.
(f) Nothing in this Agreement, whether express or implied, shall diminish Buyer’s or its affiliates’ right to amend and/or terminate any benefit at any time or from time to time. The provisions of this Agreement are solely for the benefit of the parties to this Agreement, and no current or former employee, director or independent contractor or any other individual associated therewith shall be regarded for any purpose as a third-party beneficiary of the Agreement, and nothing herein shall be construed as an amendment to any Employee Plan or other employee benefit plan for any purpose. Nothing in this Agreement shall be construed to limit the right of Seller, Buyer or any of their respective affiliates to amend or terminate any Employee Plan or any other employee benefit plan, to the extent such amendment or termination is permitted by the terms of the applicable plan.
Section 7.07 Non-competition; Non-solicitation.
(a) For a period of four (4) years commencing on the Closing Date (the “Restricted Period”), no Seller Entity nor any Shareholder (each, a “Restricted Person”) shall, nor shall any Restricted Person permit any of its Affiliates to, directly or indirectly (except as an employee of
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Buyer or any Affiliate of Buyer), (i) engage in or assist others in engaging in the Restricted Business in the Territory; (ii) have an interest in any Person that engages directly or indirectly in the Restricted Business in the Territory in any capacity, including as a partner, shareholder, member, employee, principal, agent, trustee or consultant; or (iii) cause, induce or encourage any actual or prospective client, customer, supplier or licensor of the Business (including any existing or former client or customer of a Seller Entity and any Person that becomes a client or customer of the Business after the Closing), or any other Person who has a business relationship with the Business, to terminate or modify any such actual or prospective relationship. Notwithstanding the foregoing, a Restricted Person may own, directly or indirectly, solely as an investment, securities of any Person traded on any national securities exchange if such Restricted Person is not a controlling Person of, or a member of a group which controls, such Person and does not, directly or indirectly, own 2% or more of any class of securities of such Person.
(b) During the Restricted Period, no Restricted Person shall, and no Restricted Person shall permit any of its Affiliates to, directly or indirectly, hire or solicit any person who is offered employment by Buyer pursuant to Section 7.06 or is or was employed in the Business, or encourage any such employee to leave such employment or hire any such employee who has left such employment, except pursuant to a general solicitation which is not directed specifically to any such employees.
(c) Each Restricted Person acknowledges that a breach or threatened breach of this Section 7.07 would give rise to irreparable harm to Buyer, for which monetary damages would not be an adequate remedy, and hereby agrees that in the event of a breach or a threatened breach by such Restricted Person of any such obligations, Buyer shall, in addition to any and all other rights and remedies that may be available to it in respect of such breach, be entitled to equitable relief, including a temporary restraining order, an injunction, specific performance and any other relief that may be available from a court of competent jurisdiction (without any requirement to post bond).
(d) Each Restricted Person acknowledges that the restrictions contained in this Section 7.07 are reasonable and necessary to protect the legitimate interests of Buyer and constitute a material inducement to Buyer to enter into this Agreement and consummate the transactions contemplated by this Agreement. In the event that any covenant contained in this Section 7.07 should ever be adjudicated to exceed the time, geographic, product or service or other limitations permitted by applicable Law in any jurisdiction, then any court is expressly empowered to reform such covenant, and such covenant shall be deemed reformed, in such jurisdiction to the maximum time, geographic, product or service or other limitations permitted by applicable Law. The covenants contained in this Section 7.07 and each provision hereof are severable and distinct covenants and provisions. The invalidity or unenforceability of any such covenant or provision as written shall not invalidate or render unenforceable the remaining covenants or provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such covenant or provision in any other jurisdiction.
Section 7.08 Confidentiality. From and after the Closing, each Restricted Person shall, and shall cause its Affiliates to, hold, and shall use its reasonable best efforts to cause its or their
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respective Representatives to hold, in confidence any and all information, whether written or oral, concerning the Business, except to the extent that such Restricted Person can show that such information (a) is generally available to and known by the public through no fault of such Restricted Person, any of its Affiliates or their respective Representatives; or (b) is lawfully acquired by such Restricted Person, any of its Affiliates or their respective Representatives from and after the Closing from sources which are not prohibited from disclosing such information by a legal, contractual or fiduciary obligation. If such Restricted Person or any of its Affiliates or their respective Representatives are compelled to disclose any information by judicial or administrative process or by other requirements of Law, such Restricted Person shall promptly notify Buyer in writing and shall disclose only that portion of such information which such Restricted Person is advised by its counsel in writing is legally required to be disclosed, provided that such Restricted Person shall use reasonable best efforts to obtain an appropriate protective order or other reasonable assurance that confidential treatment will be accorded such information.
Section 7.09 Approvals and Consents.
(a) Each party hereto shall, as promptly as possible, (i) make, or cause or be made, all filings and submissions required under any Law applicable to such party or any of its Affiliates; and (ii) use reasonable best efforts to obtain, or cause to be obtained, all consents, authorizations, orders and approvals from all Governmental Authorities that may be or become necessary for its execution and delivery of this Agreement and the performance of its obligations pursuant to this Agreement and the other Transaction Documents. Each party shall cooperate fully with the other party and its Affiliates in promptly seeking to obtain all such consents, authorizations, orders and approvals. The parties hereto shall not willfully take any action that will have the effect of delaying, impairing or impeding the receipt of any required consents, authorizations, orders and approvals.
(b) Except for the contracts listed in Section 2.02(b) of the Disclosure Schedules, the Seller Entities shall use reasonable best efforts to give all notices to, and obtain all consents from, all third parties that are described in Section 4.03 of the Disclosure Schedules.
(c) At Buyer’s request, the Seller Entities shall use reasonable best efforts to assist Buyer with the negotiation of new contracts to replace the existing contracts listed on Schedule 7.09(c).
(d) Prior to the Closing, the Seller Entities shall terminate the contracts listed in Schedule 7.09(d).
Section 7.10 Closing Conditions. From the date hereof until the Closing, each party hereto shall use commercially reasonable efforts to take such actions as are necessary to expeditiously satisfy the closing conditions set forth in Article VIII hereof.
Section 7.11 Public Announcements. Unless otherwise required by applicable Law (based upon the reasonable advice of counsel), no party to this Agreement shall make any public announcements in respect of this Agreement or the transactions contemplated hereby or
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otherwise communicate with any news media without the prior written consent of the other parties (which consent shall not be unreasonably withheld or delayed), and the parties shall cooperate as to the timing and contents of any such announcement.
Section 7.12 Bulk Sales Laws. The parties hereby waive compliance with the provisions of any bulk sales, bulk transfer or similar Laws of any jurisdiction that may otherwise be applicable with respect to the sale of any or all of the Purchased Assets to Buyer; it being understood that any Liabilities arising out of the failure of the Seller Entities to comply with the requirements and provisions of any bulk sales, bulk transfer or similar Laws of any jurisdiction shall be treated as Excluded Liabilities.
Section 7.13 Receivables. From and after the Closing, if the Seller Entities or any of their Affiliates receives or collects any funds relating to any Accounts Receivable or any other Purchased Asset, the Seller Entities or their Affiliates shall remit such funds to Buyer within five Business Days after its receipt thereof. From and after the Closing, if Buyer or its Affiliate receives or collects any funds relating to any Excluded Asset, Buyer or its Affiliate shall remit any such funds to Seller within five Business Days after its receipt thereof.
Section 7.14 Transfer Taxes. All transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement and the other Transaction Documents shall be borne and paid by the Seller Entities when due. The Seller Entities shall, at their own expense, timely file any Tax Return or other document with respect to such Taxes or fees (and Buyer shall reasonably cooperate with respect thereto as necessary).
Section 7.15 Seller Existence. For a period of 15 months following the Closing Date, Seller agrees to maintain its corporate existence and keep available sufficient assets to satisfy its indemnity obligations hereunder. Immediately following the Closing, the Seller Entities will change their corporate names to remove “Laser Design” and “GKS” from such names and the Seller Entities and their Affiliates will cease using such names and their trademarks, including in printed materials, signage, websites or similar identifying materials.
Section 7.16 Shareholder Vote. Each Shareholder hereby agrees that it shall vote all shares of capital stock of Seller owned by such Shareholder in favor of the transactions contemplated by this Agreement.
Section 7.17 Information Statement.
(a) Seller shall prepare and a furnish to Buyer within seven (7) days after the date of this Agreement, for Buyer’s reasonable comment, a notice of a special meeting of the Shareholders, along with an information statement and a proxy for the purpose of voting upon the approval of this Agreement and the transactions contemplated hereby (the “Information Statement”). The Information Statement shall be in a form reasonably acceptable to Buyer and Seller shall incorporate into the same such reasonable comments of Buyer as it may provide to
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Seller within seven (7) days of receipt. No later than the eighteen (18th) day after the date of this Agreement, Seller shall mail the Information Statement to the Shareholders and Seller shall cause the special meeting to occur on or before the forty-fifth (45th) day after the date of this Agreement (the “Special Meeting”).
(b) The board of directors of Seller has approved this Agreement and the transactions contemplated hereby, has recommended to the Shareholders approval of this Agreement and the transactions contemplated hereby (the “Board Recommendation”), and shall not withdraw, modify or qualify the Board Recommendation in any manner adverse to Buyer, or make any other public statement inconsistent with the Board Recommendation. Provided that the board of directors of Seller has complied with the first sentence of this Section 7.17(b), nothing in this Section 7.17 shall effect the ability of Seller, through its board of directors, to terminate this Agreement in accordance with Section 9.01(g).
Section 7.18 Further Assurances. Following the Closing, each of the parties hereto shall, and shall cause their respective Affiliates to, execute and deliver such additional documents, instruments, conveyances and assurances and take such further actions as may be reasonably required to carry out the provisions hereof and give effect to the transactions contemplated by this Agreement and the other Transaction Documents, including the transfer of the Purchased Assets to Buyer.
ARTICLE VIII
CONDITIONS TO CLOSING
Section 8.01 Conditions to Obligations of Buyer. The obligations of Buyer to consummate the Closing shall be subject to the satisfaction (or waiver, in whole or in part, to the extent permitted by applicable Law, by Buyer at its sole discretion) at or prior to the Closing of each of the following conditions:
(a) Each of the representations and warranties of the Seller Entities and the Shareholders contained in Article III and Article IV shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, except that (i) the accuracy of representations and warranties that, by their terms, expressly speak as of a specific date other than the date of this Agreement will be determined as of such date, and (ii) the accuracy of representations and warranties that are qualified by, or subject to an exception for, materiality, Material Adverse Effect or similar qualification, shall be true and correct in all respects; provided, however, that the Seller Fundamental Representations shall be true and correct in all respects in each case as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, except to the extent such representations and warranties expressly speak as of a specific date other than the date of this Agreement, in which case as of such date.
(b) Each Seller Entity and each Shareholder shall have duly performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it, in each case on or prior to the Closing Date.
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(c) Seller shall have delivered to Buyer a certificate signed by an officer of Seller, dated as of the Closing Date, stating that the conditions set forth in Section 8.01(a) and (b) have been satisfied.
(d) No temporary restraining order, preliminary or permanent injunction or other judgment, order or decree issued by any Governmental Authority or other statute or Law (collectively, “Restraints”) shall be in effect, threatened in writing or pending restraining or preventing the consummation of the transactions contemplated by this Agreement; provided, however, that Buyer shall not have initiated such Restraint or taken any action in support of such Restraint.
(e) Any required regulatory approvals or applicable waivers from, or notice to be made to, any Governmental Authority shall have been obtained and made.
(f) Seller shall have obtained the Stockholder Approval.
(g) (i) Buyer shall have entered in to new contracts with the Persons set forth on Schedule 7.09(c), (ii) the Seller Entities shall have caused the contracts listed on Schedule 7.09(d) to be terminated, and (iii) Seller shall have obtained written consents from each of the additional third parties set forth on Section 4.03 of the Disclosure Schedules and provided Buyer a copy of each such consent in a form reasonably acceptable to Buyer.
(h) Seller shall have provided Buyer with evidence reasonably acceptable to Buyer that the Seller Entities have caused all code related to the contract listed in Schedule 7.09(d)(1) to be removed from any and all software included in the Purchased Assets.
(i) Since the date hereof, no Material Adverse Effect shall have occurred and be continuing.
(j) Each of the Employment Arrangements shall be in full force and effect.
(k) Seller shall have received releases of all compensation obligations, including deferred compensation obligations, from each of the Principal Executives in a form reasonably acceptable to Buyer and shall have provided copies of such releases to Buyer.
(l) Seller shall have delivered all documents required to be delivered by it pursuant to Section 3.01(b).
Section 8.02 Conditions to Obligations of Seller. The obligations of the Seller Entities and the Shareholders to effect the Closing shall be subject to reasonable satisfaction (or waiver, in whole or in part, to the extent permitted by applicable Law, by Seller in its sole discretion) on and as of the Closing Date of each of the following conditions:
(a) Each of the representations and warranties of Buyer contained in Article V shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, except that (i) the accuracy of representations and warranties that, by their terms, expressly speak as of a specific date other than the date of this Agreement will be determined as of such date, and (ii) the accuracy of representations and warranties that are qualified by, or subject to an exception for, materiality,
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material adverse effect or similar qualification, shall be true and correct in all respects; provided, however, that the Buyer Fundamental Representations shall be true and correct in all respects in each case as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, except to the extent such representations and warranties expressly speak as of a specific date other than the date of this Agreement, in which case as of such date.
(b) Buyer shall have duly performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date.
(c) Buyer shall have delivered to the Company a certificate of Buyer signed by an officer of Buyer, dated as of the Closing Date, stating that the conditions set forth in Section 8.02(a) and (b) have been satisfied.
(d) No Restraints shall be in effect, threatened in writing or pending restraining or preventing the consummation of the transactions contemplated by this Agreement; provided, however, that neither Seller nor any Shareholder shall have initiated such Restraint or taken any action in support of such Restraint.
(e) Any required regulatory approvals or applicable waivers from, or notice to be made to, any Governmental Authority shall have been obtained and made.
(f) Buyer shall have delivered all documents required to be delivered by Buyer pursuant to Section 3.01(b).
Section 8.03 Frustration of Closing Conditions. Neither Buyer nor Seller may rely, either as a basis for not consummating the transactions contemplated by this Agreement or terminating this Agreement and abandoning the transactions contemplated hereby, on the failure of any condition set forth in this Article VIII, as the case may be, to be satisfied if such failure was caused by such party’s breach of any provision of this Agreement.
ARTICLE IX
TERMINATION
Section 9.01 Termination. This Agreement may be terminated at any time prior to the Closing:
(a) by the mutual written consent of Seller and Buyer at any time prior to the Closing Date;
(b) by the written notice of Buyer or Seller to the other parties if the Closing shall not have occurred on or prior to the date that is sixty (60) days after the date of this Agreement (the “Outside Date”); provided, however, that the right to terminate this Agreement under this Section 9.01(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement shall have been the cause of, or shall have resulted in, the failure of the Closing to occur on or prior to such date;
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(c) by the written notice of Seller to Buyer (provided that no Seller Entity nor any Shareholder is then in material breach of any representation, warranty, covenant or other agreement contained herein) if Buyer shall have breached or failed to perform in any material respect its representations, warranties, covenants or other agreements contained herein, which breach or failure to perform would (if it occurred or was continuing as of the Closing Date) result in a failure of the conditions set forth in Section 8.02(a) or (b) to be satisfied, provided, however, if such breach may be cured by Buyer through the use of its commercially reasonable efforts, Buyer shall have 30 days after receipt of such notice to cure such breach and Seller may not terminate this Agreement under this Section 9.01(c) during such 30-day period (no such cure period shall be available or applicable to any such breach which by its nature cannot be cured prior to the Outside Date);
(d) by the written notice of Buyer to Seller (provided that Buyer is not then in material breach of any representation, warranty, covenant or other agreement contained herein) if any Seller Entity or any Shareholder shall have breached or failed to perform in any material respect its representations, warranties, covenants or other agreements contained herein, which breach or failure to perform would (if it occurred or was continuing as of the Closing Date) result in a failure of the conditions set forth in Section 8.01(a) or (b) to be satisfied, provided, however, if such breach may be cured by the Company through the use of its commercially reasonable efforts, Seller shall have 30 days after receipt of such notice to cure such breach and Buyer may not terminate this Agreement under this Section 9.01(d) during such 30-day period (no such cure period shall be available or applicable to any such breach which by its nature cannot be cured prior to the Outside Date);
(e) by the written notice of Buyer to Seller if any employee that entered into an Employment Arrangement, has repudiated or rescinded his or her Employment Arrangement;
(f) by the written notice of Buyer to Seller if, after the date hereof, there has been a Material Adverse Effect;
(g) by written notice of Buyer to Seller, or by Seller to Buyer, if Seller shall have received notice from shareholders holding more than 10% of the outstanding Common Shares and Series A Preferred Shares that such holders have exercised dissenters’ rights under the MBCA; or
(h) by the written notice of Buyer or Seller to the other parties if there shall be any Law that makes consummation of the transactions contemplated by this Agreement illegal or otherwise prohibited or if any Restraint restraining or enjoining Buyer or the Seller Entities from consummating the transactions contemplated by this Agreement is entered; provided, however, that the right to terminate this Agreement under this Section 9.01(h) shall not be available to a party that initiated such Restraint or took any action in support of such Restraint.
Section 9.02 Effect of Termination. In the event of termination of this Agreement by a party hereto pursuant to Section 9.01 hereof, written notice thereof shall forthwith be given by the terminating party to the other parties hereto, and this Agreement shall thereupon terminate and become void and have no effect, and the transactions contemplated hereby shall be
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abandoned without further action by the parties hereto, except that the provisions of Section 7.08, Section 7.11, this Section 9.02 and Article XI shall survive the termination of this Agreement; provided, however, that such termination shall not relieve any party hereto of any liability or damages incurred or suffered by a party, to the extent such liabilities or damages were the result of the intentional and material breach by another party of any of its representations, warranties, covenants or other agreements set forth in this Agreement.
ARTICLE X
INDEMNIFICATION
Section 10.01 Survival. Subject to the limitations and other provisions of this Agreement, the representations and warranties contained herein shall survive the Closing and shall remain in full force and effect until the date that is fifteen (15) months from the Closing Date; provided, that the representations and warranties in Section 4.01, Section 4.02, Section 4.03, Section 4.04, Section 4.10, Section 4.24, Section 5.01, Section 5.02 and Section 5.04 (collectively, the “Seller Fundamental Representations”), Section 6.01 and Section 6.03 (collectively, the “Buyer Fundamental Representations”) and any claims related to fraud, intentional misrepresentation or willful misconduct shall survive indefinitely and the representations and warranties in Section 4.20, Section 4.21 and Section 4.23 (collectively, the “Special Representations”) shall survive until sixty (60) days after the expiration of the applicable statute of limitations. All covenants and agreements of the parties contained herein shall survive the Closing indefinitely or for the period explicitly specified therein. Notwithstanding the foregoing, any claims asserted in good faith with reasonable specificity (to the extent known at such time) and in writing by notice from the non-breaching party to the breaching party prior to the expiration date of the applicable survival period shall not thereafter be barred by the expiration of the relevant representation or warranty and such claims shall survive until finally resolved.
Section 10.02 Indemnification By Seller. Subject to the other terms and conditions of this Article X, the Seller Entities shall jointly and severally, or pursuant to Section 10.06, the Shareholders shall jointly and severally (collectively, the “Seller Indemnifying Parties”) indemnify and defend each of Buyer and its Affiliates and their respective Representatives (collectively, the “Buyer Indemnitees”) against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred or sustained by, or imposed upon, the Buyer Indemnitees based upon, arising out of, with respect to or by reason of:
(a) any inaccuracy in or breach of any of the representations or warranties of the Seller Entities or the Shareholders contained in this Agreement, the other Transaction Documents or in any certificate or instrument delivered by or on behalf of Seller pursuant to this Agreement, in all cases without giving effect to any qualifications as to materiality, Material Adverse Effect or similar qualifications contained in such representations and warranties;
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(b) any breach or non-fulfillment of any covenant, agreement or obligation to be performed by Seller or any Shareholder pursuant to this Agreement;
(c) any Excluded Asset or any Excluded Liability;
(d) the exercise of dissenters rights by any shareholder of Seller; or
(e) any Third Party Claim based upon, resulting from or arising out of the business, operations, properties, assets or obligations of Seller or any of its Affiliates (other than the Purchased Assets or Assumed Liabilities) conducted, existing or arising on or prior to the Closing Date.
Section 10.03 Indemnification By Buyer. Subject to the other terms and conditions of this Article X, Buyer shall indemnify and defend each of the Seller Entities and its Affiliates and their respective Representatives (collectively, the “Seller Indemnitees”) against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred or sustained by, or imposed upon, the Seller Indemnitees based upon, arising out of, with respect to or by reason of:
(a) any inaccuracy in or breach of any of the representations or warranties of Buyer contained in this Agreement or in any certificate or instrument delivered by or on behalf of Buyer pursuant to this Agreement, in all cases without giving effect to any qualifications as to materiality, Material Adverse Effect or similar qualifications contained in such representations and warranties;
(b) any breach or non-fulfillment of any covenant, agreement or obligation to be performed by Buyer pursuant to this Agreement; or
(c) any Assumed Liability.
Section 10.04 Certain Limitations.
(a) Seller shall not be liable to the Buyer Indemnitees for indemnification under Section 10.02(a) (other than with respect to a claim for indemnification based upon, arising out of, with respect to or by reason of any inaccuracy in or breach of any Seller Fundamental Representation or Special Representation) (the “Seller Exclusions”) until the aggregate amount of all Losses in respect of indemnification under Section 10.02(a) (other than those based upon, arising out of, with respect to or by reason of the Seller Exclusions) exceeds $25,000 (the “Deductible”), in which event Seller shall be required to pay or be liable for all such Losses above the Deductible.
(b) Buyer shall not be liable to the Seller Indemnitees for indemnification under Section 10.03(a) (other than with respect to a claim for indemnification based upon, arising out of, with respect to or by reason of any inaccuracy in or breach of any Buyer Fundamental Representation) (the “Buyer Exclusions”) until the aggregate amount of all Losses in respect of indemnification under Section 10.03(a) (other than those based upon, arising out of, with respect to or by reason of Buyer Exclusions) exceeds the Deductible, in which event Buyer shall be required to pay or be liable for all such Losses above such amount.
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(c) The aggregate amount of indemnification that the Buyer Indemnitees may receive to satisfy claims under Section 10.02(a) (other than with respect to a claim for indemnification based upon, arising out of, with respect to or by reason of any inaccuracy in or breach of any Seller Exclusions) shall be $1,000,000 (the “Cap”).
(d) The aggregate amount of indemnification that the Seller Indemnitees may receive to satisfy claims under Section 10.03(a) (other than with respect to a claim for indemnification based upon, arising out of, with respect to or by reason of any inaccuracy in or breach of any Buyer Exclusions) shall be the Cap.
(e) Notwithstanding the foregoing, the limitations set forth above in subsections (a)-(d) above shall not apply to Losses based upon, arising out of, with respect to or by reason of fraud, intentional misrepresentation or willful misconduct.
Section 10.05 Indemnification Procedures. The party making a claim under this Article X is referred to as the “Indemnified Party”, and the party against whom such claims are asserted under this Article X is referred to as the “Indemnifying Party”.
(a) Third Party Claims. If any Indemnified Party receives notice of the assertion or commencement of any Action made or brought by any Person who is not a party to this Agreement or an Affiliate of a party to this Agreement or a Representative of the foregoing (a “Third Party Claim”) against such Indemnified Party with respect to which the Indemnifying Party is obligated to provide indemnification under this Agreement, the Indemnified Party shall give the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than 30 calendar days after receipt of such notice of such Third Party Claim. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Third Party Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have the right to participate in, or by giving written notice to the Indemnified Party, to assume the defense of any Third Party Claim at the Indemnifying Party’s expense and by the Indemnifying Party’s own counsel, and the Indemnified Party shall cooperate in good faith in such defense; provided, that such Indemnifying Party shall not have the right to defend or direct the defense of any such Third Party Claim that (v) in the case of a Buyer Indemnitee, is asserted directly by or on behalf of a Person that is a supplier or customer of the Business, (w) seeks relief other than the payment of monetary damages or would result in the imposition of a consent order, injunction or decree that would restrict the future activity or conduct of the Indemnified Party or any of its Affiliates (which, in the case of a Buyer Indemnitee, shall include the Business), (x) seeks a finding or admission of a violation of Law or violation of the rights of any Person by the Indemnified Party or any of its Affiliates, or (y) would result in any monetary liability of the Indemnified Party that will not be fully and promptly paid or reimbursed by the Indemnifying Party.
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(b) In the event that the Indemnifying Party assumes the defense of any Third Party Claim, subject to Section 10.05(c), it shall have the right to take such action as it deems necessary to avoid, dispute, defend, appeal or make counterclaims pertaining to any such Third Party Claim in the name and on behalf of the Indemnified Party. The Indemnified Party shall have the right to participate in the defense of any Third Party Claim with counsel selected by it subject to the Indemnifying Party’s right to control the defense thereof. The fees and disbursements of such counsel shall be at the expense of the Indemnified Party, provided, that if in the reasonable opinion of counsel to the Indemnified Party, (A) there are legal defenses available to an Indemnified Party that are different from or additional to those available to the Indemnifying Party; or (B) there exists a conflict of interest between the Indemnifying Party and the Indemnified Party that cannot be waived, the Indemnifying Party shall be liable for the reasonable fees and expenses of counsel to the Indemnified Party in each jurisdiction for which the Indemnified Party determines counsel is required. If the Indemnifying Party elects not to compromise or defend such Third Party Claim, fails to promptly notify the Indemnified Party in writing of its election to defend as provided in this Agreement, or fails to diligently prosecute the defense of such Third Party Claim, the Indemnified Party may, subject to Section 10.05(c), pay, compromise, defend such Third Party Claim and shall be entitled to indemnification for any and all Losses based upon, arising from or relating to such Third Party Claim. Seller and Buyer shall cooperate with each other in all reasonable respects in connection with the defense of any Third Party Claim, including making available (subject to the provisions of Section 7.08) records relating to such Third Party Claim and furnishing, without expense (other than reimbursement of actual out-of-pocket expenses) to the defending party, management employees of the non-defending party as may be reasonably necessary for the preparation of the defense of such Third Party Claim.
(c) Settlement of Third Party Claims. Notwithstanding any other provision of this Agreement, the Indemnifying Party shall not enter into settlement of any Third Party Claim without the prior written consent of the Indemnified Party, except as provided in this Section 10.05(c). If a firm offer is made to settle a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnified Party and provides, in customary form, for the unconditional release of each Indemnified Party from all liabilities and obligations in connection with such Third Party Claim and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party shall give written notice to that effect to the Indemnified Party. If the Indemnified Party fails to consent to such firm offer within ten days after its receipt of such notice, the Indemnified Party may continue to contest or defend such Third Party Claim and in such event, the maximum liability of the Indemnifying Party as to such Third Party Claim shall not exceed the amount of such settlement offer. If the Indemnified Party fails to consent to such firm offer and also fails to assume defense of such Third Party Claim, the Indemnifying Party may settle the Third Party Claim upon the terms set forth in such firm offer to settle such Third Party Claim. If the Indemnified Party has assumed the defense pursuant to Section 10.05(a), it shall not agree to any settlement without the written consent of the Indemnifying Party (which consent shall not be unreasonably withheld or delayed).
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(d) Direct Claims. Any Action by an Indemnified Party on account of a Loss which does not result from a Third Party Claim (a “Direct Claim”) shall be asserted by the Indemnified Party giving the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than 30 days after the Indemnified Party becomes aware of such Direct Claim. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Direct Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have 30 days after its receipt of such notice to respond in writing to such Direct Claim. The Indemnified Party shall allow the Indemnifying Party and its professional advisors to investigate the matter or circumstance alleged to give rise to the Direct Claim, and whether and to what extent any amount is payable in respect of the Direct Claim and the Indemnified Party shall assist the Indemnifying Party’s investigation by giving such information and assistance (including reasonable access during business hours to the Indemnified Party’s premises and personnel and the right to examine and copy any accounts, documents or records) as the Indemnifying Party or any of its professional advisors may reasonably request. If the Indemnifying Party does not so respond within such 30 day period, the Losses specified in the Indemnified Party’s notice will be conclusively deemed a liability of the Indemnifying Party and the Indemnified Party shall be entitled to recover the amount of such Losses from the Indemnifying Party in accordance with the terms and conditions of this Article X.
Section 10.06 Payments.
(a) In the event that Buyer has a claim for indemnification against the Seller Indemnifying Parties pursuant to this Article X, Buyer shall be entitled to recover the amount of such claim from the Escrow Fund or by offset against a Post-Closing Adjustment Amount then owed to Seller (if any), and if the such amounts are insufficient, from the Seller Entities. Subject to the terms and conditions of the Escrow Agreement on the date that is fifteen (15)months after the Closing Date, the Escrow Agent shall distribute to Seller all of the then remaining Escrow Fund in excess of the sum any amounts with respect to (A) which Buyer is entitled to, but has not yet received, indemnification, pursuant to Article X (plus the amount of any interest or income earned on such amount), and (B) any unresolved claims for indemnification as of such date (plus the amount of any interest or income earned on such amount). If Buyer has any claim for indemnification against the Seller Indemnifying Parties pursuant to this Article X, the Escrow Fund is insufficient to satisfy the amount of such claim and Buyer is unable to recover the amount of such claim from the Seller Entities after commercially reasonable efforts (but in no event shall Buyer be required to litigate any such claim), Buyer shall be entitled to recover the amount of such claim (the “Shareholder Indemnity Liability”) directly from the Shareholders, including from the Principal Executives in accordance with the forfeiture provisions in their respective Employment Arrangements; provided, however, that except in the case of such Shareholder’s fraud, intentional misrepresentation or willful misconduct (in which case the limitations in this proviso shall not apply), no individual Shareholder shall be liable for any
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payment of any Shareholder Indemnity Liability that has not been recovered from the Escrow Fund to the extent that such Shareholder Indemnity Liability would exceed the aggregate amount of (i) any distributions by Seller of the Purchase Price to, or any amount retained by the Seller that could be distributed to, such Shareholder, plus (ii) in the case of Shareholder who is a Principal Executive, any amounts that could be subject to forfeiture pursuant to such Executive’s Employment Arrangements.
(b) By executing this Agreement, the Shareholders hereby agree to be jointly and severally liable for the amount of any Shareholder Indemnity Liability. Each Shareholder that is liable for a Shareholder Indemnity Liability shall contribute to the same in the same proportion as the number of shares of Seller capital stock held by such Shareholder on the Closing Date bears to the total number of shares of Seller capital stock held by all of the Shareholders on the Closing Date. To the extent that any Shareholder contributes in excess of such amount, such Shareholder shall have a right of contribution from each other Shareholder. Each Shareholder agrees that this contribution obligation is solely for the benefit of the Shareholders and shall not be enforceable against Buyer, or affect the right of the Buyer to collect from any Shareholder.
Section 10.07 Tax Treatment of Indemnification Payments. All indemnification payments made under this Agreement shall be treated by the parties as an adjustment to the Purchase Price for Tax purposes, unless otherwise required by Law.
Section 10.08 Effect of Investigation. The representations, warranties and covenants of the Indemnifying Party, and the Indemnified Party’s right to indemnification with respect thereto, shall not be affected or deemed waived by reason of any investigation made by or on behalf of the Indemnified Party (including by any of its Representatives) or by reason of the fact that the Indemnified Party or any of its Representatives knew or should have known that any such representation or warranty is, was or might be inaccurate.
Section 10.09 Exclusive Remedies. Subject to Section 7.07 and Section 11.11, the parties acknowledge and agree that their sole and exclusive remedy with respect to any and all claims (other than claims arising from fraud, intentional misrepresentation or willful misconduct on the part of a party hereto in connection with the transactions contemplated by this Agreement) for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement, shall be pursuant to the indemnification provisions set forth in this Article X. Nothing in this Section 10.09 shall limit any Person’s right to seek and obtain any equitable relief to which any Person shall be entitled or to seek any remedy on account of any party’s fraud, intentional misrepresentation or willful misconduct.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Expenses. Except as otherwise expressly provided herein, all costs and expenses, including fees and disbursements of counsel, financial advisors and accountants,
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incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses.
Section 11.02 Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand; (b) when received by the addressee if sent by a nationally recognized overnight courier; (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 11.02):
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If to Seller: |
Laser Design, Inc. |
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9401 James Ave. S. #132 |
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Minneapolis, MN 55431 |
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Facsimile: 952-516-5189 |
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E-mail: mschuster@laserdesign.com |
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Attention: C. Martin Schuster |
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with a copy to: |
Soffer Charbonnet Law Group, PLLC |
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7300 France Avenue South, Suite 210 |
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Minneapolis, MN 55435 |
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Facsimile: 952.835.5404 |
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E-mail: asoffer@sofferlaw.com |
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Attention: Adam Soffer |
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If to Buyer: |
CyberOptics Corporation |
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5900 Golden Hills Drive |
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Golden Valley, MN 55416 |
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E-mail: jbertelsen@cyberoptics.com |
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Attention: Jeffrey A. Bertelsen |
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with a copy to: |
Dorsey & Whitney LLP |
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50 South Sixth Street, Suite 1500 |
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Minneapolis, MN 55402 |
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Facsimile: 612.340.7800 |
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E-mail: martin.tom@dorsey.com |
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Attention: Tom Martin |
Section 11.03 Interpretation. For purposes of this Agreement, (a) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation”; (b)
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the word “or” is not exclusive; and (c) the words “herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement as a whole. Unless the context otherwise requires, references herein: (x) to Articles, Sections, Disclosure Schedules, Schedules and Exhibits mean the Articles and Sections of, and Disclosure Schedules, Schedules and Exhibits attached to, this Agreement; (y) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and (z) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. The Disclosure Schedules, Schedules and Exhibits referred to herein shall be construed with, and as an integral part of, this Agreement to the same extent as if they were set forth verbatim herein.
Section 11.04 Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.
Section 11.05 Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Except as provided in Section 7.07(d), upon such determination that any term or other provision is invalid, illegal or unenforceable, 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 a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
Section 11.06 Entire Agreement. This Agreement and the other Transaction Documents constitute the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein and therein, and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any inconsistency between the statements in the body of this Agreement and those in the other Transaction Documents, the Exhibits, Schedules and Disclosure Schedules (other than an exception expressly set forth as such in the Disclosure Schedules), the statements in the body of this Agreement will control.
Section 11.07 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither party may assign its rights or obligations hereunder without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed, except that Buyer may, without the consent of the Seller Entities, assign its rights and obligations under this Agreement to any corporation, firm or other business entity controlled by, or under common control with, Buyer. No assignment shall relieve the assigning party of any of its obligations hereunder.
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Section 11.08 No Third-party Beneficiaries. Except as provided in Article X, this Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
Section 11.09 Amendment and Modification; Waiver. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No waiver by any party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
Section 11.10 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.
(a) This Agreement shall be governed by and construed in accordance with the internal laws of the State of Minnesota without giving effect to any choice or conflict of law provision or rule (whether of the State of Minnesota or any other jurisdiction) that would cause the application of Laws of any jurisdiction other than those of the State of Minnesota.
(b) ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY MAY BE INSTITUTED IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN HENNEPIN COUNTY, MINNESOTA AND APPROPRIATE APPELLATE COURTS THEREFROM, AND EACH PARTY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING. SERVICE OF PROCESS, SUMMONS, NOTICE OR OTHER DOCUMENT BY MAIL TO SUCH PARTY’S ADDRESS SET FORTH HEREIN SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN ANY SUCH COURT. THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR ANY PROCEEDING IN SUCH COURTS AND IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
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RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.10(c).
Section 11.11 Specific Performance. The parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy to which they are entitled at law or in equity.
Section 11.12 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
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Buyer: |
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LDI ACQUISITION CORP. |
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By |
/s/ Jeffrey Bertelsen |
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Name: Jeffrey Bertelsen |
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Title: CFO |
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Seller Entities: |
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LASER DESIGN, INC. |
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By |
/s/ C. M. Schuster |
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Name: C. M. Schuster |
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Title: President/CEO/Chairman/Sec. |
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GKS SERVICES CORP. |
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By |
/s/ C. M. Schuster |
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Name: C. M. Schuster |
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Title: President |
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3D LEASING CORP. |
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By |
/s/ C. M. Schuster |
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Name: C. M. Schuster |
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Title: President |
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3D SCANNING TECHNOLIGIES, LTD. |
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By |
/s/ C. M. Schuster |
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Name: C. M. Schuster |
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Title: President |
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Shareholders: |
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/s/ C. M. Schuster |
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C. Martin Schuster |
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[Signature Page – Asset Purchase Agreement]
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/s/ Patricia A. Schuster |
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Patricia A. Schuster |
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/s/ Armando Alonso |
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Armando Alonso |
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/s/ Robert Thoreson |
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Robert Thoreson |
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/s/ J.L. Dethier |
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J.L. Dethier |
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By executing below, Cyberoptics Corporation, the owner of all outstanding capital stock of Buyer, hereby absolutely, unconditionally and irrevocably guarantees the full performance of all financial and indemnification obligations of Buyer under this Agreement.
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CyberOptics Corporation |
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By |
/s/ Subodh Kulkarni |
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Name: Subodh Kulkarni |
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Title: Executive Chairman |
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[Signature Page – Asset Purchase Agreement]
Exhibit 10.11
SEPARATION AGREEMENT
This Separation Agreement (“Agreement”) is entered into by and between Kathleen P. Iverson (“Ms. Iverson”) and CyberOptics Corporation (“CyberOptics”).
WHEREAS, Ms. Iverson has served as Chief Executive Officer of CyberOptics and is hereby retiring and resigning her position as CEO and terminating her employment with CyberOptics effective as of January 31, 2014;
WHEREAS, Ms. Iverson and CyberOptics are parties to a Severance Pay Agreement dated as of May 19, 2008, as amended by the Amendment to Severance Agreement dated December 31, 2011 (as amended, the “Severance Agreement”);
WHEREAS, CyberOptics is grateful for Ms. Iverson’s loyal service and dedication, and desires to provide Ms. Iverson fair and equitable separation compensation; and
WHEREAS, CyberOptics and Ms. Iverson desire to fully and finally settle all issues, differences and actual and potential claims between them, including, but in no way limited to, any claim that might arise out of Ms. Iverson’s employment with CyberOptics or her separation therefrom;
NOW, THEREFORE, in consideration of the mutual promises contained herein, Ms. Iverson and CyberOptics agree as follows:
1. Resignation. Ms. Iverson hereby acknowledges and agrees that her employment with CyberOptics shall be terminated on, and that her last day of service to CyberOptics shall be, January 31, 2014 (the “Termination Date”). Effective as of that date, Ms. Iverson hereby resigns all positions as an officer or director of CyberOptics and any of its subsidiaries, or trustee or administrator of benefit plans of CyberOptics and any of its subsidiaries.
2. Separation Compensation. As consideration for Ms. Iverson’s promises and obligations under this Agreement, including but not limited to the release of claims set forth in Section 7 below, Ms. Iverson will receive the following consideration, provided that she signs and does not revoke this Agreement:
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(a) All employment compensation through the Termination Date, including salary and benefits, and including the bonus earned with respect to the year ended December 31, 2013, which bonus shall be paid contemporaneous with payment of bonuses to employees; |
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(b) A separation payment in a lump sum amount equal to Ms. Iverson’s annual salary payable (i) with respect to $256,380 on the Termination Date, and (ii) with respect to $34,920 on the seventh business day after the Termination Date and only, with respect to this 2(b)(ii), if the release attached as Exhibit A is executed; |
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(c) Reimbursement for reasonable expenses incurred prior to the Termination Date in accordance with CyberOptics’ reimbursement policy, and submitted in a format consistent with CyberOptics’ expense reporting policy on or before the Termination Date; |
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(d) Amendment and extension through August 31, 2014, of the right to exercise the stock options specifically referenced in Section 3(b) that are vested on the Termination Date; |
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(e) All accumulated unused vacation pay through the Termination Date (Ms. Iverson’s accumulated vacation pay was 184 hours as of December 13, 2013); |
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(f) All amounts payable under CyberOptics’s 401(k) plan pursuant to, and at the time and in the manner specified in such Plan through the Termination Date (including any matching contributions from CyberOptics through such date). |
3. No Other Rights.
(a) Ms. Iverson acknowledges and agrees that the consideration set forth in Section 2 is in exchange for entering into this Agreement and that the consideration set forth in Section 2(b)(ii) is in consideration of the release set forth in Exhibit A. The payments referenced in Section 2 shall be deemed to be income to Ms. Iverson solely in the year in which such payments are received by Ms. Iverson and shall not entitle Ms. Iverson to additional compensation or benefits of any kind, including but not limited to under any company bonus, stock compensation, incentive, or benefit plan or agreement, nor will it entitle Ms. Iverson to any increased retirement, 401(k) benefits or matching benefits, or deferred compensation or any other benefits. Ms. Iverson further acknowledges and agrees that the benefits to be provided to her by this Agreement shall be in full payment and satisfaction of any and all financial obligations due to Ms. Iverson from CyberOptics.
(b) Notwithstanding Section 3(a), CyberOptics acknowledges that Ms. Iverson holds options (the “Options”) to purchase an aggregate of 166,217 shares of CyberOptics Common Stock that shall, as described below, survive the Termination Date, including the following:
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Grant Date |
Total Shares |
Unvested Shares |
Exercise Price |
Expiration Datea |
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12/7/07 |
13,350 |
-0- |
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$12.34 |
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5/1/14 |
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12/10/10 |
16,667 |
4,166 |
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8.71 |
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5/1/14 |
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12/05/08 |
46,200 |
-0- |
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4.99 |
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5/1/14 |
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9/11/09 |
10,000 |
-0- |
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6.29 |
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8/31/14 |
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1/06/12 |
46,667 |
23,334 |
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7.30 |
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8/31/14 |
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12/14/12 |
33,333 |
25,000 |
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7.48 |
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8/31/14 |
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a. |
All Options expire by their terms 90 days after the Termination Date, but pursuant to Section 2(d) above, the right to exercise the last three options in the table above, to the extent vested as of the Termination Date, is being extended through August 31, 2014. |
Ms. Iverson acknowledges that to the extent listed as unvested, the Options set forth above expire on the Termination Date, and that all of the 8,750 restricted stock units held by Ms. Iverson that remain unvested on the Termination Date, shall be forfeited to CyberOptics and cancelled. CyberOptics and Ms. Iverson agree that the right to exercise the last three Options listed above, to the extent vested on the Termination Date, is hereby extended through August 31, 2014.
4. Tax Treatment. Ms. Iverson agrees that the amounts referenced in Section 2 will be treated as income subject to W-2 reporting and withholding pursuant to state and federal laws. It is understood that CyberOptics makes no representations or warranties with respect to the tax
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consequences of the payments referenced in Section 2. Ms. Iverson agrees to pay any amount that may be determined to be due and owing by her and not otherwise withheld as taxes, interest, penalties, or other government-required payments, arising out of the payments set forth in Section 2, for which she is solely responsible.
5. 409A Compliance. This Agreement is intended to comply with the requirements of Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended (“Code”), insofar as it relates to amounts subject to Section 409A, and this Agreement will be construed and administered accordingly. To the extent that any provision hereof is modified in order to comply with or be exempt from Section 409A, such modification shall be made in good faith and shall, to the maximum extent reasonably possible, maintain the original intent and economic benefit to CyberOptics and Ms. Iverson of the applicable provision without violating the provisions of Section 409A.
6. Indemnity. CyberOptics hereby agrees to indemnify Ms. Iverson to the fullest extent permitted by Minnesota Statutes Section 302A.521 for any proceeding resulting from Ms. Iverson’s official capacity while an employee, or director, of CyberOptics. CyberOptics agrees that such indemnity shall apply to disputes arising out of or resulting from any matter, fact or thing occurring prior to the Termination Date even though commenced after such date.
7. Release of Claims.
(a) Ms. Iverson, on behalf of herself, her spouse, successors, heirs, and assigns, hereby forever releases and discharges CyberOptics (including its parents, subsidiaries, directors, officers, employees, agents, predecessors, successors, assigns, shareholders and insurers) (the “Released Parties”) to the fullest extent permitted by law from any and all claims, debts, liabilities, demands, promises, agreements, costs and expenses (including but not limited to attorneys’ fees), damages, including liquidated damages or punitive damages, actions, and causes of action, of whatever kind or nature, whether known or unknown, suspected or unsuspected, fixed or contingent, arising out of any act or omission occurring before Ms. Iverson’s execution of this Agreement (except any claims arising out of or contemplated by this Agreement, and any claims under federal and state law that may not be released as a matter of law) including but not limited to: (a) any claims based on, arising out of, or related to Ms. Iverson’s employment with, or the termination of her employment with, CyberOptics, or her membership on CyberOptics’s Board of Directors or the termination thereof, and any claims for compensation of any kind, including without limitation, amounts due under any contract, all regular salary, expenses, distributions, earned but unused vacation, bonuses and incentive compensation, and stock options; (b) any claims arising from rights under federal, state and/or local laws, including but not limited to those related to any form of retaliation, harassment or discrimination on any basis, or any related cause of action, and any labor code provisions, including but not limited to, any alleged violation of Title VII of the Civil Rights Act of 1964; The Civil Rights Act of 1991; Sections 1981 through 1988 of Title 42 of the United States Code, as amended; the Americans with Disability Act of 1990, as amended; the Occupational Safety and Health Act, as amended; the Age Discrimination in Employment Act; the Older Worker Benefits Protection Act; the Family and Medical Leave Act; the Equal Pay Act; the Employee Retirement Income Security Act; the Minnesota Human Rights Act; Minn. § 181.81; Minn. Stat. § 176.82; Minn. Stat. §§ 181.931, 181.932, 181.935; and/or Minn. Stat. §§ 181.940–181.944; and any provision of the Minnesota or federal constitutions; (c) any claims grounded in contract or tort theories, including but not limited to claims for wrongful discharge, breach of
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express or implied contract; breach of implied covenant of good faith and fair dealing; tortious interference with contractual relations or prospective economic benefit; promissory estoppel; breach of promise; breach of manuals or other policies; violation of public policy; fraud; misrepresentation; defamation, including libel, slander, and self-publication defamation; negligence; negligent hiring, supervision or retention; assault; battery; invasion of privacy; false imprisonment; infliction of emotional distress; harassment; or any other wrongful or unlawful acts, omissions, statements or practices; and/or (d) any other claim of any kind whatsoever, including but not limited to any claim for damages or declaratory or injunctive relief of any kind.
(b) In consideration of and as a condition to the payment pursuant to Section 2(b), Ms. Iverson shall sign the confirming release attached hereto as Exhibit A on the Termination Date.
(c) Ms. Iverson represents that, as of the date she signs this Agreement, she is not aware of any violations of federal or state law or regulation or CyberOptics policy, and that she is not aware of any facts which would constitute a violation of any federal or state law or regulation or CyberOptics policy. Ms. Iverson further represents and warrants that she has not violated any federal or state law, statute, regulation, or ordinance. Based in part thereon, CyberOptics hereby releases and discharges Ms. Iverson from any and all liability for damages or claims of any kind, and agrees not to institute any claim for damages or otherwise, by charge or otherwise against Ms. Iverson for any claims, including, but not limited to any statutory, contract, quasi contract, or tort claims, whether developed or undeveloped, arising from or related to Ms. Iverson’s employment with CyberOptics, and/or the cessation of Ms. Iverson’s employment with CyberOptics, except to the extent such claims or liability arise out of conduct by Ms. Iverson with respect to which she would not be permitted indemnity under Minnesota Law.
8. ADEA Compliance. Ms. Iverson has been informed of her right to review and consider this Agreement for 21 calendar days, if she so chooses. Ms. Iverson further agrees and acknowledges that (a) her waiver of rights under this Agreement is knowing and voluntary as required under the Age Discrimination in Employment Act (“ADEA”);(b) she understands the terms of this Agreement;(c) CyberOptics advises Ms. Iverson to consult with an attorney prior to executing this Agreement;and (d) she may rescind this Agreement insofar as it extends to potential claims under the ADEA by providing written notice to CyberOptics within seven (7) calendar days after the date of her signature below. To be effective, the rescission must be in writing and delivered to CyberOptics either by hand or by mail within the seven (7)-day period. If delivered by mail, the rescission must be: (i) postmarked within the seven (7)-day period;properly addressed to Chief Financial Officer, CyberOptics Corporation, 5900 Golden Hills Drive, Minneapolis, MN 55416;and (iii) sent by certified mail, return receipt requested. In the event of such a rescission, (1) all of CyberOptics’ obligations under the Agreement shall be null and void, but the cessation of Ms. Iverson’s employment will be unaffected, and (2) any payments made as of that date by CyberOptics pursuant to Section 2, above, shall be immediately repaid by Ms. Iverson to CyberOptics.
9. MHRA Compliance. Ms. Iverson also has been informed of her right to rescind this Agreement insofar as it extends to potential claims under the Minnesota Human Rights Act (“MHRA”), Minn. Stat. § 363A, et seq., by providing written notice to CyberOptics within fifteen (15) calendar days after the date of her signature below. To be effective, the rescission must be in writing and delivered to CyberOptics either by hand or by mail within the fifteen (15)-day period.
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If delivered by mail, the rescission must be: (i) postmarked within the fifteen (15)-day period;properly addressed to Chief Financial Officer, CyberOptics Corporation, 5900 Golden Hills Drive, Minneapolis, MN 55416;and (iii) sent by certified mail, return receipt requested. In the event of such a rescission, (1) all of CyberOptics’s obligations under the Agreement shall be null and void, but the cessation of Ms. Iverson’s employment will be unaffected, and (2) any payments made as of that date by CyberOptics pursuant to paragraph 2, above, shall be immediately repaid by Ms. Iverson to CyberOptics.
10. Severance Agreement. Ms. Iverson hereby acknowledges that the Severance Agreement shall terminate as of the Termination Date.
11. Confidentiality of this Agreement. The terms of this Agreement shall remain strictly confidential between the parties hereto, and shall not be disclosed to third persons; provided, however, that Ms. Iverson may disclose such terms to her spouse and immediate family, and that the parties may disclose the terms to their respective legal counsel, accountants and financial advisors so long as such counsel, accountants and advisors agree to maintain the confidentiality thereof and provided further that such terms may be disclosed where compelled by judicial process, by the rules and regulations of the Securities and Exchange Commission or by the Internal Revenue Service or other appropriate agency, or in any proceedings in which one of the parties hereto alleges a breach of, or seeks the enforcement of, this Agreement.
12. Return of Company Records and Property. By January 31, 2014, Ms. Iverson shall deliver to CyberOptics all records, manuals, books, blank forms, documents, letters, memoranda, notes, notebooks, reports, data, tables, calculations or copies thereof, which are the property of CyberOptics or which relate in any way to the business, products, practices or techniques of CyberOptics , and all other property, trade secrets and confidential information of CyberOptics, including, but not limited to, all documents which in whole or in part contain any trade secrets or confidential information of the CyberOptics, which in any of these cases are in her possession or under her control.
13. Agreement to Cooperate. Upon request, Ms. Iverson agrees to give reasonable assistance and cooperation in any matter relating to her expertise or experience as CyberOptics may request, including but not limited to (1) providing information concerning, or assistance with, investigations, claims, litigations, matters or projects in which Ms. Iverson was involved or as to which Ms. Iverson potentially has knowledge by virtue of her employment with CyberOptics, and/or (2) Ms. Iverson’s attendance and truthful testimony where deemed appropriate by CyberOptics, with respect to any investigation or CyberOptics’s defense or prosecution of any existing or future claims or litigations relating to matters in which Ms. Iverson was involved or as to which Ms. Iverson potentially has knowledge by virtue of her employment with CyberOptics. To the extent permitted by law, CyberOptics will reimburse Ms. Iverson’s reasonable expenses incurred in connection with any travel that may be required to fulfill her obligation under this paragraph.
14. Disparagement. Ms. Iverson agrees she will refrain from making any comments or statements concerning CyberOptics, either in writing, electronically, orally, or otherwise that (a) are disparaging or defamatory or portray CyberOptics in a negative light; (b) in any way impair the reputation, goodwill, or legitimate business interest of CyberOptics; or (c) disparage the
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employees, agents, officers, directors, pricing, products, policies, or services of CyberOptics. CyberOptics agrees that its directors and executive officers will refrain from making any statements, whether in writing, electronically, orally, or otherwise, that are disparaging or defamatory of Ms. Iverson. Notwithstanding the above, nothing herein shall preclude the parties from testifying truthfully in administrative proceedings, or under oath or under power of a subpoena.
15. No Admission. This Agreement shall not in any way be construed as an admission by CyberOptics that it has acted wrongfully with respect to Ms. Iverson or any other person, or that Ms. Iverson has any rights whatsoever against CyberOptics. CyberOptics specifically disclaims any liability to, or wrongful acts against, Ms. Iverson or any other person, on the part of itself, its directors, its officers, its employees, its representatives or its agents.
16. Remedies. Any breach by Ms. Iverson of her covenants under this Agreement will likely cause irreparable harm to CyberOptics or its affiliates for which money damages could not reasonably or adequately compensate CyberOptics or its affiliates. Accordingly, CyberOptics or any of its affiliates shall be entitled to seek all forms of injunctive relief (whether temporary, emergency, preliminary, prospective, or permanent) to enforce such covenants, in addition to damages and other available remedies, and Ms. Iverson consents to the issuance of such an injunction without the necessity of CyberOptics or any such affiliate posting a bond, or if a court requires a bond to be posted, with a bond of no greater than $500 in principal amount. In the event that injunctive relief or damages are awarded to CyberOptics or any affiliate for any breach by Ms. Iverson of her covenants under this Agreement, Ms. Iverson further agrees that CyberOptics shall be entitled to recover its costs and attorney’s fees necessary to obtain such remedies.
17. Waiver of Breach. The waiver by CyberOptics of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach.
18. Miscellaneous.
(a) Entire Agreement. Except for any confidentiality, non-competition or similar provisions in other agreements between CyberOptics and Ms. Iverson that continue to be applicable after Ms. Iverson’s employment ends, which are hereby specifically preserved, this Agreement is the entire agreement between Ms. Iverson and CyberOptics concerning Ms. Iverson’s employment and the separation of Ms. Iverson’s employment and it supersedes all other agreements and arrangements relating to the end of Ms. Iverson’s employment including, without limitation, the Severance Agreement. It is Ms. Iverson’s intent to be legally bound by the terms of this Agreement. No amendments, modifications or waivers of this Agreement shall be binding unless made in writing and signed by both Ms. Iverson and a representative of CyberOptics so authorized by the Board of Directors.
(b) Nonassignable. This Agreement is personal to Ms. Iverson and may not be assigned by Ms. Iverson without the written agreement of CyberOptics.
(c) Severability. Ms. Iverson and CyberOptics agree that if any part, term, or provision of this Agreement should be held to be unenforceable, invalid, or illegal under any applicable law or rule, the offending term or provision shall be applied to the fullest extent enforceable, valid, or
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lawful under such law or rule, or, if that is not possible, the offending term or provision shall be struck and the remaining provisions of this Agreement shall not be affected or impaired in any way. However, if Ms. Iverson’s release of claims set forth in this Agreement is held invalid, illegal, or unenforceable, CyberOptics may void this Agreement.
(d) Governing Law. This Agreement will be governed by the laws of the State of Minnesota, without giving effect to its conflict of laws rules. Any action brought by Ms. Iverson or CyberOptics with respect to this Agreement shall be brought and maintained in a court of competent jurisdiction in the State of Minnesota.
(e) Consultation. Ms. Iverson hereby affirms and acknowledges that she has read the foregoing Agreement, that she has hereby been advised to consult with an attorney prior to signing this Agreement, and that she has done so. Ms. Iverson agrees that the provisions set forth in this Agreement are written in language understandable to her and further affirms that she understands the meaning of the terms of this Agreement and their effect. Ms. Iverson represents that she enters into this Agreement freely and voluntarily.
(f) Construction. Ms. Iverson acknowledges and agrees that no promises or representations have been made to induce her to sign this Agreement other than as expressly set forth herein and that she has signed this Agreement as a free and voluntary act. Further, this Agreement has been entered into after review of its terms by Ms. Iverson and her counsel. Therefore, there shall be no strict construction for or against either party. No ambiguity or admission shall be construed against CyberOptics on the grounds that this Agreement or any of its provisions was drafted or prepared by CyberOptics.
(g) Headings. The headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.
(h) Counterparts. This Agreement may be executed in separate counterparts, each of which will be an original and all of which taken together shall constitute one and the same agreement, and any party hereto may execute this Agreement by signing any such counterpart.
By signing below, Ms. Iverson acknowledges and affirms that she has read this Agreement completely. Ms. Iverson also acknowledges and affirms that:
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She has had a sufficient period of at least twenty-one (21) days within which to consider whether or not to accept this Agreement; |
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The provisions of this Agreement are understandable to her; |
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She has had an opportunity to consult with an attorney of her choice, CyberOptics has encouraged her to do so, and she has freely exercised that opportunity to the extent desired; and |
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She has entered into this Agreement freely and voluntarily. |
IN WITNESS WHEREOF, the parties have executed this Agreement by their signatures below.
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Dated: December 20, 2013 |
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/s/ Kathleen P. Iverson |
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Kathleen P. Iverson |
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Dated: December 20, 2013 |
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CYBEROPTICS CORPORATION |
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By |
/s/ Subodh Kulkarni |
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Subodh Kulkarni, Chairman |
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8
Exhibit A
The undersigned, Kathleen P. Iverson (“Ms. Iverson”) is retiring from her employment position with CyberOptics Corporation (“CyberOptics”) effective as of the date of this Exhibit A, resigning all her positions as an officer and director of CyberOptics, and terminating all other employment positions, all consistent with a Separation Agreement dated as of December 20, 2013 (the “Separation Agreement”). Consistent with Section 7(b) of the Separation Agreement, Ms. Iverson agreed to execute this Exhibit A on her Termination Date.
1. Release of Claims. In exchange for the $34,920 payment set forth in Section 2(b)(ii) of the Separation Agreement, Ms. Iverson, on behalf of herself, her spouse, successors, heirs, and assigns, hereby forever releases and discharges CyberOptics (including its parents, subsidiaries, directors, officers, employees, agents, predecessors, successors, assigns, shareholders and insurers) (the “Released Parties”) to the fullest extent permitted by law from any and all claims, debts, liabilities, demands, promises, agreements, costs and expenses (including but not limited to attorneys’ fees), damages, including liquidated damages or punitive damages, actions, and causes of action, of whatever kind or nature, whether known or unknown, suspected or unsuspected, fixed or contingent, arising out of any act or omission occurring before the date Ms. Iverson signs this Exhibit A. Ms. Iverson agrees that the release of claims in this Exhibit A includes, but is not limited to, any claims Ms. Iverson may have under: Title VII of the Civil Rights Act of 1964; The Civil Rights Act of 1991; sections 1981 through 1988 of Title 42 of the United States Code, as amended; the Americans with Disability Act of 1990, as amended; the Occupational Safety and Health Act, as amended; the Age Discrimination in Employment Act; the Older Worker Benefits Protection Act; the Family and Medical Leave Act; the Equal Pay Act; the Employee Retirement Income Security Act; the Minnesota Human Rights Act; Minn. § 181.81; Minn. Stat. § 176.82; Minn. Stat. §§ 181.931, 181.932, 181.935; and/or Minn. Stat. §§ 181.940–181.944; and any provision of the Minnesota or federal constitutions; any claims grounded in contract or tort theories, including but not limited to claims for wrongful discharge, breach of express or implied contract; breach of implied covenant of good faith and fair dealing; tortious interference with contractual relations or prospective economic benefit; promissory estoppel; breach of promise; breach of manuals or other policies; violation of public policy; fraud; misrepresentation; defamation, including libel, slander, and self-publication defamation; negligence; negligent hiring, supervision or retention; assault; battery; invasion of privacy; false imprisonment; infliction of emotional distress; harassment; or any other wrongful or unlawful acts, omissions, statements or practices; and/or any other claim of any kind whatsoever, including but not limited to any claim for damages or declaratory or injunctive relief of any kind.
2. Time to accept. Ms. Iverson will have 21 days from the date of the Separation Agreement to consider whether to sign this Exhibit A. Changes to this Exhibit A, whether material or immaterial, will not restart the 21-day consideration period. During this time, CyberOptics advises Ms. Iverson to consult with an attorney of your choice. To receive the consideration described in Section 2(b)(ii) of the Separation Agreement, Ms. Iverson must sign this Exhibit A and return the signed original to the Chief Financial Officer, CyberOptics Corporation, 5900 Golden Hills Drive, Minneapolis, MN 55416.
3. Right to Revoke and Rescind. Ms. Iverson is hereby informed of her right to revoke her release of claims under this Exhibit A, insofar as it extends to potential claims under the Age Discrimination in Employment Act, by informing CyberOptics of her intent to do so within seven (7) calendar days following your signing of this Exhibit A. Ms. Iverson is also informed of her right to rescind her release of claims, insofar as it extends to potential claims under the Minnesota Human Rights Act, by delivering a written rescission to CyberOptics within fifteen (15) calendar days after your signing of this Exhibit A. These rescission and revocation periods will run concurrently. Ms. Iverson understands that any such revocation or rescission must be made in writing and delivered by hand or by certified mail, return receipt requested, postmarked on or before the last day within the applicable revocation period to Chief Financial Officer, CyberOptics Corporation, 5900 Golden Hills Drive, Minneapolis, MN 55416. If Ms. Iverson exercises her right to revoke or rescind any portion of this release of claims, CyberOptics may, at its option, either nullify the Separation Agreement and this Exhibit A in their entirety, or keep them in effect in all respects other than as to that portion of your release of claims that Ms. Iverson has revoked or rescinded (except that your employment ended on the Termination Date). Ms. Iverson agrees and understands that if CyberOptics chooses to nullify the Separation Agreement and Exhibit A in its entirety, CyberOptics will have no obligations under the Separation Agreement and this Exhibit A.
3. Miscellaneous. The signing of this Exhibit A and payment of the consideration described in the attached Agreement do not represent any admission of wrongdoing or violation of any statute, agreement, or common law by CyberOptics. This Exhibit A shall be governed by and interpreted in accordance with the laws of the State of Minnesota. To the extent any clause or provision of this Exhibit A shall be determined to be invalid and/or unenforceable, such a clause or provision shall be deleted and the validity and enforceability of the remainder of this Exhibit A shall be unaffected. Any action between Ms. Iverson and CyberOptics relating to her employment or termination of employment with CyberOptics, including, without limitation, actions relating to or arising under the Separation Agreement and/or this Exhibit A, shall be filed and adjudicated exclusively in the state and federal courts of the State of Minnesota, and Ms. Iverson and CyberOptics hereby consent to the jurisdiction of such courts for any such action and further waive any objection to the convenience of the forum or venue.
4. Employee Representation. Ms. Iverson agrees and acknowledge that she has received and read this Exhibit A, that the provisions of this Exhibit A are understandable to her, and that she fully appreciates and understands the meaning of the terms of this Exhibit A and their effect. Ms. Iverson agrees that no promise or inducement has been offered except as set forth in this Exhibit A, and that Ms. Iverson IS signing this Exhibit A without reliance upon any statement or representation by CyberOptics or any representative or agent of CyberOptics except as set forth in this Exhibit A. Ms. Iverson agrees and acknowledges that she has been provided with a reasonable and sufficient period of twenty-one (21) days within which to consider whether or not to accept this Exhibit A, and she has been advised to consult with an attorney for advice in connection with this Exhibit A prior to signing the Exhibit A, which advice she has taken. Ms. Iverson acknowledges and agrees that she has entered into this Exhibit A freely and voluntarily.
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Dated: January 31, 2014 |
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/s/ Kathleen P. Iverson |
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Kathleen P. Iverson |
A-2
Exhibit 10.12
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this “Agreement”) dated as of January 13, 2014 between CyberOptics Corporation (the “Company”), a Minnesota corporation, and Subodh Kulkarni (the “Executive”), a resident of Minnesota.
WHEREAS, the Executive is employed as Executive Chairman;
WHEREAS, the Company wishes to retain the Executive in the position of Chief Executive Officer and President effective as of February 1, 2014 (the “Effective Date”), and the Executive wishes to be retained in such position, on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual agreements set forth below and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows:
1. Term. Unless terminated at an earlier date in accordance with Section 8 of this Agreement, the term of the Executive’s employment hereunder shall be for a period of one (1) year, commencing on the Effective Date. Thereafter, the term of this Agreement shall be automatically extended for successive one-year periods unless either party objects to such extension by written notice to the other party at least 365 days prior to the expiration of the initial term or any extension term.
2. Position and Duties.
(a) Service with the Company. The Executive shall initially serve in the capacity of, and with the title of Chief Executive Officer and President. Executive also agrees to serve, for any period for which Executive is elected, as a director of Company; provided, however, that Executive shall not be entitled to any additional compensation for serving as a director. Executive acknowledges and agrees that, from time to time, Executive will be required to perform duties with respect to one or more of the Company’s subsidiary or affiliate companies and that Executive will not be entitled to any additional compensation for performing those duties.
(b) Performance of Duties. Executive agrees to perform such duties and responsibilities (a) as are set forth for his position as an officer in the By-laws of the Company; (b) as the Board shall assign to the Executive from time to time;and (c) that the Executive undertakes or accepts consistent with his position. The Executive agrees to serve the Company faithfully and to the best of his ability and to devote his full time, attention and efforts to the business and affairs of the Company during his employment by the Company. The Executive hereby confirms that he is under no contractual commitments inconsistent with his obligations set forth in this Agreement and that during the term of this Agreement, he will not render or perform services for any other corporation, firm, entity or person which are inconsistent with the provisions of this Agreement. While he remains employed by the Company, the Executive may participate in reasonable charitable activities and personal investment activities. The Company also acknowledges that Executive has significant equity interests in two companies. Although the Company agrees that Executive may provide periodic consultation to such companies, Executive agrees to limit that consultation to non-work hours, and to attendance at board meetings for not more than one work day in the aggregate for both companies per quarter
3. Compensation.
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(a) Base Salary. As compensation in full for all services to be rendered by the Executive under this Agreement, the Company shall pay to the Executive a base salary of $25,000 per month, less deductions and withholdings, which salary shall be paid in accordance with the Company’s normal payroll procedures and policies. The compensation payable to the Executive during each year after the first year of the Executive’s employment shall be established by the Company’s Board of Directors following an annual performance review, but in no event shall the salary for any subsequent year be less than the salary in effect for the prior year. |
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(b) Incentive Compensation. The Executive shall be entitled to annual cash incentive compensation based upon achievement of such financial milestones or business milestones, or both, as shall be established annually by the Company’s Compensation Committee, or the Committee of the Board charged with establishing executive compensation. For fiscal 2014, the Executive’s cash incentive, based upon achievement of business milestones and financial milestones, will be equal to 50% of the Executive’s salary at the plan level, and 100% of Executive’s salary at the maximum level. |
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(c) Participation in Benefit Plans. While he is employed by the Company, the Executive shall be eligible to participate in all employee benefit plans or programs of the Company to the extent that the Executive meets the requirements for each individual plan. Without limiting the foregoing, Executive shall be eligible to participate in any pension plan, or group life, health or accident insurance or any such other plan or policy that may presently be in effect or that may hereafter be adopted by the Company for the benefit of its employees and corporate officers generally. The Company provides no assurance as to the adoption or continuance of any particular employee benefit plan or program, and the Executive’s participation in any such plan or program shall be subject to the provisions, rules and regulations applicable thereto. |
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(d) Vacation. In addition to holidays, Executive shall be entitled to six weeks of paid vacation per year, which shall accrue proportionately based on the number of months for which Executive’s services have been provided to the Company. At the end of each year Executive may carry forward up to six weeks of previously accrued and unused vacation days: any unused vacation days in excess of six weeks will expire at year end. If Executive desires to take vacation prior to its accrual, he must specifically agree in writing to offset the value of any vacation taken but not earned against any final payments due Executive in the event of termination. |
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(e) Expenses. The Company will pay or reimburse the Executive for all reasonable and necessary out-of-pocket expenses incurred by him in the performance of his duties under this Agreement, subject to the Company’s normal policies for reimbursement and expense verification. |
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(f) Issuance of Stock Option. On the first business day (the “Grant Date”) following announcement of Executive’s appointment, the Company shall grant to the Executive, pursuant to the Company’s 1998 Stock Incentive Plan (as amended, the “Plan”) an option to purchase 80,000 shares of the Company’s common stock at an exercise price equal to the last sale price as quoted on Nasdaq on the Grant Date, which option shall vest and become exercisable with respect to 20,000 shares on the first, second, third and fourth anniversaries of the Grant Date (provided Executive remains an employee of the Company as of such dates), and which shall expire seven years from the Grant Date. Such option shall be subject to the terms and conditions set forth in the Company’s standard form of stock option agreement attached as Exhibit A hereto. |
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(h) Restricted Stock Units. On the Grant Date, the Company shall grant to the Executive restricted stock units with respect to 20,000 shares of the Company’s common stock in accordance with the terms of the Plan that shall vest with respect to 5,000 shares on each of the first, second, third and fourth anniversaries of the Grant Date (provided Executive remains an employee of the Company as of such dates). Such RSU shall be subject to the terms and conditions set forth in the Company’s standard form of award agreement attached as Exhibit B hereto |
4. Confidential Information. Except as permitted or directed by the Company’s Board of Directors, during the term of his employment or at any time thereafter, the Executive shall not divulge, furnish or make accessible to anyone or use in any way (other than in the ordinary course of the business of the Company) any confidential or secret knowledge or information of the Company that the Executive has acquired or become acquainted with or will acquire or become acquainted with prior to the termination of the period of his employment by the Company, whether developed by himself or by others, concerning any trade secrets, confidential or secret designs, processes, formulae, plans, devices or material (whether or not patented or patentable) directly or indirectly useful in any aspect of the business of the Company, any customer or supplier lists of the Company, any confidential or secret development or research work of the Company, or any other confidential information or secret aspects of the business of the Company. The Executive acknowledges that the above-described knowledge or information constitutes a unique and valuable asset of the Company and represents a substantial investment of time and expense by the Company, and that any disclosure or other use of such knowledge or information other than for the sole benefit of the Company would be wrongful and would cause irreparable harm to the Company. Both during and after the term of his employment, the Executive will refrain from any acts or omissions that would reduce the value of such knowledge or information to the Company. The foregoing obligations of confidentiality shall not apply to any knowledge or information that is now published or which subsequently becomes generally publicly known in the form in which it was obtained from the Company, other than as a direct or indirect result of the breach of this Agreement by the Executive.
5. Ventures. If, during the term of his employment the Executive is engaged in or associated with the planning or implementing of any project, program or venture involving the Company and a third party or parties, all rights in such project, program or venture shall belong to the Company. Except as approved by the Company’s Board of Directors, the Executive shall not be entitled to any interest in such project, program or venture or to any commission, finder’s fee or other compensation in connection therewith other than the compensation to be paid to the Executive as provided in this Agreement. Except as contemplated in Section 6(c) hereof, the Executive shall have no interest, direct or indirect, in any vendor or customer of the Company.
6. Noncompetition Covenant.
(a) Agreement Not to Compete. During the term of his employment with the Company and for a period of one year after the termination of such employment (whether such termination is with or without cause, or whether such termination is occasioned by the Executive or the Company), Executive shall not, directly or indirectly, engage in competition with the Company in any manner or capacity (e.g., as an advisor, principal, agent, partner, officer, director, stockholder, employee, member of any association or otherwise) in any phase of the business which the Company is conducting during the term of this Agreement, including the design, development, manufacture, distribution, marketing, leasing or selling of accessories, devices or systems related to the products or services being sold by the Company, or hire any current or former employee of the Company.
(b) Geographic Extent of Covenant. The obligations of the Executive under Section 6(a) shall apply to any geographic area in which the Company (i) has engaged in business during the term of
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this Agreement through production, promotional, sales or marketing activity, or otherwise, or (ii) has otherwise established its goodwill, business reputation or any customer or supplier relations.
(c) Limitation of Covenant. Ownership by the Executive, as a passive investment, of less than five percent of the outstanding shares of capital stock of any corporation listed on a national securities exchange shall not constitute a breach of Section 5 or this Section 6.
(d) Indirect Competition. The Executive will not, directly or indirectly, assist or encourage any other person in carrying out, directly or indirectly, any activity that would be prohibited by the above provisions of this Section 6 if such activity were carried out by the Executive, either directly or indirectly. In particular the Executive agrees that he will not, directly or indirectly, induce any employee of the Company to carry out, directly or indirectly, any such activity.
(e) Acknowledgment. The Executive agrees that the restrictions and agreements contained in this Section 6 are reasonable and necessary to protect the legitimate interests of the Company and that any violation of this Section 6 will cause substantial and irreparable harm to the Company that would not be quantifiable and for which no adequate remedy would exist at law and accordingly injunctive relief shall be available for any violation of this Section 6.
(f) Blue Pencil Doctrine. If the duration or geographical extent of, or business activities covered by, this Section 6 are in excess of what is valid and enforceable under applicable law, then such provision shall be construed to cover only that duration, geographical extent or activities that are valid and enforceable. The Executive acknowledges the uncertainty of the law in this respect and expressly stipulates that this Agreement be given the construction which renders its provisions valid and enforceable to the maximum extent (not exceeding its express terms) possible under applicable law.
7. Patent and Related Matters.
(a) Disclosure and Assignment. The Executive will promptly disclose in writing to the Company complete information concerning each and every invention, discovery, improvement, device, design, apparatus, practice, process, method or product, whether patentable or not, made, developed, perfected, devised, conceived or first reduced to practice by the Executive, either solely or in collaboration with others, during the term of this Agreement, or within six months thereafter, whether or not during regular working hours, relating either directly or indirectly to the business, products, practices or techniques of the Company (“Developments”). The Executive, to the extent that he has the legal right to do so, hereby acknowledges that any and all of the Developments are the property of the Company and hereby assigns and agrees to assign to the Company any and all of the Executive’s right, title and interest in and to any and all of the Developments. At the request of the Company, the Executive will confer with the Company and its representatives for the purpose of disclosing all Developments to the Company as the Company shall reasonably request during the period ending one year after termination of the Executive’s employment with the Company.
(b) Future Developments. As to any future Developments made by the Executive that relate to the business, products or practices of the Company and that are first conceived or reduced to practice during the term of this Agreement, or within six months thereafter, but which are claimed for any reason to belong to an entity or person other than the Company, the Executive will promptly disclose the same in writing to the Company and shall not disclose the same to others if the Company, within 20 days thereafter, shall claim ownership of such Developments under the terms of this Agreement.
(c) Limitation on Sections 7(a) and 7(b). The provisions of Section 7(a) and 7(b) shall not apply to any Development meeting the following conditions:
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(i) such Development was developed entirely on the Executive’s own time; |
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(ii) such Development was made without the use of any Company equipment, supplies, facility or trade secret information; |
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(iii) such Development does not relate (A) directly to the business of the Company or (B) to the Company’s actual or demonstrably anticipated research or development;and |
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(iv) such Development does not result from any work performed by the Executive for the Company. |
(d) Assistance of the Executive. Upon request and without further compensation therefor, but at no expense to the Executive, the Executive will do all lawful acts, including but not limited to, the execution of papers and lawful oaths and the giving of testimony, that in the opinion of the Company, may be necessary or desirable in obtaining, sustaining, reissuing, extending and enforcing United States and foreign copyrights and Letters Patent, including but not limited to, design patents, on the Developments, and for perfecting, affirming and recording the Company’s complete ownership and title thereto, and to cooperate otherwise in all proceedings and matters relating thereto. Executive hereby irrevocably designates and appoints the Company and its duly authorized officers and agents, as Executive’s agents and attorneys-in-fact to act for and on Executive’s behalf, and to execute and file any documents and to do all other lawfully permitted acts to further the purposes of this Section 7(d) with the same legal force and effect as if executed by Executive.
(e) Records. The Executive will keep complete, accurate and authentic accounts, notes, data and records of the Developments in the manner and form requested by the Company. Such accounts, notes, data and records shall be the property of the Company, and, upon its request, the Executive will promptly surrender same to it or, if not previously surrendered upon its request or otherwise, the Executive will surrender the same, and all copies thereof, to the Company upon the conclusion of his employment.
(f) Obligations, Restrictions and Limitations. The Executive understands that the Company may enter into agreements or arrangements with agencies of the United States Government, and that the Company may be subject to laws and regulations which impose obligations, restrictions and limitations on it with respect to inventions and patents which may be acquired by it or which may be conceived or developed by employees, consultants or other agents rendering services to it. The Executive shall be bound by all such obligations, restrictions and limitations applicable to any such invention conceived or developed by him while he is employed by the Company and shall take any and all further action which may be required to discharge such obligations and to comply with such restrictions and limitations.
(g) Copyrightable Material. All right, title and interest in all copyrightable material that the Executive shall conceive or originate, either individually or jointly with others, and which arise out of the performance of this Agreement, will be the property of the Company and are by this Agreement assigned to the Company along with ownership of any and all copyrights in the copyrightable material. Upon request and without further compensation therefor, but at no expense to the Executive, the Executive shall execute all papers and perform all other acts necessary to assist the Company to obtain and register copyrights on such materials in any and all countries. Where applicable, works of authorship created by the Executive for the Company in performing his responsibilities under this Agreement shall be considered “works made for hire,” as defined in the U.S. Copyright Act.
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(h) Know-How and Trade Secrets. All know-how and trade secret information conceived or originated by the Executive that arises out of the performance of his obligations or responsibilities under this Agreement or any related material or information shall be the property of the Company, and all rights therein are by this Agreement assigned to the Company.
8. Termination of Employment.
(a) Grounds for Termination. The Executive’s employment shall terminate prior to the expiration of the initial term set forth in Section 1 or any extension thereof in the event that at any time:
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(i) The Executive dies, |
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(ii) The Executive becomes “Disabled,” so that he cannot perform the essential functions of his position with or without reasonable accommodation, |
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(iii) The Board of Directors of the Company elects to terminate this Agreement for “Cause” and notifies the Executive in writing of such election, |
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(iv) The Board of Directors of the Company elects to terminate this Agreement without “Cause” and notifies the Executive in writing of such election, |
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(v) The Executive elects to terminate this Agreement without Good Reason and notifies the Company of such election, or |
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(vi) The Executive elects to terminate this Agreement for Good Reason and notifies the Company in writing of such election. |
If this Agreement is terminated pursuant to clause (i), (ii) or (iii) of this Section 8(a), such termination shall be effective immediately. If this Agreement is terminated pursuant to clause (iv), (v) or (vi) of this Section 8(a), such termination shall be effective 30 days after delivery of the notice of termination.
(b) Certain Definitions. For purposes of this Section 8:
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(i) “Cause” means: |
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(A) The Executive has breached the provisions of Section 4, 6 or 7 of this Agreement in any material respect; |
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(B) The Executive has engaged in willful and material misconduct (including willful and material failure to perform the Executive’s duties as an officer or employee of the Company or a subsidiary where Executive has failed to cure such failure to perform within 30 days after receipt of written notice from the Company); |
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(C) The Executive has committed fraud, misappropriation or embezzlement in connection with the Company’s business; |
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(D) The Executive has been convicted or has pleaded nolo contendere to a felony; or |
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(E) The Executive has been convicted or has pleaded nolo contendere to a crime involving fraud or dishonesty, or any other crime of moral turpitude that reflects |
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upon the Executive’s fitness to perform duties as an officer or employee or that casts the Company in a negative light by association. |
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In the event that the Company terminates the Executive’s employment for “Cause” pursuant to clause (B) of this Section 8(b)(i) and the Executive objects in writing to the Board’s determination that there was proper “Cause” for such termination within 20 days after the Executive is notified of such termination, the matter shall be resolved by arbitration in accordance with the provisions of Section 9(a). If the Executive fails to object to any such determination of “Cause” in writing within such 20-day period, he shall be deemed to have waived his right to object to that determination. If such arbitration determines that there was not proper “Cause” for termination, such termination shall be deemed to be a termination pursuant to clause (iv) of Section 8(a). |
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(ii) “Disabled” means any mental or physical condition that renders the Executive unable to perform the essential functions of his position, with or without reasonable accommodation, for a period in excess of three months, as determined by an independent physician. |
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(iii) “Good Reason” means the Executive’s voluntary termination of employment for one or more of the following reasons: |
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(A) the assignment to Executive of employment responsibilities which are materially and adversely diminished from the responsibility and status held by Executive immediately prior to a Change in Control (provided that, Executive shall not be considered to have been assigned employment of lesser responsibility if Executive manages, has control over, or serves in the same position with a subsidiary, division or operating unit of an acquiring entity that generates revenues of comparable amounts to the revenues generated by the Company, and has operations of a similar scope to the operations conducted by the Company immediately before such Change in Control); |
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(B) a material reduction by the Company in Executive’s compensation as in effect immediately prior to a Change in Control; |
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(C) the Company’s requiring Executive to be based anywhere other than within fifty (50) miles of Executive’s office location immediately prior to a Change in Control, except for requirements of temporary travel on the Company’s business to an extent substantially consistent with Executive’s business travel obligations immediately prior to a Change in Control; or |
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Notwithstanding the foregoing, prior to the Executive’s voluntary termination for Good Reason after a Change in Control, the Executive must give the Company written notice of the existence of any condition set forth in clause (A) – (C) above within 90 days of such initial existence and the Company shall have 30 days from the date of such notice in which to cure the condition giving rise to Good Reason, if curable. If, during such 30-day period, the Company cures the condition giving rise to Good Reason, no benefits shall be due under Section 8(d)(3) of this Agreement with respect to such occurrence. If, during such 30-day period, the Company fails or refuses to cure the condition giving rise to Good Reason, the Executive shall be entitled to benefits under Section 8(d)(3) of this Agreement upon such Termination;provided such Termination occurs within 12 months of such initial existence of the applicable condition. |
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(iv) “Change in Control” means: |
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(A) the consummation of the acquisition by any person (as such term is defined in Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”)) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the Company; |
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(B) the individuals who, as of the date hereof, are members of the Board of Directors of the Company cease for any reason to constitute a majority of the Board, unless the election, or nomination for election by the stockholders, of any new director was approved by a vote of a majority of the Board, and such new director shall, for purposes of this Agreement, be considered as a member of the Board; or |
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(C) the consummation by the Company of: (1) a merger or consolidation if the stockholders, immediately before such merger or consolidation, do not, as a result of such merger or consolidation, own, directly or indirectly, more than fifty percent (50%) of the combined voting power of the then outstanding Voting Securities of the entity resulting from such merger or consolidation in substantially the same proportion as their ownership of the combined voting power of the Voting Securities of the Company outstanding immediately before such merger or consolidation; or (2) a complete liquidation or dissolution or an agreement for the sale or other disposition of all or substantially all of the assets of the Company. |
(c) Effect of Termination. Notwithstanding any termination of this Agreement, the Executive, in consideration of his employment hereunder to the date of such termination, shall remain bound by the provisions of this Agreement which specifically relate to periods, activities or obligations upon or subsequent to the termination of the Executive’s employment.
(d) Payments after Termination.
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(i) Regardless of Timing. The Executive’s right to base salary, incentive compensation and benefits shall immediately terminate upon a termination of this Agreement under Section 8(a)(i),(ii),(iii) and (v), and except as provided in Section 8(d)(ii) and 8(d)(iii) upon termination under Section 8(a)(iv) and Section 8(a)(vi). |
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(ii) Termination Without Cause. If the Executive’s employment is terminated by the Company pursuant to Section 8(a)(iv) at any time other than within one (1) year after a Change in Control, and provided Executive has executed a written release to Company in substantially the form attached as Exhibit C and the revocation or rescission periods specified therein have expired, the Company shall continue to pay to the Executive, as severance compensation, his base salary through the date that is twelve (12) months from the date of termination of Executive’s employment. |
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(iii) Termination Without Cause or for Good Reason within one (1) year after a Change in Control. If the Executive’s employment is terminated by the Company pursuant to Section 8(a)(iv), or by the Executive pursuant to Section 8(a)(vi), within one (1) year after a Change in Control, and provided Executive has executed a written release to Company in substantially the form attached as Exhibit C and the revocation or rescission periods specified therein have expired, the Company shall pay to the Executive, as severance compensation, an amount equal to twice his annual base salary as of the date of such termination; subject, however, to the restriction that the Executive shall not be entitled to receive any amount pursuant to this Agreement which constitutes an “excess parachute payment” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), or any successor provision or |
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regulations promulgated thereunder. In case of uncertainty as to whether some portion of a payment might constitute an excess parachute payment, the Company shall initially make the payment to the Executive and Executive agrees to refund to the Company any amounts ultimately determined to be excess parachute payments. The payments under this Section 8(d)(iii) shall be due and payable in a single lump sum cash payment on the first day of the seventh month following termination of employment. |
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(iv) Notwithstanding anything to the contrary in this Section 8(d), if the Executive’s termination of employment is not a “Separation from Service” within the meaning of Section 409A of Code and the regulations and other published guidance thereunder (including §1.409A-1(h)), then, if required in order to comply with the provisions of Section 409A of the Code, payment of the benefits and related other payments which may be due under this Section 8(d) shall be delayed until such a Separation from Service occurs. |
(e) Surrender of Records and Property. Upon termination of his employment with the Company, the Executive shall deliver promptly to the Company all records, manuals, books, blank forms, documents, letters, memoranda, notes, notebooks, reports, data, tables, calculations or copies thereof that relate in any way to the business, products, practices or techniques of the Company, and all other property, trade secrets and confidential information of the Company, including, but not limited to, all documents that in whole or in part contain any trade secrets or confidential information of the Company, which in any of these cases are in his possession or under his control.
9. Settlement of Disputes; Arbitration. Except as provided in Section 9(b), any claims or disputes of any nature between the Company and the Executive arising from or related to the performance, breach, termination, expiration, application or meaning of this Agreement or any matter relating to the Executive’s employment and the termination of that employment by the Company shall be resolved exclusively by arbitration in Minneapolis, Minnesota, in accordance with the applicable rules of the American Arbitration Association. In the event of submission of any dispute to arbitration, each party shall select an arbitrator, which arbitrators shall then appoint a single arbitrator to hear the case. Not later than 30 days prior to the date set for hearing, each party shall provide to the other party and to the arbitrator a copy of all exhibits upon which the party intends to rely at the hearing and a list of all persons each party intends to call at the hearing. The fees of the arbitrator and other costs incurred by the Executive and the Company in connection with such arbitration shall be paid by the party that is unsuccessful in such arbitration. The decision of the arbitrator shall be final and binding upon both parties. Judgment of the award rendered by the arbitrator may be entered in any court of competent jurisdiction.
(b) Resolution of Certain Claims—Injunctive Relief. Section 9(a) shall have no application to claims by the Company asserting a violation of Section 4, 6, 7 or 8(e) or seeking to enforce, by injunction or otherwise, the terms of Section 4, 6, 7 or 8(e). Such claims may be maintained by the Company in a lawsuit subject to the terms of Section 9(c). The Executive acknowledges that it would be difficult to fully compensate the Company for damages resulting from any breach by him of the provisions of this Agreement. Accordingly, the Executive agrees that, in addition to, but not to the exclusion of any other available remedy, the Company shall have the right to enforce the provisions of Sections 4, 6, 7 or 8(e) by applying for and obtaining temporary and permanent restraining orders or injunctions from a court of competent jurisdiction without the necessity of filing a bond therefor, and without the necessity of proving actual damages, and the substantially prevailing party shall be entitled to recover from the non-prevailing party its reasonable outside counsel fees in enforcing the provisions of Sections 4, 6, 7 or 8(e).
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(c) Venue. Any action at law, suit in equity or judicial proceeding arising directly, indirectly, or otherwise in connection with, out of, related to or from Sections 4, 6, 7 or 8(e) of this Agreement, shall be litigated only in the courts of the State of Minnesota, County of Hennepin. The Executive and the Company consent to the jurisdiction of such courts over the subject matter set forth in Section 9(b). The Executive waives any right the Executive may have to transfer or change the venue of any litigation brought against the Executive by the Company.
10. Code Section 409A.
(a) In General. This Agreement is intended to meet the requirements of Section 409A of the Code, and shall be interpreted and construed consistent with that intent.
(b) Payments subject to Section 409A. Notwithstanding any other provision of this Agreement, to the extent that the right to any payment (including the provision of benefits) hereunder provides for the “deferral of compensation” within the meaning of Section 409A(d)(1) of the Code, the payment shall be paid (or provided) in accordance with the following:
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(a) If the Executive is a “Specified Employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code on the date of the Executive’s Separation from Service (the “Separation Date”), and if an exemption from the six (6) month delay requirement of Code Section 409A(a)(2)(B)(i) is not available, then no such payment shall be made or commence during the period beginning on the Separation Date and ending on the date that is six months following the Separation Date or, if earlier, on the date of the Executive’s death. The amount of any payment that would otherwise be paid to the Executive during this period shall instead be paid to the Executive on the first day of the first calendar month following the end of the period. Each payment hereunder is intended to constitute a separate payment from each other payment for purposes of Treasury Regulation Section 1.409A-2(b)(2). |
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(b) Payments with respect to reimbursements of expenses or benefits or provision of fringe or other in-kind benefits shall be made on or before the last day of the calendar year following the calendar year in which the relevant expense or benefit is incurred. The amount of expenses or benefits eligible for reimbursement, payment or provision during a calendar year shall not affect the expenses or benefits eligible for reimbursement, payment or provision in any other calendar year. |
11. Miscellaneous.
(a) Entire Agreement. This Agreement (including the exhibits, schedules and other documents referred to herein) contains the entire understanding between the parties hereto with respect to the subject matter hereof and supersedes any prior understandings, agreements or representations, written or oral, relating to the subject matter hereof.
(b) Counterparts. This Agreement may be executed in separate counterparts, each of which will be an original and all of which taken together shall constitute one and the same agreement, and any party hereto may execute this Agreement by signing any such counterpart.
(c) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law but if any provision of this Agreement is held to be invalid, illegal or unenforceable under any applicable law or rule, the validity, legality and enforceability of the other provision of this Agreement will not be affected or impaired thereby. In
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furtherance and not in limitation of the foregoing, should the duration or geographical extent of, or business activities covered by, any provision of this Agreement be in excess of that which is valid and enforceable under applicable law, then such provision shall be construed to cover only that duration, extent or activities which may validly and enforceably be covered. The Executive acknowledges the uncertainty of the law in this respect and expressly stipulates that this Agreement be given the construction which renders its provision valid and enforceable to the maximum extent (not exceeding its express terms) possible under applicable law.
(d) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives and, to the extent permitted by subsection (e), successors and assigns.
(e) Assignability. Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable (including by operation of law) by either party without the prior written consent of the other party to this Agreement, except that the Company may, without the consent of the Executive, assign its rights and obligations under this Agreement to any corporation, firm or other business entity with or into which the Company may merge or consolidate, or to which the Company may sell or transfer all or substantially all of its assets, or of which 50% or more of the equity investment and of the voting control is owned, directly or indirectly, by, or is under common ownership with, the Company. After any such assignment by the Company, the Company shall be discharged from all further liability hereunder and such assignee shall thereafter be deemed to be the Company for the purposes of all provisions of this Agreement including this Section 11.
(f) Modification, Amendment, Waiver or Termination. No provision of this Agreement may be modified, amended, waived or terminated except by an instrument in writing signed by the parties to this Agreement. No course of dealing between the parties will modify, amend, waive or terminate any provision of this Agreement or any rights or obligations of any party under or by reason of this Agreement. No delay on the part of the Company in exercising any right hereunder shall operate as a waiver of such right. No waiver, express or implied, by the Company of any right or any breach by the Executive shall constitute a waiver of any other right or breach by the Executive.
(g) Notices. All notices, consents, requests, instructions, approvals or other communications provided for herein shall be in writing and delivered by personal delivery, overnight courier, mail, electronic facsimile or e-mail addressed to the receiving party at the address set forth herein. All such communications shall be effective when received.
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CyberOptics Corporation |
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5900 Golden Hills Drive |
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Golden Valley, MN 55416 |
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Attention: Chief Financial Officer |
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(763) 542-5737 |
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Subodh Kulkarni |
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8766 Inverness Road |
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Woodbury, MN 55125 |
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651-739-8443 |
Any party may change the address set forth above by notice to each other party given as provided herein.
(h) Headings. The headings and any table of contents contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.
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(i) Governing Law. ALL MATTERS RELATING TO THE INTERPRETATION, CONSTRUCTION, VALIDITY AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW PROVISIONS THEREOF.
(j) Third-Party Benefit. Nothing in this Agreement, express or implied, is intended to confer upon any other person any rights, remedies, obligations or liabilities of any nature whatsoever.
(k) Withholding Taxes. The Company may withhold from any benefits payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth below.
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CYBEROPTICS CORPORATION |
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By: |
/s/ Jeffrey Bertelsen |
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Jeffrey Bertelsen, Chief Financial Officer |
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/s/ Subodh Kulkarni |
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Subodh Kulkarni |
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EXHIBIT A
CYBEROPTICS CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of the «Day» of «Month», 20 by and between CyberOptics Corporation, a Minnesota corporation (“the Company”), and «Name» (“Employee”).
WHEREAS, the Company wishes to grant this stock option to Employee under its 1998 Stock Incentive Plan.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto hereby agree as follows:
1. Definitions
For all purposes of this Option, the following terms shall have the meanings ascribed to them below:
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(a) |
An “Adverse Change” in Employee’s employment shall mean the occurrence of any of the following events: |
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(i) |
the assignment to Employee of employment responsibilities which are not of comparable responsibility and status as the employment responsibilities held by Employee immediately prior to a Change in Control; |
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(ii) |
a reduction by the Company in Employee’s compensation (including targeted bonus compensation) as in effect immediately prior to a Change in Control; |
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(iii) |
the Company’s requiring Employee to be based anywhere after a Change of Control other than within fifty (50) miles of Employee’s office location immediately prior to a Change in Control, except for requirements of temporary travel on the Company’s business to an extent substantially consistent with Employee’s business travel obligations immediately prior to a Change in Control; or |
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(b) |
“Change in Control” shall mean: |
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(i) |
a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), whether or not the Company is then subject to such reporting requirement; |
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(ii) |
the public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the Company or any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) that such person has become the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 40% or more of the combined voting power of the Company’s then outstanding securities; |
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(ii) |
the Continuing Directors cease to constitute a majority of the Company’s Board of Directors; |
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(iii) |
the shareholders of the Company approve (x) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of Company stock would be converted into cash, securities or other property, other than a merger of the Company in which shareholders immediately prior to the merger have the same proportionate ownership of stock of the surviving corporation immediately after the merger; (y) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company; or (z) any plan of liquidation or dissolution of the Company; or |
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(iv) |
the majority of the Continuing Directors determine in their sole and absolute discretion that there has been a change in control of the Company. |
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(c) |
“Code” shall mean the Internal Revenue Code of 1986, as amended. |
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(d) |
“Company” shall mean CyberOptics Corporation, a Minnesota corporation, and with respect to any reference to Employee’s employer, any subsidiary of CyberOptics Corporation. |
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(e) |
“Common Stock” shall mean the common stock, no par value, of the Company. |
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(f) |
“Continuing Director” shall mean any person who is a member of the Board of Directors of the Company, while such person is a member of the Board of Directors, who is not an Acquiring Person (as defined below) or an Affiliate or Associate (as defined below) of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, and who (x) was a member of the Board of Directors on the effective date of this Option or (y) subsequently becomes a member of the Board of Directors, if such person’s initial nomination for election or initial election to the Board of Directors is recommended or approved by a majority of the Continuing Directors. For purposes of this subparagraph (ii), “Acquiring Person” shall mean any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) who beneficially owns (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, securities of the Company representing 40% or more of the combined voting power of the Company’s then outstanding securities, but shall not include the Company, any subsidiary of the Company or any employee benefit plan of the Company or of any subsidiary of the Company or any entity holding shares of Common Stock organized, appointed or established for, or pursuant to the terms of, any such plan; and “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act. |
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(g) |
“Disabled” or “Disability” shall have the meaning attributed to it by Section 105(d)(4) of the Code or any successor section. |
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(h) |
“Option” shall mean the right to purchase Common Stock of the Company represented by this Agreement. |
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(i) |
“Retirement” or “Retire” shall mean the cooperative Resignation of Employee pursuant to its retirement policies after age 58and after the Employee has been employed by the Company or a subsidiary for more than ten years. |
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(j) |
“Resign” or “Resignation” shall mean the voluntary termination by Employee of employment with the Company, unless the Company agrees, through its Board of Directors, that such voluntary termination shall not constitute a resignation for purposes of this Option. |
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2. Grant of Option |
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The Company hereby grants to Employee, on the date set forth above and at the times and subject to the conditions set forth below, the right and option to purchase all or any part of an aggregate of «Shares» of Common Stock at the price of «Price» per share on the terms and conditions set forth herein. This Option is not intended to be an incentive stock option within the meaning of Section 422 of the Code.
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3. Duration and Exercisability |
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(a) |
Except as provided in paragraph 3(b) or 4(b) below, this Option may not be exercised by Employee until the expiration of one (1) year from the date hereof and shall become exercisable on the first anniversary of the date hereof with respect to 25% of the shares subject hereto and with respect to an additional cumulative 25% of the shares subject to this Option on the anniversary of the date hereof in each year thereafter until the fourth anniversary of the date hereof when this Option shall be exercisable in full. This Option shall terminate in all events seven (7) years after the date of grant. |
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(b) |
Notwithstanding Section 3(a), the exercisability of this Option shall be accelerated, and this Option shall become exercisable with respect to all of the shares subject to this Option on the date of, and in the event of, an Adverse Change in Employee’s employment after a Change In Control. |
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(c) |
During the lifetime of Employee, the Option shall be exercisable only by Employee and shall not be assignable or transferable by Employee, other than by will or the laws of descent and distribution. |
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4. Effect of Termination of Employment |
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(a) |
In the event that Employee (i) shall cease to be employed by the Company prior to a Change of Control for any reason other than Employee’s gross and willful misconduct, Employee’s Retirement or Employee’s death or Disability, or (ii) shall Resign after a Change of Control and prior to an Adverse Change, then Employee shall have the right to exercise the Option at any time within three months after such termination of employment or Resignation to the extent of the full number of shares Employee was entitled to purchase under the Option on the date of termination or resignation, subject to the condition that no Option shall be exercisable after the expiration of the term of the option. |
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(b) |
In the event that Employee’s employment with the Company is terminated by the Company within two years after a Change of Control, Employee shall have the right to exercise the Option at any time within three months after such termination of employment with respect to the full number of shares subject to this Option. |
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(c) |
In the event that Employee shall cease to be employed by the Company by reason of Employee’s gross and willful misconduct during the course of employment, including but not limited to wrongful appropriation of the Company funds or the commission of a gross misdemeanor or felony, the option shall be terminated as of the date of the misconduct. |
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(d) |
If Employee shall die while in the employ of the Company or within three months after termination of employment for any reason other than gross and willful misconduct or become Disabled while in the employ of the Company and Employee shall not have fully exercised the option, such option may be exercised at any time within twelve months after Employee’s death or Disability by the personal representatives or administrators, or if applicable guardian, of Employee or by any person or persons to whom the option is transferred by will or the applicable laws of descent and distribution, to the extent of the |
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full number of shares Employee was entitled to purchase under the option on the date of death, Disability or termination of employment, if earlier, and subject to the condition that no option shall be exercisable after the expiration of the term of the option. |
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(e) |
In the event Employee Retires, then Employee shall have the right to exercise the Option at any time after such Retirement and until the term of this Option expires to the extent of the full number of shares Employee was entitled to purchase under the Option on the date of Retirement. |
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5. Manner of Exercise |
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(a) |
The option can be exercised only by Employee or other proper party by delivering within the option period written notice to the Company at its principal office. The notice shall state the number of shares as to which the option is being exercised and be accompanied by payment in full of the option price for all shares designated in the notice. |
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(b) |
Employee may pay the option price by check (bank check, certified check or personal check) or with the approval of the Company by delivering to the Company for cancellation Common Stock of the Company with a fair market value equal to the option price; provided, however, that Employee shall not be entitled to tender shares of the Common Stock pursuant to successive, substantially simultaneous exercises of this Option or any other stock option of the Company. For these purposes, the fair market value of the Common Stock shall be as reasonably determined by the Company but shall not be less than, if applicable, (i) the closing price of the stock as reported for composite transactions, if the Common Stock is then traded on a national securities exchange, (ii) the last sale price if the Common Stock is then quoted on the NASDAQ National Market System or (iii) the average of the closing representative bid and asked prices of the Common Stock as reported on NASDAQ on the date as of which fair market value is being determined. |
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6. Miscellaneous |
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(a) |
This option is issued pursuant to the Company’s 1998 Stock Incentive Plan and is subject to its terms. The terms of the Plan are available for inspection during business hours at the principal offices of the Company. |
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(b) |
This Agreement shall not confer on Employee any right with respect to employment or continuance of employment by the Company, nor will it interfere in any way with the right of the Company to terminate such employment at any time. Employee shall have none of the rights of a shareholder with respect to shares subject to this Option until such shares shall have been issued to Employee upon exercise of this Option. |
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(c) |
The exercise of all or any parts of this Option shall only be effective at such time that the sale of Common Stock pursuant to such exercise will not violate any state or federal securities or other laws. |
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(d) |
Notwithstanding any other provision of this Option, if there shall be any change in the common stock subject to the Option through merger, consolidation, reorganization, recapitalization, dividend or other distribution, stock split or other similar corporate transaction or event of the Company, or the Company shall enter into a written agreement to undergo such a transaction or event, the Company, in its absolute discretion, may either: (i) make appropriate adjustment in the number of shares and the price per share of the shares subject to the Option in order to prevent dilution or enlargement of the Option rights granted hereunder (provided that the number of shares subject to the Option shall |
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always be a whole number) or (ii) cancel any or all of this Option and pay to Employee in cash the value of such cancelled Option or portion thereof based on the price per share received, or to be received, by a shareholder of the Company in such transaction. |
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(e) |
The Company shall at all times during the term of the Option reserve and keep available such number of shares as will be sufficient to satisfy the requirements of this Agreement. |
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(f) |
In order to provide the Company with the opportunity to claim the benefit of any income tax deduction which may be available to it upon the exercise of the Option, and in order to comply with all applicable federal or state income tax laws or regulations, the Company may take such action as it deems appropriate to insure that, if necessary, all applicable federal or state payroll, withholding, income or other taxes are withheld or collected from Employee. Employee may elect to satisfy his federal and state income tax withholding obligations upon exercise of the Option by (i) having the Company withhold a portion of its common shares otherwise to be delivered upon exercise of the Option having a fair market value equal to the amount of federal and state income tax required to be withheld upon such exercise, or (ii) delivering to the Company shares of Common Stock other than the shares issuable upon exercise of the Option with a fair market value equal to such taxes. |
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year first above written.
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CYBEROPTICS CORPORATION |
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EMPLOYEE |
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«Name» |
5
EXHIBIT B
STOCK AWARD AGREEMENT
This Stock Award Agreement (this “Agreement”), dated as of __________ _____, _____ (the “Effective Date”), is between CyberOptics Corporation, a Minnesota corporation (the “Company”) and _______________, an individual resident of _______________ (“Participant”). This Stock Award is granted under the CyberOptics Corporation 1998 Stock Incentive Plan (the “Plan”) and is subject to the terms of that Plan. Capitalized terms used in this Agreement and not defined in this Agreement have the meanings assigned to them in the Plan. This Agreement represents the Company’s unfunded and unsecured promise to issue Common Stock at a future date, subject to the terms of this Agreement and the Plan.
1. Award. The Company hereby grants Participant, subject to the terms and conditions of this Agreement and the Plan, a stock award (the “Stock Award”) with respect to _____ shares of the Common Stock, $.01 par value (the “Shares”), of the Company . The Stock Award represents the right to receive the Shares only when, and with respect to the number of Shares to which, the Stock Award has vested (the “Vested Shares”). The Stock Award is subject to the terms and conditions set forth in this Agreement and in the Plan. A copy of the Plan will be furnished upon request of Participant.
2. Vesting.
(a) Subject to subsections (b) and (c) below, to termination in accordance with Section 3 below, and to the terms and conditions of this Agreement and the Plan, the Stock Award shall vest and be converted into an equivalent number of shares that will be distributed to the Participant as follows:
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On or after Each of the Following Dates |
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Percentage of Shares that Vest |
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First Anniversary of the Effective Date |
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25% |
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Second Anniversary of the Effective Date |
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25% |
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Third Anniversary of the Effective Date |
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25% |
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Fourth Anniversary of the Effective Date |
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25% |
(b) In the event that, within two years after a Change of Control, either (x) Participant’s employment with the Company is terminated by the Company, or (y) there is an Adverse Change in the Participant’s employment, then the Stock Award shall vest with respect to all Shares that were not previously Vested Shares. For such purposes:
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(a) a “Change of Control” shall mean: |
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(i) a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), whether or not the Company is then subject to such reporting requirement; |
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(ii) the public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the Company or any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) that such person has become the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 40% or more of the combined voting power of the Company’s then outstanding securities; |
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(iii) the Continuing Directors cease to constitute a majority of the Company’s Board of Directors; |
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(iv) the shareholders of the Company approve (x) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of Company stock would be converted into cash, securities or other property, other than a merger of the Company in which shareholders immediately prior to the merger have the same proportionate ownership of stock of the surviving corporation immediately after the merger; (y) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company; or (z) any plan of liquidation or dissolution of the Company; or |
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(v) the majority of the Continuing Directors determine in their sole and absolute discretion that there has been a change in control of the Company. |
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(b) “Continuing Director” shall mean any person who is a member of the Board of Directors of the Company, while such person is a member of the Board of Directors, who is not an Acquiring Person (as defined below) or an Affiliate or Associate (as defined below) of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, and who (x) was a member of the Board of Directors on the effective date of this Option or (y) subsequently becomes a member of the Board of Directors, if such person’s initial nomination for election or initial election to the Board of Directors is recommended or approved by a majority of the Continuing Directors. For purposes of this subparagraph (ii), “Acquiring Person” shall mean any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) who beneficially owns (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, securities of the Company representing 40% or more of the combined voting power of the Company’s then outstanding securities, but shall not include the Company, any subsidiary of the Company or any employee benefit plan of the Company or of any subsidiary of the Company or any entity holding shares of Common Stock organized, appointed or established for, or pursuant to the terms of, any such plan; and “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act. |
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(c) An “Adverse Change” in Participant’s employment shall mean the occurrence of any of the following events: |
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(i) the assignment to Participant to employment responsibilities which are not of comparable responsibility and status as the employment responsibilities held by Participant immediately prior to a Change in Control; |
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(ii) a reduction by the Company in Participant’s compensation (including targeted bonus compensation) as in effect immediately prior to a Change in Control; |
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(iii) the Company’s requiring Participant to be based anywhere after a Change of Control other than within fifty (50) miles of Participant’s office location immediately prior to a Change in Control, except for requirements of temporary travel on the Company’s business to an extent substantially consistent with Participant’s business travel obligations immediately prior to a Change in Control. |
3. Termination of Stock Award.
(a) Except as provided in subsection (b) below and Section 2 above, a Participant’s rights under this Agreement with respect to the Stock Award shall terminate at the earlier of (i) the time the Shares are converted into Vested Shares, or (ii) the termination of Participant’s employment with the Company. Upon termination of this Agreement in accordance with clause (ii) above, the Participant’s rights to all of the Shares subject to the Stock Award not vested on the date that Participant ceases to be an employee shall be immediately and irrevocably forfeited and the Participant will retain no rights with respect to the forfeited Shares.
(b) Notwithstanding the provisions of Section 3(a)(ii) above, in the event of termination of Participant’s employment with the Company as a result of Participant’s death or disability (within the meaning of Code Section 22(e)(3)) while in the employ of the Company, the next vesting date for the Stock Award, as set out in Section 2(a) above, shall accelerate by twelve (12) months as of such date of termination. The Participant’s rights in any unvested shares subject to this Stock shall terminate at the time Participant ceases to an employee.
4. Additional Restrictions on Transfer of Stock Award. During the lifetime of Participant, this Stock Award cannot be sold, assigned, transferred, gifted, pledged, hypothecated or in any manner encumbered or disposed of at any time prior to delivery of the Vested Shares, other than by will or the laws of descent and distribution.
5. Conversion of Stock Award to Shares;Responsibility for Taxes.
(a) Provided Participant has satisfied the requirements of Section 5(b) below, after the vesting of the Stock Award with respect to Vested Shares, the Vested Shares will be distributed to Participant or, in the event of Participant’s death, to Participant’s legal representative, as soon as practicable. The distribution to the Participant, or in the case of the Participant’s death, to the Participant’s legal representative, of Vested Shares shall be evidenced by a stock certificate, appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company, or other appropriate means as determined by the Company. In the event ownership or issuance of Vested Shares is not feasible due to applicable exchange controls, securities regulations, tax laws or other provisions of applicable law, as determined by
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the Company in its sole discretion, Participant, or in the event of Participant’s death, the Participant’s legal representative, shall receive cash proceeds in an amount equal to the value of the Vested Shares otherwise distributable to Participant, net of the satisfaction of the requirements of Section 5(b) below.
(b) By signing this Agreement, Participant agrees that the Company may withhold from the Participant’s wages or other cash compensation, or at the sole election of the Company from Vested Shares to be distributed to Participant in accordance with Section 5(a), all income tax (including federal, state and local taxes), social insurance, payroll tax or other tax-related withholding (“Tax Related Items”) due from the Company or the subsidiary that is the Participant’s actual employer. In this regard, Participant authorizes the Company or the Participant’s actual employer to withhold all applicable Tax Related Items legally payable by Participant from Participant’s wages or other cash compensation payable to Participant by the Company or the Participant’s actual employer. To the extent that the Company determines that it is not feasible to withhold from wages, or not permissible under applicable law to withhold in Shares, then prior to the issuance of Vested Shares Participant shall pay, or make adequate arrangements satisfactory to the Company or to the Participant’s actual employer (in their sole discretion) to satisfy all withholding obligations of the Company and/or the Participant’s actual employer. Participant shall pay to the Company or to the Participant’s actual employer any amount of Tax Related Items that the Company or the Participant’s actual employer may be required to withhold as a result of Participant’s receipt of the Stock Award and the vesting of the Vested Shares that cannot be satisfied by the means previously described. The Company may refuse to deliver Vested Shares to Participant if Participant fails to comply with Participant’s obligation in connection with the Tax Related Items as described herein.
Regardless of any action the Company or the subsidiary of the Company that is Participant’s actual employer takes with respect to any or all Tax Related Items, Participant acknowledges that the ultimate liability for all Tax Related Items legally due by Participant is and remains Participant’s responsibility and that the Company and/or the Participant’s actual employer (i) make no representations or undertakings regarding the treatment of any Tax Related Items in connection with any aspect of the Stock Award, including the grant of the Stock Award, the vesting of Stock Award with respect to Shares, the conversion of the Stock Award into Shares or the receipt of an equivalent cash payment, the subsequent sale of any Shares acquired at vesting and the receipt of any dividends;and (ii) do not commit to structure the terms of the grant or any aspect of the Stock Award to reduce or eliminate the Participant’s liability for Tax Related Items.
6. Miscellaneous.
(a) Plan Provisions Control. In the event that any provision of this Agreement conflicts with or is inconsistent in any respect with the terms of the Plan, the terms of the Plan shall control.
(b) Rights of Stockholders. Prior to the vesting of a Stock Award with respect to Shares, and prior to the receipt by Participant, Participant’s legal representative or a permissible assignee of the Vested Shares pursuant to Section 5, neither Participant, Participant’s legal representative nor a permissible assignee of the Stock Award shall be or have any of the rights and privileges of
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a stockholder of the Company with respect to the Shares issuable to Participant pursuant to the terms of this Agreement. Participant shall not be entitled to receive dividend equivalents on the Stock Award.
(c) Distribution and Adjustment. This Stock Award is subject to adjustment in the event that any distribution, recapitalization, reorganization, merger or other event covered by Section 4(c) of the Plan shall occur; provided, however, that in the event of any such event, the Company may, in its absolute discretion, either (1) effect adjustments in accordance with Section 4(c) of the Plan, or (2) cancel any or all of unvested Stock Award and pay to Participant in cash the value of such cancelled Stock Award, based on the price per share received, or to be received, by a shareholder of the Company in such transaction event..
(d) No Right to Employment. The grant of this Stock Award shall not be construed as giving Participant the right to be retained in the employ of the Company or any Affiliate, or as giving a director of the Company or an Affiliate the right to continue as a director of the Company or an Affiliate with, the Company or an Affiliate, nor will it affect in any way the right of the Company or an Affiliate to terminate such employment or position at any time, with or without cause. In addition, the Company or an Affiliate may at any time dismiss Participant from employment, or terminate the term of a director of the Company or an Affiliate, free from any liability or any claim under the Plan or this Agreement._Nothing in this Agreement shall confer on any person any legal or equitable right against the Company or any Affiliate, directly or indirectly, or give rise to any cause of action at law or in equity against the Company or an Affiliate. This Stock Award shall not form any part of the wages or salary of Participant for purposes of severance pay or termination indemnities, irrespective of the reason for termination of employment. Under no circumstances shall any person ceasing to be an employee of the Company or any Affiliate be entitled to any compensation for any loss of any right or benefit under this Agreement or the Plan which such employee might otherwise have enjoyed but for termination of employment, whether such compensation is claimed by way of damages for wrongful or unfair dismissal, breach of contract or otherwise. By participating in the Plan, Participant shall be deemed to have accepted all the terms and conditions of the Plan and this Agreement and the terms and conditions of any rules and regulations adopted by the Committee and shall be fully bound thereby.
(e) Governing Law. The validity, construction and effect of the Plan and this Agreement, and any rules and regulations relating to the Plan and this Agreement, shall be determined in accordance with the internal laws, and not the law of conflicts, of the State of Minnesota.
(f) Severability. If any provision of this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction or Award, and the remainder of this Agreement shall remain in full force and effect.
(g) No Trust or Fund Created. Neither the Plan nor this Agreement shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the
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Company or any Affiliate and Participant or any other person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to a Stock Award, such right shall be no greater than the right of any unsecured creditor of the Company or any Affiliate.
(h) Other Benefits. No compensation or benefit awarded to or realized by Participant under the Plan or this Agreement shall be included for the purpose of computing Participant’s compensation under any compensation-based retirement, disability or similar plan of the Company unless required by law or otherwise provided by such other plan.
(i) Headings. Headings are given to the Sections and subsections of this Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Agreement or any provision thereof.
(j) Confidentiality. Participant shall not disclose either the contents or any of the terms and conditions of this Agreement to any other person and agrees that such disclosure may result in both immediate termination of the Stock Award without the right to exercise any part thereof and termination of employment with the Company.
(k) Notices. All notices, claims, certificates, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given and delivered if personally delivered or if sent by nationally recognized overnight courier, by facsimile or by registered or certified mail, return receipt requested and postage prepaid, addressed as follows:
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(a) |
If to the Company, to it at: |
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CyberOptics Corporation |
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5900 Golden Hills Drive |
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Golden Valley, MN 55416 |
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Attn: Director – Human Resources |
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(b) If to Participant, to such address as most recently supplied to the Company by Participant and set forth in the Company’s records; or |
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(c) to such other address as the party to whom notice is to be given may have furnished to the other party in writing in accordance with this Section 6(k). |
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Any such notice or communication shall be deemed to have been received (i) in the case of personal delivery, on the date of such delivery (or if such date is not a business day, on the next business day), (ii) in the case of nationally-recognized overnight courier, on the next business day after the date sent, (iii) in the case of facsimile transmission, when received (or if not sent on a business day, on the next business day after the date sent) and (iv) in the case of mailing, on the third business day following the date on which the piece of mail containing such communication is posted.
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(l) Waiver of Breach. The waiver by either party of a breach of any provision of this Agreement must be in writing and shall not operate or be construed as a waiver of any other or subsequent breach.
(m) Undertaking. Both parties hereby agree to take whatever additional actions and execute whatever additional documents either party may in their reasonable judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on the other party under the provisions of this Agreement.
(n) Counterparts. This Agreement may be executed in one or more counterparts, and each such counterpart shall be deemed to be an original, but all such counterparts together shall constitute but one agreement.
(o) Entire Agreement. This Agreement (and the other writings incorporated by reference herein, including the Plan) constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior or contemporaneous written or oral negotiations, commitments, representations and agreements with respect thereto.
IN WITNESS WHEREOF, the Company and Participant have executed this Agreement on the date set forth in the first paragraph.
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CYBEROPTICS CORPORATION |
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By: |
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Name: |
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Title: |
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PARTICIPANT |
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By: |
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7
EXHIBIT C
GENERAL RELEASE
This General Release is made and entered into as of the _day of _______, _______, by Subodh Kulkarni (“Executive”).
WHEREAS, CyberOptics Corporation (the “Company”) and Executive are parties to an Employment Agreement dated January __, 2014 (the “Employment Agreement”);
WHEREAS, Executive intends to settle any and all claims that Executive has or may have against Company as a result of Executive’s employment with Company and the cessation of Executive’s employment with Company; and
WHEREAS, Under the terms of the Employment Agreement, which Executive agrees are fair and reasonable, Executive agreed to enter into this General Release as a condition precedent to the severance arrangements described in Section 9(e)(ii) of the Employment Agreement.
NOW, THEREFORE, in consideration of the provisions and the mutual covenants herein contained, the parties agree as follows:
1. Release. For the consideration expressed in the Employment Agreement, Executive does hereby fully and completely release and waive any and all claims, complaints, causes of action, demands, suits and damages, of any kind or character, which Executive has or may have against the Released Parties, as hereinafter defined, arising out of any acts, omissions, conduct, decisions, behavior or events occurring up through the date of Executive’s signature on this General Release, including Executive’s employment with Company and the cessation of that employment. For purposes of this General Release, “Released Parties” means collectively Company, its predecessors, successors, assigns, parents, affiliates, subsidiaries, related companies, officers, directors, shareholders, agents, servants, employees and insurers, and each and all thereof.
Executive understands and accepts that Executive’s release of claims includes any and all possible discrimination claims, including, but not limited to, claims based upon: Title VII of the Federal Civil Rights Act of 1964, as amended; the Age Discrimination in Employment Act; the Americans with Disabilities Act; the Equal Pay Act; the Fair Labor Standards Act; the Executive Retirement Income Security Act; the Minnesota Human Rights Act; Minn. Stat. §181.81; the Minneapolis Code of Ordinances; or any other federal, state or local statute, ordinance or law. Executive also understands that Executive is giving up all other claims, including those grounded in contract or tort theories, including, but not limited to: wrongful discharge; violation of Minn. Stat. §176.82; breach of contract; tortious interference with contractual relations; promissory estoppel; breach of the implied covenant of good faith and fair dealing; breach of express or implied promise; breach of manuals or other policies; assault; battery; fraud; false imprisonment; invasion of privacy; intentional or negligent misrepresentation; defamation, including libel,
slander, discharge defamation and self-publication defamation; discharge in violation of public policy; whistleblower; intentional or negligent infliction of emotional distress; or any other theory, whether legal or equitable.
Executive further understands that Executive is releasing, and does hereby release, any claims for damages, by charge or otherwise, whether brought by Executive or on Executive’s behalf by any other party, governmental or otherwise, and agrees not to institute any claims for damages via administrative or legal proceedings against any of the Released Parties. Executive also waives and releases any and all rights to money damages or other legal relief awarded by any governmental agency related to any charge or other claim against any of the Released Parties.
This General Release does not apply to any post-termination claim that Executive may have for benefits under the provisions of any employee benefit plan maintained by Company.
Executive’s release of claims shall not apply to any claims Executive might have to indemnification under Minnesota Statute §302A.521, any other applicable statute or regulation or Company’s by-laws.
2. Rescission. Executive has been informed of Executive’s right to rescind this General Release by written notice to Company within fifteen (15) calendar days after the execution of this General Release. Executive has been informed and understands that any such rescission must be in writing and delivered to Company by hand or sent by mail within the 15-day time period. If delivered by mail, the rescission must be: (1) postmarked within the applicable period and (2) sent by certified mail, return receipt requested.
Executive understands that Company will have no obligations under the Employment Agreement in the event a notice of rescission by Executive is timely delivered, and, in the event Executive rescinds this General Release, Executive agrees to repay to Company any payments made to Executive or benefits conferred upon him pursuant to Section 8(d) of the Employment Agreement prior to the date of rescission.
3. Acceptance Period; Advice of Counsel. The terms of this General Release will be open for acceptance by Executive for a period of 21 days during which time Executive may consider whether or not to accept this General Release. Executive agrees that changes to this General Release, whether material or immaterial, will not restart this acceptance period. Executive is hereby advised to seek the advice of an attorney regarding this General Release.
4. Binding Agreement. This General Release shall be binding upon, and inure to the benefit of, Executive and Company and their respective successors and permitted assigns.
5. Representation. Executive hereby acknowledges and states that Executive has read this General Release. Executive further represents that this General Release is written in language that is understandable to Executive, that Executive fully appreciates the meaning of its terms, and that Executive enters into this General Release freely and voluntarily.
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IN WITNESS WHEREOF, Executive, after due consideration, has authorized, executed and delivered this General Release all as of the date first written.
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Subodh Kulkarni |
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Exhibit 21.0
SUBSIDIARIES
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Name |
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Jurisdiction of Formation |
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CyberOptics Ltd. |
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United Kingdom |
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CyberOptics Holdings Ltd. |
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United Kingdom |
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CyberOptics (Singapore) Pte. Ltd |
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Singapore |
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CyberOptics Semiconductor, Inc. |
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Minnesota |
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LDI Acquisition Corp. |
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Minnesota |
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CyberOptics (China) Co., Ltd. |
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People’s Republic of China |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We have issued our report dated March 28, 2014, with respect to the consolidated financial statements included in the Annual Report of CyberOptics Corporation on Form 10-K for the year ended December 31, 2013. We hereby consent to the incorporation by reference of said report in the Registration Statements of CyberOptics Corporation on Forms S-8 (File No. 333-183296 effective August 14, 2012, File No. 333-176196 effective August 10, 2011, File No. 333-153015 effective August 14, 2008, File No. 333-136500 effective August 10, 2006, File No. 333-115973 effective May 28, 2004, File No. 333-103310 effective February 19, 2003, File No. 333-85321 effective August 16, 1999, File No. 333-51200 effective December 4, 2000, and File No. 33-50510 effective August 5, 1992).
GRANT THORNTON LLP
Minneapolis, Minnesota
March 28, 2014
Exhibit 31.1
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I, Subodh Kulkarni, certify that: |
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1. I have reviewed this Annual Report on Form 10-K of CyberOptics Corporation. |
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2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 28, 2014
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/s/ Subodh Kulkarni |
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Signature |
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Name: Subodh Kulkarni |
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Title: Chief Executive Officer |
Exhibit 31.2
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I, Jeffrey A. Bertelsen, certify that: |
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1. I have reviewed this Annual Report on Form 10-K of CyberOptics Corporation. |
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2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 28, 2014
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/s/ Jeffrey A. Bertelsen |
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Signature |
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Name: Jeffrey A. Bertelsen |
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Title: Chief Financial Officer |
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of CyberOptics Corporation (the “Company”) on Form 10-K for the year ended December 31, 2013 as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), the undersigned, Subodh Kulkarni, Chief Executive Officer, and Jeffrey A. Bertelsen, Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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/s/ Subodh Kulkarni |
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Subodh Kulkarni |
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Chief Executive Officer |
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March 28, 2014 |
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/s/ Jeffrey A. Bertelsen |
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Jeffrey A. Bertelsen |
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Chief Financial Officer |
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March 28, 2014 |
END OF FILING
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Business Description And Significant Accounting Policies (Details) (USD $)
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12 Months Ended | |
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Dec. 31, 2013
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Dec. 31, 2012
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| Business Description And Significant Accounting Policies [Line Items] | ||
| Cash held in foreign accounts | $ 903,000 | $ 3,585,000 |
| Demonstration inventory useful life | 36 months | |
| Accumulated amortization for demonstration inventories | 10,591,000 | 10,619,000 |
| Recognized foreign currency transactions (losses) | (117,000) | (11,000) |
| Advertising expense | 113,000 | 96,000 |
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Maximum [Member]
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| Business Description And Significant Accounting Policies [Line Items] | ||
| Estimated useful lives of the equipment | 10 years | |
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Minimum [Member]
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| Business Description And Significant Accounting Policies [Line Items] | ||
| Estimated useful lives of the equipment | 3 years | |
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Demonstration Inventories [Member]
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| Business Description And Significant Accounting Policies [Line Items] | ||
| Accumulated amortization for demonstration inventories | $ 908,000 | $ 897,000 |
|
Accounting For Stock-Based Compensation (Schedule Of Non-Vested Restricted Stock Activity) (Details) (USD $)
|
12 Months Ended | |
|---|---|---|
|
Dec. 31, 2013
|
Dec. 31, 2012
|
|
| Accounting For Stock-Based Compensation [Abstract] | ||
| Shares, Non-vested at December 31, 2011 | 44,555 | |
| Shares, Granted | 15,750 | 36,528 |
| Shares, Vested | (12,946) | |
| Shares, Forfeited | (416) | |
| Shares, Non-vested at December 31, 2012 | 46,943 | 44,555 |
| Weighted Average Grant Date Fair Value, Non-vested at December 31, 2011 | $ 7.61 | |
| Weighted Average Grant Date Fair Value, Granted | $ 5.39 | $ 7.37 |
| Weighted Average Grant Date Fair Value, Vested | $ 7.76 | |
| Weighted Average Grant Date Fair Value, Forfeited | $ 8.71 | |
| Weighted Average Grant Date Fair Value, Non-vested at December 31, 2012 | $ 6.82 | $ 7.61 |
|
Fair Value Measurements (Narrative) (Details) (USD $)
In Thousands, unless otherwise specified |
Dec. 31, 2013
|
Dec. 31, 2012
|
|---|---|---|
| Fair Value Measurements [Abstract] | ||
| Derivative instruments-liabilities: Foreign exchange forward contracts | $ 58 | |
| Derivative instruments-assets: Foreign exchange forward contracts | $ 153 |