-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N9WlzN9W93KTzpbuvm3MKXfIv3m+PCGCgd9SEbzyVLWz+vhqA+rUhg1JwbQqBk4B Htj0yBf9c2jUgT1MUmUnIg== 0000927016-99-002568.txt : 19990714 0000927016-99-002568.hdr.sgml : 19990714 ACCESSION NUMBER: 0000927016-99-002568 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19990328 FILED AS OF DATE: 19990713 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASECO CORP CENTRAL INDEX KEY: 0000896645 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 042816806 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-21294 FILM NUMBER: 99663785 BUSINESS ADDRESS: STREET 1: 500 DONALD LYNCH BLVD CITY: MARLBORO STATE: MA ZIP: 01752 BUSINESS PHONE: 5084818896 MAIL ADDRESS: STREET 1: 500 DONALD LYNCH BOULEVARD CITY: MARLBORO STATE: MA ZIP: 01752 10-K405 1 FORM 10-K405 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ---------------- FORM 10-K ---------------- [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for fiscal year ended March 28, 1999 OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-21294 Aseco Corporation (Exact name of registrant as specified in its charter) Delaware 04-2816806 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 500 Donald Lynch Boulevard, Marlboro, Massachusetts 01752 (Address of principal executive offices) Registrant's telephone number, including area code 508-481-8896 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock, $.01 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X . The aggregate market value of voting stock held by non-affiliates of the registrant was $3,850,658 as of May 28, 1999. 3,850,658 (Number of shares of common stock outstanding as of May 28, 1999) Documents Incorporated by Reference Part III incorporates by reference certain information from the Registrant's proxy statement for the annual meeting of stockholders to be held on August 11, 1999. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS Overview Aseco designs, manufactures and markets test handlers used to automate the testing of integrated circuits in surface mount packages. Aseco provides high quality, versatile test handlers designed to maximize the productivity of the significantly more costly testers with which they operate. Aseco also designs, manufactures and markets integrated circuit wafer handling and inspection systems. These systems are used to load, sort and transport wafers during both manual and automatic inspection as well as other wafer processing steps in the semiconductor manufacturing process. Industry Background The manufacture of integrated circuits (IC's) takes place in ultra-clean fabrication plants. Flat circular discs of silicon ("wafers"), of extremely high perfection and purity, are taken through a variety of processes-- principally micro-patterning, where small structures are etched into the surface, and physical and chemical processes, where material is deposited or implanted into the structures. Between these major processing steps the wafers must be transported cleanly and safely and inspected and assessed for quality and cleanliness. Automated wafer handling and inspection equipment facilitates the safe transport, handling and defect detection and assessment of wafers between process steps preventing damage, contamination and breakage which often results from manual intervention. Following the manufacturing process, IC devices are tested by semiconductor manufacturers for quality and electrical performance before shipment to end users. In addition, volume purchasers of IC devices often test IC devices during incoming inspection. Test handlers facilitate the fast, automated and cost-effective testing of IC devices. The automated test process requires two major pieces of equipment: a tester and a test handler. Testers are specialized, computer-controlled electronic systems that perform the electrical test of IC devices, including memory, logic, linear, microprocessor and Application Specific Integrated Circuit (ASIC) devices. Test handlers are electro-mechanical systems which are connected to and communicate with the tester. IC devices are loaded into the test handler and are then stabilized at a specified temperature to simulate operating extremes for the IC device. The test handler then transports the IC device to a contactor, which provides an electrical connection between the IC device and the tester and allows an interchange of electrical signals between the tester and device under test so the tester can evaluate the performance of the IC. Finally, the handler segregates the devices as determined by the tester. Traditionally, IC devices were attached to one side of a printed circuit board by means of pins, also referred to as leads, that were inserted into pre-drilled holes and soldered to the electrical circuits on the board, a technique known as "through-hole" mounting. Surface mount technology ("SMT"), an alternative technology which is widely used, involves soldering of IC devices directly to the surface of the board. This technology has been increasingly adopted in response to the introduction of more powerful IC devices with more leads and the demand for ever more increasing miniaturization. SMT has several distinct advantages over through-hole technology. First, because IC device leads are not inserted through the board, IC device leads can be closer together allowing IC devices and the boards they populate to be smaller. This reduction in IC device size also enhances circuit processing speed and thus board and system performance. Second, because IC device leads are not inserted through the board, boards can be populated on both sides which further reduces overall required board size. The demand for test handlers is driven primarily by IC device production levels and technological changes relating to the packaging of integrated circuits. Because only the test handler has physical contact with the IC devices, changes in integrated circuit packaging have minimal effect on tester requirements but generally have a major effect on test handler requirements and the demand for the test handlers. 1 The test handler market is commonly segmented on the basis of the function of the IC devices handled: test handlers which process memory IC devices, such as Dynamic Random Access Memory devices (DRAM) and Static Random Access Memory devices (SRAM), and test handlers which process non-memory IC devices, such as digital, logic, linear, ASIC and microprocessor devices. Non-memory IC devices generally have short test times, are often configured with leads on four sides, come in a wide variety of package configurations and are produced in relatively small lot sizes. Consequently, non-memory IC device test handlers must be able to handle devices gently and transport them to and from the contactor rapidly ("index time") and must be adaptable to accommodate many different package types. Memory IC devices, by contrast, generally have longer test times, have leads on just two sides, come in fewer package configurations and are produced in larger lot sizes. The index time of memory IC device test handlers is less important because of the long test times of memory IC devices. Test handlers capable of facilitating the testing of multiple IC devices simultaneously ("multi-site test handlers") have been developed to improve test handler throughput of memory IC devices. Traditionally, multi-site test handlers have not been used in connection with the testing of non-memory IC devices. Recently, however, as non-memory IC devices have become more complex and their test times have correspondingly increased, multi-site test handlers have been used in connection with the testing of non-memory IC devices as well. In addition, certain SRAM IC devices possess characteristics typical of non-memory IC devices, such as shorter test time, leads on four sides and wider variety of package configurations, therefore creating the demand in the SRAM market for a multi-site test handler with fast index speed and gentle handling capabilities. The majority of DRAM IC devices are manufactured in Japan and Korea while the majority of non-memory IC devices are manufactured in the United States. A significant number of SRAM IC devices are manufactured in the United States as well as in Japan and Korea. To date, the Company's products have primarily addressed the non-memory surface mount device portion of the test handler market. Aseco's Automation Equipment Test Handlers Test handlers are used to automate the electrical testing of IC devices. IC devices are loaded into the handler from tubes, magazines or trays. They are then transported to a temperature chamber within the test handler where they are thermally conditioned at temperatures typically ranging from -55 to + 155 Celsius to simulate operating extremes for the IC device. After the IC devices are stabilized at a specified temperature, the test handler positions the IC devices within a contactor, which provides an electrical connection between the IC device and the tester and insulates the tester from the temperature extremes inside the handler. Test routines can last from fractions of a second to minutes depending on the type of IC device being tested and the purpose of the test. After testing, the tester signals the test handler to sort the IC devices into various categories for shipment, additional testing or disposal. There are four basic types of test handlers: gravity-feed systems, pick and place systems, belt-conveyance systems and air-bearing systems. The appropriate type of test handler is generally determined by the size and lead configuration of the IC devices being tested. The gravity-feed system, the oldest of the four test handler types, is the predominant test handler for through-hole IC devices. As the name indicates, gravity-feed systems rely on gravity to move IC devices through the test handler. This type of test handler has the advantage of being able to process IC devices quickly, but has a greater tendency to damage IC devices with leads on four sides. Damaged leads can cause soldering defects when the IC devices are mounted on boards, which in turn increases re-work and warranty costs. Pick and place systems, in contrast, transport IC devices by means of robotic arms, which prevent the IC devices from coming into contact with one another and reduce the chance of lead damage. While pick and place systems are suitable for fragile IC devices that are susceptible to lead damage such as the Quad Flat Pack (QFP), they typically process IC devices more slowly than other types of test handlers. Air- 2 bearing systems, which transport IC devices on a bed of air in the temperature chamber, permit high-speed processing while minimizing the potential for lead damage characteristic of gravity-feed systems. Belt-conveyance systems move large quantities of devices quickly into and out of the system on belts without damaging fragile leads. Key Test Handler Features The primary function of the test handler is to automate the testing process thereby increasing the productivity of the tester resulting in the accurate testing of IC devices at the lowest per unit cost possible. Important test handler features include: Gentle Handling. In order for the test handler user to maximize yield and the quality of the IC devices it ships, it is imperative that the test handler not damage the IC devices it processes. Due to their fragility, surface mount IC device leads are especially susceptible to damage, and as IC devices with higher lead counts and more fragile leads have become more prevalent, gentle handling has become an increasingly important test handler feature. Aseco currently offers test handlers with four IC device transport mediums--gravity- feed, air-bearing, pick and place and belt-conveyance test handlers. The four transport mediums allow customers to use the type of test handler most suitable for the IC device being tested. In addition, Aseco test handlers are equipped with vacuum stops, limited force contactors and other features to further minimize lead damage. Signal Integrity. Signal integrity is the ability of the test handler to facilitate accurate transmission of electrical signals between the tester and the IC device being tested. Poor transmission can lead to incorrect test results. Aseco maximizes its performance in this area by equipping its test handlers with Aseco's proprietary contactors which position the IC device under test in close proximity to the tester which allows fast and accurate signal transmission. If so desired by customers, other contactors can also be used with Aseco equipment. Cold Operation. The ability of the test handler to operate for extended periods of time at cold temperatures (typically -55 Celsius) without interruption for defrosting is an especially important factor in the overall productivity of the test handler. Aseco has developed considerable expertise in thermal engineering and insulation technology which is reflected by the fact that its test handlers are capable of operating for long periods over multiple work shifts without interruption. Productivity. The productivity of a test handler is largely a function of the rate at which it moves IC devices through the test handler ("throughput") and the percentage of time the test handler is available for use ("uptime"). The throughput of Aseco's test handlers is enhanced by their use of forced air to thermally condition IC devices. This produces an effect analogous to wind chill and minimizes the time IC devices are required to stay in the temperature chamber. The Company believes its handlers are able to achieve high uptime because of their relatively simple design that reduces jam rates and the frequency and duration of required maintenance. Maintenance time is also reduced by the diagnostic software incorporated in each Aseco test handler. Versatility. With the increase in the number of different IC device lead configurations, an important feature of a test handler is its ability to accommodate IC devices with different lead configurations. Through the use of easy to install conversion kits, Aseco's test handlers are currently capable of processing many different IC device configurations. Test Handler Products The Company's test handlers share certain common features including the ability to operate at cold, ambient and hot temperatures and a menu-driven CRT user interface that displays test handler performance and diagnostic information. The following is a complete list of the Company's test handler product offerings: 3 Model S-130 Test Handler The S-130 is a versatile air-bearing test handler, capable of handling a broad array of non-memory IC device types. Through the use of conversion kits, the S-130 is currently able to accommodate a wide variety of IC device configurations. The S-130 reaches throughput rates of 2,400 devices per hour, and has the capability to operate at temperatures between -55 and +150 Celsius. The versatility of the S-130 has made it popular with suppliers of ASIC devices and others who need to test a relatively small number of many different IC device package types. Model S-133 Test Handler The S-133 is a modified version of the S-130 test handler. It offers all the features and capabilities of the S-130 plus the ability to position the device for electrical testing of accelerometers while under physical shock. An accelerometer is a device that activates when a large amount of force is placed upon it and is used in such applications as car airbags. Model S-170 Test Handler The S-170 is a high-speed gravity-feed test handler capable of a throughput rate of 6,000 IC devices per hour. This test handler is equipped with high performance contactors and provides test handling at temperatures ranging from - -55 to +155 Celsius. Changing between different IC device package lead counts is achieved by simple keypad entry on a menu-driven CRT display. The S-170 is most appropriate for high volume testing of small surface mount IC devices having short test times and leads on only two sides such as linear devices. Model S-170C and S-170D Test Handlers The S-170C and S-170D are modified versions of the S-170 gravity feed test handler. Each offers all the features and capabilities of the S-170 plus the ability to handle a broader spectrum of the popular SOIC package types. In addition, the S-170D offers plunge to board capability that allows an electrical connection between the IC device and a device under test ("dut") board eliminating the need for a contactor and facilitating testing of IC devices with very short lead lengths. Model S-170CS Test Handler The S-170CS is a modified version of the S-170. The S-170CS offers all the features and capabilities of the S-170 including plunge to board capability. This test handler, which is used to handle newer chip-scale packages, offers a significantly faster and less expensive alternative to conventional "pick-and- place" test handlers traditionally used to handle chip scale packages. Model S-200 Test Handler The S-200 is a pick and place test handler, particularly suitable for handling fragile lead IC devices such as the popular QFP package. The S-200 has a throughput capacity of 1,200 devices per hour and operates at temperatures ranging from -55 to +155 Celsius. Key features of the S-200 include its simple design, which enhances uptime, and the ease with which it can be converted to handle different package types plus automatic tray loading and unloading. A key distinguishing feature is its ability, through the addition of an optional machine vision system, to provide in-line lead inspection in addition to its normal electrical test handling capability. Model S-450 Test Handler The S-450 test handler employs an air-bearing transport system. This product incorporates the many features of Aseco's other test handlers, while incorporating additional capabilities such as a touch screen user interface, multi-site testing, high throughput and automated IC device loading and unloading. The S-450 handles PLCC, SOIC(W), Molded Carrier Ring (MCR) devices and may be used in SRAM applications. The multi-site test capability of the S- 450 allows up to eight IC devices to be tested simultaneously, can be converted to handle 4 numerous IC device package types and, like the Company's other test handler models, allows testing at hot, cold and ambient temperatures. Model VT8000 Test Handler The VT8000 employs a combination of machine vision and multi track belt conveyance to enable more gentle handling of fragile devices. The VT8000 allows up to 16 IC devices to be tested simultaneously with simplified conversion kits resulting in cost savings for customers and less complicated set up and changeover. Machine vision facilitates lead inspection of IC devices before and after testing to identify parts with damaged leads. The VT8000 handles a variety of package types and incorporates an optional plunge- to board feature. Wafer Handling and Inspection Automation Equipment Wafer handling and inspection equipment is used to automate the transfer and inspection of wafers between semiconductor manufacturing process steps. Generally, wafers are transported through the factory in receptacles called cassettes. Basic bench top wafer handling equipment extracts a wafer from a cassette and places it on a horizontal stage where microscope inspection takes place. More sophisticated bench top equipment facilitates "macro-inspection" of wafers (i.e., not under a microscope) by placing each wafer on a stage which tilts and rotates the wafer at all angles under a high intensity lamp to reveal defects. During the wafer fabrication process, wafers are tracked in lots (typically of 25 wafers) which often need to be broken down into sub-lots in order to fit into certain process equipment and then returned to the original lots. In order to accomplish this, wafers are identified by alphanumeric or bar-code symbols etched into the surface of each wafer. Integrated wafer automation equipment enables the user to select any wafer from a maximum of 100 wafers (usually 4 lots of 25), identify it automatically, assign it a new position among the wafers, extract a given number of wafers from a batch, reorder the wafers or combine two lots or sublots. These wafer sorting devices then are able to communicate wafer and system status to an external factory computer enabling the sorter to function as an automation center under the control of the central factory automation system. Another type of wafer automation equipment is an integrated inspection station. Such a module enables the user to extract a wafer from a cassette, place it on a stage, inspect the wafer under a microscope using a monitor to view the microscope imaging, identify defects, collect and analyze data and return the wafer to its cassette for further processing. Key Wafer Automation Equipment Features Cleanliness--Semiconductor wafer fabrication is conducted under ultra-clean conditions; therefore, cleanliness of the equipment which operates in this environment is important. Aseco achieves cleanliness in its wafer automation and inspection equipment by covering all moving parts, ensuring that all moving parts are below the wafer plane and carefully selecting the materials used to make the equipment. As wafer sizes and therefore equipment sizes grow and as cleanliness assumes greater importance, the cost of producing wafer fabrication cleanrooms will become prohibitively high. As an alternative, minienvironment technology offers lower costs in the construction of cleanrooms. Within such minienvironments, only the air immediately above the equipment where the wafer resides needs to be clean and this area is isolated by shields from the general area surrounding the equipment. Wafers are carried from process to process in sealed boxes which interface with the equipment shield via a "SMIF" Port (Standard Mechanical Interface). Aseco's entire range of benchtop and integrated systems are compatible with SMIF technology. Safety of Handling--Each wafer processed by a semiconductor manufacturer requires dozens of costly passes through each manufacturing process and ultimately yields numerous individual IC's. As a result, safety of handling, or zero wafer breakage, is of paramount importance to semiconductor manufacturers. Aseco has achieved safe handling using designs which incorporate both hardware sensors and software checks. 5 Versatility--An important aspect of Aseco's technology and product range is the maximum wafer size that it can accommodate. State of the art fabrication units currently are running 8 inch (200mm) wafers. The next generation wafer size is expected to be 12 inches. Aseco offers a full range of 6 inch and 8 inch compatible equipment and plans to broaden its product line to accommodate 12-inch wafers in time to take advantage of the construction of fabrication plants needed to produce 12-inch wafers. Wafer Handling and Inspection Products The following is a complete list of the Company's wafer handling and inspection product offerings: Model AL-1000 The AL-1000 extracts a wafer from its carrying cassette and places it on a flat, horizontal stage, usually for microscope inspection. Wafers can be selected specifically or randomly for quality assurance functions. The microscope operator is freed from the delicate and potentially damaging task of manipulating the wafer to concentrate on the inspection task. Model AV-1000 The AV-1000 shares the same functions and features of an AL-1000 and has a built in "macro-inspection" stage, which tilts and rotates the wafer at all angles ensuring good visibility of all surface features of the wafer. A high intensity lamp shines on the wafer surface revealing wafer defects. Model AS-1000 The AS-1000 is an integrated solution allowing semiconductor wafers to be automatically identified and sorted using advanced vision processing. Operator contact is eliminated as wafer movements are completed by a precision robotic transfer module ensuring clean and safe transfers. The AS-1000 may be fitted with an optional SMIF minienvironment SubClass 1, which creates a clean environment surrounding the cassette transport modules. Model AI-1000 The AI-1000 is an integrated inspection station that provides fully automatic detection of surface contamination, damage and process errors and dimensional tolerance failures on semiconductor wafers. The machine incorporates an autosizing function for 4 to 8 inch wafers, which speeds set up and changeover for multi-size fabrication operations. Wafers are pre- aligned, automatically identified by machine vision and loaded to the microscope for fine alignment and flaw detection. The machine collects and stores inspection data for future recall and reference. Remanufacturing Services The Remanufacturing Services Group provides services such as machine upgrades, reconditioning and reconfiguration for all of the Company's test handler models. Distribution Agreements In November 1997, Aseco entered into a distribution agreement with Rasco A.G. ("Rasco") pursuant to which Aseco markets and sells Rasco's SO1000 test handler in the United States, Canada and Taiwan. The SO1000 is a high speed, multi-site gravity fed test handler especially suited to high volume semiconductor test floors. It is designed to handle small SOIC, SSOP, TSSOP, MSOP, and SOT packages in dual as well as quad test site configuration. 6 Customers Customers for the Company's products are primarily semiconductor manufacturers, but also include volume purchasers of IC devices and companies engaged in the business of testing IC devices for others. Since its inception, the Company has sold 1,390 test handler systems to approximately 145 customers in more than 161 worldwide locations. In fiscal 1999, two customers, Analog Devices, Inc., and Motorola accounted for 14% and 13% of net sales, respectively. In fiscal 1998, two customers, Maxim Integrated Products, Inc and Analog Devices, Inc., accounted for 23% and 16% of net sales, respectively. In fiscal 1997, one customer, Analog Devices, Inc., accounted for 17% of net sales. Sales and Marketing The Company markets its products primarily through manufacturers' representative organizations and, in certain geographic regions, a direct sales force. As of March 28, 1999, the Company had 15 United States manufacturers' representatives and 11 international manufacturers' representatives located in England, Germany, France, Israel, Hong Kong, Italy, Malaysia, Singapore, Sweden, and Taiwan. The Company's sales organization coordinates the activities of the Company's manufacturers' representatives and actively participates with them in selling efforts. Aseco provides sales and technical support to its manufacturers' representatives through the Company's sales and service offices in Marlboro, Massachusetts, Santa Clara, California, and Singapore. The Company employs a direct sales force to market and sell test handlers in New England. The Company's marketing efforts include participation in industry trade shows and production of product literature. These efforts are designed to generate sales leads for the Company's manufacturers' representatives. To date, the Company's international sales have been primarily to customers located in the Asia Pacific region (excluding Japan) and Western Europe. International sales accounted for approximately 39%, 36%, and 52% of the Company's net sales in fiscal 1999, 1998, and 1997, respectively. During fiscal 1999 and 1998 a small percentage of the Company's international sales were invoiced in foreign currencies and, accordingly, were subject to fluctuating currency exchange rates. The Company's international sales are subject to certain risks common to many export activities, such as governmental regulations, export license requirements and the risk of imposition of tariffs and other trade barriers. Backlog The Company's backlog, which consists of customer purchase orders which the Company expects to fill within the next twelve months, was approximately $1,285,000 as of March 28, 1999 compared to approximately $4,011,000 as of March 29, 1998. Because all purchase orders are subject to cancellation or delay by customers with limited or no penalty, the Company's backlog is not necessarily indicative of future revenues or earnings. The Company typically ships its test handlers and wafer automation equipment within eight to ten weeks of receipt of purchase order and its conversion kits and spare parts within a shorter period. Customer Service The Company believes that strong customer service is important in achieving its goal of high customer satisfaction. Aseco's customer service organization, augmented by the Company's engineering personnel, provides product training, telephone technical support, applications support, maintenance and operations manuals and on-site service and repair. Such services are provided from the Company's headquarters in Marlboro, Massachusetts and from one other domestic and one international field service center, each strategically located near customers to minimize response time to customer service requests. In addition, the Company's eleven international manufacturer's representatives maintain field service centers. 7 The Company warranties its products against defects in material and workmanship for a period of up to one year. To date, the Company's warranty claims have not been material. The Company believes its accrual for product warranties at March 28, 1999 is adequate. Product Development The Company believes that its future success will depend in large part on its ability to enhance and broaden, with the input of its customers, its existing product line to meet the evolving needs of the test handler market. To date, the Company has relied on internal development and two acquisitions (the TL-50, the forerunner of the S-200, and the Company's wafer automation and inspection equipment) to extend its product offering. The Company is continually engaged in improving its current products and expanding the types of IC devices its test handlers can accommodate and the size of wafers its wafer automation equipment can manage. In addition, the Company is currently focused on the continued development of enhancements and features for its current automation products. As the semiconductor equipment market continues to develop, the software component of the Company's products plays an increasingly important role. The Company currently develops all software in- house and would as needed expand its expertise in this area by hiring additional personnel. Manufacturing and Supply The Company manufactures its products at its facilities in Marlboro, Massachusetts. In the second quarter of fiscal 1999, the Company announced a plan to consolidate its UK wafer handling and inspection operations. This plan included the closure of the Company's UK facility and related transfer of manufacturing and other operations to the United States (See "Management's Discussion and Analysis of Financial Condition and Results of Operations"). The Company's manufacturing operations consist of procurement and inspection of components and subassemblies, assembly and extensive testing of finished products. A significant portion of the components and subassemblies of the Company's products, including circuit boards, vacuum pumps, optical sensors, refrigeration units and contactor elements, are manufactured by third parties on a subcontract basis. Currently all components, subassemblies and parts used in Aseco's products are available from multiple sources. Quality and reliability are emphasized in both the design and manufacture of the Company's equipment. All components and subassemblies are inspected for mechanical and electrical defects. Fully assembled products are thoroughly tested and inspected for conformity to specifications of both Aseco and the customer. Test handler products are tested at all temperatures and with all the IC device packages to be accommodated. Competition The test handler and wafer handling and inspection markets are highly competitive. Aseco competes with a large number of companies ranging from very small businesses to large companies, many of which have substantially greater financial, manufacturing, marketing and product development resources than the Company. Certain of these companies manufacture and sell both testers and test handlers. The Company's test handlers are compatible with all major testers, including those manufactured by companies which sell both testers and test handlers. The large companies in the overall surface mount IC device test handler market with which the Company competes include Advantest and Cohu. In general, the particular companies with which the Company competes vary with the Company's different markets, with no one company dominating the overall test handler market. The companies with which the Company competes most directly in the surface mount non-memory IC device test handler market are companies such as Multitest, JLSI, Aetrium and Micro Component Technology, Inc. The Company's competitors in the wafer handling and inspection market vary depending upon the type of equipment. The Company's major competitors, however, in this market are Irvine Optical, Kensington, PST, Cybeq, Leica, Nikon, Zeiss and JenOptic. 8 The Company competes primarily on the basis of the speed, ease-of-use, accuracy and other performance characteristics of its products, the breadth of its product lines, the effectiveness of its sales and distribution channels and its customer service. Intellectual Property Rights Aseco attempts to protect the proprietary aspects of its products with patents, copyrights, trade secret laws and internal nondisclosure safeguards. The Company has several patents covering certain features of the S-200 and the contactor elements incorporated in certain of its other test handlers. In addition, the Company has a patent application pending with respect to the machine vision technology in the VT8000. The source code for all software contained in the Company's products is protected as a trade secret and as unpublished copyrighted work. In addition, the Company has entered into nondisclosure and assignment of invention agreements with each of its key employees. Despite these restrictions, it may be possible for competitors or users to copy aspects of the Company's products or to obtain information which the Company regards as a trade secret. Because of the rapid pace of technological changes in the test handler industry, the Company believes that patent, trade secret and copyright protection are less significant to its competitive position than factors such as the knowledge, ability and experience of the Company's personnel, new product development, frequent product enhancements, name recognition and ongoing reliable product maintenance and support. The Company believes that its products and trademarks and other proprietary rights do not infringe the proprietary rights of third parties. There can be no assurance, however, that third parties will not assert infringement claims in the future. Employees As of March 28, 1999, Aseco had 116 regular employees and 4 contract employees including 42 in manufacturing, 36 in engineering and product development, 11 in general administration and finance, 28 in sales and marketing and 3 in customer service. None of the Company's employees are represented by a labor union or are subject to a collective bargaining agreement. The Company has never experienced a work stoppage and believes that its employee relations are adequate. ITEM 2. PROPERTIES The Company's administrative, manufacturing and product development, and its principal sales, marketing and field service office is located in Marlboro, Massachusetts where the Company occupies approximately 61,000 square feet under a lease that expires in May 2000. The Company also leases and occupies approximately 2,900 square feet of space in Santa Clara, California under a lease that expires in fiscal 2001 and 213 square meters of space in Singapore under a lease that expires in September 2000. The Company uses these latter two locations for sales and field service support operations. The Company believes its facilities are adequate for all its reasonable foreseeable requirements. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the last quarter of the fiscal year ended March 28, 1999. 9 EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the executive officers of the Company, their ages, present position and principal occupations held for at least the past five years.
Name Age Position - ---- --- -------- Sebastian J. Sicari............. 47 President, Chief Executive Officer Mary R. Barletta.... 38 Vice President, Chief Financial Officer, Treasurer Robert L. Murray.... 47 Vice President, Worldwide Customer Support Robert E. Sandberg.. 41 Vice President, Sales Richard S. Sidell... 56 Vice President and Chief Technologist Phillip J. Villari.. 50 Vice President, Engineering & Manufacturing Operations
Mr. Sicari has been President and Chief Executive Officer of the Company since August 1998. Mr. Sicari served as President and Chief Operating Officer of the Company from June 1998 until August 1998. Mr. Sicari served as Vice President, Finance and Administration and Chief Financial Officer of the Company from December 1985 until June 1998, served as Treasurer of the Company from July 1988 until August 1998 and has been a Director since 1993. Ms. Barletta has been Vice President, Chief Financial Officer of the Company since June 1998 and Treasurer since August 1998. Ms. Barletta served as Vice President, Corporate Controller from August 1997 to June 1998 and served as Corporate Controller since 1993. Mr. Murray has been Vice President, Worldwide Customer Support since June 1998. Mr. Murray served as Director of Worldwide Customer Support from February 1997 until June 1998. From January 1992 to January 1997, Mr. Murray was Director of Worldwide Support at Optronics, a division of Intergraph, a manufacturer of laser image setters and scanners. Mr. Sandberg has been Vice President, Sales since June 1998. While working at Aseco, Mr. Sandberg served as Director of WED Worldwide Sales from April 1998 to June 1998, Director of Asian Operations from April 1997 to April 1998, Far East Sales Manager from April 1996 to April 1997 and Eastern Region Sales Manager from January 1994 to April 1996. Prior to January 1994, Mr. Sandberg was Marketing Manager at Symtek Systems, Inc., a manufacturer of automatic test handlers. Dr. Sidell has been Vice President and Chief Technologist since October 1998. From 1996 to 1998, Dr. Sidell was Director of Product Engineering, Semiconductor Business Unit, Electro Scientific Industries, Inc., a manufacturer of laser based equipment for circuit fine tuning, memory repair along with equipment for testing surface mount capacitors. Prior to joining ESI in 1996, Dr. Sidell was Senior Vice President of Engineering at XRL, Inc., a manufacturer of laser-based capital equipment. Mr. Villari has been Vice President, Engineering & Manufacturing Operations since June 1998. Mr. Villari served as Vice President, Manufacturing Operations from April 1998 until June 1998. From July 1995 to March 1998, Mr. Villari was Director and General Manager, Semiconductor Business Unit, Electro Scientific Industries, Inc., a manufacturer of laser based equipment for circuit fine tuning, memory repair along with equipment for testing surface mount capacitors. From February 1993 to June 1995 Mr. Villari served as President and CEO of XRL, Inc. a manufacturer of laser based capital equipment. Executive officers of the Company are elected by the Board of Directors and serve until their successors have been duly elected and qualified. There are no family relationships among any of the executive officers or directors of the Company. 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Aseco Corporation's common stock is traded on the NASDAQ National Market under the symbol "ASEC." The table below sets forth the high and low sale prices of the common stock during the two most recent fiscal years:
1999 ------------- Period High Low - ------ ------ ------ First Quarter..................................................... $8.00 $3.66 Second Quarter.................................................... 4.31 1.00 Third Quarter..................................................... 2.50 .63 Fourth Quarter.................................................... 2.66 1.19 1998 ------------- Period High Low - ------ ------ ------ First Quarter..................................................... $13.38 $ 8.63 Second Quarter.................................................... 19.00 10.63 Third Quarter..................................................... 18.88 8.38 Fourth Quarter.................................................... 11.38 7.25
On May 28, 1999, the closing price of the Company's common stock was $1.00 per share. On such date there were 3,850,658 shares outstanding held of record by 109 persons. This number does not include stockholders for whom shares are held in a "nominee" or "street" name. The Company has not paid cash dividends on its common stock and does not intend to do so in the foreseeable future. The Company's bank line of credit prohibits the payment of cash dividends without the bank's consent. 11 ITEM 6. SELECTED FINANCIAL DATA
Year Ended ------------------------------------------------- March 28, March 29, March 30, March 31, April 2, 1999 1998 1997 1996 1995 --------- --------- --------- --------- -------- (in thousands, except per share data) Statement of Operations Data Net sales................... $ 19,218 $44,246 $34,320 $41,569 $29,192 Income (loss) from operations................. (14,320) (8,411) 2,623 6,397 3,987 Net income (loss)........... (13,673) (8,143) 2,288 4,406 3,088 Earnings (loss) per share, diluted.................... (3.64) (2.20) .62 1.17 .85 Balance Sheet Data Total assets................ $ 15,324 $33,691 $36,640 $36,681 $29,267 Long term capital lease obligations................ -- 25 29 42 53 Stockholders' equity........ 10,005 23,582 31,113 28,416 22,711
In the second quarter of fiscal 1999, the Company announced a plan to consolidate its UK wafer handling and inspection operations. This plan included the closure of the Company's UK facility and related transfer of manufacturing and other operations to the United States as well as the discontinuation of several older product models in an effort to focus the operation's product offerings. (See Note M to the Consolidated Financial Statements). In conjunction with this plan, the Company recorded a $2.2 million special charge including a $850,000 charge to cost of sales for inventory write-downs related to product discontinuation and a $1.3 million restructuring charge. The principal components of the restructuring charge include $627,000 for a write-down of fixed and other long-term assets no longer used by the operation, $241,000 for severance related charges, $325,000 for a write-down of goodwill related to the impairment of such assets indicated using estimated future cash flows, and $65,000 of lease termination and related costs. As of January 1999, the closure and transfer were substantially complete, fixed assets were disposed of and severance related costs were paid. In the fourth quarter of fiscal 1999, the Company recorded a special charge of $6.2 million. The charge reflects the impact of continuing unfavorable conditions in the semiconductor capital equipment market, a more gradual recovery than was previously anticipated and expected future technology changes in this market upon the Company's product line, cost structure and asset base (See Note M to the Consolidated Financial Statements). Components of the charge include 1) a $5.0 million charge to cost of goods sold for write-downs related principally of excess inventory based on revised fiscal year 2000 and beyond forecasted operating plans; 2) a $351,000 charge to research and development for the write-down of development equipment no longer used by the Company as a result of a refocusing of development efforts to address expected technology changes and; 3) a $854,000 charge to selling, general and administrative expense including $544,000 related to the write- down of various assets whose net realizable value was adversely affected based on revised fiscal year 2000 and beyond forecasted operating plans, $280,000 related to costs associated with the layoff of 13 employees and $30,000 related to the closure of the Company's Malaysian subsidiary. Net loss for the year ended March 29, 1998 includes i) $1.8 million of charges resulting from valuation adjustments for inventory being carried in excess of normal replacement cost and the discontinuation of certain products, ii) acquired in process research and development costs totaling $6.1 million, and the write down of goodwill and other intangible assets totaling $963,000, related to the Company's 1998 acquisition of WED, and iii) approximately $500,000 of expenses related to the layoff of 40 employees. 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operation--Fiscal 1999 Versus Fiscal 1998 Net sales for fiscal 1999 decreased 57% to $19.2 million from $44.2 million in fiscal 1998. The decrease in net sales resulted from a 69% decrease in units shipped during fiscal 1999 compared to fiscal 1998 as a result of an industry wide semiconductor market downturn causing a drop in demand for semiconductors and semiconductor capital equipment during the latter part of fiscal 1998 and throughout fiscal 1999. As a percentage, international sales increased to 39% of net sales in fiscal 1999 compared to 36% of net sales in fiscal 1998. Approximately 81% of all international sales were to customers located in the Pacific Rim region. As noted above, the Company began experiencing declining bookings and, as a result, lower net sales in the fourth quarter of fiscal 1998 as a result of adverse market conditions in the semiconductor industry. The Company expects that such market conditions will continue into the foreseeable future and as a result, will continue to unfavorably impact bookings and net sales levels for some period of time. (See Liquidity and Capital Resources) In the second quarter of fiscal 1999, the Company announced a plan to consolidate its UK wafer handling and inspection operations. This plan included the closure of the Company's UK facility and related transfer of manufacturing and other operations to the United States as well as the discontinuation of several older product models in an effort to focus the operation's product offerings. (See Note M to the Consolidated Financial Statements). In conjunction with this plan, the Company recorded a $2.2 million special charge including a $850,000 charge to cost of sales for inventory write-downs related to product discontinuation and a $1.3 million restructuring charge. The principal components of the restructuring charge include $627,000 for a write-down of fixed and other long-term assets no longer used by the operation, $241,000 for severance related charges, $325,000 for a write-down of goodwill related to the impairment of such assets indicated using estimated future cash flows, and $65,000 of lease termination and related costs. As of January 1999, the closure and transfer were substantially complete, fixed assets were disposed of and severance related costs were paid. In the fourth quarter of fiscal 1999, the Company recorded a special charge of $6.2 million. The charge reflects the impact of continuing unfavorable conditions in the semiconductor capital equipment market, a more gradual recovery than was previously anticipated and expected future technology changes in this market upon the Company's product line, cost structure and asset base (See Note M to the Consolidated Financial Statements). Components of the charge include 1) a $5.0 million charge to cost of goods sold for write-downs related principally of excess inventory based on revised fiscal year 2000 and beyond forecasted operating plans; 2) a $351,000 charge to research and development for the write-down of development equipment no longer used by the Company as a result of a refocusing of development efforts to address expected technology changes and; 3) a $854,000 charge to selling, general and administrative expense including $544,000 related to the write- down of various assets whose net realizable value was adversely affected based on revised fiscal year 2000 and beyond forecasted operating plans, $280,000 related to costs associated with the layoff of 13 employees and $30,000 related to the closure of the Company's Malaysian subsidiary. As of June 1999, fixed assets deemed no longer useable were put out of service and segregated for disposal, and all severance related costs were paid. Gross profit for fiscal 1999 was $1.4 million, or 7% of net sales, compared to $17.5 million, or 40% of net sales, in fiscal 1998. The fiscal 1999 decline in gross profit resulted from a product shipment mix including a larger component of the Company's lower gross margin products, manufacturing excess capacity because of lower production levels and special charges of $5.9 million relating to cost of goods sold, described above, recorded during fiscal 1999. Research and development costs decreased 22% to $5.3 million in fiscal 1999 from $6.8 million in fiscal 1998. Fiscal 1999 research and development expenses included a special charge of $351,000 previously 13 described. Net of the charge, the decrease in research and development costs during fiscal 1999 was principally due to decreased headcount. Selling, general and administrative expenses decreased 30% to $9.1 million in fiscal 1999 from $13.0 million in fiscal 1998. Selling, general and administrative expenses included a special charge of $854,000 in fiscal 1999 previously described and a special charge of $1.5 million in fiscal 1998 described in "Results of Operations--Fiscal 1998 versus Fiscal 1997." Net of such charges in each year, the decrease in selling, general and administrative expenses during fiscal 1999 was a result of reductions in headcount and strict controls over discretionary spending during the year. As a result of the above, the Company generated an operating loss of $14.3 million (including $8.4 million of special charges) for fiscal 1999 compared to an operating loss of $8.4 million (including $9.4 million of special charges) for fiscal 1998. Other income, net consists principally of interest income earned on cash and cash equivalents and interest expense paid on the Company's outstanding line of credit balance. The Company recorded a tax benefit of $690,000 in fiscal 1999 compared to a tax benefit of $139,000 in fiscal 1998. No tax benefit was recorded in the third or fourth quarters of fiscal 1999 because no additional benefits from operating loss carryback provisions were available to the Company. Furthermore in fiscal 1999, the Company recorded a valuation allowance for deferred tax assets, principally representing net operating loss carryforwards and other deferred tax assets the realization of which the Company does not deem more likely than not. Net loss for fiscal 1999 was $13.7 million, or $3.64 per share, compared to net loss for fiscal 1998 of $8.1 million, or $2.20 per share. Results of Operations--Fiscal 1998 versus Fiscal 1997 Net sales for fiscal 1998 increased 29% to $44.2 million from $34.3 million in fiscal 1997. The increase in net sales resulted from a 34% increase in units shipped during fiscal 1998 compared to fiscal 1997 offset in part by a decrease in average selling price of equipment resulting from large quantity order discounts earned by customers during fiscal 1998. Although unit sales increased in each of the first three quarters of fiscal 1998 from the previous quarter, unit sales declined 10% in the fourth quarter compared to the third quarter of fiscal 1998 as a result of a drop in the demand for semiconductors and semiconductor capital equipment experienced in the fourth quarter. International sales declined to 36% of net sales in fiscal 1998 compared to 52% of net sales in the prior fiscal year. International sales, which represented approximately 46% of sales through the third quarter of fiscal 1998, decreased substantially to 20% of sales in the fourth quarter as orders from countries in the Far East slowed. Gross profit for fiscal 1998 was $17.5 million, or 40% of net sales, compared to $16.2 million, or 47% of net sales, in fiscal 1997. Fiscal 1998 gross profit was impacted by a special charge, recorded in the fourth quarter, of $1.8 million, or 4% of net sales, resulting from valuation adjustments for VT8000 inventory being carried in excess of normal replacement cost, and to a lesser extent, the discontinuation of certain product lines. Excluding the special charge, fiscal 1998 gross profit was $19.3 million, or 44% of net sales, a decrease of 3% from the prior fiscal year gross profit margin percentage. The decrease in gross margin percentage was a result of higher than normal discount rates earned by customers on larger quantity orders shipped during fiscal 1998, a shift in product mix away from older product lines with higher gross margins and manufacturing excess capacity experienced in the fourth quarter of fiscal 1998. 14 Research and development costs increased approximately 30% to $6.8 million in fiscal 1998 from $5.2 million in fiscal 1997. Research and development costs were 15% of sales in both fiscal years. The increase in such spending resulted from the addition of Western Equipment Developments (Holdings) Ltd. ("WED") in the first quarter of fiscal 1998 (see Note L to the Consolidated Financial Statements), and the hiring of additional engineering personnel and procurement of prototype material for continuing development projects. Selling, general and administrative expenses increased 56% to $13.0 million in fiscal 1998 from $8.4 million in fiscal 1997. As a percentage of net sales, selling, general and administrative expenses increased to 29% of net sales in fiscal 1998 compared to 24% of net sales in fiscal 1997. Selling, general and administrative expenses were affected by a special charge of $1.5 million recorded in the fourth quarter of fiscal 1998. Components of the special charge were $963,000 related to the writedown of certain intangible assets associated with the acquisition of WED, as discussed below, and approximately $500,000 related to costs associated with the layoff of 40 employees. Excluding the special charge, selling, general and administrative expense for fiscal 1998 was $11.5 million or 26% of net sales. The balance of the increase in selling, general and administrative expenses was a result of the addition of WED in the first quarter of fiscal 1998, increased promotional and trade show costs related to the VT8000 introduction, increased costs of travel, an increase to the bad debt reserve to cover potential exposure in accounts receivable on Far East shipments and costs related to the establishment of a new sales and service office in Singapore. The Company's initial allocation of purchase price at the date of its acquisition of WED resulted in an estimate of acquired in-process research and development of $4.9 million, and developed technology, goodwill and other intangibles totaling $3.0 million. However, during 1998, the Company determined that certain acquired technology was not as developed as originally expected, and certain in-process technology would require more time to develop than originally anticipated. At the end of fiscal 1998, the Company completed the allocation of the purchase price and estimated the fair values of the acquired in-process research and development, developed technology, goodwill and other intangibles using estimated future discounted cash flows. The final allocation resulted in an additional in-process research and development charge of $1.2 million recorded in the fourth quarter, resulting in an aggregrate charge of $6.1 million for fiscal 1998. The acquired in-process research and development had not yet reached technological feasibility and had no alternative future use. As of the end of fiscal 1998, the Company estimated that $1.2 million would be expensed over the next three years in connection with the completion of acquired research and development. During fiscal 1999 the Company incurred approximately $600,000 related to the completion of these products. None of the new products was completed or shipped in fiscal 1999; however, the Company expects that such products will be ready for customer shipment beginning in fiscal 2000. The Company does not expect to exceed its original estimate of $1.2 million. Since WED incurred operating losses in fiscal 1998 which were not originally anticipated, the year end assessments for developed technology and related goodwill indicated that the amounts originally recorded for these assets would not be recovered and thus were impaired. Therefore, these assets were written down to their estimated fair values, resulting in a separate fourth quarter charge of $963,000, which is included in selling, general and administrative expenses in the accompanying statement of operations. As a result of the above, the Company generated an operating loss of $8.4 million for fiscal 1998 (including $9.4 million of fiscal 1998 special charges) compared to operating income of $2.6 million for fiscal 1997. Other income, net consists principally of interest income earned on cash and cash equivalents which decreased in fiscal 1998 because of the lower average cash balance maintained during the year after the acquisition of WED. The Company recorded a tax benefit of $139,000 in fiscal 1998 compared to a tax provision of $1.0 million in fiscal 1997. The Company's tax rate was affected by the inability to offset losses incurred by WED against income earned in the United States and the write-off of acquired in process research and development and goodwill associated with the acquisition of WED, both of which are not deductible for tax purposes. Furthermore, the Company recorded a valuation allowance principally representing net operating loss carryforwards and other 15 deferred tax assets at WED the realization of which the Company does not deem to be more likely than not. The effective tax rate for fiscal 1997 was 30%. Net loss for fiscal 1998 was $8.1 million, or $2.20 per share, compared to net income for fiscal 1997 of $2.3 million, or $.62 per diluted share. Liquidity and Capital Resources The Company historically has funded its operations primarily through cash flows from operations, bank borrowings and the private and public sale of equity securities. At March 28, 1999, the Company had cash and cash equivalents of $754,000, net of borrowings, and working capital of approximately $7.8 million. The Company used approximately $3.0 million in cash for operating activities during fiscal 1999. The primary working capital factors affecting cash from operations were accounts receivable and accounts payable and accrued expenses. Accounts receivable decreased approximately $5.1 million as a result of the decrease in net sales in fiscal 1999 versus fiscal 1998. Accounts payable and accrued expenses decreased approximately $4.6 million during the fiscal year as a result of the decrease in business volume in fiscal 1999. The Company used approximately $579,000 in cash during fiscal 1999 to fund the acquisition of capital equipment which included the completion of the Company's implementation of a new enterprise-wide management information system and $200,000 to fund internal software development costs. The Company generated cash from financing activities in fiscal 1999 of approximately $118,000 from employee stock purchases under the Company's employee stock option and stock purchase plans and $475,000 from borrowings under the Company's working capital line of credit. The Company has a revolving line of credit with a bank which expires November 1, 1999 (the "Line of Credit"). Borrowings under the Line of Credit were $475,000 and $575,000 at March 28, 1999 and June 27, 1999, respectively. As of June 27, 1999, maximum availability under the Line of Credit was equal to the lesser of (i) $1.3 million or (ii) 80% of qualified accounts receivable (the "Borrowing Base"). Such maximum availability decreases to the lesser of (i) $350,000 or (ii) the Borrowing Base after the earlier of August 31, 1999 or receipt by the Company of a refund of federal taxes paid by the Company in respect of fiscal 1998 and prior years, which refund the Company expects will be approximately $1.3 million. At June 27, 1999, the Borrowing Base was $1.3 million. The Credit Line is secured by all assets of the Company. The credit agreement establishing the Credit Line prohibits the payment of dividends without the bank's consent and requires the maintenance of specified debt to net worth and current ratios. The credit agreement also requires that the Company maintain a minimum capital base and not incur net losses of more than a specified amount. As of March 28, 1999, the Company was in default of the debt to net worth and net loss covenants but has since obtained appropriate waivers from the bank. The Company is currently refinancing its bank debt and has received a commitment from another lender to provide a replacement credit line to the Company. The replacement line of credit will have a two-year term and will allow for maximum availability of $3.0 million based on a percentage of qualified accounts receivable and inventory. The line will be secured by all the assets of the Company and will be subject to certain financial covenants including specified levels of net worth, and debt to net worth ratios and limitations on capital expenditures. The replacement line of credit will accrue interest at a rate of prime plus 1.5%. The bank may alter or terminate its commitment with respect to the replacement line of credit if there is any material adverse change in the Company's financial position or otherwise. However, to the extent that there is a shortfall of funds under the commitment, management has the ability and intent to adjust the Company's cash flows to be able to meet operational needs at least through the end of fiscal 2000. The Company expects to continue to experience a slowdown in the volume of business due to adverse market conditions in the semiconductor industry, a more gradual recovery than was previously anticipated and the effect of expected future technology changes in this market upon the Company's product line. As a result, the Company intends to monitor, and further reduce if necessary, its expenses if projected lower net sales levels continue. Although the Company anticipates that it will incur losses in future quarters which will negatively 16 impact its liquidity position, the Company believes that funds generated from operations, existing cash balances and available borrowing capacity will be sufficient to meet the Company's cash requirements for at least the next twelve months. (See Note E and Note O to the Consolidated Financial Statements). However, if the Company is unable to meet its operating plan, and in particular its forecast for product shipments, the Company may require additional capital. There can be no assurance that if the Company is required to secure additional capital that such capital will be available on reasonable terms, if at all, at such time as required by the Company. The Company has been notified by The Nasdaq-Amex Group that the Company currently is not in compliance with the Nasdaq National Market listing requirement that the market value of the Company's common stock held by the public be greater than $5,000,000. If the Company is unable to satisfy this requirement for at least ten consecutive days prior to September 16, 1999, its common stock will be delisted at the opening of business on September 20, 1999. Although in that event the Company could apply to list its shares with the Nasdaq SmallCap Market, its delisting from the Nasdaq National Market could adversely affect the liquidity of the Company's stock. In addition, delisting from the Nasdaq National Market might negatively impact the Company's reputation and, as a consequence, its business. Year 2000 Historically, certain computer programs have been written using two digits rather than four to define the applicable year, which could result in a computer recognizing a date using "00" as the year 1900 rather than the year 2000. This in turn, could result in major system failures or miscalculations, and is generally referred to as the "Year 2000 Problem". In the second quarter of fiscal 1999, the Company completed its implementation of a new enterprise-wide management information system that the vendor has represented is Year 2000 compliant. In addition, the Company has completed an assessment of other software used by the Company for Year 2000 compliance and has noted no material instances of non-compliance. On an on- going basis, the Company reviews each of its new hardware and software purchases to ensure that it is Year 2000 compliant. The Company also has conducted a review of its product line and has determined that most of the products it has sold and will continue to sell do not require remediation to be Year 2000 compliant. This conclusion is based partly on third party representations that product components, such as personal computers, will be year 2000 compliant. The Company had no means of ensuring that such suppliers' components will be Year 2000 compliant. The Company is in the process of gathering information about the Year 2000 compliance status of its significant suppliers and customers. Additionally, the compliance status of the Company's external agents who process vital Company data such as payroll, employee benefits, and banking information have been queried for Year 2000 compliance. To date, the Company is not aware of any such external agent with a Year 2000 issue that would materially impact the Company's results of operations, liquidity, or capital resources. However, the Company had no means of ensuring that external agents will be Year 2000 ready. To date the Company has incurred approximately $870,000 ($207,000 expensed and $663,000 capitalized for new systems and equipment) related to all phases of the Year 2000 compliance initiatives. Although the Company does not believe that it will incur any additional material costs or experience material disruptions in its business associated with preparing its internal systems for Year 2000 compliance, there can be no assurances that the Company will not experience serious unanticipated negative consequences and/or material costs caused by undetected errors or defects in the technology used in its internal systems, which is comprised of third party software and third party hardware that contain embedded software. The most reasonably likely worst case scenarios would include (i) corruption of data contained in the Company's internal information systems relating to, among other things, manufacturing and customer orders, shipments billing and collections, (ii) hardware failures, (iii) the failure of infrastructure services provided by government agencies and other third parties (i.e., electricity, phone service, water transport, payroll, employee benefits, etc.), (iv) warranty and litigation expense associated with third-party software incorporated into the Company's products that is not Year 2000 compliant, and (v) a decline in sales resulting from disruptions in the economy generally due to Year 2000 issues. 17 The Company has contingency plans for certain critical applications and is working on such plans for others. These contingency plans involve among other actions, manual workarounds and adjusting staffing strategies. The impact of inflation on the Company's business during the past three fiscal years has not been significant. Cautionary Statement for Purposes of "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 This Annual Report on Form 10K contains forward-looking statements relating to future events or the future financial performance of the Company, including but not limited to statements contained in Item 1--"BUSINESS" Item 2-- "PROPERTIES" and Item 7--"MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS". Readers are cautioned that such statements, which may be identified by words including "anticipates," "believes," "intends," "estimates," "plans," and other similar expressions, are only predictions or estimations and are subject to known and unknown risks and uncertainties, over which the Company has little or no control. In evaluating such statements, readers should consider the various factors identified below which could cause actual events, performance or results to differ materially from those indicated by such statements. Liquidity--As of June 27, 1999 the Company had net borrowings of $196,000 and working capital of approximately $7.4 million. As a result of anticipated continued weakness in the semiconductor market, the Company expects to incur further losses in future quarters which will negatively impact its liquidity position. Although the Company believes that funds generated from operations, existing cash balances and available borrowing will be sufficient to meet the Company's cash requirements for at least the next twelve months, if the Company is unable to meet its operating plan, the Company may require additional capital. There can be no assurance that if the Company is required to secure additional capital that such capital will be available on reasonable terms, if at all, at such time as required by the Company. Nasdaq National Market Delisting--The Company has been notified by The Nasdaq-Amex Group that the Company currently is not in compliance with the Nasdaq National Market listing requirement that the market value of the Company's common stock held by the public be greater than $5,000,000. If the Company is unable to satisfy this requirement for at least ten consecutive days prior to September 16, 1999, its common stock will be delisted at the opening of business on September 20, 1999. Although in that event the Company could apply to list its shares with the Nasdaq SmallCap Market, its delisting from the Nasdaq National Market could adversely affect the liquidity of the Company's stock. In addition, delisting from the Nasdaq National Market might negatively impact the Company's reputation and, as a consequence, its business. Semiconductor Market Fluctuations--The semiconductor market has historically been cyclical and subject to significant economic downturns at various times, which often have a disproportionate effect on manufacturers of semiconductor capital equipment. As a result, there can be no assurance that the Company will not experience material fluctuations in future quarterly or annual operating results as a result of such a market fluctuation. The semiconductor industry in recent periods has experienced decreased demand, and it is uncertain how long these conditions will continue. Reliance on Supplier--In November 1997, Aseco entered into a distribution agreement with Rasco A.G. ("Rasco") pursuant to which Aseco markets and sells Rasco's SO1000 test handler in the United States, Canada and Taiwan. To achieve its sales objectives, the Company must rely on Rasco to build and ship test handlers in accordance with a quarterly schedule. There can be no assurance that Rasco will be able to consistently meet such a schedule. Accordingly, the Company's operating results are subject to variability from quarter to quarter and could be adversely affected for a particular quarter if shipments of Rasco equipment for that quarter were lower than anticipated. Additionally, termination of the Rasco relationship with the Company could adversely affect the Company's financial performance. There can be no assurance that the Company will be able to maintain its current distribution arrangement with Rasco. 18 Variability in Quarterly Operating Results--During each quarter, the Company customarily sells a limited number of systems, thus a change in the shipment of a few systems in a quarter can have a significant impact on results of operations for a particular quarter. To achieve sales objectives, the Company must generally obtain orders for systems to be shipped in the same quarter in which the order is obtained. Moreover, customers may cancel or reschedule shipments with limited or no penalty, and production difficulties could delay shipments. Accordingly, the Company's operating results are subject to significant variability from quarter to quarter and could be adversely affected for a particular quarter if shipments for that quarter were lower than anticipated. Moreover, since the Company ships a significant quantity of products at or near the end of each quarter, the magnitude of fluctuation is not known until late in or at the end of any given quarter. New Product Introductions--The Company's success depends in part on its continued ability to develop and market new products. There can be no assurance that the Company will be able to develop and introduce new products in a timely manner or that such products, if developed, will achieve market acceptance. Additionally there can be no assurance that the Company will be able to manufacture such products at profitable levels or in sufficient quantities to meet customer requirements. The inability of the Company to do any of the foregoing could have a material adverse effect on the Company's operating results. International Operations--In fiscal 1999, 39% of the Company's net sales were derived from customers in international markets. The Company is therefore subject to certain risks common to many export activities, such as governmental regulations, export license requirements, air transportation disruptions, freight rates and the risk of imposition of tariffs and other trade barriers. A portion of the Company's international sales are invoiced in foreign currencies and, accordingly, are subject to fluctuating currency exchange rates. As such there can be no assurance that the Company will be able to protect its position by hedging its exposure to currency exchange rate fluctuations. Competition--The markets for the Company's products are highly competitive. The Company's competitors include a number of established companies that have significantly greater financial, technical, manufacturing and marketing resources than the Company. The Company also competes with a number of smaller companies. There can be no assurance that the Company will be able to compete successfully against current and future sources of competition or that the competitive pressures faced by the Company will not adversely effect its profitability or financial performance. Customer Concentrations--Although the Company has a growing customer base, from time to time, an individual customer may account for 10% or more of the Company's quarterly or annual net sales. During the year ended March 28, 1999, two customers accounted for 14% and 13% of net sales, respectively. The Company expects that such customer concentration of net sales will continue to occur from time to time as customers place large quantity orders with the Company. As a result, the loss of, or significant reduction in purchases by, any such customer could have an adverse effect on the Company's annual or quarterly financial results. Investments in Research & Development--The Company is currently investing in specific time-sensitive strategic programs related to the research and development area which the Company believes is critical to its future ability to compete effectively in the market. As such, the Company plans to continue to invest in such programs at a planned rate and not to reduce or limit the increase in such expenditures until such programs are completed. As a result there can be no assurance that such expenditures will not adversely affect the Company's quarterly or annual profitability or financial performance. Reliance on Third Party Distribution Channels--The Company markets and sells its products primarily through third-party manufacturers' representative organizations which are not under the direct control of the Company. The Company has limited internal sales personnel. A reduction in the sales efforts by the Company's current manufacturers' representatives or a termination of their relationships with the Company could adversely affect the Company's operations and financial performance. There can be no assurance that the Company will be able to retain its current manufacturers' representatives or its distribution channels by selling directly through its sales employees or enter into arrangements with new manufacturers' representatives. 19 Dependence on Key Personnel--The Company's success depends to a significant extent upon a number of senior management and technical personnel. These persons are not bound by employment agreements. The loss of the services of a number of these key persons could have a material adverse effect on the Company. The Company's future success will depend in large part upon its ability to attract and retain highly skilled technical, managerial and marketing personnel. Competition for such personnel in the Company's industry is intense. There can be no assurance that the Company will continue to be successful in attracting and retaining the personnel it requires to successfully develop new and enhanced products and to continue to grow and operate profitably. Dependence on Proprietary Technology--The Company's success is dependent upon proprietary software and hardware which the Company protects primarily through patents and restrictions on access to its trade secrets. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate to prevent misappropriation of its technology or independent development by others of similar technology. Although the Company believes that its products and technology do not infringe any existing proprietary rights of others, the use of patents to protect software and hardware has increased and there can be no assurance that third parties will not assert infringement claims against the Company in the future. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Market risk represents the risk of loss that may affect the consolidated financial statements of the Company due to adverse changes in financial market prices and rates. The Company's market risk exposure is primarily the result of fluctuations in foreign exchange rates. The Company has not entered into derivative or hedging transactions to manage risk in connection with such fluctuations. The Company derived approximately 39% of its net sales in fiscal 1999 from customers based outside of the United States. Certain of the Company's international sales are denominated in foreign currencies. The price in dollars of products sold outside the United States in foreign currencies will vary as the value of the dollar fluctuates against such foreign currencies. Although the Company's sales denominated in foreign currencies in fiscal 1999 were not material, there can be no assurance that such sales will not be material in the future and that there will not be increases in the value of the dollar against such currencies that will reduce the dollar return to the Company on the sale of its products in such foreign currencies. 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Consolidated Financial Statements included in Item 8:
Page ---- Report of Independent Auditors............................................ 22 Consolidated Balance Sheets as of March 28, 1999 and March 29, 1998....... 23 Consolidated Statements of Operations for the years ended March 28, 1999, March 29, 1998, and March 30, 1997....................................... 24 Consolidated Statements of Changes in Stockholders' Equity for the years ended March 28, 1999, March 29, 1998, and March 30, 1997................. 25 Consolidated Statements of Cash Flows for the years Ended March 28, 1999, March 29, 1998, and March 30, 1997....................................... 26 Notes to Consolidated Financial Statements................................ 27
21 Report of Independent Auditors The Board of Directors and Stockholders Aseco Corporation We have audited the accompanying consolidated balance sheets of Aseco Corporation as of March 28, 1999 and March 29, 1998, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended March 28, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Aseco Corporation at March 28, 1999 and March 29, 1998 and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 28, 1999 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Boston, Massachusetts May 10, 1999, except for Note O as to which the date is July 9, 1999 22 ASECO CORPORATION Consolidated Balance Sheets (in thousands, except share and per share data)
March 28, March 29, 1999 1998 Assets --------- --------- Current assets Cash and cash equivalents................................ $ 1,229 $ 4,431 Accounts receivable, less allowance for doubtful accounts of $1,027 in 1999 and $781 in 1998...................... 4,041 9,140 Inventories, net......................................... 5,893 11,875 Prepaid expenses......................................... 370 533 Income tax receivable.................................... 1,351 596 Deferred taxes........................................... -- 1,603 Other current assets..................................... 197 29 ------- ------- Total current assets................................... 13,081 28,207 Plant and equipment, less accumulated depreciation and am- ortization................................................ 2,134 4,041 Other assets, net.......................................... 109 1,443 ------- ------- $15,324 $33,691 ======= ======= Liabilities and Stockholders' Equity Current liabilities Line of credit........................................... $ 475 $ -- Accounts payable......................................... 1,964 4,591 Accrued expenses......................................... 2,868 4,886 Current portion of capital lease obligations............. 12 13 ------- ------- Total current liabilities.............................. 5,319 9,490 Deferred taxes payable..................................... -- 594 Long-term capital lease obligations........................ -- 25 Stockholders' equity Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued and outstanding................. -- -- Common stock, $.01 par value: 15,000,000 shares autho- rized, 3,832,799 and 3,731,718 shares issued and out- standing in 1999 and 1998, respectively................. 38 38 Additional paid in capital................................. 18,321 18,203 Retained earnings (accumulated deficit).................... (8,382) 5,291 Accumulated other comprehensive income: Foreign currency translation adjustment.................... 28 50 ------- ------- Total stockholders' equity............................. 10,005 23,582 ------- ------- $15,324 $33,691 ======= =======
See notes to consolidated financial statements. 23 ASECO CORPORATION Consolidated Statements of Operations (in thousands, except share and per share data)
Year Ended ------------------------------- March 28, March 29, March 30, 1999 1998 1997 --------- --------- --------- Net sales.................................... $ 19,218 $ 44,246 $ 34,320 Cost of sales................................ 17,856 26,761 18,113 --------- --------- --------- Gross profit............................... 1,362 17,485 16,207 Research and development costs............... 5,305 6,773 5,227 Selling, general and administrative ex- penses...................................... 9,077 13,023 8.357 Restructuring charge......................... 1,300 -- -- Acquired in process research and development costs....................................... -- 6,100 -- --------- --------- --------- Income (loss) from operations.............. (14,320) (8,411) 2,623 Other income (expense): Interest income............................ 96 309 664 Interest expense........................... (146) (119) (7) Other, net................................. 7 (61) 11 --------- --------- --------- (43) 129 668 --------- --------- --------- Income (loss) before income taxes............ (14,363) (8,282) 3,291 Income tax expense (benefit)................. (690) (139) 1,003 --------- --------- --------- Net income (loss)............................ $ (13,673) $ (8,143) $ 2,288 ========= ========= ========= Earnings (loss) per share, basic............. $ (3.64) $ (2.20) $ .63 ========= ========= ========= Shares used to compute earnings (loss) per share, basic................................ 3,758,000 3,695,000 3,640,000 Earnings (loss) per share, diluted........... $ (3.64) $ (2.20) $ .62 ========= ========= ========= Shares used to compute earnings (loss) per share, diluted.............................. 3,758,000 3,695,000 3,717,000
See notes to consolidated financial statements. 24 ASECO CORPORATION Consolidated Statements of Changes in Stockholders' Equity (in thousands, except share data)
Accumulated Common Stock Retained Other --------------- Additional Earnings Comprehensive Par Paid-in (Accumulated Income Shares Value Capital Deficit) (Expense) Total --------- ----- ---------- ------------ ------------- ------- Balance at March 31, 1996................... 3,611,501 $36 $17,234 $11,146 $-- $28,416 Issuance of shares under stock plans............ 53,018 1 344 -- -- 345 Tax benefit from exercise of stock options................ -- -- 64 -- -- 64 Net income.............. -- -- -- 2,288 -- 2,288 ------- Comprehensive income.... -- -- -- -- -- 2,288 --------- --- ------- ------- ---- ------- Balance at March 30, 1997................... 3,664,519 37 17,642 13,434 -- 31,113 Issuance of shares under stock plans............ 67,199 1 449 -- -- 450 Tax benefit from exercise of stock options................ -- -- 112 -- -- 112 Net loss................ -- -- -- (8,143) -- (8,143) Foreign currency translation adjustment............. -- -- -- -- 50 50 ------- Comprehensive loss...... (8,093) --------- --- ------- ------- ---- ------- Balance at March 29, 1998................... 3,731,718 38 18,203 5,291 50 23,582 Issuance of shares under stock plans............ 101,081 -- 118 -- -- 118 Net loss................ -- -- -- (13,673) -- (13,673) Foreign currency translation adjustment............. -- -- -- -- (22) (22) ------- Comprehensive loss...... (13,695) --------- --- ------- ------- ---- ------- Balance at March 28, 1999................... 3,832,799 $38 $18,321 $(8,382) $ 28 $10,005 ========= === ======= ======= ==== =======
See notes to consolidated financial statements. 25 ASECO CORPORATION Consolidated Statements of Cash Flows (in thousands)
Year ended ------------------------------ March 28, March 29, March 30, 1999 1998 1997 --------- --------- --------- Operating activities: Net income (loss)................................ $(13,673) $(8,143) $ 2,288 Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation................................... 1,505 1,238 776 Amortization................................... 290 484 166 Deferred taxes................................. 1,009 (471) (310) Lower of cost or market and other inventory adjustments................................... 5,600 1,777 -- Acquired in process research and development costs and write down of goodwill and other in- tangibles..................................... 763 7,063 -- Fixed asset write down......................... 476 -- -- Restructuring charge........................... 774 -- -- Changes in assets and liabilities: Accounts receivable............................ 5,099 639 3,193 Inventories, net............................... 544 (4,595) (2,179) Prepaid expenses............................... 73 (33) (61) Accounts payable and accrued expenses.......... (4,645) 1,296 (2,665) Income taxes receivable/payable................ (755) (184) (91) Other current assets........................... (168) (469) (84) Other assets, net.............................. 140 -- 9 -------- ------- ------- Total adjustments............................ 10,705 6,745 (1,246) -------- ------- ------- Cash (used in) provided by operating activities.................................. (2,968) (1,398) 1,042 Investing activities: Acquisition, net of cash acquired.............. -- (6,079) -- Acquisition of machinery and equipment......... (579) (1,768) (992) Proceeds from sale of machinery and equipment.. -- 17 -- Increase in software development costs......... (200) (383) (243) -------- ------- ------- Cash used in investing activities............ (779) (8,213) (1,235) Financing activities: Loan to officer................................ -- -- (140) Net proceeds from issuance of common stock..... 118 450 345 Increase (reduction) of working line of credit........................................ 475 (477) -- Reductions of capital lease obligations........ (26) (15) (13) -------- ------- ------- Cash (used in) provided by financing activities.................................. 567 (42) 192 Effect of exchange rate changes.............. (22) 2 -- -------- ------- ------- Net decrease in cash and cash equivalents.... (3,202) (9,651) (1) Cash and cash equivalents at the beginning of the year............................................ 4,431 14,082 14,083 -------- ------- ------- Cash and cash equivalents at the end of the year............................................ $ 1,229 $ 4,431 $14,082 ======== ======= =======
See notes to consolidated financial statements 26 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All tabular amounts in thousands except share and per share amounts) Note A--Nature of Business Aseco (the "Company") designs, manufactures and markets test handlers used to automate the testing of integrated circuits in surface mount packages. Aseco provides high quality, versatile test handlers designed to maximize the productivity of the significantly more costly testers with which they operate. Aseco also design, manufactures and markets integrated circuit wafer handling and inspection systems. These systems are used to load, sort and transport wafers during both manual and automatic inspection as well as other wafer processing steps in the semiconductor manufacturing process. The Company markets its products principally in North America, the Asia Pacific region and Western Europe and sells its products principally to integrated circuit manufacturers. The Company expects to continue to experience a slowdown in the volume of business due to adverse market conditions in the semiconductor industry, a more gradual recovery than was previously anticipated and the effect of expected future technology changes in this market upon the Company's product line. As a result, the Company intends to monitor, and further reduce if necessary, its expenses if projected lower net sales levels continue. Although the Company anticipates that it will incur losses in future quarters which will negatively impact its liquidity position, the Company believes that funds generated from operations, existing cash balances and available borrowing capacity will be sufficient to meet the Company's cash requirements for at least the next twelve months. (See Note E and Note O to the Consolidated Financial Statements). However, if the Company is unable to meet its operating plan, and in particular its forecast for product shipments, the Company may require additional capital. There can be no assurance that if the Company is required to secure additional capital that such capital will be available on reasonable terms, if at all, at such time as required by the Company. Note B--Summary of Significant Accounting Policies Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions are eliminated. Use of Estimates: The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Cash and Cash Equivalents: The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. The Company invests its excess cash in high quality commercial paper (No such amounts at March 28, 1999 and March 29, 1998) and money market funds (No such amounts at March 28, 1999 and $885,000 at March 29, 1998), all of which are cash equivalents as of fiscal year end. Management determines the appropriate classification of these investments at the time of purchase as either held-to-maturity, available-for-sale or trading and re-evaluates such designation at each balance sheet date. Given the short-term nature of the Company's investments and their availability for use in the Company's current operations, these amounts are considered to be available-for-sale. Available-for-sale securities are carried at fair market value and unrealized gains or losses are reported as a separate component of stockholders' equity. At March 29, 1998, the cost of the Company's investments in cash equivalents approximated their fair market value. 27 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Inventories: Inventories are stated at the lower of cost or market, using the first-in, first-out method to determine cost. Plant and Equipment: Plant and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the applicable assets which are generally three to seven years. Leasehold improvements and equipment under capital leases are being amortized over the lives of the leases. To determine if the value of plant and equipment is impaired, the Company uses estimated future cash flows as the method for estimating the related write-down. Assets no longer used are written down to salvage value at the time of retirement. Intangible Assets and Goodwill: The Company has certain intangible assets including software development costs, developed technology and goodwill. The Company amortizes these assets over their estimated useful lives as follows: Software development costs.......................................... 3 years Developed technology, goodwill and others........................... 15 years
Accumulated amortization associated with these assets was $1,891,000 and $1,760,000 at March 28, 1999 and March 29, 1998, respectively. In determining the value of impaired goodwill, the Company has adopted the use of estimated future discounted cash flows as the method for estimating the related write- down. Warranty Costs: Estimated warranty costs are accrued upon shipment of product. Revenue Recognition: Revenue is recognized generally upon shipment of product, and when special contractual criteria apply, upon acceptance. Earnings Per Share: Basic earnings (loss) per common share is based on the weighted average common shares outstanding. Diluted earnings (loss) per share includes the dilutive effects of options, warrants, and convertible securities. There was no effect of dilutive stock options on the total shares used to compute diluted earnings (loss) per share in fiscal 1999 and fiscal 1998. The effect of dilutive stock options on the total shares used to compute diluted earnings (loss) per share was 77,000 in fiscal 1997. Stock Based Compensation: The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for its stock-based compensation plans, rather than the alternative fair value accounting provided for under Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation." Under ABP 25, for those options granted in which the exercise price equals or exceeds the market price of the underlying stock on the date of grant, no compensation expense is recognized. Recent Accounting Pronouncements: In the first quarter of fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" (SFAS 130) which establishes standards for reporting and display of comprehensive income and its components in a full set of general- purpose financial statements. Under this standard, certain revenues, expenses, gains and losses recognized during the period are included in comprehensive income, regardless of whether they are considered to be results of operations of the period. The adoption of this standard had no material impact on the Company's financial position. In the first quarter of fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 131 "Disclosures About Segments of an Enterprise and Related Information" (SFAS 131) which establishes 28 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) standards for the way that public companies report selected information about operating segments in annual financial statements and requires that those companies report selected information about operating segments in interim financial reports to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company has not yet adopted Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) which is required to be adopted in fiscal 2000. Adoption of this standard is not expected to have a material impact on the Company's financial position or results of operations. Reclassification: Certain prior years' amounts have been reclassified to conform to the current years' presentation. Note C--Inventories, net Net inventories consisted of the following:
March 28, March 29, 1999 1998 --------- --------- (In thousands ) Raw materials............................................ $1,966 $ 5,612 Work in process.......................................... 3,441 4,712 Finished goods........................................... 486 1,551 ------ ------- $5,893 $11,875 ====== =======
Note D--Plant and Equipment Plant and equipment consisted of the following:
March 28, March 29, 1999 1998 --------- --------- (In thousands) Machinery and equipment.................................. $3,076 $4,365 Office furniture and equipment........................... 3,398 3,602 Property under capital lease............................. 578 578 Leasehold improvements................................... 289 251 ------ ------ 7,341 8,796 Less accumulated depreciation and amortization........... 5,207 4,755 ------ ------ $2,134 $4,041 ====== ======
During the year ended March 28, 1999 and March 29, 1998, the Company transferred approximately $108,000 and $790,000, respectively of equipment from inventory to fixed assets for use as manufacturing test equipment. Note E--Indebtedness The Company has a $5.0 million revolving credit line with a bank, which expires on September 1, 1999 (See Note O to the Consolidated Financial Statements). At March 28, 1999, borrowings under such credit line were $475,000 and an additional $1.9 million was available for borrowing. The revolving credit line is secured 29 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) by all assets of the Company. The credit agreement establishing this line of credit prohibits the payment of dividends without the bank's consent and requires maintenance of specified debt to net worth and current ratios. The credit agreement also requires that the Company maintain a minimum capital base and not incur net losses of more than a specified amount. As of March 28, 1999, the Company was in default of the net worth and net income covenants (See Note O to the Consolidated Financial Statements). Borrowings bear interest at the bank's prime rate plus 1.5%, which was 9.25% at March 28, 1999. There was no borrowing outstanding as of March 29, 1998. Cash payments of interest were approximately $146,000, 119,000, and $7,000, for the years ended March 28, 1999, March 29, 1998, and March 30, 1997 respectively. Note F--Leases The Company leases a building in Marlboro, Massachusetts for its corporate and manufacturing activities. The Company also leases sales offices in Santa Clara, California and Singapore. The operating lease for the Massachusetts facility expires in the year 2000, subject to the Company's option to extend the term for an additional three- year period. Rent expense for this lease is approximately $350,000 per year. In addition, the lease is subject to escalation for increases in operating expenses and real estate taxes. The Company also leases equipment under capital and non-cancelable operating leases expiring through the year 2001. The following is a schedule of required minimum lease payments under operating leases at March 28, 1999:
Operating Leases -------------- (In thousands) 2000........................................................ $517 2001........................................................ 72 ---- Total minimum lease payments................................ $589 ====
Total rent expense for the years ended March 28, 1999, March 29, 1998, and March 30, 1997 was approximately $480,000, $510,000, and $372,000, respectively. Note G--Stockholders' Equity The Board of Directors may, at its discretion, designate one or more series of preferred stock and establish the voting, dividend, liquidation, and other rights and preferences of the shares of each series, and provide for the issuance of shares of any series. At March 28, 1999, no shares of preferred stock were outstanding. Note H--Stock Plans and Employee Benefits Omnibus Stock Plan: The Company's 1993 Omnibus Stock Plan ( the "Omnibus Plan") is administered by the Compensation Committee of the Board of Directors and provides for the issuance of up to 1,230,000 shares of common stock pursuant to the exercise of options or in connection with awards or direct purchases of stock. Options granted under the Omnibus Plan may be either incentive stock options or non-qualified stock options. Incentive stock options may only be granted under the Omnibus Plan to employees and officers of the Company. Non-qualified stock options may be granted to, awards of stock may be made to, and direct purchases of stock may be made by, employees, officers, consultants or directors of the Company. The terms of the awards or grants, including the number of shares, the duration and rate of exercise of each option, the option price per share, and the determination of any restrictions to be placed on the grants or awards, are determined by the Compensation Committee of the Board of Directors. 30 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Non-Employee Director Stock Option Plan: The Company's 1993 Non-Employee Director Stock Option Plan (the "Director Plan") provides for the grant of non-qualified stock options to non-employee directors of the Company for the purchase of up to an aggregate of 165,000 shares of common stock. Under the Director Plan, each non-employee director is entitled to receive, when first elected to serve as a director, an option to purchase 15,000 shares. In addition, each non-employee director is entitled to receive on April 30 of each year an option to purchase 2,500 shares. The exercise price of the options is equal to the fair market value of the underlying common stock on the date of grant. Options granted under the plan may only be exercised with respect to vested shares. One-half of the shares subject to such options vest on the first anniversary of the date of the grant and the balance vest on the second anniversary of the grant. The following is a summary of activity with respect to the Company's stock option plans:
Weighted Average Options Exercise Price ---------- -------------- Outstanding at March 31, 1996..................... 744,500 $13.30 Granted......................................... 458,000 10.37 Exercised....................................... (33,400) 5.67 Canceled........................................ (449,000) 17.72 ---------- ------ Outstanding at March 30, 1997..................... 720,100 8.91 Granted......................................... 317,500 9.92 Exercised....................................... (38,600) 6.16 Canceled........................................ (130,200) 10.11 ---------- ------ Outstanding at March 29, 1998..................... 868,800 9.33 Granted......................................... 1,063,800 1.57 Exercised....................................... (3,600) .72 Canceled........................................ (1,115,000) 7.64 ---------- ------ Outstanding at March 28, 1999..................... 814,000 $ 1.47 ========== ======
As of March 28, 1999, March 29, 1998, and March 30, 1997, there were outstanding options exercisable for approximately 473,000, 538,000, and 430,000, respectively. As of March 28, 1999, shares available for future grant were 91,000 shares in the Director Plan and 360,000 shares in the Omnibus Plan. The range of exercises prices for options outstanding at March 28, 1999 was $.29-$13.44. The range of exercise prices is wide due to the inclusion of options granted at a lower fair market value in years preceding the Company's initial public offering in March 1993. In fiscal 1997, 391,000 options outstanding under the Company's 1993 Omnibus Stock Plan having an exercise price of $18.69 per share were cancelled and 290,250 new shares were issued at a price of $10.38 per share representing the fair value on the date of issuance. All other terms of these options, including the vesting period associated with each option remained the same. In fiscal 1999, 915,000 options outstanding under the Company's 1993 Omnibus Stock Plan having exercise prices ranging from $3.16 to $18.69 per share were cancelled and 595,000 new shares were issued at a price of $.75 per share representing the fair value on the date of issuance. All other terms of these options, including the vesting period associated with each option remained the same. 31 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table summarizes information about options outstanding at March 28, 1999:
Weighted Weighted Weighted Average Range of Options Average Options Average Remaining Exercise Prices Outstanding Price Exercisable Price Contractual Life --------------- ----------- -------- ----------- -------- ---------------- $.29-$.75 750,000 $ .75 420,000 $ .75 8 Years $5.38-$8.98 20,000 $ 7.34 9,000 $ 7.31 8 Years $10.63-$13.44 44,000 $11.09 44,000 $11.09 7 Years ------- ------- 814,000 473,000
Employee Stock Purchase Plan: The Company's Employee Stock Purchase Plan (the "Purchase Plan") is administered by the Board of Directors or by its designee (the "Administrator") and entitles employees of the Company to purchase shares of the Company's common stock through payroll deductions over offering periods specified by the Administrator. Shares may be purchased at a price equal to the lesser of 85% of the fair market value of the common stock on the first day of the offering period, or 85% of the fair market value of the common stock on the last day of the offering period. A total of 150,000 shares have been reserved for issuance under the Purchase Plan. During fiscal 1999 and 1998, a total of approximately 93,000 and 28,600 shares of common stock, respectively, were issued under this plan. As of March 28, 1999, there were no further shares available for grant under this Plan; however, on March 15, 1999 the Board of Directors approved an increase in the number of shares issuable under the Purchase Plan from 150,000 to 300,000, subject to subsequent shareholder approval. Disclosure of pro forma information regarding net income and earnings per share is required by FASB Statement No. 123 "Accounting for Stock-Based Compensation", and has been determined as if the Company had accounted for its employee stock plans under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black- Scholes option pricing model with the following weighted-average assumptions for fiscal years 1999, 1998 and 1997, respectively: risk-free interest rates of 4.49%, 6.28% and 4.73%; dividend yields of 0% in all years; volatility factors of the expected market price of the Company's common stock of 1.07, .475 and .485; and a weighted-average expected life of the options of 3.3, 3.6, and 3.0 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The weighted average grant date fair value of options granted during fiscal 1999, 1998, and 1997 was $1.15, $4.34 and $4.12, respectively. The weighted average grant date fair value of options associated with the Company's Employee Stock Purchase Plan for fiscal 1999, 1998, and 1997 was $.56, $1.17, and $1.47 respectively. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
March 28, March 29, March 30, 1999 1998 1997 --------- --------- --------- (In thousands) Pro forma net income/(loss)................... $(14,460) $(9,165) $1,633 Pro forma earnings (loss) per share........... $ (3.85) $ (2.48) $ .44
32 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Savings Plan: Under the Company's Savings Plan (the "401(k) Plan"), eligible employees are permitted to make pre-tax contributions up to 15% of their salary, subject to certain limitations imposed by Section 401(k) of the Internal Revenue Code. In addition, employees may contribute up to 10% of their salary to the 401(k) Plan on an after tax basis. The Company may, but is not required to, contribute for the benefit of the employees of the Company an amount determined each year by the Company. For the years ended March 29, 1998, and March 30, 1997, the Company contributed approximately $131,000, and $110,000, respectively to the 401(k) Plan. No Company contribution was made for the year ended March 28, 1999. Stockholder Rights Plan: On August 15, 1996, the Board of Directors adopted a Stockholder Rights Plan. Pursuant to the Stockholder Rights Plan, each share of common stock has an associated right. Under certain circumstances, each right entitles the holder to purchase from the Company one one-thousandth of a share of junior preferred stock at an exercise price of $55.00 per one one- thousandth of a share, subject to adjustment. The rights are not exercisable and cannot be transferred separately from the common stock until ten days after a person acquires or obtains the right to acquire 15% or more or makes a tender offer for 30% or more of the Company's common stock. Upon exercise, each right will entitle the holder to purchase, in lieu of preferred stock, at the right exercise price, common stock having a value of two times the exercise price of the right. In addition, if the Company is either (i) acquired in a merger or other business combination in which the Company is not the surviving entity, or (ii) sells or transfers 50% or more of its assets or earning power to another party, each right will entitle its holder to purchase, upon exercise, common stock of the acquiring Company having a value equal to two times the exercise price of the right. The rights have certain anti-takeover effects, in that they would cause substantial dilution to a person or group that attempts to acquire a significant interest in the Company on terms not approved by the Board of Directors. The rights expire on August 15, 2006 but may be redeemed by the Company for $.01 per right at any time prior to the tenth day following a person's acquisition of 15% or more of the Company's common stock. So long as the rights are not separately transferable, the Company will issue one right with each new share of common stock issued. 33 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note I--Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of March 28, 1999 and March 29, 1998 are as follows:
Total Current Non-current ------ ------- ----------- (In thousands) 1999 Deferred tax liabilities: Tax over book depreciation................... $ (263) -- $(263) Capitalized software......................... (42) -- (42) Capital vs. operating lease.................. (65) $ (65) -- Other........................................ (32) (32) -- ------ ------ ----- Total deferred tax liabilities................. (402) (97) (305) Deferred tax assets: Asset valuation allowances................... 3,390 3,390 -- Net operating loss carryforwards............. 1,060 -- 1,060 Product warranty............................. 59 59 -- Other........................................ 328 328 -- ------ ------ ----- Total deferred tax assets...................... 4,837 3,777 1,060 Valuation allowance for deferred tax assets.... (4,435) (3,680) (755) ------ ------ ----- Net deferred tax assets........................ 402 97 305 ------ ------ ----- Net deferred tax assets (liabilities).......... $ -- $ -- $ -- ====== ====== ===== Total Current Non-current ------ ------- ----------- (In thousands) 1998 Deferred tax liabilities: Tax over book depreciation................... $ (398) -- $(398) Capitalized software......................... (196) -- (196) Capital vs. operating lease.................. (78) $ (78) -- Other........................................ (32) (32) -- ------ ------ ----- Total deferred tax liabilities................. (704) (110) (594) Deferred tax assets: Asset valuation allowances................... 1,384 1,384 -- Product warranty............................. 152 152 -- Net operating loss carryforwards............. 571 -- 571 Other........................................ 368 291 77 ------ ------ ----- Total deferred tax assets...................... 2,475 1,827 648 Valuation allowance for deferred tax assets.... (762) (114) (648) ------ ------ ----- Net deferred tax assets........................ 1,713 1,713 -- ------ ------ ----- Net deferred tax assets (liabilities).......... $1,009 $1,603 $(594) ====== ====== =====
34 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Significant components of the provision (benefit) for income taxes are as follows:
Year ended ----------------------------- March 28, March 29, March 30, 1999 1998 1997 --------- --------- --------- (In thousands) Current federal tax............................... $(1,699) $ 318 $1,211 Current state tax................................. -- 14 102 Deferred federal tax.............................. 827 (451) (258) Deferred state tax................................ 182 (20) (52) ------- ----- ------ $ (690) $(139) $1,003 ======= ===== ======
The reconciliation of income tax computed at the U.S. federal statutory rate to income tax expense is as follows:
Year ended ----------------------------- March 28, March 29, March 30, 1999 1998 1997 --------- --------- --------- Tax at U.S. statutory rates...................... (34.0)% (34.0)% 34.0 % State income taxes, net of federal benefit....... -- -- 3.1 Foreign sales corporation........................ -- (1.6)% (3.7) Tax credits...................................... -- (.8)% (4.9) Acquired in-process research and development..... -- 25.0 % -- Non deductible goodwill and other intangibles.... -- 4.6 % -- Unbenefitted foreign net operating loss.......... -- 4.8 % -- Unbenefitted domestic net operating loss......... 7.4 % -- -- Unbenefitted asset valuation reserve............. 18.2 % -- -- Forfeited foreign net operating losses........... 2.9 % -- -- Goodwill amortization............................ 1.5 % Other, net....................................... (0.7)% .3 % 2.0 ----- ----- ---- (4.8)% (1.7)% 30.5 % ===== ===== ====
During the year ended March 29, 1998 the Company recorded a tax benefit of approximately $112,000 related to the exercise of non-qualified stock options which amounts have been credited to additional paid-in capital. Income taxes paid in the years ended March 28, 1999, March 29, 1998, and March 30, 1997, were $110,000, $827,000, and $1,404,000, respectively. The Company has domestic net operating loss carryforwards of approximately $6,400,000 which will begin to expire in fiscal year 2019. In addition, the Company has approximately $1,150,000 of net operating losses, which will continue indefinitely. During the year, the net operating loss carryforward related to its UK subsidiary expired as a result of the shut down of the operations. 35 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note J--Accrued Expenses Accrued expenses consist of the following:
March 28, March 29, 1999 1998 --------- --------- (In thousands) Accrued commissions...................................... $ 756 $1,199 Accrued compensation and benefits........................ 853 1,215 Accrued warranty......................................... 245 823 Other.................................................... 1,014 1,649 ------ ------ $2,868 $4,886 ====== ======
As of March 28, 1999 the Company accrued approximately $300,000 related to costs associated with the layoff of 13 employees and the shutdown of the Company's Malaysian subsidiary, which are included in selling, general and administrative expenses in the accompanying Statement of Operations. As of March 29, 1998 the Company accrued approximately $500,000 related to costs associated with the layoff of 40 employees, which are included in selling, general and administrative expense in the accompanying Statement of Operations. Note K--Segment, Geographic, Customer Information and Concentration of Credit Risk The Company designs, manufactures and markets semiconductor automation equipment and has one reportable operating segment based on the consolidated operating results of the Company. Net sales from customers attributed to the United States and other geographic areas are as follows:
Year ended ----------------------------- March 28, March 29, March 30, 1999 1998 1997 --------- --------- --------- (In thousands) United States.................................. $11,742 $28,147 $16,495 Taiwan......................................... 2,491 4,454 6,841 Pacific Rim.................................... 3,601 8,640 7,944 Europe......................................... 902 2,697 2,512 Other.......................................... 482 308 528 ------- ------- ------- $19,218 $44,246 $34,320 ======= ======= =======
The Company does not hold a material amount of long-lived assets outside of the United States. The Company sells its products principally to integrated circuit manufacturers. The Company performs periodic credit evaluations of its customers' financial condition. The Company's accounts receivable included balances owed by one customer which represented 18% of total trade accounts receivable as of March 28, 1999, and two customers which represented 16% and 26% of total trade accounts receivable as of March 29, 1998. Two customers accounted for 14% and 13% of net sales for the year ended March 28, 1999. Two customers accounted for 23% and 16% of net sales for the year ended March 29, 1998. One customer accounted for 17% of net sales for the year ended March 30, 1997. 36 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note L--Acquisition On May 23, 1997, the Company acquired 100% of the outstanding stock of Western Equipment Developments (Holdings) Ltd. ("WED"), located in Plymouth, England, for approximately $6,100,000 in cash. WED designs, manufacturers and markets integrated circuit wafer handling robot and inspection systems used to load, sort, transport and inspect wafers during the semiconductor manufacturing process. The acquisition was accounted for as a purchase and accordingly, the results of operations of the acquired business have been included in the Company's consolidated financial statements commencing May 23, 1997. The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. Intangible assets acquired consisting of developed technology, and acquired in-process research and development were valued using risk adjusted cash flow models under which estimated future cash flows were discounted taking into account risks related to existing and future target markets and to the completion of the products expected to be ultimately marketed by the Company, and assessments of the life expectancy of the underlying technology. The Company's initial allocation of purchase price at the date of the acquisition resulted in an estimate of acquired in-process research and development of $4,900,000 and developed technology, goodwill and other intangibles totaling $3,005,000. However, during fiscal 1998 the Company determined that certain acquired technology was not as developed as originally expected, and certain in-process technology would require more time to develop than originally anticipated. At the end of fiscal 1998, the Company completed the allocation of the purchase price and estimated the fair values of the acquired in-process research and development, developed technology, goodwill and other intangibles using estimated future discounted cash flows. The final allocation resulted in an additional in-process research and development charge of $1,200,000 recorded in the fourth quarter, resulting in an aggregate year to date charge of $6,100,000. Since WED incurred operating losses in fiscal 1998 which were not originally anticipated, the year end assessments for developed technology and related goodwill indicated that the amounts originally recorded for these assets would not be recovered and thus were impaired. Therefore, these assets were written down to their estimated fair values, resulting in a separate fourth quarter charge of $963,000, which is included in Selling, General and Administrative expenses in the accompanying statement of operations. The following table summarized the unaudited pro-forma consolidated results of operations as if the acquisition had been made at the beginning of each of the periods presented.
March 29, March 30, 1998 1997 --------- --------- (In thousands) Net sales............................................... $45,274 $39,303 Net loss................................................ (9,519) (4,878) Earnings (loss) per share............................... $ (2.58) $ (1.31)
Note M--Restructuring and Other Charges In the second quarter of fiscal 1999, the Company announced a plan to consolidate its UK wafer handling and inspection operations. This plan included the closure of the Company's UK facility and related transfer of manufacturing and other operations to the United States as well as the discontinuation of several older product models in an effort to focus the operation's product offerings. In conjunction with this plan, the Company recorded a $2.2 million special charge including a $850,000 charge to cost of sales for inventory write-downs related to product discontinuation and a $1.3 million restructuring charge. The principal components of the restructuring charge include $627,000 for a write-down of fixed and other long-term assets no longer used by the operation, $241,000 for severance related charges, $325,000 for a write-down of goodwill related to the impairment of such assets indicated using estimated future cash flows, and $65,000 of lease termination and 37 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) related costs. As of January 1999, the closure and transfer were substantially complete, fixed assets were disposed of and severance related costs were paid. In the fourth quarter of fiscal 1999, the Company recorded a special charge of $6.2 million. The charge reflects the impact of continuing unfavorable conditions in the semiconductor capital equipment market, a more gradual recovery than was previously anticipated and expected future technology changes in this market upon the Company's product line, cost structure and asset base. Components of the charge include 1) a $5.0 million charge to cost of goods sold for write-downs related principally of excess inventory based on revised fiscal year 2000 and beyond forecasted operating plans; 2) a $351,000 charge to research and development for the write-down of development equipment no longer used by the Company as a result of a refocusing of development efforts to address expected technology changes and; 3) a $854,000 charge to selling, general and administrative expense including $544,000 related to the write-down of various assets whose net realizable value was adversely affected based on revised fiscal year 2000 and beyond forecasted operating plans, $280,000 related to costs associated with the layoff of 13 employees and $30,000 related to the closure of the Company's Malaysian subsidiary. Note N--Related Party Transactions On April 15, 1996, the Company loaned $140,000 to an executive officer, who is also a director of the Company. The loan bears interest at the rate of 5.33% per annum, compounded annually, and is due and payable in full on the earlier of the termination of the executive officer's employment with the Company or April 15, 1999. The loan is secured by shares of the Company's common stock owned by the executive officer (See Note O of Consolidated Financial Statement). Note O--Subsequent Events On June 22, 1999 the Company entered into a loan modification agreement (the "Credit Agreement") which extends the expiration date of its revolving line of credit with a bank to November 1, 1999 (the "Line of Credit"). Borrowings under the Line of Credit were $475,000 and $575,000 at March 28, 1999 and June 27, 1999, respectively. Terms of the Credit Agreement specify that as of June 22, 1999, maximum availability under the Line of Credit was equal to the lesser of (i) $1.3 million or (ii) 80% of qualified accounts receivable (the "Borrowing Base"). Such maximum availability decreases to the lesser of (i) $350,000 or (ii) the Borrowing Base after the earlier of August 31, 1999 or receipt by the Company of a refund of federal taxes paid by the Company in respect of fiscal 1998 and prior years, which refund the Company expects will be approximately $1.3 million. At June 27, 1999, the Borrowing Base was $1.3 million. The Credit Line is secured by all assets of the Company. The Credit Agreement establishing the Credit Line prohibits the payment of dividends without the bank's consent and requires the maintenance of specified debt to net worth and current ratios. The Credit Agreement also requires that the Company maintain a minimum capital base and not incur net losses of more than a specified amount. As of March 28, 1999, the Company was in default of the debt to net worth and net loss covenants but has since obtained appropriate waivers from the bank. The Company is currently refinancing its bank debt and has received a commitment from another lender to provide a replacement credit line to the Company. The replacement line of credit will have a two year term and will allow for maximum availability of $3.0 million based on a percentage of qualified accounts receivable and inventory. The line will be secured by all the assets of the Company and will be subject to certain financial covenants including specified levels of net worth, and debt to net worth ratios and limitations on capital expenditures. The replacement line of credit will accrue interest at a rate of prime plus 1.5%. The bank may alter or terminate its commitment with respect to the replacement line of credit if there is any material adverse change in the Company's financial position or otherwise. However, to the extent that there is a shortfall of funds under 38 the commitment, management has the ability and intent to adjust the Company's cash flows to be able to meet operational needs at least through the end of fiscal 2000. On July 6, 1999, an executive officer repaid $140,000 to the Company in settlement of the principal portion of an outstanding loan (See Note N). The Board of Directors agreed to forgive interest accrued on the loan through July 6, 1999. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is included in the Company's Proxy Statement to be filed in connection with the Company's 1999 Annual Meeting of Stockholders to be held on August 11, 1999, under the section captioned "Election of Officers" and is incorporated herein by reference thereto. The information required by this item with respect to executive officers of the Company is set forth under the caption "Executive Officers of the Registrant" in Part I of this Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is included in the Company's Proxy Statement to be filed in connection with the Company's 1999 Annual Meeting of Stockholders to be held on August 11, 1999, under the section captioned "Executive Officer Compensation" and is incorporated herein by reference thereto. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is included in the Company's Proxy Statement to be filed in connection with the Company's 1999 Annual Meeting of Stockholders to be held on August 11, 1999, under the section captioned "Stock Ownership of Directors, Nominees, Executive Officers and Principal Stockholders" and is incorporated herein by reference thereto. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS On April 15, 1996, the Company loaned $140,000 to Sebastian J. Sicari, a director and executive officer of the Company. The loan bears interest at the rate of 5.33% per annum, compounded annually, and is due and payable in full on the earlier of the termination of Mr. Sicari's employment with the Company or April 15, 1999. At March 28, 1999, principal and accrued interest on the loan totaled $163,599. The loan is secured by shares of the Company's common stock owned by Mr. Sicari. On July 6, 1999, Mr. Sicari repaid $140,000 to the Company in settlement of the principal portion of the outstanding loan. The Company agreed to forgive interest accrued on the loan through July 6, 1999. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)1. Financial Statements The following consolidated financial statements are included in Item 8: Consolidated Balance Sheets as of March 28, 1999 and March 29, 1998 Consolidated Statements of Operations for the years ended March 28, 1999, March 29, 1998, and March 30, 1997 Consolidated Statements of Changes in Stockholders' Equity for the years ended March 28, 1999, March 29, 1998 and March 30, 1997 Consolidated Statements of Cash Flows for the years ended March 28, 1999, March 29, 1998 and March 30, 1997
39 (a)2. Financial Statement Schedules
Page ---- Schedule II--Valuation and Qualifying Accounts............................. F-1
All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto. (a)3. Listing of Exhibits
Exhibit No. Description ------- ----------- 3.2 Third Restated Certificate of Incorporation of the Company, filed as Exhibit 3.2 to the Registration Statement on Form S-1 (SEC File No. 33-57644) filed with the Commission on January 29, 1993 and incorporated herein by reference. 3.3 Certificate of Designations, Rights, Preferences and Privileges of Series A Junior Preferred Stock of the Company, filed herewith. 3.4 Amended and Restated By-laws of the Company, filed as Exhibit 4.2 to the Registration Statement on Form S-8 (SEC File No. 333-18337) filed with the Commission on December 19, 1996 and incorporated herein by reference. 4.2 Rights Agreement dated August 15, 1996 between the Company and State Street Bank & Trust Company as Rights Agent (including the exhibits thereto), incorporated by reference from the Company's Registration Statement on Form 8-A filed with the Commission on August 26, 1996. 4.3 Amendment No. 1 to the Rights Agreement dated January 2, 1997 between the Company and American Stock Transfer & Trust Company, filed as Exhibit 4.2 to the Company's Form 10-Q for the quarter ended December 29, 1996 and incorporated herein by reference. 10.2 1993 Non-Employee Director Stock Option Plan (as amended and restated as of August 11, 1998), filed as Exhibit 10.2 to the Company's Form 10-Q for the quarter ended September 27, 1998 and incorporated herein by reference. 10.3 1993 Employee Stock Purchase Plan (as amended and restated as of June 18, 1998), filed as Exhibit 99.1 to the Registration Statement on Form S-8 (SEC File No. 333-68907) filed with the Commission on December 15, 1998 and incorporated herein by reference. 10.4 1993 Omnibus Stock Plan, as amended and restated as of June 14, 1996, filed as Exhibit 10.1 to the Registration Statement on Form S-8 (SEC File No. 333-18337) filed with the Commission on December 19, 1996 and incorporated herein by reference. 10.5 Lease dated April 13, 1993, between the Company and CIGNA Investments, Inc., filed as Exhibit 10.5 to the Registration Statement on Form S-1 (SEC File No. 33-57644) filed with the Commission on January 29, 1993 and incorporated herein by reference. 10.6 $5,000,000 Revolving Note dated November 27, 1998 made by the Company and payable to Fleet National Bank, filed herewith. 10.7 Inventory, Accounts Receivable and Intangibles Security Agreement from the Company to Fleet National Bank, filed herewith. 10.8 Supplementary Security Agreement from the Company to Fleet National Bank, filed herewith. 10.9 Letter Agreement between the Company and Fleet National Bank dated November 27, 1998, filed herewith. 10.10 Modification Agreement between the Company and Fleet National Bank dated June 22, 1999, filed herewith.
40
Exhibit No. Description ------- ----------- *10.11 Severance agreement dated December 30, 1996, between the Company and Sebastian J. Sicari, filed herewith. *10.12 Letter Agreement between Sebastian J. Sicari and the Company, dated August 11, 1998, filed herewith. *10.13 Severance Agreement dated July 8, 1998, by and between the Company and Mary R. Barletta, filed herewith. *10.14 Severance Agreement dated July 8, 1998, by and between the Company and Phillip Villari, filed herewith. *10.15 Severance Agreement dated July 8, 1998, by and between the Company and Robert L. Murray, filed herewith. *10.16 Severance Agreement dated July 8, 1998, by and between the Company and Robert E. Sandberg, filed herewith. *10.17 Severance Agreement dated October 21, 1998, by and between the Company and Richard S. Sidell, filed herewith. *10.18 Separation Agreement dated August 11, 1998, by and between the Company and Carl S. Archer, filed herewith. 10.19 Promissory Note between the Company and Sebastian J. Sicari dated April 15, 1996, and filed as Exhibit 10.13 to the Company's Form 10-Q for the quarter ended December 29, 1996 and incorporated herein by reference. 10.20 Pledge Agreement between the Company and Sebastian J. Sicari dated April 15, 1996, filed as Exhibit 10.15 to the Company's Form 10-Q for the quarter ended December 29, 1996 and incorporated herein by reference. 10.21 Share Purchase Agreement dated as of May 23, 1997 by and among the Company and each of the shareholders of Western Equipment Developments (Holdings) Limited filed as Exhibit 2.1 to the Company's Form 8-K dated May 23, 1997 and incorporated herein by reference. 10.22 Tax Deed dated May 23, 1997 by and among the Company and certain shareholders of Western Equipment Developments (Holdings) Limited filed as Exhibit 2.2 to the Company's Form 8-K dated May 23, 1997 and incorporated herein by reference. 10.23 Escrow Agreement dated as of May 23, 1997 by and among the Company and David Carr and Philip Steven Walsh as representatives for certain shareholders of Western Equipment Developments (Holdings) Limited filed as Exhibit 2.3 to the Company's Form 8-K dated May 23, 1997 and incorporated herein by reference. 21 Subsidiaries of the Company, filed herewith. 23.1 Consent of Ernst & Young LLP, filed herewith. 27 Financial Data Schedule, filed herewith. - -------- * Management contract or compensation plan or arrangement required to be filed as an exhibit pursuant to Item (c) of Form 10-K.
(b) Reports on Form 8-K The Company filed no reports on Form 8-K with the Securities and Exchange Commission during the fiscal quarter ended March 28, 1999. 41 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ASECO Corporation /s/ Sebastian J. Sicari By: _________________________________ Sebastian J. Sicari President and Chief Executive Officer July 13, 1999 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.
Signature Title(s) Date --------- -------- ---- /s/ Sebastian J. Sicari President, Chief Executive July 13, 1999 ______________________________________ Officer and Director Sebastian J. Sicari (Principal Executive Officer) /s/ Mary R. Barletta Vice President, Chief July 13, 1999 ______________________________________ Financial Officer, Mary R. Barletta Treasurer (Principal Financial and Accounting Officer) /s/ Carl S. Archer, Jr. Director July 13, 1999 ______________________________________ Carl S. Archer, Jr. Director July 13, 1999 ______________________________________ Dr. Sheldon Buckler Director July 13, 1999 ______________________________________ Dr. Gerald Wilson /s/ Dr. Sheldon Weinig Director July 13, 1999 ______________________________________ Dr. Sheldon Weinig
42 SCHEDULE II ASECO CORPORATION VALUATION AND QUALIFYING ACCOUNTS
Balance at Charges to beginning costs and Other Balance at Classification of year expenses Deductions Changes (1) end of year -------------- ---------- ---------- ---------- ----------- ----------- Year ended March 28, 1999 Allowance for doubtful accounts............... $781,000 $200,000 $ 30,000 $ 79,000(2) $1,027,000 Year ended March 29, 1998 Allowance for doubtful accounts............... $407,000 $407,000 $358,000 $325,000(1) $ 781,000 Year ended March 30, 1997 Allowance for doubtful accounts............... $397,000 $100,000 $ 90,000 -- $ 407,000
- -------- (1) Represents the balance of the allowance for doubtful accounts of the acquisition date May 23, 1997. (See Note L to Consolidated Financial Statements.) (2) Represents additional allowance for doubtful accounts resulting from final settlement of acquisition purchase price. (See Note L to Consolidated Financial Statements.) 43 EX-3.3 2 CERTIFICATE OF DESIGNATIONS, RIGHTS, PREFERENCES EXHIBIT 3.3 CERTIFICATE OF DESIGNATIONS, RIGHTS, PREFERENCES ------------------------------------------------ AND PRIVILEGES OF SERIES A JUNIOR PREFERRED STOCK OF ASECO CORPORATION (Pursuant to Section 151 of the Delaware General Corporation Law) The undersigned, Sebastian J. Sicari and Robert V. Jahrling, III, do hereby certify: 1. That they are the duly elected and acting Vice President, Finance and Administration and Secretary, respectively, of ASECO CORPORATION, a Delaware corporation (the "Corporation"). 2. That pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the said Corporation, the said Board of Directors on August 15, 1996 adopted the following resolutions creating a series of shares of Preferred Stock designated as Series A Junior Preferred Stock: "RESOLVED, that pursuant to the authority vested in the Board of Directors of the Corporation by the Certificate of Incorporation, the Board of Directors does hereby provide for the issue of a series of Preferred Stock, $0.01 par value, of the Corporation, to be designated "Series A Junior Preferred Stock," initially consisting of 15,000 shares and to the extent that the designations, powers, preferences and relative and other special rights and the qualifications, limitations and restrictions of the Series A Junior Preferred Stock are not stated and expressed in the Certificate of Incorporation, does hereby fix and herein state and express such designations, powers, preferences and relative and other special rights and the qualifications, limitations and restrictions thereof, as follows (all terms used herein which are defined in the Certificate of Incorporation shall be deemed to have the meanings provided therein): Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Preferred Stock," par value $0.01 per share, and the number of shares constituting such series shall be 15,000. 1 Section 2. Dividends and Distributions. --------------------------- (A) Subject to the prior and superior right of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Junior Preferred Stock with respect to dividends, the holders of shares of Series A Junior Preferred Stock shall be entitled to receive when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the last day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date") commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Junior Preferred Stock, in an amount per share (rounded to the nearest cent) equal to, subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock of the Corporation (the "Common Stock") since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Junior Preferred Stock. In the event the Corporation shall at any time after August 15, 1996 (the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Junior Preferred Stock were entitled immediately prior to such event under the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that ere outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Junior Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock). (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Junior Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, 2 or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Junior Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Junior Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share- by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Junior Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Junior Preferred Stock shall have the following voting rights. (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Junior Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock to a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Junior Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein or by law, the holders of shares of Series A Junior Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the corporation. (C) Except as required by law, holders of Series A Junior Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. 3 Section 4. Certain Restrictions. -------------------- (A) The Corporation shall not declare any dividend on, make any distribution on, or redeem or purchase or otherwise acquire for consideration any shares of Common Stock after the first issuance of a share or fraction of a share of Series A Junior Preferred Stock unless concurrently therewith it shall declare a dividend on the Series A Junior Preferred Stock as required by Section 2 hereof. (B) Whenever quarterly dividends or other dividends or distributions payable on the Series A Junior Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Preferred Stock outstanding shall have been paid in full, the Corporation shall not (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with Series A Junior Preferred Stock, except dividends paid ratably on the Series A Junior Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Junior Preferred Stock; (iv) purchase or otherwise acquire for consideration any shares of Series A Junior Preferred Stock, or any shares of stock ranking on a parity with the Series A Junior Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. 4 (C) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Junior Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. Section 6. Liquidation, Dissolution or Winding Up. -------------------------------------- (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Preferred Stock unless, prior thereto, the holders of shares of Series A Junior Preferred Stock shall have received an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, plus an amount equal to the greater of (1)$1,000 per share, provided that in the event the Corporation does not have sufficient assets, after payment of its liabilities and distribution to holders of Preferred Stock ranking prior to the Series A Junior Preferred Stock, available to permit payment in full of the $1,000 per share amount, the amount required to be paid under this Section 6(A)(1) shall, subject to Section 6(B) hereof, equal the value of the amount of available assets divided by the number of outstanding shares of Series A Junior Preferred Stock or (2) subject to the provisions for adjustment hereinafter set forth, 1,000 times the aggregate per share amount to be distributed to the holders of Common Stock (the greater of (1) or (2), the "Series A Liquidation Preference"). In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Junior Preferred Stock were entitled immediately prior to such event under clause (2) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock that were outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 5 (B) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of Preferred Stock, if any, which rank on a parity with the Series A Junior Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Junior Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Junior Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series A Junior Preferred ------------- Stock shall not be redeemable. Section 9. Ranking. The Series A Junior Preferred Stock shall rank junior to all other series of the Corporation's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. Section 10. Amendment. The Certificate of Incorporation of the Corporation shall not be further amended in any manner which would materially alter or change the powers, preference or special rights of the Series A Junior Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding shares of Series A Junior Preferred Stock, voting separately as a class. 6 Section 11. Fractional Shares. Series A Junior Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Junior Preferred Stock. RESOLVED FURTHER, that the President or any Vice President and the Secretary or any Assistant Secretary of this Corporation be, and they hereby are, authorized and directed to prepare and file a Certificate of Designations, Rights, Preferences and Privileges in accordance with the foregoing resolution and the provisions of Delaware law and to take such actions as they may deem necessary or appropriate to carry out the intent of the foregoing resolution." 3. That the authorized number of shares of Preferred Stock of the Corporation is 1,000,000 and that no such Preferred Stock has been issued. IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this 15th day of August, 1996. /s/ Sebastian J. Sicari -------------------------- Name: Sebastian J. Sicari Title: Vice President, Finance and Administration Attest: /s/ Robert V. Jahrling, III - ------------------------------ Name: Robert V. Jahrling, III Title: Secretary 7 EX-10.6 3 PROMISSORY NOTE DATED 11-27-1998 EXHIBIT 10.6 ------------ PROMISSORY NOTE $5,000,000.00 Boston, Massachusetts November 27, 1998 FOR VALUE RECEIVED, the undersigned Aseco Corporation, a Delaware corporation (the "Borrower") hereby promises to pay to the order of FLEET NATIONAL BANK (the "Bank") the principal amount of Five Million and 00/100 ($5,000,000.00) Dollars or such portion thereof as may have been advanced by the Bank or may hereafter be advanced by the Bank pursuant to (S)1.2 of that certain letter agreement of even date herewith between the Bank and the Borrower (as same may be from time to time amended, modified, supplemented and/or restated, the "Letter Agreement") and remains outstanding from time to time hereunder ("Principal"), with interest, at the rate hereinafter set forth, on the daily balance of all unpaid Principal, from the date hereof until payment in full of all Principal and interest hereunder. Capitalized terms used herein and not defined herein shall have the respective meanings ascribed to them in the Letter Agreement. Interest on all unpaid Principal shall be due and payable monthly in arrears, on the first day of each month, commencing on the first such date after the advance of any Principal and continuing on the first day of each month thereafter and on the date of payment of this note in full, at a fluctuating rate per annum (computed on the basis of a year of three hundred sixty (360) days for the actual number of days elapsed) which shall at all times (except as described in the next sentence) be equal to the sum of (i) one and one-half (1.5%) percent plus (ii) the Prime Rate, as in effect from time to time (but in no event in excess of the maximum rate permitted by then applicable law), with a change in the aforesaid rate of interest to become effective on the same day on which any change in the Prime Rate is effective. Overdue Principal and, to the extent permitted by law, overdue interest shall bear interest at a fluctuating rate per annum which at all times shall be equal to the sum of (i) four (4%) percent per annum plus (ii) the per annum rate otherwise payable under this note (but in no event in excess of the maximum rate permitted by then applicable law), compounded monthly and payable on demand. As used herein, "Prime Rate" means that variable rate of interest per annum designated by the Bank from time to time as its prime rate, it being understood that such rate is merely a reference rate and does not necessarily represent the lowest or best rate being charged to any customer. If the entire amount of any required Principal and/or interest is not paid within ten (10) days after the same is due, the Borrower shall pay to the Bank a late fee equal to five percent (5%) of the required payment. All outstanding Principal and all interest accrued thereon shall be due and payable in full on the first to occur of: (i) an acceleration under (S)5.2 of the Letter Agreement or (ii) the -1- EXHIBIT 10.6 ------------ Expiration Date. The Borrower may at any time and from time to time prepay all or any portion of said Principal, without premium or penalty. Under certain circumstances set forth in the Letter Agreement, prepayments of Principal may be required. Payments of both Principal and interest shall be made, in lawful currency of the United States in immediately available funds, at the office of the Bank located at One Federal Street, Boston, Massachusetts 02110, or at such other address as the Bank may from time to time designate. The undersigned Borrower irrevocably authorizes the Bank to make or cause to be made, on the books of the Bank, at or following the time of making any Revolving Loan (as defined in the Letter Agreement) and of receiving any payment of Principal, an appropriate notation reflecting such transaction and the then aggregate unpaid balance of Principal. Failure of the Bank to make any such notation shall not, however, affect any obligation of the Borrower hereunder or under the Letter Agreement. The unpaid Principal amount of this note, as recorded by the Bank from time to time on such schedule or on such books, shall constitute presumptive evidence of the aggregate unpaid principal amount of the Revolving Loans. The Borrower hereby (a) waives notice of and consents to any and all advances, settlements, compromises, favors and indulgences (including, without limitation, any extension or postponement of the time for payment), any and all receipts, substitutions, additions, exchanges and releases of collateral, and any and all additions, substitutions and releases of any person primarily or secondarily liable, (b) waives presentment, demand, notice, protest and all other demands and notices generally in connection with the delivery, acceptance, performance, default or enforcement of or under this note, and (c) agrees to pay, to the extent permitted by law, all reasonable costs and expenses, including, without limitation, reasonable attorneys' fees, incurred or paid by the Bank in enforcing this note and any collateral or security therefor, all whether or not litigation is commenced. This note is the Revolving Note referred to in the Letter Agreement. This note is subject to prepayment as set forth in the Letter Agreement. The maturity of this note may be accelerated upon the occurrence of an Event of Default, as provided in the Letter Agreement. THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED ON THIS NOTE OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY RELATED DOCUMENTS OR OUT OF ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PERSON. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE BANK TO ACCEPT THIS NOTE AND TO MAKE REVOLVING LOANS AS CONTEMPLATED IN THE LETTER AGREEMENT. -2- EXHIBIT 10.6 ------------ Executed, as an instrument under seal, as of the day and year first above written. CORPORATE SEAL ASECO CORPORATION ATTEST: /s/ Sebastian J. Sicari By: /s/Mary R. Barletta - ------------------------- ---------------------- Witness Name: Mary R. Barletta Title: Chief Financial Officer -3- EX-10.7 4 INVENTORY, ACCOUNTS RECEIVABLE AND INTANGIBLES EXHIBIT 10.7 ------------ Inventory, Accounts Receivable and Intangibles Security Agreement FLEET BANK (SHORT FORM) - -------------------------------------------------------------------------------- NOVEMBER 27, 1998 ---------------------------------- Date To secure the due payment and performance of all of the liabilities and obligations hereunder of the undersigned, herein called "Borrower", to: FLEET NATIONAL BANK hereinafter called "Bank", and all other liabilities and obligations of Borrower to Bank of every name and nature whatsoever, direct or indirect, absolute or contingent, now existing or hereafter arising or acquired, including, without limitation, the due payment and performance of all liabilities and obligations under any and all notes, all hereinafter called "Obligations", the Borrower hereby grants to Bank a continuing security interest in: (a) All accounts, contracts, contract rights, notes, bills, drafts, acceptances, general intangibles, choses in action, and all other debts, obligations and liabilities, in whatever form, owing to Borrower from any person, firm or corporation, or any other legal entity, whether now existing or hereafter arising, now or hereafter received by or belonging or owing to Borrower, for goods sold by it or for services rendered by it or however otherwise same may have been established or created, all guarantees and securities therefor, all right, title and interest of Borrower in the merchandise or services which gave rise thereto, including the rights of reclamation and stoppage in transit, all rights of an unpaid seller of merchandise or services, and in the proceeds thereof, including, without limitation, all proceeds of credit, fire or other insurance, and any tax refunds. (b) All goods, merchandise, raw materials, goods and work in process, finished goods and other tangible personal property, now owned or hereafter acquired and held for sale or lease, or furnished or to be furnished under contract of service, or used or consumed in Borrower's business and in the products and proceeds thereof, including, without limitation, all proceeds of fire or other insurance. This portion of the collateral being sometimes referred to as "Inventory". All of the accounts and other property as set forth in (a) above and Inventory as set forth in (b) above and the other property described in the Rider attached hereto are hereinafter referred to collectively as "Collateral". The Collateral and all proceeds and products thereof shall be security for all Obligations. Until all Obligations have been fully satisfied, Bank's security interest in the Collateral and all proceeds and products thereof, shall continue in full force and effect and Bank will at all times after the occurrence and during continuance of an Event of Default (as defined in the Letter Agreement of even date between Bank and Borrower) have the right to take physical possession of the Inventory and to maintain such possession on Borrower's premises or to remove the EXHIBIT 10.7 ------------ Inventory or any part thereof to such other places as Bank may desire. If Bank exercises Bank's right to take possession of the Inventory, Borrower shall, upon Bank's demand, assemble the Inventory and make it available to Bank at a place reasonably convenient to Bank. If Borrower shall fail to pay, when due,* any of the Obligations or shall fail to observe or perform any of the provisions of this Agreement or any other agreement now or hereafter entered into between Bank and Borrower, Borrower shall be in default hereunder. In the event of such default all Obligations of Borrower to Bank shall, at the option of the Bank, and without notice to or demand upon Borrower become and be immediately due and payable and thereupon Bank may exercise any and all rights and remedies of a secured party available under the Uniform Commercial Code and all other applicable law. Borrower represents, warrants and covenants that all Inventory is and will be owned by Borrower, free of all other liens and encumbrances, and shall be kept by Borrower at 500 DONALD LYNCH BOULEVARD, MARLBOROUGH, MA 01752 and that Borrower shall not (without Bank's prior written approval) remove the Inventory therefrom except for the purposes of sale in the ordinary course of business. Except for sales made in the ordinary course of business, Borrower shall not sell, encumber, grant a security interest in or dispose of or permit the sale, encumbrance or disposal of any Collateral without Bank's prior written consent. A sale in the ordinary course of business shall not include a transfer in total or partial satisfaction of a debt. Borrower shall perform any and all steps requested by Bank to perfect Bank's security interest in the Collateral, such as executing and filing financing or continuation statements in form and substance satisfactory to Bank. If any Inventory is in the possession or control of any of Borrower's agents or processors, Borrower shall notify such agents or processors of Bank's interest therein, and upon request instruct them to hold all such Inventory for Bank's account and subject to Bank's instructions. A physical listing of all Inventory, wherever located, shall be taken by Borrower whenever requested by Bank, and a copy of each such physical listing shall be supplied to Bank. Bank may examine and inspect the Inventory at any time;* Borrower agrees to keep all the Inventory insured with coverage and amounts not less than that usually carried by one engaged in a like business and in any event not less than that required by Bank with loss payable to the Bank and Borrower, as their interests may appear, hereby appointing Bank as attorney for Borrower in obtaining, adjusting, settling and cancelling such insurance and endorsing any drafts. All premiums on such insurance shall be paid by Borrower and the policies delivered to Bank. If Borrower fails to do so, Bank may procure such insurance and charge the cost to Borrower's loan account. As further assurance for the payment and performance of the Obligations, Borrower hereby assigns to Bank all sums including returned or unearned premiums, which may become payable under any policy of insurance on the Collateral and Borrower hereby directs each insurance company issuing any such policy to make payment of such sums directly to Bank. EXHIBIT 10.7 ------------ If in the event of the sale of the Collateral the proceeds thereof are insufficient to pay all amounts to which Bank is legally entitled, Borrower will be liable for the deficiency, together with interest thereon and the reasonable fees of any attorney employed by Bank to collect such deficiency. Bank shall have the right to enforce any remedies hereunder alternatively, successively or concurrently. A waiver of any default of Borrower shall not be a waiver of any subsequent, similar or other default. No delay in the exercise of any of Bank's rights or remedies hereunder shall constitute a waiver of such right or remedy or of any other right or remedy. This Agreement shall not be construed to be in limitation of or in substitution for any other grant of security interest from Borrower to Bank made prior to or contemporaneously herewith, and no other such grant of a security interest made subsequent to or contemporaneously herewith shall be construed to be in limitation of or in substitution for this Agreement unless expressly and specifically provided therein. This Agreement shall take effect as a sealed instrument, shall be governed by and construed according to the laws of the Commonwealth of Massachusetts, shall be binding upon the heirs, executors, administrators, successors and assigns of Borrower and shall inure to the benefit of the successors and assigns of Bank. *SEE RIDER ATTACHED HERETO Witnessed by: ASECO CORPORATION ------------------------------------- BORROWER /s/Sebastian J. Sicari By: /s/ Mary R. Barletta - -------------------------- --------------------------------- Its Chief Financial Officer FLEET NATIONAL BANK Address: 500 Donald Lynch Boulevard ----------------------------- NUMBER AND STREET By: /s/ Thomas M. Davies Marlborough, MA 01752 ---------------------- ------------------------------------- Its CITY, COUNTY AND STATE EXHIBIT 10.7 ------------ RIDER TO INVENTORY, ACCOUNTS RECEIVABLE AND INTANGIBLES SECURITY AGREEMENT FROM ASECO CORPORATION TO FLEET NATIONAL BANK The foregoing Inventory, Accounts Receivable and Intangibles Security Agreement (the "IAR Security Agreement") is modified as follows: 1. For the purposes of the IAR Security Agreement, the "Collateral" will be deemed to include all of the following (collectively, the "Intangibles"), all whether now existing and owned by the Borrower or hereafter arising or acquired: all of the Borrower's know-how, trade secrets, copyrights, patents, trade names, trademarks, service marks and licenses and the goodwill of the business associated with the foregoing, including, without limitation, the patents and patent applications described on Exhibit A hereto and the goodwill of the business associated therewith. The Borrower hereby grants to the Bank a security interest in the Intangibles to secure payment and performance of the Obligations. Except as shown on Exhibit A hereto, none of the Intangibles owned by the Borrower is the subject of any state or federal registration. The Borrower agrees that it will not dispose of any of the Intangibles or any interest therein or grant a security interest in any of the Intangibles (other than to the Bank) nor suffer or permit to exist any other encumbrance thereon without, in each instance, the prior written consent of the Bank. The Borrower warrants that it has unencumbered title to or right to use the Intangibles and full right and authority to grant to the Bank the within security interest in the Intangibles. The Borrower agrees to defend its title to the Intangibles and to take all steps reasonably necessary to preserve its title to the Intangibles and ability to use same, including defense of any claims of infringement and action against any infringers. Upon the occurrence of any Event of Default (as defined in the Letter Agreement of even date herewith between the Bank and the Borrower), the Borrower will assemble and make available to the Bank all books, records and data, whether in written form or electronically recorded representing any of the Intangibles (including, without limitation, all source codes for the Borrower's software). 2. The IAR Security Agreement is modified by inserting into the first sentence of fourth grammatical paragraph thereof, immediately after the words "when due", the following: "(continuing beyond such notice and/or grace period, if any, so that same constitutes an Event of Default under the aforesaid Letter Agreement)" 3. The IAR Security Agreement is modified by deleting the period at the end of the seventh grammatical paragraph thereof and by substituting in its stead the following: ", upon reasonable notice and during normal business hours, except that if an Event of Default under the aforesaid Letter Agreement has occurred and is continuing, the Bank may make such inspection at any time and without any requirement for notice." EXHIBIT 10.7 ------------ TRADEMARKS, PATENTS AND COPYRIGHTS PATENTS ------- Patents with United States Registration - ---------------------------------------
Patent Description Reg. No. Issue Date - --------------------------------------------------------------- ---------- --------------- - -------------------------------------------------------------------------------------------- Utility contractor for testing integrated circuit chips 5,177,436 January 5, 1993 mounted in molded carrier rings - -------------------------------------------------------------------------------------------- Utility contact set for test apparatus for testing integrated 4,686,468 August 11, 1987 circuit package - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Patent Applications - ------------------- - -------------------------------------------------------------------------------------------- Description Serial No. Filing Date - ----------- ---------- --------------- - -------------------------------------------------------------------------------------------- Automatic semiconductor part handler 08/878,426 July 31, 1996 - --------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------- TRADEMARKS - -------------------------------------------------------------------------------------------- Marks with Federal Registration - ------------------------------- - -------------------------------------------------------------------------------------------- Marks Registration No./Reg. Date Use ----- -------------------------- --- - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- None. - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Marks with Pending Applications - ------------------------------- - -------------------------------------------------------------------------------------------- Marks Serial No./Filing Date Use - ----- ---------------------- --- - -------------------------------------------------------------------------------------------- None. - --------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------- COPYRIGHTS ---------- - -------------------------------------------------------------------------------------------- Work Author Owner Registration Registered ---- ------ ----- ------------ ---------- Number ------ - -------------------------------------------------------------------------------------------- None. - --------------------------------------------------------------------------------------------
EX-10.8 5 SUPPLEMENTARY SECURITY AGREEMENT EXHIBIT 10.8 ------------ Supplementary Security Agreement Security Interest in Goods and Chattels November 27, 1998 ------------------------------- DATE To: Fleet National Bank Gentlemen: This is a supplement to our Inventory, Accounts Receivable and Intangibles Security Agreement (the "Agreement") with you bearing the effective date of even date herewith. It is hereby incorporated into said Agreement, shall have a term concurrent therewith and is a part thereof. 1. In addition to your other security, we hereby grant you a continuing security interest in all machinery, equipment and other goods (as defined in Article 9 of the Uniform Commercial Code) whether now owned or hereafter acquired by us and wherever located, all replacements and substitutions therefor or accessions thereto and all proceeds thereof (all herein referred to collectively as "Collateral") and including, also without limitation, all proceeds of fire or other insurance covering the aforesaid property. 2. The Collateral shall be security for all Obligations (as defined in the Agreement). Until all Obligations have been fully satisfied, your security interest in the Collateral shall continue in full force and effect and you will at all times after the occurrence of any Event of Default under the letter agreement described below have the right to the physical possession of the Collateral and to maintain such possession on our premises or to remove the Collateral or any part thereof to such other places as you may desire. If you exercise your right to take possession of the Collateral, we shall, upon your demand, assemble the Collateral and make it available to you at a place reasonably convenient to you. In addition, with respect to all Collateral, you shall have all of the rights and remedies set forth in the Agreement and all of the rights and remedies provided in the Uniform Commercial Code. 3. [Deleted] 4. We represent, warrant the covenant that (a) the Collateral is in our possession at 500 Donald Lynch Boulevard, Marlborough, County of Middlesex, Commonwealth of Massachusetts; (b) we are the lawful owners of the Collateral and have the sole right and lawful authority to deliver this instrument; (c) the Collateral and every part thereof is and will be free and clear of all security interests, liens and encumbrances of every kind, nature and description except as follows: purchase money security interests and other exceptions permitted by letter agreement of even date herewith between the Borrower and the Bank, and we will warrant and defend the Collateral against the claims and demands of all persons; (d) we will keep the Collateral free and clear of all attachments, levies, taxes, liens, security interests and encumbrances of every kind and nature, except as listed above, and we will at our own cost and expense, keep the Collateral in a good state of repair and will EXHIBIT 10.8 ------------ not waste or destroy the same or any part thereof except for items disposed of in the ordinary course to the extent expressly permitted by the aforesaid letter agreement and will not be negligent in the care and use thereof; (e) we will not without your prior written consent, sell, assign, mortgage, lease or otherwise dispose of the Collateral except for obsolete or worn out items disposed of in the ordinary course and except for liens permitted by the aforesaid letter agreement; (f) we will insure the Collateral in your name against loss or damage by fire, theft, burglary, pilferage, and such other hazards as you shall specify, in amounts and under policies by insurers acceptable to you, and if we fail to do so, you may procure such insurance and charge the cost to our loan account; (g) as further assurance for the payment and performance of the Obligations, we hereby assign to you all sums, including returned or unearned premiums, which may become payable under any policy of insurance on the Collateral and we hereby direct each insurance company issuing any such policy to make payment of such sums directly to you; (h) except for items disposed of in the ordinary course to the extent expressly permitted by the aforesaid letter agreement we will not remove the Collateral from its present location without your prior written consent and we will at all times, allow you or your representatives free access to and right of inspection of the Collateral (see attached Rider); (i) we will comply with the terms and conditions of any leases covering the premises wherein the Collateral is located and any orders, ordinances, laws or statutes of any city, state or other governmental department having jurisdiction with respect to such premises or the conduct of business thereon, and, when requested by you, we will execute any written instruments and do any other acts necessary to effectuate more fully the purposes and provisions of the Agreement; (j) we will indemnify and save you harmless from all loss, cost, damage, liability or expenses including attorneys' fees that you may sustain or incur by reason of defending or protecting your security interest or the priority thereof or enforcing the Obligations, or in the prosecution or defense of any action or proceeding concerning any matter growing out of or connected with the Agreement, the Obligations or the Collateral (see attached Rider). 5. You may, at your option, discharge any taxes, liens, security interests or other encumbrances at any time levied or placed on the Collateral and not permitted by the letter agreement and you may pay for the maintenance and preservation of the Collateral and we will reimburse you on demand for any payment made or any expense incurred by you pursuant to the foregoing authority, with interest at the rate provided in the Agreement. Very truly yours, Witnessed by: ASECO CORPORATION ----------------------------------------------- BORROWER /s/ Sebastian J. Sicari - ------------------------- By: /s/Mary R. Barletta ------------------------------------------- Its: Chief Financial Officer Accepted at Boston, Massachusetts /s/ 11/30/98 ------------ FLEET NATIONAL BANK By: /s/Thomas W. Daires -------------------------------------------- Its: Senior Vice President EXHIBIT 10.8 ------------ RIDER TO SUPPLEMENTARY SECURITY AGREEMENT FROM ASECO CORPORATION TO FLEET NATIONAL BANK The foregoing Supplementary Security Agreement Agreement-Security Interest in Goods and Chattels (the "Supplementary Security Agreement") is modified as follows: 1. By inserting into Subsection 4(h) of the Supplementary Security Agreement, immediately after the words "inspection of the Collateral", the following: ", such access and right of inspection to be upon reasonable notice and during normal business hours, except that if an Event of Default under the aforesaid letter agreement has occurred and is continuing, the Bank may exercise such rights of access and inspection at any time and without any requirement for notice;" 2. By deleting the period at the end of Subsection 4(j) of the Supplementary Security Agreement and by substituting in its stead the following: ", except for any such loss, cost, damage, liability or expenses arising out of the Bank's gross negligence or willful misconduct." EX-10.9 6 LETTER AGREEMENT Exhibit 10.9 ASECO CORPORATION 500 Donald Lynch Boulevard Marlborough, MA 01752 November 27, 1998 Fleet National Bank One Federal Street Boston, MA 02110 Gentlemen: This letter agreement will set forth certain understandings between Aseco Corporation, a Delaware corporation (the "Borrower") and Fleet National Bank (the "Bank") with respect to Revolving Loans (hereinafter defined) to be made by the Bank to the Borrower, with respect to letters of credit which may hereafter be issued by the Bank for the account of the Borrower and with respect to other facilities to be provided by the Bank for the Borrower. This letter agreement amends and restates in its entirety that certain letter agreement dated November 27, 1992, as amended and modified (as so amended and modified, the "Prior Agreement") between the Borrower and Fleet Bank of Massachusetts, N.A., the Bank having succeeded by merger to the rights of Fleet Bank of Massachusetts, N.A. thereunder. In consideration of the mutual promises contained herein and in the other documents referred to below, and for other good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, the Borrower and the Bank agree as follows: I. AMOUNTS AND TERMS ----------------- 1.1. Reference to Documents. Reference is made to (i) that certain ---------------------- $5,000,000 principal amount promissory note (the "Revolving Note") of even date herewith made by the Borrower and payable to the order of the Bank, (ii) that certain Inventory, Accounts Receivable and Intangibles Security Agreement and that certain Supplementary Security Agreement -Security Interest in Goods and Chattels, each of even date herewith, from the Borrower to the Bank (collectively, the "Security Agreement"), (iii) a Security Agreement (Patents) of even date herewith (the "Intellectual Property Security Agreement") from the Borrower to the Bank relating to the Borrower's registered patents, and (iv) a pledge agreement (the "Pledge") from the Borrower to the Bank with respect to the capital stock of Aseco Investment Corporation ("Securities Corp.") and a related letter of representations from Securities Corp. 1.2. The Borrowing; Revolving Note. Subject to the terms and conditions ----------------------------- hereinafter set forth, the Bank will make loans ("Revolving Loans") to the Borrower, in such amounts as the Borrower may request, on any Business Day prior to the first to occur of (i) the Expiration Date, or (ii) the earlier termination of the within-described revolving financing arrangements -1- pursuant to (S)5.2 or (S)6.7; provided, however, that (1) the aggregate principal amount of Revolving Loans outstanding shall at no time exceed the Maximum Revolving Amount (hereinafter defined) and (2) the Aggregate Bank Liabilities (hereinafter defined) shall at no time exceed the Borrowing Base (hereinafter defined). Within such limits, and subject to the terms and conditions hereof, the Borrower may obtain Revolving Loans, repay Revolving Loans and obtain Revolving Loans again on one or more occasions. The Revolving Loans shall be evidenced by the Revolving Note and interest thereon shall be payable at the times and at the rate provided for in the Revolving Note. Overdue principal of the Revolving Loans and, to the extent permitted by law, overdue interest shall bear interest at a fluctuating rate per annum which at all times shall be equal to the sum of (i) four (4%) percent per annum plus (ii) the per annum rate otherwise payable under the Revolving Note (but in no event in excess of the maximum rate from time to time permitted by then applicable law), compounded monthly and payable on demand. The Borrower hereby irrevocably authorizes the Bank to make or cause to be made, on a schedule attached to the Revolving Note or on the books of the Bank, at or following the time of making each Revolving Loan and of receiving any payment of principal, an appropriate notation reflecting such transaction and the then aggregate unpaid principal balance of the Revolving Loans. The amount so noted shall constitute presumptive evidence as to the amount owed by the Borrower with respect to principal of the Revolving Loans. Failure of the Bank to make any such notation shall not, however, affect any obligation of the Borrower or any right of the Bank hereunder or under the Revolving Note. All payments of interest, principal and any other sum payable hereunder and/or under the Revolving Note and/or with respect to any of the other Obligations shall be made to the Bank, in lawful money of the United States in immediately available funds, at its office at One Federal Street, Boston, MA 02110 or to such other address as the Bank may from time to time direct. All payments received by the Bank after 2:00 p.m. on any day shall be deemed received as of the next succeeding Business Day. All monies received by the Bank shall be applied first to fees, charges, costs and expenses payable to the Bank under this letter agreement, the Revolving Note and/or any of the other Loan Documents and/or with respect to any of the other Obligations, next to interest then accrued on account of any Revolving Loans or letter of credit reimbursement obligations or on any of the other Obligations and only thereafter to principal of the Revolving Loans, the letter of credit reimbursement obligations and the other Obligations. All interest and fees payable hereunder and/or under the Revolving Note and/or with respect to any of the other Obligations shall be calculated on the basis of a 360-day year for the actual number of days elapsed. 1.3. Repayment; Renewal. The Borrower shall repay in full all Revolving ------------------ Loans and all interest thereon upon the first to occur of: (i) the Expiration Date or (ii) an acceleration under (S)5.2(a) following an Event of Default. The Borrower may repay, at any time, without penalty or premium, the whole or any portion of any Revolving Loan. In addition, if at any time the Borrowing Base is in an amount which is less than the then outstanding Aggregate Bank Liabilities, the Borrower will forthwith pay so much of the Revolving Loans as may be required (or arrange for the termination of such letters of credit as may be required) so that the Aggregate Bank Liabilities will not exceed the Borrowing Base. The Bank may, at its sole discretion, renew the financing arrangements described in this letter agreement by extending the -2- Expiration Date in a writing signed by the Bank and accepted by the Borrower. Neither the inclusion in this letter agreement or elsewhere of covenants relating to periods of time after the Expiration Date, nor any other provision hereof, nor any action (except a written extension pursuant to the immediately preceding sentence), non-action or course of dealing on the part of the Bank will be deemed an extension of, or agreement on the part of the Bank to extend, the Expiration Date. 1.4. Advances and Payments. The proceeds of all Revolving Loans shall be --------------------- credited by the Bank to a general deposit account maintained by the Borrower with the Bank. The proceeds of each Revolving Loan will be used by the Borrower solely for working capital purposes and other general corporate purposes (including loans to Subsidiaries, but only within the limits set forth in (S)4.5 below). The Bank may charge any general deposit account of the Borrower at the Bank with the amount of all payments of interest, principal and other sums due, from time to time, under this letter agreement and/or the Revolving Note and/or with respect to any letter of credit and/or with respect to any of the other Obligations; and will thereafter notify the Borrower of the amount so charged. The failure of the Bank so to charge any account or to give any such notice shall not affect the obligation of the Borrower to pay interest, principal or other sums as provided herein or in the Revolving Note or with respect to any letter of credit or with respect to any of the other Obligations. Whenever any payment to be made to the Bank hereunder or under the Revolving Note or with respect to any letter of credit or with respect to any of the other Obligations shall be stated to be due on a day which is not a Business Day, such payment may be made on the next succeeding Business Day, and interest payable on each such date shall include the amount thereof which shall accrue during the period of such extension of time. All payments by the Borrower hereunder and/or in respect of the Revolving Note and/or with respect to any letter of credit or any of the other Obligations shall be made net of any impositions or taxes and without deduction, set-off or counterclaim, notwithstanding any claim which the Borrower may now or at any time hereafter have against the Bank. 1.5. Letters of Credit. The Bank has issued for the account of the ----------------- Borrower a stand-by letter of credit (the "Existing L/C") in the stated amount of $200,000. The Existing L/C has been issued for a per annum fee of 1.5% of the maximum stated amount thereof (payable in advance), and is subject to the Bank's standard documentation and such other terms and conditions as were agreed to by the Bank and the Borrower at the time of issuance. In addition, the Borrower shall be liable to pay to the Bank the Bank's then customary negotiation, transfer, drawing and other fees in connection with the Existing L/C. In addition to the foregoing, at the Borrower's request, the Bank may from time to time, in its sole discretion, issue one or more letters of credit for the account of the Borrower; provided that at the time of such issuance and after giving effect thereto (A) the aggregate stated amounts of all letters of credit issued under this paragraph will not exceed $500,000 and -3- (B) the Aggregate Bank Liabilities will not exceed the lesser of (i) $5,000,000 or (ii) the then effective Borrowing Base. Any such letter of credit will be issued for such fee and upon such terms and conditions as may be agreed to by the Bank and the Borrower at the time of issuance. The Borrower hereby authorizes the Bank, without further request from the Borrower, to cause the Borrower's liability to the Bank for reimbursement of funds drawn under any such letter of credit to be repaid from the proceeds of a Revolving Loan to be made hereunder. The Borrower hereby irrevocably requests that such Revolving Loans be made. 1.6. ACH Transactions. The Bank may from time to time prior the Expiration ---------------- Date, at the request of the Borrower, initiate automated clearinghouse ("ACH") transactions for the Borrower; provided that the Bank's total ACH Exposure shall not (unless otherwise agreed by the Bank in its sole discretion) exceed $1,500,000 at any one time. ACH transactions will bear such fees and charges and as may be agreed upon by the Bank and the Borrower and will be governed by the Bank's then current documentation and practices with respect to such transactions. As used herein, "ACH Exposure" as determined at any date means the sum of (i) all amounts then owed by the Borrower to the Bank in connection with any ACH transaction pursuant to which the Bank has advanced funds on behalf of the Borrower plus (ii) the maximum amount which could be owed by the Borrower (assuming settlement within two (2) Business Days of each date when funds are advanced) to the Bank in connection with all ACH transactions then authorized by the Borrower but as to which the Bank has not yet advanced funds. 1.7. Foreign Exchange Contracts. During the term of this letter agreement -------------------------- and subject to the terms and conditions hereof, the Bank may from time to time prior to the Expiration Date, at the Borrower's request, provide to the Borrower one or more forward contracts ("Foreign Exchange Contracts") for the purchase by the Borrower of foreign currency from the Bank; provided that (i) each such Foreign Exchange Contract will be at such pricing as the Bank and the Borrower may agree at the time of execution of such Foreign Exchange Contract, (ii) the documentation for each such Foreign Exchange Contract will be in such form as is then customarily used by the Bank for transactions of this type, (iii) the Foreign Exchange Contracts will be used by the Borrower to minimize its exposure to the fluctuation of the value of those foreign currencies in which payments are expected to be made to the Borrower by customers or in which the Borrower is required to make payments to suppliers, (iv) the United States Dollar equivalent of all amounts subject to the Foreign Exchange Contracts will not exceed $10,000,000 in the aggregate and (v) the F/X Exposure will at no time exceed $1,500,000. As used herein, "F/X Exposure" as determined at any date means the sum of (i) all amounts then owed by the Borrower to the Bank in connection with settlement of any Foreign Exchange Contract, plus (ii) the maximum two-day settlement amount for all then outstanding Foreign Exchange Contracts. 1.8. Conditions to Advance. Prior to the making of the initial Revolving --------------------- Loan or the issuance of any letter of credit hereunder or the initiation of any ACH transaction or the issuance of any Foreign Exchange Contract hereunder, the Borrower shall deliver to the Bank duly executed copies of this letter agreement, the Security Agreement, the Intellectual Property -4- Security Agreement, the Revolving Note and the documents and other items listed on the Closing Agenda delivered herewith by the Bank to the Borrower, all of which shall be satisfactory in form and substance to the Bank and its counsel. Without limiting the foregoing, any Revolving Loan or letter of credit issuance or ACH transaction or the issuance of a Foreign Exchange Contract (including the initial Revolving Loan, letter of credit issuance, ACH transaction or the issuance of a Foreign Exchange Contract) is subject to the further conditions precedent that on the date on which such Revolving Loan is made or such letter of credit is issued or such ACH transaction is initiated or such Foreign Exchange Contract is issued (and after giving effect thereto): (a) All statements, representations and warranties of the Borrower made in this letter agreement and/or in the Security Agreement shall continue to be correct in all material respects as of the date of such Revolving Loan or the date of issuance of such letter of credit or the date of such ACH transaction or the date of issuance of such Foreign Exchange Contract, as the case may be, except any such statements, representations and warranties which are specifically stated herein as being made as of a particular date. (b) All covenants and agreements of the Borrower contained herein and/or in any of the other Loan Documents shall have been complied with in all material respects on and as of the date of such Revolving Loan or the date of issuance of such letter of credit or the date of such ACH transaction or the date of issuance of such Foreign Exchange Contract, as the case may be. (c) No event which constitutes, or which with notice or lapse of time or both could constitute, an Event of Default shall have occurred and be continuing. (d) No material adverse change shall have occurred in the financial condition of the Borrower from that disclosed in the financial statements then most recently furnished to the Bank (being, at the date hereof, the Borrower's management-generated financial statements as at September 27, 1998). Each request by the Borrower for any Revolving Loan or for the issuance of any letter of credit or for any ACH transaction or for the issuance of any Foreign Exchange Contract, and each acceptance by the Borrower of the proceeds of any Revolving Loan or delivery of a letter of credit or delivery of a Foreign Exchange Contract, will be deemed a representation and warranty by the Borrower that at the date of any such event, and after giving effect thereto, all of the conditions set forth in the foregoing clauses (a)-(d) of this (S)1.8 will be satisfied. Each request for a Revolving Loan or letter of credit issuance will be accompanied by a Borrowing Base certificate on a form satisfactory to the Bank, executed by the chief financial officer of the Borrower, unless such a certificate shall have been previously furnished as required by clause (iv) of (S)3.6 setting forth the Borrowing Base as at the most recent month-end prior to the date of the requested borrowing or the requested letter of credit issuance, as the case may be. -5- II. REPRESENTATIONS AND WARRANTIES ------------------------------ 2.1. Representations and Warranties. In order to induce the Bank to enter ------------------------------ into this letter agreement and to make Revolving Loans hereunder and/or issue letters of credit hereunder and/or engage in ACH transactions for the Borrower and/or issue Foreign Exchange Contracts, the Borrower warrants and represents to the Bank as follows: (a) The Borrower is a corporation duly organized, validly existing and in good standing under the laws of Delaware. The Borrower has full corporate power to own its property and conduct its business as now conducted, to grant the security interests contemplated by the Security Agreement and the Intellectual Property Security Agreement and to enter into and perform this letter agreement and the other Loan Documents. The Borrower is duly qualified to do business and is in good standing in Massachusetts and is also duly qualified to do business in and is in good standing in each other jurisdiction in which the Borrower maintains any facility, sales office, warehouse or other location, and in each other jurisdiction where the failure so to qualify could (singly or in the aggregate with all other such failures) have a material adverse effect on the financial condition, business or prospects of the Borrower, all such jurisdictions being listed on item 2.1(a) of the attached Disclosure Schedule. At the date hereof, the Borrower has no Subsidiaries, except as shown on said item 2.1(a) of the attached Disclosure Schedule. The Borrower is not a member of any partnership or joint venture. (b) The execution, delivery and performance by the Borrower of this letter agreement and each of the other Loan Documents have been duly authorized by all necessary corporate and other action and do not and will not: (i) violate any provision of, or require (as a prerequisite to effectiveness) any filings (other than filings under the Uniform Commercial Code), registration, consent or approval under, any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to the Borrower; (ii) violate any provision of the charter or by-laws of the Borrower, or result in a breach of or constitute a default or require any waiver or consent under any indenture or loan or credit agreement or any other material agreement, lease or instrument to which the Borrower is a party or by which the Borrower or any of its properties may be bound or affected or require any other consent of any Person; or (iii) result in, or require, the creation or imposition of any lien, security interest or other encumbrance (other than in favor of the Bank) upon or with respect to any of the properties now owned or hereafter acquired by the Borrower. (c) This letter agreement and each of the other Loan Documents has been duly executed and delivered by the Borrower and each is a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its respective terms. -6- (d) Except as described on item 2.1(d) of the attached Disclosure Schedule, there are no actions, suits, proceedings or investigations pending or, to the knowledge of the Borrower, threatened by or against the Borrower or any Subsidiary before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which could hinder or prevent the consummation of the transactions contemplated hereby or call into question the validity of this letter agreement or any of the other Loan Documents or any action taken or to be taken in connection with the transactions contemplated hereby or thereby or which in any single case or in the aggregate might result in any adverse change in the business, prospects, condition, affairs or operations of the Borrower or any Subsidiary, which change would be material to the Borrower and its Subsidiaries, taken as a whole. (e) The Borrower is not in violation of any term of its charter or by-laws as now in effect. Neither the Borrower nor any Subsidiary of the Borrower is in material violation of any term of any mortgage, indenture or judgment, decree or order, or any other instrument, contract or agreement to which it is a party or by which any of its property is bound which in any single case or in the aggregate might result in any adverse change in the business, prospects, condition, affairs or operations of the Borrower or any Subsidiary which change would be material to the Borrower and its Subsidiaries, taken as a whole. (f) The Borrower has filed (and has caused each of its Subsidiaries to file) all federal, state and local tax returns, reports and estimates required to be filed by the Borrower and/or by any such Subsidiary. All such filed returns, reports and estimates are proper and accurate and the Borrower or the relevant Subsidiary has paid all taxes, assessments, impositions, fees and other governmental charges required to be paid in respect of the periods covered by such returns, reports or estimates. No deficiencies for any tax, assessment or governmental charge have been asserted or assessed, and the Borrower knows of no material tax liability or basis therefor. (g) The Borrower is in compliance (and each Subsidiary of the Borrower is in compliance) with all requirements of law, federal, state and local, and all requirements of all governmental bodies or agencies having jurisdiction over it, the conduct of its business, the use of its properties and assets, and all premises occupied by it, failure to comply with any of which could (singly or in the aggregate with all other such failures) have a material adverse effect upon the assets, business, financial condition or prospects of the Borrower and its Subsidiaries, taken as a whole. Without limiting the foregoing, the Borrower has all the material franchises, licenses, leases, permits, certificates and authorizations needed for the conduct of its business and the use of its properties and all premises occupied by it, as now conducted, owned and used. (h) The audited financial statements of the Borrower as at March 29, 1998 and the management-generated statements of the Borrower as at September 27, 1998, each heretofore delivered to the Bank, are complete and accurate and fairly present the financial condition of the Borrower as at the respective dates thereof and for the periods covered thereby, except that -7- the management-generated statements do not have footnotes and thus do not present the information which would normally be contained in footnotes to financial statements. Neither the Borrower nor any of the Borrower's Subsidiaries has any liability, contingent or otherwise, not disclosed in the aforesaid financial statements or in any notes thereto that could materially affect the financial condition of the Borrower. Since September 27, 1998, there has been no material adverse development in the business, condition or prospects of the Borrower, and the Borrower has not entered into any transaction other than in the ordinary course. (i) The principal place of business and chief executive office of the Borrower are located at 500 Donald Lynch Boulevard, Marlborough, MA 01752. All of the books and records of the Borrower are located at said address. Except as described on item 2.1(i) of the attached Disclosure Schedule, no assets of the Borrower are located at any other address. Said item 2.1(i) of the attached Disclosure Schedule sets forth the names and addresses of all record owners of any premises where any material amount of Collateral is located. (j) The Borrower owns or has a valid right to use all of the patents, licenses, copyrights, trademarks, trade names and franchises ("Intellectual Property") now being used to conduct its business, all of which are described on item 2.1(j) of the attached Disclosure Schedule. None of the Intellectual Property owned by the Borrower is represented by a registered copyright, trademark, patent or other federal or state registration, except as shown on said item 2.1(j). The conduct of the Borrower's business as now operated does not conflict with valid patents, licenses, copyrights, trademarks, trade names or franchises of others in any manner that could materially adversely affect the business, prospects, assets or condition, financial or otherwise, of the Borrower. (k) None of the executive officers or key employees of the Borrower is subject to any agreement in favor of anyone other than the Borrower which limits or restricts that person's right to engage in the type of business activity conducted or proposed to be conducted by the Borrower or which grants to anyone other than the Borrower any rights in any inventions or other ideas susceptible to legal protection developed or conceived by any such officer or key employee. (l) The Borrower is not a party to any contract or agreement which now has or, as far as can be foreseen by the Borrower at the date hereof, may have a material adverse effect on the financial condition, business, prospects or properties of the Borrower. (m) The Borrower has reviewed the software which it uses in its business for "Year 2000" compliance and has determined that such software will continue to function in the manner intended without material interruption of service or other difficulty resulting from the "Year 2000 problem". The Borrower will, at the request of the Bank, provide such reports and other information as the Bank may reasonably request in order to evidence such Year 2000 compliance. -8- III. AFFIRMATIVE COVENANTS AND REPORTING REQUIREMENTS ------------------------------------------------ Without limitation of any other covenants and agreements contained herein or elsewhere, the Borrower agrees that so long as the financing arrangements contemplated hereby are in effect or any Revolving Loan or any of the other Obligations shall be outstanding or any letter of credit issued hereunder shall be outstanding or any Foreign Exchange Contract shall be outstanding or any amount shall be owed by the Borrower in respect of any ACH transaction or any Foreign Exchange Contract: 3.1. Legal Existence; Qualification; Compliance. The Borrower will ------------------------------------------ maintain (and will cause each Subsidiary of the Borrower to maintain) its corporate existence and good standing in the jurisdiction of its incorporation; provided that the Borrower may cause WED to be dissolved after WED conveys its assets to the Borrower. The Borrower will remain qualified to do business and in good standing in Massachusetts. The Borrower will qualify to do business and will remain qualified and in good standing (and the Borrower will cause each domestic Subsidiary of the Borrower (other than WED) to qualify and remain qualified and in good standing) in each jurisdiction where the Borrower or such Subsidiary, as the case may be, maintains any plant, sales office, warehouse or other facility and in each other jurisdiction in which the failure so to qualify could (singly or in the aggregate with all other such failures) have a material adverse effect on the financial condition, business or prospects of the Borrower and its Subsidiaries, taken as a whole. The Borrower will comply (and will cause each Subsidiary of the Borrower to comply) with its charter documents and by-laws, to the extent applicable. The Borrower will comply with (and will cause each Subsidiary of the Borrower to comply with) all applicable laws, rules and regulations (including, without limitation, ERISA and those relating to environmental protection) other than (i) laws, rules or regulations the validity or applicability of which the Borrower or such Subsidiary shall be contesting in good faith by proceedings which serve as a matter of law to stay the enforcement thereof and (ii) those laws, rules and regulations the failure to comply with any of which could not (singly or in the aggregate) have a material adverse effect on the financial condition, business or prospects of the Borrower and its Subsidiaries, taken as a whole. 3.2. Maintenance of Property; Insurance. The Borrower will maintain and ---------------------------------- preserve (and will cause each Subsidiary of the Borrower to maintain and preserve) all of its material fixed assets in good working order and condition, making all necessary repairs thereto and replacements thereof. The Borrower will maintain all such insurance as may be required under the Security Agreement and will also maintain, with financially sound and reputable insurers, insurance with respect to its property and business against such liabilities, casualties and contingencies and of such types and in such amounts as shall be reasonably satisfactory to the Bank from time to time and in any event all such insurance as may from time to time be customary for companies conducting a business similar to that of the Borrower in similar locales, with the Bank named as loss payee with respect to all Collateral. 3.3. Payment of Taxes and Charges. The Borrower will pay and discharge ---------------------------- (and will cause each Subsidiary of the Borrower to pay and discharge) all taxes, assessments and governmental charges or levies imposed upon it or upon its income or property, including, without limitation, taxes, assessments, charges or levies relating to real and personal property, -9- franchises, income, unemployment, old age benefits, withholding, or sales or use, prior to the date on which penalties would attach thereto, and all lawful claims (whether for any of the foregoing or otherwise) which, if unpaid, might give rise to a lien upon any property of the Borrower or any such Subsidiary, except any of the foregoing which is being contested in good faith and by appropriate proceedings which serve as a matter of law to stay the enforcement thereof and for which the Borrower (or such Subsidiary, as the case may be) has established and is maintaining adequate reserves. The Borrower will pay, and will cause each of its Subsidiaries to pay, in a timely manner, all lease obligations, all trade debt, purchase money obligations, equipment lease obligations and all of its other material Indebtedness. The Borrower will perform and fulfill all material covenants and agreements under any leases of real estate, agreements relating to purchase money debt, equipment leases and other material contracts. The Borrower will maintain in full force and effect, and comply with the terms and conditions of, all permits, permissions and licenses necessary or desirable for its business. 3.4. Accounts. The Borrower will maintain its principal depository and -------- operating accounts with the Bank. 3.5. Conduct of Business. The Borrower will conduct, in the ordinary ------------------- course, the business in which it is presently engaged. The Borrower will not, without the prior written consent of the Bank, directly or indirectly (itself or through any Subsidiary) enter into any other lines of business, businesses or ventures. 3.6. Reporting Requirements. The Borrower will furnish to the Bank: ---------------------- (i) Within 2 days after the Borrower files with the Securities and Exchange Commission ("SEC") its Annual Report on Form 10-K for any fiscal year of the Borrower (but in any event within 120 days after the end of each such fiscal year), a copy of the annual audit report for such fiscal year for the Borrower, including therein consolidated and consolidating balance sheets of the Borrower and Subsidiaries as at the end of such fiscal year and related consolidated and consolidating statements of income, stockholders' equity and cash flow for the fiscal year then ended. The annual consolidated financial statements shall be certified by independent public accountants selected by the Borrower and reasonably acceptable to the Bank, such certification to be in such form as is generally recognized as "unqualified". (ii) Within 30 days after the end of each month, consolidated balance sheets of the Borrower and its Subsidiaries and related consolidated statements of income and stockholders' equity and cash flow, unaudited but complete and accurate and prepared in accordance with generally accepted accounting principles consistently applied fairly presenting the financial condition of the Borrower as at the dates thereof and for the periods covered thereby (except that such monthly statements need not contain footnotes) and certified as accurate (subject to normal year-end audit adjustments, which shall not be material) by the chief financial officer of the Borrower, such balance sheets to be as at the end of such month and such statements of income -10- and stockholders' equity and cash flow to be for such month and for the fiscal year to date, in each case together with a comparison to budget. (iii) At the time of delivery of each annual or monthly statement of the Borrower, a certificate executed by the chief financial officer of the Borrower stating that he or she has reviewed this letter agreement and the other Loan Documents and has no knowledge of any default by the Borrower in the performance or observance of any of the provisions of this letter agreement or of any of the other Loan Documents or, if he or she has such knowledge, specifying each such default and the nature thereof. Each financial statement given as at the end of any fiscal quarter of the Borrower will also set forth the calculations necessary to evidence compliance with (S)(S)3.7-3.10. (iv) Monthly, within 15 days after the end of each month, (A) an aging report in form satisfactory to the Bank covering all Receivables of the Borrower outstanding as at the end of such month, (B) a certificate of the chief financial officer of the Borrower setting forth the Borrowing Base as at the end of such month (except that the Borrowing Base certificate otherwise required with respect to Borrowing Base as at November 30, 1998 may be given with respect to Borrowing Base as at December 1, 1998) and (C) an accounts payable aging, all in form reasonably satisfactory to the Bank. (v) Promptly after receipt, a copy of all audits or reports submitted to the Borrower by independent public accountants in connection with any annual, special or interim audits of the books of the Borrower and any "management letter" prepared by such accountants. The management letter for each fiscal year will be delivered within 120 days after the close of such fiscal year. The Borrower will provide to the Bank, prior to the first Revolving Loan or other extension of credit under this letter agreement, a copy of the management letter for the fiscal year ended March 29, 1998. (vi) As soon as possible and in any event within five days of the occurrence of any Event of Default or any event which, with the giving of notice or passage of time or both, would constitute an Event of Default, the statement of the Borrower setting forth details of each such Event of Default or event and the action which the Borrower proposes to take with respect thereto. (vii) Promptly after the commencement thereof, notice of all actions, suits and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, to which the Borrower or any Subsidiary of the Borrower is a party; provided that nothing in this clause (vii) will be deemed to require the Borrower to give notice of any such action, suit or proceeding in which only monetary damages are sought and the damages so sought are less than $50,000. -11- (viii) Promptly upon filing any registration statement or listing application (or any supplement or amendment to any registration statement or listing application) with the SEC or any successor agency or with any stock exchange or with the National Association of Securities Dealers quotations system, a copy of same. (ix) A copy of each periodic or current report filed with the SEC or any successor agency and each annual report, proxy statement and other communication sent to shareholders or other securityholders generally, such copy to be provided to the Bank promptly upon such filing with the SEC or such communication with shareholders or securityholders, as the case may be. (x) Promptly upon applying for, or being granted, a federal or state registration for any copyright, trademark or patent or purchasing any registered copyright, trademark or patent, written notice to the Bank describing same, together with all such documents as may be required to give the Bank a fully perfected first priority security interest in each such copyright, trademark or patent. (xi) Promptly after the Borrower has knowledge thereof, written notice of any development or circumstance which may reasonably be expected to have a material adverse effect on the business, properties, assets, or condition, financial or otherwise, of the Borrower and its Subsidiaries taken as a whole. (xii) Promptly upon request, such other information respecting the financial condition, operations, Receivables, inventory, machinery or equipment of the Borrower or any Subsidiary as the Bank may from time to time reasonably request. 3.7. Debt to Worth. The Borrower will maintain as at the last day of each ------------- fiscal quarter of the Borrower (each, a "Determination Date") (commencing with its results as at September 27, 1998) on a consolidated basis a Leverage Ratio which is less than 1.0 to 1. As used herein, "Leverage Ratio" means, as at any Determination Date, the ratio of (x) the total consolidated Senior Liabilities of the Borrower and/or its Subsidiaries then outstanding to (y) the Borrower's then consolidated Capital Base. 3.8. Capital Base. The Borrower will maintain as at each Determination ------------ Date (commencing December 27, 1998) a consolidated Capital Base of not less than the following: as at December 27, 1998 - not less than $15,400,000; and as at March 28, 1999 and as at each Determination Date thereafter - not less than $14,300,000. 3.9. Profitability. The Borrower will not incur a quarterly consolidated ------------- Net Loss in excess of $1,600,000 for its fiscal quarter ending December 27, 1998, nor a quarterly consolidated Net Loss in excess of $1,400,000 for its fiscal quarter ending March 28, 1999, nor a quarterly consolidated Net Loss in excess of $1,100,000 for its fiscal quarter ending June 27, 1999 or any subsequent fiscal quarter. Without limitation of the foregoing, the Borrower will not incur an annual consolidated Net Loss in excess of $7,900,000 for its fiscal year ending March 28, 1999. -12- 3.10. Current Ratio. The Borrower will maintain as at the end of each ------------- fiscal quarter of Borrower (commencing with its results as at September 27, 1998) a Current Ratio which is greater than 2.0 to 1. As used herein, "Current Ratio" means, as at any date when same is to be determined, the ratio of (x) Net Current Assets to (y) consolidated Current Liabilities. 3.11. Books and Records. The Borrower will maintain (and will cause each ----------------- of its Subsidiaries to maintain) complete and accurate books, records and accounts which will at all times accurately and fairly reflect all of its transactions in accordance with generally accepted accounting principles consistently applied. The Borrower will, at any reasonable time and from time to time upon reasonable written notice and during normal business hours (and at any time and without any necessity for notice following the occurrence of an Event of Default), permit the Bank, and any agents or representatives thereof, to examine and make copies of and take abstracts from the records and books of account of, and visit the properties of the Borrower and any of its Subsidiaries, and to discuss its affairs, finances and accounts with its officers, directors and/or independent accountants, all of whom are hereby authorized and directed to cooperate with the Bank in carrying out the intent of this (S)3.11. Each financial statement of the Borrower hereafter delivered pursuant to this letter agreement will be complete and accurate and will fairly present the financial condition of the Borrower as at the date thereof and for the periods covered thereby. Without limitation of the foregoing, the Bank may conduct field audits of the Borrower and may arrange for equipment appraisals at such reasonable intervals as the Bank may determine and the Borrower will pay the reasonable costs thereof. IV. NEGATIVE COVENANTS ------------------ Without limitation of any other covenants and agreements contained herein or elsewhere, the Borrower agrees that so long as the financing arrangements contemplated hereby are in effect or any Revolving Loan or any of the other Obligations shall be outstanding or any letter of credit issued hereunder shall be outstanding or any Foreign Exchange Contract shall be outstanding or any amount shall be owed by the Borrower in respect of any ACH transaction or any Foreign Exchange Contract: 4.1. Indebtedness. The Borrower will not create, incur, assume or suffer ------------ to exist any Indebtedness (nor allow any of its Subsidiaries to create, incur, assume or suffer to exist any Indebtedness), except for: (i) Indebtedness owed to the Bank, including, without limitation, the Indebtedness represented by the Revolving Note and any Indebtedness in respect of letters of credit issued by the Bank or in respect of any ACH transactions or in respect of any Foreign Exchange Contracts; (ii) Indebtedness of the Borrower or any Subsidiary for taxes, assessments and governmental charges or levies not yet due and payable; -13- (iii) unsecured current liabilities of the Borrower or any Subsidiary (other than for money borrowed or for purchase money Indebtedness with respect to fixed assets) incurred upon customary terms in the ordinary course of business; (iv) purchase money Indebtedness (including, without limitation, Indebtedness in respect of capitalized equipment leases) owed to equipment vendors and/or lessors for equipment purchased or leased by the Borrower for use in the Borrower's business, provided that the total of Indebtedness permitted under this clause (iv) plus presently-existing equipment financing permitted under clause (v) of this (S)4.1 will not exceed $1,000,000 in the aggregate outstanding at any one time; (v) other Indebtedness existing at the date hereof (including, without limitation, existing Subordinated Debt), but only to the extent set forth on item 4.1 of the attached Disclosure Schedule; (vi) any guaranties or other contingent liabilities expressly permitted pursuant to (S)4.3; (vii) net intercompany amounts (not to exceed $5,800,000 in the aggregate) due from WED; (viii) loans made by the Borrower to Securities Corp. or by Securities Corp. to the Borrower; and (ix) net intercompany amounts due from Subsidiaries other than WED and Securities Corp.; provided that same do not exceed $800,000 in the aggregate outstanding at any one time exclusive of amounts permitted by clauses (vii) and (viii) above. 4.2. Liens. The Borrower will not create, incur, assume or suffer to ----- exist (nor allow any of its Subsidiaries to create, incur, assume or suffer to exist) any mortgage, deed of trust, pledge, lien, security interest, or other charge or encumbrance (including the lien or retained security title of a conditional vendor) of any nature (collectively, "Liens"), upon or with respect to any of its property or assets, now owned or hereafter acquired, except that the foregoing restrictions shall not apply to: (i) Liens for taxes, assessments or governmental charges or levies on property of the Borrower or any of its Subsidiaries if the same shall not at the time be delinquent or thereafter can be paid without interest or penalty; (ii) Liens imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar Liens arising in the ordinary course of business for sums not yet due or which are being contested in good faith and by appropriate proceedings which serve as a matter of law to stay the enforcement thereof and as to which adequate reserves have been made; -14- (iii) pledges or deposits under workmen's compensation laws, unemployment insurance, social security, retirement benefits or similar legislation; (iv) Liens in favor of the Bank; (v) Liens in favor of equipment vendors and/or lessors securing purchase money Indebtedness to the extent permitted by clause_(iv) of (S)4.1; provided that no such Lien will extend to any property of the Borrower other than the specific items of equipment financed; or (vi) other Liens existing at the date hereof, but only to the extent and with the relative priorities set forth on item 4.2 of the attached Disclosure Schedule. Without limitation of the foregoing, the Borrower covenants and agrees that it will not enter into (and will not suffer or permit any of its Subsidiaries to enter into) any agreement or understanding (each, a "Restrictive Agreement") with any Person other than the Bank which could prohibit or restrict in any manner the right of the Borrower or any such Subsidiary to grant to the Bank any Lien on any of its assets. The Borrower represents and warrants that, at the date of this letter agreement, neither the Borrower nor any such Subsidiary is party to any such Restrictive Agreement. 4.3. Guaranties. The Borrower will not, without the prior written consent ---------- of the Bank, assume, guarantee, endorse or otherwise become directly or contingently liable (including, without limitation, liable by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in any debtor or otherwise to assure any creditor against loss) (and will not permit any of its Subsidiaries so to assume, guaranty or become directly or contingently liable) in connection with any indebtedness of any other Person, except (i) guaranties by endorsement for deposit or collection in the ordinary course of business and (ii) guaranties existing at the date hereof and described on item 4.3 of the attached Disclosure Schedule. 4.4. Dividends. The Borrower will not, without the prior written consent --------- of the Bank, make any distributions to its shareholders, pay any dividends (other than dividends payable solely in capital stock of the Borrower) or redeem, purchase or otherwise acquire, directly or indirectly any of its capital stock. 4.5. Loans and Advances. The Borrower will not make (and will not permit ------------------ any Subsidiary to make) any loans or advances to any Person, including, without limitation, the Borrower's directors, officers and employees, except (i) existing loans described in item 4.5 of the attached Disclosure Schedule, (ii) loans made by the Borrower or by any Subsidiary of the Borrower which give rise to Indebtedness permitted by clauses (vii), (viii) and (ix) of (S)4.1; and (iii) advances to such directors, officers or employees with respect to expenses incurred by them -15- in the ordinary course of their duties and advances against salary, all of which advances will not exceed, in the aggregate, $100,000 outstanding at any one time. 4.6. Investments. The Borrower will not, without the Bank's prior written ----------- consent, invest in, hold or purchase any stock or securities of any Person (nor will the Borrower permit any of its Subsidiaries to invest in, purchase or hold any such stock or securities) except (i) readily marketable direct obligations of, or obligations guarantied by, the United States of America or any agency thereof, (ii) other investment grade debt securities (including, without limitation, rated investment grade fixed or variable rate tax-exempt securities) and bankers' acceptances with ratings approved by the Bank, (iii) mutual funds, the assets of which are primarily invested in items of the kind described in the foregoing clauses (i) and (ii) of this (S)4.6, (iv) deposits with or certificates of deposit issued by the Bank and any other obligations of the Bank or the Bank's parent, (v) deposits in any other bank organized in the United States having capital in excess of $100,000,000, (vi) contributions by the Borrower to the capital of Securities Corp. representing the interest on loans made by the Borrower to Securities Corp. and (vii) investments in any Subsidiaries now existing or hereafter created by the Borrower pursuant to (S)4.7 below; provided that in any event the Tangible Net Worth of the Borrower alone (exclusive of its investment in Subsidiaries and any debt owed by any Subsidiary to the Borrower) will not be less than 90% of the consolidated Tangible Net Worth of the Borrower and Subsidiaries. 4.7. Subsidiaries; Acquisitions. Neither the Borrower nor any of its -------------------------- Subsidiaries will, without the prior written consent of the Bank, form or acquire any Subsidiary or make any other acquisition of the stock of any other Person or of all or substantially all of the assets of any other Person, except that the Borrower may make acquisitions of the stock or assets of another Person so long as the aggregate consideration (whether in cash, stock or other property) for all such acquisitions consummated in any fiscal year of the Borrower does not exceed $1,000,000 per fiscal year. The Borrower will not become a partner in any partnership. 4.8. Merger. The Borrower will not, without the prior written consent of ------ the Bank, merge or consolidate with any Person, or sell, lease, transfer or otherwise dispose of any material portion of its assets (whether in one or more transactions), other than sale of inventory in the ordinary course. 4.9. Affiliate Transactions. The Borrower will not, without the prior ---------------------- written consent of the Bank, enter into any transaction (other than an investment in or loan to a Subsidiary of the Borrower to the extent expressly permitted by this letter agreement), including, without limitation, the purchase, sale or exchange of any property or the rendering of any service, with any affiliate of the Borrower, except in the ordinary course of and pursuant to the reasonable requirements of the Borrower's business and upon fair and reasonable terms no less favorable to the Borrower than would be obtained in a comparable arms'-length transaction with any Person not an affiliate; provided that nothing in this (S)4.9 shall be deemed to prohibit the payment of salary or other similar payments to any officer or director of the Borrower at a level consistent with the salary and other payments being paid at the date of this letter agreement and heretofore -16- disclosed in writing to the Bank, nor to prevent the hiring of additional officers at a salary level consistent with industry practice, nor to prevent reasonable periodic increases in salary, nor to prohibit any of the transactions relating to Indebtedness permitted by clauses (vii), (viii) and/or (ix) of (S)4.1. For the purposes of this letter agreement, "affiliate" means any Person which, directly or indirectly, controls or is controlled by or is under common control with the Borrower; any officer or director or former officer or director of the Borrower; any Person owning of record or beneficially, directly or indirectly, 5% or more of any class of capital stock of the Borrower or 5% or more of any class of capital stock or other equity interest having voting power (under ordinary circumstances) of any of the other Persons described above; and any member of the immediate family of any of the foregoing. "Control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of any Person, whether through ownership of voting equity, by contract or otherwise. 4.10. Change of Address, etc. The Borrower will not change its name or ---------------------- legal structure, nor will the Borrower move its chief executive offices or principal place of business from the address described in the first sentence of (S)2.1(i) above, nor will the Borrower remove any books or records from such address, nor will the Borrower keep any Collateral at any location other than the premises described in (S)2.1(i), without, in each instance, giving the Bank at least 30 days' prior written notice and providing all such financing statements, certificates and other documentation as the Bank may request in order to maintain the perfection and priority of the security interests granted or intended to be granted pursuant to the Security Agreement. The Borrower will not change its fiscal year or methods of financial reporting unless, in each instance, prior written notice of such change is given to the Bank and prior to such change the Borrower enters into amendments to this letter agreement in form and substance satisfactory to the Bank in order to preserve unimpaired the rights of the Bank and the obligations of the Borrower hereunder. 4.11. Hazardous Waste. Except as provided below, the Borrower will not --------------- dispose of or suffer or permit to exist any hazardous material or oil on any site or vessel owned, occupied or operated by the Borrower or any Subsidiary of the Borrower, nor shall the Borrower store (or permit any Subsidiary to store) on any site or vessel owned, occupied or operated by the Borrower or any such Subsidiary, or transport or arrange the transport of, any hazardous material or oil (the terms "hazardous material", "oil", "site" and "vessel", respectively, being used herein with the meanings given those terms in Mass. Gen. Laws, Ch. 21E or any comparable terms in any comparable statute in effect in any other relevant jurisdiction). Except as otherwise expressly provided below, the Borrower shall provide the Bank with written notice of (i) the storage or transport of any hazardous material or oil by the Borrower or any Subsidiary of the Borrower, (ii) any release or known threat of release of any hazardous material or oil at or from any site or vessel owned, occupied or operated by the Borrower or any Subsidiary of the Borrower, and (iii) any incurrence of any expense or loss by any government or governmental authority in connection with the assessment, containment or removal of any hazardous material or oil known to the Borrower for which expense or loss the Borrower or any Subsidiary of the Borrower may be liable. Notwithstanding the foregoing, the Borrower and its Subsidiaries may use, store and transport and arrange for the transport or -17- disposal of, and need not notify the Bank of the use, storage, arrangement for transport, disposal or transportation of, (x) oil as fuel for their respective facilities or for vehicles or machinery used in the ordinary course of their respective businesses and (y) hazardous materials that are solvents, cleaning agents or other materials used in the ordinary course of the respective business operations of the Borrower and its Subsidiaries, as long as in each case the Borrower or the Subsidiary concerned (as the case may be) has obtained and maintains in effect any governmental permits, licenses and approvals necessary for such use, storage, transportation, arranging for transport or disposal, complies with all requirements of federal, state and local law applicable to such use, storage, transportation, arrangement for transport or disposal, and in any event disposes of such materials (not consumed in the ordinary course) only through licensed providers of hazardous waste removal services. 4.12. No Margin Stock. No proceeds of any Revolving Loan shall be used --------------- directly or indirectly to purchase or carry any margin security. 4.13. Subordinated Debt. The Borrower will not directly or indirectly ----------------- make any optional or voluntary prepayment or purchase of Subordinated Debt or modify, alter or add any provisions with respect to payment of Subordinated Debt. In any event, the Borrower will not make any payment of any principal of or interest on any Subordinated Debt at any time when there exists, or if there would result therefrom, any Event of Default hereunder. V. DEFAULT AND REMEDIES -------------------- 5.1. Events of Default. The occurrence of any one of the following events ----------------- shall constitute an Event of Default hereunder: (a) The Borrower shall fail to make any payment of principal of or interest on the Revolving Note on or before the date when due; or the Borrower shall fail to pay when due any amount owed to the Bank in respect of any letter of credit now or hereafter issued by the Bank or in respect of any Foreign Exchange Contract or in respect of any ACH transaction; or (b) Any representation or warranty of the Borrower contained herein shall at any time prove to have been incorrect in any material respect when made or any representation or warranty made by the Borrower in connection with any Revolving Loan or letter of credit or any ACH transaction or any Foreign Exchange Contract shall at any time prove to have been incorrect in any material respect when made; or (c) The Borrower shall default in the performance or observance of any agreement or obligation under any of (S)(S)3.1, 3.3, 3.6, 3.7, 3.8, 3.9 or 3.10 or Article IV; or (d) The Borrower shall default in the performance of any other term, covenant or agreement contained in this letter agreement and such default shall continue unremedied for 30 days after notice thereof shall have been given to the Borrower; or -18- (e) Any default on the part of the Borrower or any Subsidiary of the Borrower shall exist, and shall remain unwaived or uncured beyond the expiration of any applicable notice and/or grace period, under any other contract, agreement or undertaking now existing or hereafter entered into with or for the benefit of the Bank (or any affiliate of the Bank); or (f) Any default shall exist and remain unwaived or uncured with respect to any Subordinated Debt of the Borrower or with respect to any instrument evidencing, guaranteeing or otherwise relating to any such Subordinated Debt, or any such Subordinated Debt shall not have been paid when due, whether by acceleration or otherwise, or shall have been declared to be due and payable prior to its stated maturity, or any event or circumstance shall occur which permits, or with the lapse of time or the giving of notice or both would permit, the acceleration of the maturity of any Subordinated Debt by the holder or holders thereof; or (g) Any default shall exist and remain unwaived or uncured with respect to any other Indebtedness of the Borrower or any Subsidiary of the Borrower in excess of $100,000 in aggregate principal amount or with respect to any instrument evidencing, guaranteeing, securing or otherwise relating to any such Indebtedness, or any such Indebtedness in excess of $100,000 in aggregate principal amount shall not have been paid when due, whether by acceleration or otherwise, or shall have been declared to be due and payable prior to its stated maturity, or any event or circumstance shall occur (and shall have continued beyond the expiration of any applicable notice and/or grace period) giving the holder or holders of such Indebtedness the right to accelerate the maturity thereof; or (h) The Borrower shall be dissolved, or the Borrower or any Subsidiary of the Borrower (other than WED after it transfers its assets to the Borrower) shall become insolvent or bankrupt or shall cease paying its debts as they mature or shall make an assignment for the benefit of creditors, or a trustee, receiver or liquidator shall be appointed for the Borrower or any Subsidiary of the Borrower (other than WED after it transfers its assets to the Borrower) or for a substantial part of the property of the Borrower or any such Subsidiary (other than WED after it transfers its assets to the Borrower), or bankruptcy, reorganization, arrangement, insolvency or similar proceedings shall be instituted by or against the Borrower or any such Subsidiary (other than WED after it transfers its assets to the Borrower) under the laws of any jurisdiction (except for an involuntary proceeding filed against the Borrower or any Subsidiary of the Borrower which is dismissed within 60 days following the institution thereof); or (i) Any attachment, execution or similar process in an amount of $50,000 or more shall be issued or levied against any of the property of the Borrower or any Subsidiary and such attachment, execution or similar process shall not be paid, stayed, released, vacated or fully bonded within 10 days after its issue or levy; or (j) Any final uninsured judgment in excess of $100,000 shall be entered against the Borrower or any Subsidiary of the Borrower by any court of competent jurisdiction; or -19- (k) The Borrower or any Subsidiary of the Borrower shall fail to meet its minimum funding requirements under ERISA with respect to any employee benefit plan (or other class of benefit which the PBGC has elected to insure) or any such plan shall be the subject of termination proceedings (whether voluntary or involuntary) and there shall result from such termination proceedings a liability of the Borrower or any Subsidiary of the Borrower to the PBGC which in the reasonable opinion of the Bank may have a material adverse effect upon the financial condition of the Borrower or any such Subsidiary; or (l) The Security Agreement or any other Loan Document shall for any reason (other than due to payment in full of all amounts secured or evidenced thereby or due to discharge in writing by the Bank) not remain in full force and effect; or (m) The security interests and liens of the Bank in and on any of the Collateral which is of a type that perfection may be had by filing UCC-1 financing statements shall for any reason (other than due to payment in full of all amounts secured thereby or due to written release by the Bank) not be fully perfected liens and security interests; or (n) At any time, 50% or more of the outstanding shares of any class of equity securities of the Borrower shall be owned by any Person or by any "group" (as defined in the Securities Exchange Act of 1934, as amended, and the regulations thereunder); or (o) There shall occur any other material adverse change in the condition (financial or otherwise), operations, properties, assets, liabilities or earnings of the Borrower. 5.2. Rights and Remedies on Default. Upon the occurrence of any Event of ------------------------------ Default, in addition to any other rights and remedies available to the Bank hereunder or otherwise, the Bank may exercise any one or more of the following rights and remedies (all of which shall be cumulative): (a) Declare the entire unpaid principal amount of the Revolving Note then outstanding, all interest accrued and unpaid thereon and all other amounts payable under this letter agreement, and all other Indebtedness of the Borrower to the Bank, to be forthwith due and payable, whereupon the same shall become forthwith due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Borrower. (b) Terminate the revolving financing arrangements provided for by this letter agreement; and the Bank may also terminate all facilities provided for herein for letters of credit, ACH transactions and/or Foreign Exchange Contracts. (c) Exercise all rights and remedies hereunder, under the Revolving Note, under the Security Agreement, under the Intellectual Property Security Agreement, under the Pledge and under each and any other agreement with the Bank; and exercise all other rights and remedies which the Bank may have under applicable law. -20- 5.3. Set-off. In addition to any rights now or hereafter granted under ------- applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default, the Bank is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to the Borrower or to any other Person, all of which are hereby expressly waived, to set off and to appropriate and apply any and all deposits and any other Indebtedness at any time held or owing by the Bank or any affiliate thereof to or for the credit or the account of the Borrower against and on account of the obligations and liabilities of the Borrower to the Bank under this letter agreement or otherwise, irrespective of whether or not the Bank shall have made any demand hereunder and although said obligations, liabilities or claims, or any of them, may then be contingent or unmatured and without regard for the availability or adequacy of other collateral. As further security for the Obligations, the Borrower also grants to the Bank a security interest with respect to all its deposits and all securities or other property in the possession of the Bank or any affiliate of the Bank from time to time, and, upon the occurrence of any Event of Default, the Bank may exercise all rights and remedies of a secured party under the Uniform Commercial Code. ANY AND ALL RIGHTS TO REQUIRE THE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES ANY OF THE OBLIGATIONS PRIOR TO THE EXERCISE BY THE BANK OF ITS RIGHT OF SET-OFF UNDER THIS SECTION ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. 5.4. Letters of Credit. Without limitation of any other right or remedy of ----------------- the Bank, (i) if an Event of Default shall have occurred and the Bank shall have accelerated the Revolving Loans or (ii) if this letter agreement and/or the revolving financing arrangements described herein shall have expired or shall have been earlier terminated by either the Bank or the Borrower for any reason, the Borrower will forthwith deposit with the Bank in cash a sum equal to the total of all then undrawn amounts of all outstanding letters of credit issued by the Bank for the account of the Borrower. Upon the occurrence of any event described in clause (i) or clause (ii) of the immediately preceding sentence, the Bank may also require the Borrower to cash collateralize the outstanding F/X Exposure and ACH Exposure. VI. MISCELLANEOUS ------------- 6.1. Costs and Expenses. The Borrower agrees to pay on demand reasonable ------------------ all costs and expenses (including, without limitation, reasonable legal fees) of the Bank in connection with the preparation, execution and delivery of this letter agreement, the Security Agreement, the Revolving Note and all other instruments and documents to be delivered in connection with any Revolving Loan or any letter of credit issued hereunder and/or any of the other Obligations and any amendments or modifications of any of the foregoing, as well as the reasonable costs and expenses (including, without limitation, the reasonable fees and expenses of legal counsel) incurred by the Bank in connection with preserving, enforcing or exercising, upon default, any rights or remedies under this letter agreement, the Security Agreement, the Revolving Note and all other instruments and documents delivered or to be delivered hereunder or in connection herewith or in connection with any other Obligation, all whether or not legal action is instituted. In addition, the Borrower shall be obligated to pay any and all stamp and -21- other taxes payable or determined to be payable in connection with the execution and delivery of this letter agreement, the Security Agreement, the Revolving Note and all other instruments and documents to be delivered in connection with any Obligation. Any fees, expenses or other charges which the Bank is entitled to receive from the Borrower under this Section shall bear interest from the date of any demand therefor until the date when paid at a rate per annum equal to the sum of (i) four (4%) percent plus (ii) the per annum rate otherwise payable under the Revolving Note (but in no event in excess of the maximum rate permitted by then applicable law). 6.2. Capital Adequacy. If the Bank shall have reasonably determined that ---------------- the adoption or phase-in after the date hereof of any applicable law, rule or regulation regarding capital requirements for banks or bank holding companies, or any change therein after the date hereof, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Bank with any request or directive of such entity regarding capital adequacy (whether or not having the force of law) has or would have the effect of reducing the return on the Bank's capital with respect to the Revolving Loans, the within-described revolving loan facility and/or letters of credit issued for the account of the Borrower and/or any of the other Obligations to a level below that which the Bank could have achieved (taking into consideration the Bank's policies with respect to capital adequacy immediately before such adoption, phase-in, change or compliance and assuming that the Bank's capital was then fully utilized) but for such adoption, phase- in, change or compliance by any amount deemed by the Bank to be material: (i) the Bank shall promptly after its determination of such occurrence give notice thereof to the Borrower; and (ii) the Borrower shall pay forthwith to the Bank as an additional fee such amount as the Bank certifies to be the amount that will compensate it for such reduction with respect to the Revolving Loans, the within-described revolving loan facility and/or such letters of credit and/or any of the other Obligations. A certificate of the Bank claiming compensation under this Section shall be conclusive in the absence of manifest error. Such certificate shall set forth the nature of the occurrence giving rise to such compensation, the additional amount or amounts to be paid to it hereunder and the method by which such amounts were determined. In determining such amounts, the Bank may use any reasonable averaging and attribution methods. No failure on the part of the Bank to demand compensation on any one occasion shall constitute a waiver of its right to demand such compensation on any other occasion and no failure on the part of the Bank to deliver any certificate in a timely manner shall in any way reduce any obligation of the Borrower to the Bank under this Section. 6.3. Facility Fees. With respect to the within arrangements for Revolving ------------- Loans, the Borrower will pay to the Bank, on the date of this letter agreement and thereafter on the first day of each calendar quarter (commencing January 1, 1999), a non-refundable quarterly facility fee of $6,250 per calendar quarter (appropriately pro-rated for any partial calendar quarter), payable in advance. In addition, if the within-described revolving financing arrangements are -22- terminated by the Borrower for any reason or by the Bank as the result of the Borrower's default, the Borrower shall forthwith upon such termination pay to the Bank a sum equal to all of the fees which would have become due pursuant to the immediately preceding sentence from the date of such termination through the Expiration Date. The fees described in this Section are in addition to any balances and fees required by the Bank or any of its affiliates in connection with any other services now or hereafter made available to the Borrower. 6.4. Other Agreements. The provisions of this letter agreement are not in ---------------- derogation or limitation of any obligations, liabilities or duties of the Borrower under any of the other Loan Documents or any other agreement with or for the benefit of the Bank. No inconsistency in default provisions between this letter agreement and any of the other Loan Documents or any such other agreement will be deemed to create any additional grace period or otherwise derogate from the express terms of each such default provision. No covenant, agreement or obligation of the Borrower contained herein, nor any right or remedy of the Bank contained herein, shall in any respect be limited by or be deemed in limitation of any inconsistent or additional provisions contained in any of the other Loan Documents or in any such other agreement. 6.5. Governing Law. This letter agreement and the Revolving Note shall be ------------- governed by, and construed and enforced in accordance with, the laws of The Commonwealth of Massachusetts. 6.6. Addresses for Notices, etc. All notices, requests, demands and other -------------------------- communications provided for hereunder shall be in writing and shall be mailed or delivered to the applicable party at the address indicated below: If to the Borrower: Aseco Corporation 500 Donald Lynch Boulevard Marlborough, MA 01752 Attention: Mary R. Barletta, Chief Financial Officer If to the Bank: Fleet National Bank High Technology Group Mail Code: MA OF D07A One Federal Street Boston, MA 02110 Attention: Lucie Burke, Vice President or, as to each of the foregoing, at such other address as shall be designated by such Person in a written notice to the other party complying as to delivery with the terms of this Section. All -23- such notices, requests, demands and other communications shall be deemed delivered on the earlier of (i) the date received or (ii) the date of delivery, refusal or non-delivery indicated on the return receipt if deposited in the United States mails, sent postage prepaid, certified or registered mail, return receipt requested, addressed as aforesaid. 6.7. Binding Effect; Assignment; Termination. This letter agreement shall --------------------------------------- be binding upon the Borrower, its successors and assigns and shall inure to the benefit of the Borrower and the Bank and their respective permitted successors and assigns. The Borrower may not assign this letter agreement or any rights hereunder without the express written consent of the Bank. The Bank may, in accordance with applicable law, from time to time assign or grant participations in this letter agreement, the Revolving Loans, the Revolving Note and/or the letters of credit issued hereunder and/or any of the other Obligations. Without limitation of the foregoing generality: (i) The Bank may at any time pledge all or any portion of its rights under the Loan Documents (including any portion of the Revolving Note) to any of the 12 Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or the enforcement thereof shall release the Bank from its obligations under any of the Loan Documents. (ii) The Bank shall have the unrestricted right at any time and from time to time, and without the consent of or notice to the Borrower, to grant to one or more banks or other financial institutions (each, a "Participant") participating interests in the Bank's obligation to lend hereunder and/or any or all of the Revolving Loans held by the Bank hereunder. In the event of any such grant by the Bank of a participating interest to a Participant, whether or not upon notice to the Borrower, the Bank shall remain responsible for the performance of its obligations hereunder and the Borrower shall continue to deal solely and directly with the Bank in connection with the Bank's rights and obligations hereunder. The Bank may furnish any information concerning the Borrower in its possession from time to time to prospective assignees and Participants; provided that the Bank shall require any such prospective assignee or Participant to agree in writing to maintain the confidentiality of such information to the same extent as the Bank would be required to maintain such confidentiality. The Borrower may terminate this letter agreement and the financing arrangements made herein by giving written notice of such termination to the Bank together with payment of the sum described in the second sentence of (S)6.3; provided that no such termination will release or waive any of the Bank's rights or remedies or any of the Borrower's obligations under this letter agreement or any of the other Loan Documents unless and until the Borrower has paid in full the Revolving Loans and all interest thereon and all fees and charges payable in connection therewith and all letters of credit issued hereunder have been terminated. -24- 6.8. Consent to Jurisdiction. The Borrower irrevocably submits to the non- ----------------------- exclusive jurisdiction of any Massachusetts court or any federal court sitting within The Commonwealth of Massachusetts over any suit, action or proceeding arising out of or relating to this letter agreement and/or the Revolving Note and/or any of the other Obligations. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding brought in such a court and any claim that any such suit, action or proceeding has been brought in an inconvenient forum. The Borrower agrees that final judgment in any such suit, action or proceeding brought in such a court shall be enforced in any court of proper jurisdiction by a suit upon such judgment, provided that service of process in such action, suit or proceeding shall have been effected upon the Borrower in one of the manners specified in the following paragraph of this (S)6.8 or as otherwise permitted by law. The Borrower hereby consents to process being served in any suit, action or proceeding of the nature referred to in the preceding paragraph of this (S)6.8 either (i) by mailing a copy thereof by registered or certified mail, postage prepaid, return receipt requested, to it at its address set forth in (S)6.6 (as such address may be changed from time to time pursuant to said (S)6.6) or (ii) by serving a copy thereof upon it at its address set forth in (S)6.6 (as such address may be changed from time to time pursuant to said (S)6.6). 6.9. Severability. In the event that any provision of this letter ------------ agreement or the application thereof to any Person, property or circumstances shall be held to any extent to be invalid or unenforceable, the remainder of this letter agreement, and the application of such provision to Persons, properties or circumstances other than those as to which it has been held invalid and unenforceable, shall not be affected thereby, and each provision of this letter agreement shall be valid and enforced to the fullest extent permitted by law. 6.10. Replacement Note. Upon receipt of an affidavit of an officer of the ---------------- Bank as to the loss, theft, destruction or mutilation of the Revolving Note or of any other Loan Document which is not of public record and, in the case of any such mutilation, upon surrender and cancellation of such Revolving Note or other Loan Document, the Borrower will issue, in lieu thereof, a replacement Revolving Note or other Loan Document in the same principal amount (as to the Revolving Note) and in any event of like tenor. 6.11. Usury. All agreements between the Borrower and the Bank are hereby ----- expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of maturity of the Revolving Note or otherwise, shall the amount paid or agreed to be paid to the Bank for the use or the forbearance of the Indebtedness represented by the Revolving Note exceed the maximum permissible under applicable law. In this regard, it is expressly agreed that it is the intent of the Borrower and the Bank, in the execution, delivery and acceptance of the Revolving Note, to contract in strict compliance with the laws of The Commonwealth of Massachusetts. If, under any circumstances whatsoever, performance or fulfillment of any -25- provision of the Revolving Note or any of the other Loan Documents at the time such provision is to be performed or fulfilled shall involve exceeding the limit of validity prescribed by applicable law, then the obligation so to be performed or fulfilled shall be reduced automatically to the limits of such validity, and if under any circumstances whatsoever the Bank should ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal balance evidenced by the Revolving Note and not to the payment of interest. The provisions of this (S)6.11 shall control every other provision of this letter agreement and of the Revolving Note. 6.12. WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK HEREBY KNOWINGLY, -------------------- VOLUNTARILY AND INTENTIONALLY MUTUALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS LETTER AGREEMENT, THE REVOLVING NOTE OR ANY OTHER LOAN DOCUMENTS OR OUT OF ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE BANK TO ENTER INTO THIS LETTER AGREEMENT AND TO MAKE REVOLVING LOANS AND EXTEND OTHER CREDIT AS CONTEMPLATED HEREIN. 6.13. Amendment and Restatement. This letter agreement amends and ------------------------- restates in its entirety the Prior Agreement, and any and all defaults under the Prior Agreement are hereby waived. Upon the execution and delivery of this letter agreement, neither the Borrower nor the Bank will have any further obligations to each other under the Prior Agreement; provided that the Borrower shall remain obligated to pay all interest, fees and other charges accruing under the Prior Agreement to the date of this letter agreement, whether or not same are presently due and payable. All loans outstanding under the Prior Agreement at the date hereof will be deemed at this date (without any requirement for further documentation) to become Revolving Loans for the purposes of this letter agreement and to be evidenced by the Revolving Note. All letters of credit outstanding under the Prior Agreement at the date hereof will be deemed at this date (without any requirement for further documentation) to become letters of credit issued under this letter agreement. VII. DEFINED TERMS ------------- 7.1. Definitions. In addition to terms defined elsewhere in this letter ----------- agreement, as used in this letter agreement, the following terms have the following respective meanings: "ACH Exposure" - As defined in (S)1.6. "Aggregate Bank Liabilities" - At any time, the sum of (i)_the principal amount of all Revolving Loans then outstanding, plus (ii) all then undrawn ---- amounts of letters of credit issued by the Bank for the account of the Borrower (other than the Existing L/C described in the first -26- paragraph of (S)1.5), plus (iii) all amounts then drawn on any such letter of credit which at said date shall not have been reimbursed to the Bank by the Borrower. "Borrowing Base" - As determined at any date, 80% of the aggregate principal amount of the Qualified Receivables of the Borrower then outstanding. "Business Day" - Any day which is not a Saturday, nor a Sunday nor a public holiday under the laws of the United States of America or The Commonwealth of Massachusetts applicable to a national bank. "Capital Base" - At any time, the sum of (i) the consolidated Tangible Net Worth of the Borrower and Subsidiaries then existing, plus (ii) the principal amount of Subordinated Debt of the Borrower then outstanding (nothing contained herein being deemed to authorize the incurrence of any additional Subordinated Debt). "Collateral" - All property now or hereafter owned by the Borrower or in which the Borrower now or hereafter has any interest which is described as "Collateral" in the Security Agreement or in the Pledge or in (S)7.2(b) below. "Current Liabilities" - All liabilities of the Borrower and/or any Subsidiary of the Borrower which would properly be shown as current liabilities on a consolidated balance sheet of the Borrower prepared in accordance with generally accepted accounting principles consistently applied. Further, "Current Liabilities" will in any event be deemed to include all Revolving Loans. "Determination Date" - As defined in (S)3.7. "ERISA" - The Employee Retirement Income Security Act of 1974, as amended. "Existing L/C" - As defined in (S)1.5. "Expiration Date" - September 1, 1999, unless extended pursuant to (S)1.3, which extension may be given or withheld by the Bank in its sole discretion. "F/X Exposure" - As defined in (S)1.7. "Indebtedness" - All obligations of a Person, whether current or long-term, senior or subordinated, which in accordance with generally accepted accounting principles would be included as liabilities upon such Person's balance sheet at the date on which Indebtedness, is to be determined, and shall also include guaranties, endorsements (other than for collection in the ordinary course of business) or other arrangements whereby responsibility is assumed for the obligations of others, whether by agreement to purchase or otherwise acquire the obligations of others, including any agreement, contingent or otherwise, to furnish funds through the purchase of goods, supplies or services for the purpose of payment of the obligations of others. -27- "Liabilities" - All Indebtedness of the Borrower and/or any of its Subsidiaries which would properly be shown as liabilities on the face of a consolidated balance sheet of the Borrower prepared in accordance with generally accepted accounting principles consistently applied, and not merely in the footnotes to such balance sheet. "Loan Documents" - Each of this letter agreement, the Revolving Note, the Security Agreement, the Intellectual Property Security Agreement, the Pledge and each other instrument, document or agreement evidencing, securing, guaranteeing or relating in any way to any of the Revolving Loans or any of the letters of credit issued hereunder or to any Foreign Exchange Contract or ACH transaction, all whether now existing or hereafter arising or entered into. "Maximum Revolving Amount" - At any date as of which same is to be determined, the amount by which (x) $5,000,000 exceeds (y) the sum of (i) all then undrawn amounts of letters of credit issued by the Bank for the account of the Borrower (other than the Existing L/C described in the first paragraph of (S)1.5), plus (ii) all amounts then drawn on any letter of credit which at said date shall not have been reimbursed to the Bank by the Borrower. "Net Current Assets" - Such current assets of the Borrower as consist of cash, cash-equivalents, Receivables (less an allowance for bad debt consistent with the Borrower's prior experience) and inventory (including finished goods inventory, raw materials and work-in-process, net of a reserve for damaged, obsolete or returned inventory and any other reserves required by generally accepted accounting principles consistently applied). "Net Income" (or "Net Loss") - The book net income (or book net loss, as the case may be) of a Person for any period, after all taxes actually paid or accrued and all expenses and other charges determined in accordance with generally accepted accounting principles consistently applied. "Obligations" - All Indebtedness, covenants, agreements, liabilities and obligations, now existing or hereafter arising, made by the Borrower with or for the benefit of the Bank or owed by the Borrower to the Bank in any capacity. "Obligations" includes, without limitation, the Revolving Loans and obligations with respect to ACH transactions, letters of credit and Foreign Exchange Contracts issued hereunder. "PBGC" - The Pension Benefit Guaranty Corporation or any successor thereto. "Person" - An individual, corporation, limited liability company, partnership, joint venture, trust or unincorporated organization, or a government or any agency or political subdivision thereof. "Pledge" - As defined in (S)1.1 above. "Prior Agreement" - As defined in the introductory paragraph of this letter agreement. -28- "Qualified Receivables" - Only those Receivables of the Borrower which arise out of bona fide sales made to customers of the Borrower (which customers are located in the United States and are unrelated to the Borrower) in the ordinary course of the Borrower's business and which remain unpaid no more than 90 days past the respective invoice dates of such Receivables, the payment of which is not in dispute. Unless the Bank in its sole discretion otherwise determines with respect to any Receivable, a Receivable which would otherwise be a Qualified Receivable shall be deemed not to be a Qualified Receivable (i) if the Bank does not have a fully perfected first priority security interest in such Receivable; (ii) if such Receivable is not free and clear of all interests in favor of any Person other than the interests of the Borrower and the Bank; (iii) if such Receivable is subject to any deduction, off-set, contra account, counterclaim or condition; (iv) if a field examination made by the Bank fails to confirm that such Receivable exists and satisfies all of the criteria set forth herein to be a Qualified Receivable; (v) if such Receivable is not properly invoiced at the date of sale; (vi) if the customer or account debtor has disputed liability or made any claim with respect to the Receivable or the merchandise covered thereby or with respect to any other Receivable due from said customer to the Borrower; (vii) if the customer or account debtor has filed a petition for bankruptcy or any other application for relief under the Bankruptcy Code or has effected an assignment for the benefit of creditors, or if any petition or any other application for relief under the Bankruptcy Code has been filed against said customer or account debtor, or if the customer or account debtor has suspended business, become insolvent, ceased to pay its debts as they become due, or had or suffered a receiver or trustee to be appointed for any of its assets or affairs; (viii) if the customer or account debtor has failed to pay other Receivables so that an aggregate of 25% of the total Receivables owing to the Borrower by such customer or account debtor has been outstanding for more than 90 days past their respective due dates; (ix) if such Receivable is owed by the United States government or any agency or department thereof (unless assigned to the Bank under the Federal Assignment of Claims Act); or (x) if the Bank reasonably believes that collection of such Receivable is insecure or that it may not be paid by reason of financial inability to pay or otherwise, or that such Receivable is not for any reason suitable for use as a basis for borrowing hereunder (provided that no Receivable which would otherwise be a Qualified Receivable will be deemed not to be a Qualified Receivable due to the application of this clause (x) unless the Bank shall have given the Borrower at least 30 days' prior notice that the Receivable in question (or all Receivables owed by the same account debtor) will not be considered to be Qualified Receivables due to the application of this clause (x)). Notwithstanding the first sentence of this definition, the Borrower may include within "Qualified Receivables" any Receivable which meets all of the criteria set forth above to be a Qualified Receivable except that the relevant customer is located outside the United States; provided that such Receivable is secured by a letter of credit in form and substance satisfactory to the Bank and issued by a financial institution satisfactory to the Bank or is insured by Eximbank credit insurance or other credit insurance satisfactory to the Bank. Further, if credit insurance meeting the criteria of the immediately preceding sentence becomes applicable to any Receivable during the month of December 1998 and such insurance is retroactive to December 1, 1998, the Borrower may at any time thereafter prior to January 15, 1999 deliver to the Bank a pro forma Borrowing Base certificate as at December 1, 1998 giving effect to such retroactive -29- credit insurance and such pro forma certificate will be deemed to replace any Borrowing Base certificate as at December 1, 1998 theretofore delivered pursuant to clause (iv) of (S)3.6. "Receivables" - All of the Borrower's present and future accounts and accounts receivable representing a right to payment for goods sold or for services rendered. "Revolving Note" - As defined in (S)1.1. "Senior Liabilities" - All Liabilities which are not Subordinated Debt. "Subordinated Debt" - Any Indebtedness of the Borrower which is expressly subordinated, pursuant to a subordination agreement in form and substance satisfactory to the Bank, to all Indebtedness now or hereafter owed by the Borrower to the Bank. "Subsidiary" - Any corporation or other entity of which the Borrower and/or any of its Subsidiaries, directly or indirectly, owns, or has the right to control or direct the voting of, fifty (50%) percent or more of the outstanding capital stock or other ownership interest having general voting power (under ordinary circumstances). "Tangible Net Worth" - An amount equal to the total assets of any Person (excluding (i) the total intangible assets of such Person and (ii) any assets representing amounts due from any officer or employee of such Person or from any Subsidiary of such Person) minus the total liabilities of such Person. Total intangible assets shall be deemed to include, but shall not be limited to, the excess of cost over book value of acquired businesses accounted for by the purchase method, formulae, trademarks, trade names, patents, patent rights and deferred expenses (including, but not limited to, unamortized debt discount and expense, organizational expense, capitalized software costs and experimental and development expenses). "WED" - Western Equipment Developments (Holdings) Ltd., a Subsidiary of the Borrower. Any defined term used in the plural preceded by the definite article shall be taken to encompass all members of the relevant class. Any defined term used in the singular preceded by "any" shall be taken to indicate any number of the members of the relevant class. 7.2. Security Agreement. (a) The Borrower acknowledges and agrees that ------------------ the "Obligations" described in and secured by the Security Agreement include, without limitation, all of the obligations of the Borrower under the Revolving Note and/or this letter agreement and/or with respect to any letter of credit which may be issued by the Bank for the account of the Borrower, as well as obligations in respect of ACH transactions and Foreign Exchange Contracts. (b) The Security Agreement is hereby modified to provide as follows: -30- (i) That the "Collateral" subject thereto includes, without limitation and in addition to the Collateral described therein, all of the Borrower's files, books and records (including, without limitation, all electronically recorded data) all whether now owned or existing or hereafter acquired, created or arising. The Borrower hereby grants to the Bank a security interest in all such Collateral in order to secure the full and prompt payment and performance of all of the Obligations. (ii) That, upon the occurrence of any Event of Default (as defined in (S)5.1 of this letter agreement), the Bank may, at any time, notify account debtors that the Collateral has been assigned to the Bank and that payments by such account debtors shall be made directly to the Bank. At any time after the occurrence of an Event of Default, the Bank may collect the Borrower's Receivables, or any of same, directly from account debtors and may charge the collection costs and expenses to the Borrower. -31- This letter agreement is executed, as an instrument under seal, as of the day and year first above written. Very truly yours, ASECO CORPORATION By: /s/Mary R. Barletta ------------------------------------ Name: Title: Chief Financial Officer Accepted and agreed: FLEET NATIONAL BANK By: /s/Thomas W. Davies --------------------------- Its Senior Vice President -32- DISCLOSURE SCHEDULE Item 2.1(a) Jurisdictions in which Borrower is qualified; Subsidiaries Item 2.1(d) Litigation Item 2.1(i) Collateral locations; record owners Item 2.1(j) Intellectual property Item 4.1 Existing Indebtedness Item 4.2 Existing Liens Item 4.3 Existing Guaranties Item 4.5 Existing Loans -33- EX-10.10 7 MODIFICAITON AGREEMENT BETWEEN THE COMPANY & FLEET EXHIBIT 10.10 LOAN MODIFICATION AGREEMENT --------------------------- THIS AGREEMENT, effective this 22/nd/ day of June, 1999 (the "Effective Date"), is by and between Aseco Corporation ("Obligor") and Fleet National Bank (the "Bank"). STATEMENT OF FACTS ------------------ The Obligor is obligated to the Bank as evidenced by the following documents: 1. Revolving Note dated November 27, 1998, in the original principal amount of $5,000,000.00, executed by the Obligor in favor of the Bank ("Revolving Note"); 2. Letter Agreement dated November 27, 1998 between the Obligor and the Bank ("Loan Agreement"); 3. Inventory, Accounts Receivable and Intangibles Security Agreement dated November 27, 1998, executed by the Obligor in favor of the Bank; 4. Supplementary Security Agreement dated November 27, 1998, executed by the Obligor in favor of the Bank; 5. Pledge of Stock of Aseco Investment Corp. in favor of the Bank; and 6. Stand by Letter of Credit executed by the Bank for the account of the Obligor. The foregoing documents, as they may have been amended or restated, and any documents executed or delivered in connection therewith, are herein collectively referred to as the "Loan Documents." The Bank is the holder of the Loan Documents. By letter dated June 16, 1999, the Obligor acknowledged that it is in default of certain covenants under the Loan Documents, which defaults constitute events of default pursuant to the terms of the Loan Documents, and requested that the Bank waive certain existing covenant defaults and extend the maturity date of the Loan Agreement. TERMS OF THE AGREEMENT ---------------------- In consideration of the mutual promises contained in this Agreement and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Bank and the Obligor agree as follows: 1. Acknowledgment by the Obligor. The Obligor hereby acknowledges and ----------------------------- agrees that it is in material default of its obligations to the Bank under the Loan Documents, beyond any applicable periods of notice, cure or grace, and that it has no defenses or off-sets that it could or would assert in the case of the Bank's exercise of its rights and remedies thereunder. 2. Representations and Warranties. In order to induce the Bank to enter ------------------------------ into this Agreement, the Obligor hereby affirms and restates as of the date thereof and hereof each of the representations and warranties contained in the Loan Documents. 3. Waiver of Defaults. Subject to the Obligor's performance of all of ------------------ its obligations under this agreement, including without limitation the payment of the Extension Fee (as defined below), and in consideration of the representations and warranties set forth herein, the Bank hereby waives the following specific covenant defaults under the Loan Agreement: a. [Section 3.8] The Obligor's failure to maintain on a consolidated basis a Capital Base not less than $14,300,000 at March 28, 1999; and b. [Section 3.9] The Obligor's failure to incur a quarterly consolidated Net Loss less than $1,100,000 for its fiscal quarter ended March 28, 1999; and the Obligor's failure to incur an annual consolidated Net Loss less than $7,900,000 for its fiscal year ended March 28, 1999. The foregoing waiver does not constitute (a) a waiver of any other default under the Loan Documents whether or not now known to the Bank or which may occur subsequent to the Effective Date; or (b) an agreement to forbear on account of any default under the Loan Documents not now known to the Bank or which may occur subsequent to the Effective Date. 4. Agreements by Obligor. The Obligor agrees: --------------------- (a) to pay the Bank an extension and waiver fee of Twenty Thousand Dollars ($20,000.00) (the "Extension Fee") in two equal installments, one each upon execution of this Agreement and on September 1, 1999. In the event that the Obligor fully repays its obligations to the Bank under the Loan Documents prior to September 1, 1999, the Bank agrees to waive payment of the second installment. (b) to pay, within three (3) days of the Bank's presentment of invoices, all costs incurred by the Bank in connection with the negotiation, preparation, administration and enforcement of this Agreement and the Loan Documents including, without limitation, reasonable attorneys' fees, including but not limited to the fees and expenses of Mirick, O'Connell, DeMallie & Lougee, LLP, search fees incurred in connection with lien searches, and the fees and expenses of Edwards and Angell in the amount of $6,032.58, evidenced by that firm's invoice dated February 5, 1999; 2 (c) that there exist no claims by the Obligor against the Bank or its agents, successors, assigns, attorneys or officers, and, to the extent that any such claims exist, the Obligor hereby expressly and irrevocably waives such claims; (d) to continue to timely make all payment required under the Loan Documents; (e) to execute and deliver such documents as are required hereunder or under the Loan Documents or which may be necessary or reasonable to effectuate or evidence the amendments and transactions referenced herein; and (f) to seek refinancing of its indebtedness to the Bank. 5. Release of Bank. Effective upon the execution of this Agreement by --------------- the Obligor, and in consideration of the Bank's agreement to enter into this Agreement, to the extent that the Obligor may have any offsets, defenses or claims in relation to any of its obligations to the Bank, the Obligor and its partners, subsidiaries, affiliates, parents, officers, directors, employees, agents, attorneys, heirs, successors, assigns, and executors (collectively, the "Obligor Parties"), jointly and severally, release, acquit and forever discharge the Bank and its subsidiaries, affiliates, parents, officers, directors, employees, agents, attorneys, successors and assigns, both present and former (collectively, the "Lender Affiliates") of and from any and all manners of action and actions, cause and causes of action, suits, debts, controversies, damages, judgments, executions, claims and demands whatsoever asserted or unasserted, in contract, tort, law or in equity which the Obligor Parties ever had or now have, from the beginning of time until the Effective Date, upon or against the Bank or the Lender Affiliates by reason of any matter, cause causes or thing whatsoever, including, without limitation, any presently existing claim or defense whether or not presently suspected, contemplated or anticipated and including but not limited to any claim that relates to, in whole or in part, directly or indirectly (i) the making or administration of the loans evidenced by the Loan Documents, including, without limitation, such claims and defenses based on fraud, mistake, duress, usury, misrepresentation, or any other claim based on so-called "lender liability theories"; (ii) any covenants, agreements, duties, or obligations set forth in the Loan Documents; (iii) the actions or omissions of any of the Bank and/or the Lender Affiliates in connection with the initiation or continuing exercise of any right or remedy contained in the Loan Documents or at law or in equity; (iv) lost profits; (v) loss of business opportunity; (vi) increased financing costs; (vii) increased legal or administrative fees; or (viii) damages to business reputation. 6. Modification of Loan Documents. The Bank and the Obligor agree that ------------------------------ the Loan Documents are hereby amended as follows: (a) Loan Agreement Covenant Amendments: Covenants shall continue to be tested on the last day of each fiscal quarter at existing levels with the 3 exception of Section 3.8 of the Loan Agreement, until the expiration of the maturity date (as extended herein). Section 3.8 of the Loan Agreement is hereby amended to required the Obligor to maintain on a consolidated basis a Capital Base of not less than $8,000,000 at June 27, 1999 and September 26, 1999. Section 3.10 of the Loan Agreement is hereby amended to reflect that, in calculating the Current Ratio, the anticipated tax refund (see Section 10, below) shall be included as a Current Asset; (b) Maturity Date: The maturity date of the Loan Agreement shall be extended from September 1, 1999 to November 1, 1999; (c) Equity or Permitted Debt Issuance: In the event the Obligor shall raise funds from the issuance of either debt permitted by the Bank (consistent with the Loan Agreement) and/or equity instruments, such funds will be applied to the outstanding indebtedness under the Loan Agreement; (d) Default Rate of Interest: Upon the occurrence of an event of default, inclusive of the scheduled maturity date as extended herein, the default rate charged by the Lender shall be 18% per annum; (e) Revolving Note Availability: The maximum availability under the Revolving Note shall be: (i) the lesser of $1,300,000 or the amount available under the Borrowing Base (as defined in the Loan Agreement) until the earlier of August 31, 1999 or the Bank's receipt of the Obligor's 1998 Federal Income Tax Return and refund request and 1995 Federal Income Tax refund request (as set forth in Section 10, below), which refunds were requested on June 22, 1999; and (ii) after the earlier of August 31, 1999 or the Bank's receipt of the tax refunds and until the maturity date, as extended herein, the lesser of $350,000 or the amount available under the Borrower Base. (f) Request for Advances Under the Revolving Note: All requests for advances under the Revolving Note shall be submitted directly to the Bank, to the attention of Alisa B. Cure, Vice President, for approval and shall be accompanied by a Borrowing Base Certificate, displaying adequate current levels of Eligible Accounts Receivable, as of the date of the request. 4 (g) Other Commitment Amounts: ACH Transactions (as defined in the Loan Agreement) for the Obligor shall be limited to a maximum of $225,000. No additional stand-by letters of credit shall be issued, and the ability to open the Foreign Exchange Contracts (as defined in the Loan Agreement) will be eliminated. 7. Financial Consultant/Field Examination. The Obligor acknowledges and -------------------------------------- agrees that the Bank or its counsel shall engage, at the expense of the Obligor, an independent financial consultant (i) to perform field examination(s) of the Obligor's accounts receivable and inventory collateral, internal controls, and reporting systems and/or (ii) to review and evaluate the Obligor's business plan, previously delivered to the Bank. Furthermore, the Obligor shall afford such consultant cooperation and access at any reasonable time, upon reasonable notice, to the books and records of the Obligor. 8. Delivery of Financial Information. The Obligor shall deliver or cause --------------------------------- to be delivered to the Bank, in addition to the Obligor's existing reporting requirements under the Loan Documents, an updated Rolling Thirteen (13) Week Cash Flow Forecast by the first business day of each week, whereby the first four (4) week period shall be deleted and updated with the four (4) week period immediately succeeding the last week included in the previous report. 9. Cooperation. The Obligor and its management shall cooperate fully ----------- with the Bank's representatives and/or agents in the conduct of a field examination of their books and records. Further, the Obligor shall promptly reimburse the Bank for all costs associated with such field examination. The Obligor shall fully cooperate with the Bank's undertaking of updated appraisals of equipment if undertaken. Upon presentation, the Obligor shall reimburse the Bank for the expenses associated with such appraisals. 10. Assignment of 1998 Federal Income Tax Refund. The Obligor hereby -------------------------------------------- irrevocably and unconditionally assigns to the Bank, effective as of the Effective Date, any payment due to or received by the Obligor as a refund with respect to the Obligor's 1998 Federal Income Tax Return and 1995 Federal Income Tax Return. The Obligor shall promptly deliver to the Bank a copy of said tax return(s), executed by the Obligor's CEO or CFO and prepared by Ernst & Young. The Obligor agrees to execute and deliver such documents as the Bank deems reasonable and necessary to effectuate or evidence said assignment, and to cause the tax refunds to be sent to an account designated by the Bank, including, without limitation, IRS Form 8302 (Application for Electronic Funds Transfer of Tax Refund of $1 Million or More), which documents may be attached to the tax return and filed concurrent with the tax refund request(s) under the direction of the Bank's counsel. In the event that all or part of the refunds are received by the Obligor, the Obligor shall immediately pay over such refunds to the Bank. Proceeds from any tax refunded shall first be applied to the outstanding balance due under the Loan Documents, 5 with any excess available for the benefit of the Obligor. It shall be an event of default under the Loan Documents if the Obligor fails to immediately pay over such refunds to the Bank. 11. Payments. All payments required under this Agreement, including those -------- for fees, costs, and expenses incurred by the Bank, shall be made when due, and to the extent available, may be debited directly from the Obligor's demand deposit accounts at the Bank. The Bank shall provide a copy of the invoices for payment, via facsimile, to the Obligor and allow the Obligor the opportunity to remit payment via check within five (5) business days prior to the debiting the Obligor's demand deposit account(s) for said reimbursement. 12. Validity of the Loan Documents. The Obligor acknowledges that (a) the ------------------------------ liabilities arising out of the Loan Documents are the valid and binding obligations of the Obligor enforceable in accordance with their terms; (b) the liens, encumbrances, mortgages and security interests granted to the Bank pursuant to the Loan Documents remain valid, binding, perfected and enforceable; and (c) the Bank may enforce the payment and performance of the obligations under the Loan Documents and in accordance with applicable law, except to the extent the Bank has agreed to limit its rights pursuant to this Agreement. The Bank reserves and does not waive any of its rights under the Loan Documents, the terms and conditions of which remain in full force and effect, except as specifically modified by this Agreement. 13. Authority. The Obligor represents and warrants to the Bank: (a) all --------- necessary corporate action to be taken in connection with the execution, delivery and performance of this Agreement has been duly taken; and (b) the execution, delivery and performance by the Obligor of this Agreement does not constitute a violation or breach of the Obligor's Articles of Organization, by- laws, declaration of trust or any other agreement or law by which the Obligor is bound. 14. Notices. Any notice, request, direction, consent, approval, waiver or ------- other communication required or permitted under this Agreement to be sent to the Bank must be in writing and will become effective only if provided (in addition to as provided in the Loan Documents) as follows: Send original to: Fleet National Bank 111 Westminster Street RIMO M20A Providence, RI 02903 Attn: Alisa B. Cure, Vice President with a copy to: Mirick, O'Connell, DeMallie & Lougee, LLP 100 Front Street Worcester, MA 01608 Attn: Joseph H. Baldiga, Esq. 6 15. Conflicting Provisions. If any conflict arises between the provisions ---------------------- of this Agreement and the provisions of the Loan Documents, the provisions of this Agreement will prevail. All other provisions of the Loan Documents will remain in effect. 16. Governing Law. This Agreement will be interpreted and construed under ------------- the laws of the Commonwealth of Massachusetts, regardless of the domicile of any party, and will be considered to have been made, executed and performed in Worcester County, Massachusetts. All claims, disputes and other matters in question arising out of this Agreement will be decided by proceedings instituted and litigated in a court of competent jurisdiction sitting in Worcester County, Massachusetts. 17. Consent to Jurisdiction; Waivers. THE OBLIGOR HEREBY IRREVOCABLY AND -------------------------------- UNCONDITIONALLY (A) SUBMITS TO PERSONAL JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE LOAN DOCUMENTS, AND (B) WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAWS OF ANY STATE (I) TO THE RIGHT, IF ANY, TO TRIAL BY JURY, (II) TO OBJECT TO JURISDICTION WITHIN THE COMMONWEALTH OF MASSACHUSETTS OR VENUE IN ANY PARTICULAR FORUM WITHIN THE COMMONWEALTH OF MASSACHUSETTS, AND (III) TO THE RIGHT, IF ANY, TO CLAIM OR RECOVER ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN ACTUAL DAMAGES. EXECUTED as a sealed instrument effective as of the day and year first above written. FLEET NATIONAL BANK /s/ Alisa Cure By: /s/ Fred Manning - -------------------------------- -------------------------------- Witness Its: ASECO CORPORATION /s/ Sebastian J. Sicari By: /s/ Mary R. Barletta - -------------------------------- -------------------------------- Witness Its: 7 EX-10.11 8 SEVERANCE AGREEMENT DATED 12-30-1996 EXHIBIT 10.11 SEVERANCE AGREEMENT ------------------- This Severance Agreement is entered into as of this 30th day of December, 1996 by and between Aseco Corporation, a Delaware corporation (the "Company"), and Sebastian J. Sicari (the "Employee"). Recitals: -------- WHEREAS, the Employee is an executive officer of the Company; and WHEREAS, the Company and the Employee wish to provide for the payment of certain severance compensation by the Company to the Employee in the event the Employee's employment by the Company is terminated. NOW, THEREFORE, in consideration of the Employee's continued service to the Company and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Definitions. ----------- "Benefit Period" shall mean the twelve (12)-month period following the Termination Date, in the context of Section 2, and the twenty-four (24)-month period following the Termination Date, in the context of Section 3. "Cause" shall be deemed to exist if the Board of Directors of the Company in good faith determines, after giving the Employee notice and an opportunity to be heard, that the Employee has committed an act constituting fraud, embezzlement, larceny or theft. "Change in Control" shall mean (i) the sale, lease, transfer or other disposition by the Company of all or substantially all of its assets in a single transaction or a series of related transactions; (ii) the merger or consolidation of the Company with another entity in which the stockholders of the Company immediately prior to such merger or consolidation hold less than 50% of the outstanding voting stock of the surviving or resulting corporation immediately following such transaction; or (iii) the sale or exchange (to or with any person or entity other than the Company) by the stockholders of the Company of more than 50% of the outstanding voting stock of the Company in a single transaction or series of related transactions. "Ineligibility Period" shall mean that portion of the applicable Benefit Period when the Employee is ineligible for coverage under the Company's group life or group health insurance policies. "Termination Date" shall mean the effective date of the termination of the Employee's employment with the Company. 2. Severance Other Than Following a Change in Control. -------------------------------------------------- In the event the Employee's employment by the Company is terminated for any reason other than (i) for Cause by the Company, (ii) voluntary resignation by the Employee or (iii) the Employee's death, and Section 3 is inapplicable, the Company shall (i) pay the Employee within five (5) days after the Termination Date a lump sum amount equal to the sum of (A) twelve (12) times the Employee's monthly base salary in effect at the time of such termination plus (B) the average of the annual bonus amounts paid to the Employee in respect of the Company's two fiscal years immediately preceding the Termination Date (less applicable withholding taxes and FICA with respect to (A) and (B)) and (ii) continue to provide during the Benefit Period life and health insurance coverage to the Employee, with benefits substantially comparable to those provided to executive officers of the Company generally immediately prior to such termination. Notwithstanding the foregoing, the Company shall have the right, in lieu of providing such coverage during any Ineligibility Period, to pay the Employee an amount equal to 200% of the amount it would have cost the Company to provide such coverage during such Ineligibility Period, assuming the Employee were eligible for coverage under the Company's group insurance policies and assuming further no increase in premium costs under such policies after the commencement of such Ineligibility Period. 3. Severance Following a Change in Control. --------------------------------------- Except as provided in the last sentence of this Section 3, in the event the Employee's employment by the Company is terminated for any reason whatsoever, including voluntary resignation by the Employee, within twenty-four months following a Change in Control, the Company shall (i) pay the Employee within five days after the Termination Date a lump sum amount equal to the sum of (A) twenty-four (24) times the Employee's monthly base salary in effect at the time of such termination plus (B) two times the average of the annual bonus amounts paid to the Employee in respect of the Company's two fiscal years immediately preceding the Termination Date (less applicable withholding taxes and FICA with respect to (A) and (B)) and (ii) continue to provide during the Benefit Period life and health insurance coverage to the Employee, with benefits substantially comparable to those provided to executive officers of the Company 2 generally immediately prior to such termination. Notwithstanding the foregoing, the Company shall have the right, in lieu of providing such coverage during any Ineligibility Period, to pay the Employee an amount equal to 200% of the amount it would have cost the Company to provide such coverage during any Ineligibility Period, assuming the Employee were eligible for coverage under the Company's group insurance policies and assuming further no increase in premium costs under such policies after the commencement of the Ineligibility Period. Notwithstanding anything to the contrary contained in this Agreement, the Employee shall not be entitled to any severance benefits pursuant to Section 2 or this Section 3 if the Employee's employment by the Company is terminated by the Company for Cause. 4. Vesting of Stock. Upon a Change in Control, the vesting of all stock ---------------- options held by the Employee and exercisable to purchase common stock of the Company shall be accelerated so that all such options shall be immediately exercisable in full. 5. Miscellaneous. ------------- 5.1 This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement, including without limitation that certain letter agreement dated October 23, 1990. 5.2 This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. 5.3 This Agreement shall be construed, interpreted and enforced in accordance with the laws of The Commonwealth of Massachusetts. 5.4 This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to its assets or business. 5.5 The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. 5.6 In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. 3 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. ASECO CORPORATION By: ------------------------------ Title: ------------------------------ EMPLOYEE --------------------------------------- Sebastian J. Sicari 4 EX-10.12 9 LETTER AGREEMENT EXHIBIT 10.12 August 11, 1998 Mr. Sebastian J. Sicari 63 Townsend Farms Road Boxford, Massachusetts 01921 RE: Stock Options - ----------------- Dear Sebastian: On behalf of the Compensation Committee of the Board of Directors of Aseco Corporation (the "Company") please accept this letter as confirmation that, notwithstanding the terms of the stock option agreements pursuant to which your options to purchase common stock of the Company were granted (Schedule A ---------- attached lists your stock options), in the event your employment with the Company is terminated for any reason except for cause (as defined in your severance agreement with the Company as of December 30, 1996), each of your options shall be exercisable at any time prior to the earlier of (i) the third anniversary of the date your employment with the Company terminates or (ii) the expiration date of the option. Sincerely yours, /s/ Dr. Sheldon Buckler - -------------------------------------- Dr. Sheldon Buckler Chairman of the Compensation Committee SCHEDULE A ---------- Grant Date Number of Shares Exercise Price Expiration Date - ---------- ---------------- -------------- --------------- 1/12/94 75,000 $ 5.375 01/12/2004 05/15/95 10,000 $13.00 05/15/2005 08/23/96 67,500 $10.375 08/23/96 10/18/96 22,500 $ 9.875 10/18/2006 05/10/97 25,000 $ 9.875 05/10/2007 08/11/98 60,000 $ 3.16 08/11/2008 EX-10.13 10 SEVERANCE AGREEMENT, MARY R. BARLETTA Exhibit 10.13 SEVERANCE AGREEMENT ------------------- This Severance Agreement is entered into as of this 8th day of July, 1998 by and between Aseco Corporation, a Delaware corporation (the "Company"), and Mary R. Barletta (the "Employee"). Recitals: -------- WHEREAS, the Employee is an executive officer of the Company; and WHEREAS, the Company and the Employee wish to provide for the payment of certain severance compensation by the Company to the Employee in the event the Employee's employment by the Company is terminated. NOW, THEREFORE, in consideration of the Employee's continued service to the Company and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Definitions. ----------- "Benefit Period" shall mean the twelve (12)-month period following the Termination Date. "Cause" shall be deemed to exist if the Board of Directors of the Company or its successor in good faith determines, after giving the Employee notice and an opportunity to be heard, that the Employee has committed an act constituting fraud, embezzlement, larceny or theft. "Change in Control" shall mean (i) the sale, lease, transfer or other disposition by the Company of all or substantially all of its assets in a single transaction or a series of related transactions; (ii) the merger or consolidation of the Company with another entity in which the stockholders of the Company immediately prior to such merger or consolidation hold less than 50% of the outstanding voting stock of the surviving or resulting corporation immediately following such transaction; or (iii) the sale or exchange (to or with any person or entity other than the Company) by the stockholders of more than 50% of the outstanding voting stock of the Company in a single transaction or series of related transactions. "Good Reason" shall mean a material reduction in the duties and responsibilities of the Employee or the assignment to the Employee of duties and responsibilities that are inconsistent in a material and adverse respect with his or her current position. "Ineligibility Period" shall mean that portion of the Benefit Period when the Employee is ineligible for coverage under the Company's group life or group health insurance policies. "Termination Date" shall mean the effective date of the termination of the Employee's employment with the Company. 2. Severance. --------- In the event the Employee's employment by the Company is terminated (i) without Cause by the Company or any successor or (ii) for Good Reason by the Employee, in either case within twelve (12) months following a Change in Control, the Company or its successor shall (A) pay the Employee within five days after the Termination Date a lump sum amount equal to twelve (12) times the Employee's monthly base salary in effect at the time of such termination (less applicable withholding taxes and FICA) and (B) continue to provide during the Benefit Period life and health insurance coverage to the Employee, with benefits substantially comparable to those provided to executive officers of the Company generally immediately prior to such termination. Notwithstanding the foregoing, the Company shall have the right, in lieu of providing such coverage during any Ineligibility Period, to pay the Employee an amount equal to 200% of the amount it would have cost the Company to provide such coverage during any Ineligibility Period, assuming the Employee were eligible for coverage under the Company's group insurance policies and assuming further no increase in premium costs under such policies after the commencement of any Ineligibility Period. 3. Acceleration of Vesting; Extension of Exercise Period of Stock Options. ---------------------------------------------------------------------- Upon a Change in Control, all options held by the Employee to purchase common stock of the Company shall become fully vested and immediately exercisable in full, notwithstanding any terms to the contrary contained in the stock option agreements pursuant to which such options were granted. In the event the Employee's employment by the Company is terminated (i) without Cause by the Company or any successor or (ii) for Good Reason by the Employee, in either case, within twelve (12) months following a Change in Control, all options held by the Employee to purchase common stock of the Company shall be exercisable at any time prior to the earlier of (i) the first anniversary of the date of termination of the Employee's employment with the Company and (ii) the expiration date of the option, notwithstanding any terms to the contrary contained in the stock option agreements pursuant to which such options were granted. 4. Miscellaneous. ------------- 4.1 This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. 4.2 This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. 2 4.3 This Agreement shall be construed, interpreted and enforced in accordance with the laws of The Commonwealth of Massachusetts. 4.4 This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to its assets or business. 4.5 The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. 4.6 In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. ASECO CORPORATION By: /s/ Sebastian J. Sicari ------------------------------ Title: President & COO ------------------------------ EMPLOYEE /s/ Mary R. Barletta ---------------------------------- Mary R. Barletta 3 EX-10.14 11 SEVERANCE AGREEMENT, PHILLIP VILLARI Exhibit 10.14 SEVERANCE AGREEMENT ------------------- This Severance Agreement is entered into as of this 8th day of July, 1998 by and between Aseco Corporation, a Delaware corporation (the "Company"), and Philip Villari (the "Employee"). Recitals: -------- WHEREAS, the Employee is an executive officer of the Company; and WHEREAS, the Company and the Employee wish to provide for the payment of certain severance compensation by the Company to the Employee in the event the Employee's employment by the Company is terminated. NOW, THEREFORE, in consideration of the Employee's continued service to the Company and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Definitions. ----------- "Benefit Period" shall mean the twelve (12)-month period following the Termination Date. "Cause" shall be deemed to exist if the Board of Directors of the Company or its successor in good faith determines, after giving the Employee notice and an opportunity to be heard, that the Employee has committed an act constituting fraud, embezzlement, larceny or theft. "Change in Control" shall mean (i) the sale, lease, transfer or other disposition by the Company of all or substantially all of its assets in a single transaction or a series of related transactions; (ii) the merger or consolidation of the Company with another entity in which the stockholders of the Company immediately prior to such merger or consolidation hold less than 50% of the outstanding voting stock of the surviving or resulting corporation immediately following such transaction; or (iii) the sale or exchange (to or with any person or entity other than the Company) by the stockholders of more than 50% of the outstanding voting stock of the Company in a single transaction or series of related transactions. "Good Reason" shall mean a material reduction in the duties and responsibilities of the Employee or the assignment to the Employee of duties and responsibilities that are inconsistent in a material and adverse respect with his or her current position. "Ineligibility Period" shall mean that portion of the Benefit Period when the Employee is ineligible for coverage under the Company's group life or group health insurance policies. "Termination Date" shall mean the effective date of the termination of the Employee's employment with the Company. 2. Severance. --------- In the event the Employee's employment by the Company is terminated (i) without Cause by the Company or any successor or (ii) for Good Reason by the Employee, in either case within twelve (12) months following a Change in Control, the Company or its successor shall (A) pay the Employee within five days after the Termination Date a lump sum amount equal to twelve (12) times the Employee's monthly base salary in effect at the time of such termination (less applicable withholding taxes and FICA) and (B) continue to provide during the Benefit Period life and health insurance coverage to the Employee, with benefits substantially comparable to those provided to executive officers of the Company generally immediately prior to such termination. Notwithstanding the foregoing, the Company shall have the right, in lieu of providing such coverage during any Ineligibility Period, to pay the Employee an amount equal to 200% of the amount it would have cost the Company to provide such coverage during any Ineligibility Period, assuming the Employee were eligible for coverage under the Company's group insurance policies and assuming further no increase in premium costs under such policies after the commencement of any Ineligibility Period. 3. Acceleration of Vesting; Extension of Exercise Period of Stock Options. ---------------------------------------------------------------------- Upon a Change in Control, all options held by the Employee to purchase common stock of the Company shall become fully vested and immediately exercisable in full, notwithstanding any terms to the contrary contained in the stock option agreements pursuant to which such options were granted. In the event the Employee's employment by the Company is terminated (i) without Cause by the Company or any successor or (ii) for Good Reason by the Employee, in either case, within twelve (12) months following a Change in Control, all options held by the Employee to purchase common stock of the Company shall be exercisable at any time prior to the earlier of (i) the first anniversary of the date of termination of the Employee's employment with the Company and (ii) the expiration date of the option, notwithstanding any terms to the contrary contained in the stock option agreements pursuant to which such options were granted. 4. Miscellaneous. ------------- 4.1 This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. 4.2 This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. 2 4.3 This Agreement shall be construed, interpreted and enforced in accordance with the laws of The Commonwealth of Massachusetts. 4.4 This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to its assets or business. 4.5 The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. 4.6 In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. ASECO CORPORATION By: /s/ Sebastian J. Sicari ------------------------------ Title: President & COO ------------------------------ EMPLOYEE /s/ Philip Villari ---------------------------------- Philip Villari 3 EX-10.15 12 SEVERANCE AGREEMENT, ROBERT L. MURRAY Exhibit 10.15 SEVERANCE AGREEMENT ------------------- This Severance Agreement is entered into as of this 8th day of July, 1998 by and between Aseco Corporation, a Delaware corporation (the "Company"), and Robert L. Murray (the "Employee"). Recitals: -------- WHEREAS, the Employee is an executive officer of the Company; and WHEREAS, the Company and the Employee wish to provide for the payment of certain severance compensation by the Company to the Employee in the event the Employee's employment by the Company is terminated. NOW, THEREFORE, in consideration of the Employee's continued service to the Company and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Definitions. ----------- "Benefit Period" shall mean the twelve (12)-month period following the Termination Date. "Cause" shall be deemed to exist if the Board of Directors of the Company or its successor in good faith determines, after giving the Employee notice and an opportunity to be heard, that the Employee has committed an act constituting fraud, embezzlement, larceny or theft. "Change in Control" shall mean (i) the sale, lease, transfer or other disposition by the Company of all or substantially all of its assets in a single transaction or a series of related transactions; (ii) the merger or consolidation of the Company with another entity in which the stockholders of the Company immediately prior to such merger or consolidation hold less than 50% of the outstanding voting stock of the surviving or resulting corporation immediately following such transaction; or (iii) the sale or exchange (to or with any person or entity other than the Company) by the stockholders of more than 50% of the outstanding voting stock of the Company in a single transaction or series of related transactions. "Good Reason" shall mean a material reduction in the duties and responsibilities of the Employee or the assignment to the Employee of duties and responsibilities that are inconsistent in a material and adverse respect with his or her current position. "Ineligibility Period" shall mean that portion of the Benefit Period when the Employee is ineligible for coverage under the Company's group life or group health insurance policies. "Termination Date" shall mean the effective date of the termination of the Employee's employment with the Company. 2. Severance. --------- In the event the Employee's employment by the Company is terminated (i) without Cause by the Company or any successor or (ii) for Good Reason by the Employee, in either case within twelve (12) months following a Change in Control, the Company or its successor shall (A) pay the Employee within five days after the Termination Date a lump sum amount equal to twelve (12) times the Employee's monthly base salary in effect at the time of such termination (less applicable withholding taxes and FICA) and (B) continue to provide during the Benefit Period life and health insurance coverage to the Employee, with benefits substantially comparable to those provided to executive officers of the Company generally immediately prior to such termination. Notwithstanding the foregoing, the Company shall have the right, in lieu of providing such coverage during any Ineligibility Period, to pay the Employee an amount equal to 200% of the amount it would have cost the Company to provide such coverage during any Ineligibility Period, assuming the Employee were eligible for coverage under the Company's group insurance policies and assuming further no increase in premium costs under such policies after the commencement of any Ineligibility Period. 3. Acceleration of Vesting; Extension of Exercise Period of Stock Options. ---------------------------------------------------------------------- Upon a Change in Control, all options held by the Employee to purchase common stock of the Company shall become fully vested and immediately exercisable in full, notwithstanding any terms to the contrary contained in the stock option agreements pursuant to which such options were granted. In the event the Employee's employment by the Company is terminated (i) without Cause by the Company or any successor or (ii) for Good Reason by the Employee, in either case, within twelve (12) months following a Change in Control, all options held by the Employee to purchase common stock of the Company shall be exercisable at any time prior to the earlier of (i) the first anniversary of the date of termination of the Employee's employment with the Company and (ii) the expiration date of the option, notwithstanding any terms to the contrary contained in the stock option agreements pursuant to which such options were granted. 4. Miscellaneous. ------------- 4.1 This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. 4.2 This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. 2 4.3 This Agreement shall be construed, interpreted and enforced in accordance with the laws of The Commonwealth of Massachusetts. 4.4 This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to its assets or business. 4.5 The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. 4.6 In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. ASECO CORPORATION By: /s/ Sebastian J. Sicari ------------------------------ Title: President & COO --------------------------- EMPLOYEE /s/ Robert L. Murray ---------------------------------- Robert L. Murray 3 EX-10.16 13 SEVERANCE AGREEMENT, ROBERT E. SANDBERG Exhibit 10.11 SEVERANCE AGREEMENT ------------------- This Severance Agreement is entered into as of this 8th day of July, 1998 by and between Aseco Corporation, a Delaware corporation (the "Company"), and Robert E. Sandberg (the "Employee"). Recitals: -------- WHEREAS, the Employee is an executive officer of the Company; and WHEREAS, the Company and the Employee wish to provide for the payment of certain severance compensation by the Company to the Employee in the event the Employee's employment by the Company is terminated. NOW, THEREFORE, in consideration of the Employee's continued service to the Company and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Definitions. ----------- "Benefit Period" shall mean the twelve (12)-month period following the Termination Date. "Cause" shall be deemed to exist if the Board of Directors of the Company or its successor in good faith determines, after giving the Employee notice and an opportunity to be heard, that the Employee has committed an act constituting fraud, embezzlement, larceny or theft. "Change in Control" shall mean (i) the sale, lease, transfer or other disposition by the Company of all or substantially all of its assets in a single transaction or a series of related transactions; (ii) the merger or consolidation of the Company with another entity in which the stockholders of the Company immediately prior to such merger or consolidation hold less than 50% of the outstanding voting stock of the surviving or resulting corporation immediately following such transaction; or (iii) the sale or exchange (to or with any person or entity other than the Company) by the stockholders of more than 50% of the outstanding voting stock of the Company in a single transaction or series of related transactions. "Good Reason" shall mean a material reduction in the duties and responsibilities of the Employee or the assignment to the Employee of duties and responsibilities that are inconsistent in a material and adverse respect with his or her current position. "Ineligibility Period" shall mean that portion of the Benefit Period when the Employee is ineligible for coverage under the Company's group life or group health insurance policies. "Termination Date" shall mean the effective date of the termination of the Employee's employment with the Company. 2. Severance. --------- In the event the Employee's employment by the Company is terminated (i) without Cause by the Company or any successor or (ii) for Good Reason by the Employee, in either case within twelve (12) months following a Change in Control, the Company or its successor shall (A) pay the Employee within five days after the Termination Date a lump sum amount equal to twelve (12) times the Employee's monthly base salary in effect at the time of such termination (less applicable withholding taxes and FICA) and (B) continue to provide during the Benefit Period life and health insurance coverage to the Employee, with benefits substantially comparable to those provided to executive officers of the Company generally immediately prior to such termination. Notwithstanding the foregoing, the Company shall have the right, in lieu of providing such coverage during any Ineligibility Period, to pay the Employee an amount equal to 200% of the amount it would have cost the Company to provide such coverage during any Ineligibility Period, assuming the Employee were eligible for coverage under the Company's group insurance policies and assuming further no increase in premium costs under such policies after the commencement of any Ineligibility Period. 3. Acceleration of Vesting; Extension of Exercise Period of Stock Options. ---------------------------------------------------------------------- Upon a Change in Control, all options held by the Employee to purchase common stock of the Company shall become fully vested and immediately exercisable in full, notwithstanding any terms to the contrary contained in the stock option agreements pursuant to which such options were granted. In the event the Employee's employment by the Company is terminated (i) without Cause by the Company or any successor or (ii) for Good Reason by the Employee, in either case, within twelve (12) months following a Change in Control, all options held by the Employee to purchase common stock of the Company shall be exercisable at any time prior to the earlier of (i) the first anniversary of the date of termination of the Employee's employment with the Company and (ii) the expiration date of the option, notwithstanding any terms to the contrary contained in the stock option agreements pursuant to which such options were granted. 4. Miscellaneous. ------------- 4.1 This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. 4.2 This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. 2 4.3 This Agreement shall be construed, interpreted and enforced in accordance with the laws of The Commonwealth of Massachusetts. 4.4 This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to its assets or business. 4.5 The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. 4.6 In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. ASECO CORPORATION By: /s/ Sebastian J. Sicari ------------------------------ Title: President & COO ------------------------------ EMPLOYEE /s/ Robert E. Sandberg ---------------------------------- Robert E. Sandberg 3 EX-10.17 14 SEVERANCE AGREEMENT, RICHARD S. SIDELL Exhibit 10.17 SEVERANCE AGREEMENT ------------------- This Severance Agreement is entered into as of this 21st day of October, 1998 by and between Aseco Corporation, a Delaware corporation (the "Company"), and Richard S. Sidell (the "Employee"). Recitals: -------- WHEREAS, the Employee is an executive officer of the Company; and WHEREAS, the Company and the Employee wish to provide for the payment of certain severance compensation by the Company to the Employee in the event the Employee's employment by the Company is terminated. NOW, THEREFORE, in consideration of the Employee's continued service to the Company and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Definitions. ----------- "Benefit Period" shall mean the twelve (12)-month period following the Termination Date. "Cause" shall be deemed to exist if the Board of Directors of the Company or its successor in good faith determines, after giving the Employee notice and an opportunity to be heard, that the Employee has committed an act constituting fraud, embezzlement, larceny or theft. "Change in Control" shall mean (i) the sale, lease, transfer or other disposition by the Company of all or substantially all of its assets in a single transaction or a series of related transactions; (ii) the merger or consolidation of the Company with another entity in which the stockholders of the Company immediately prior to such merger or consolidation hold less than 50% of the outstanding voting stock of the surviving or resulting corporation immediately following such transaction; or (iii) the sale or exchange (to or with any person or entity other than the Company) by the stockholders of more than 50% of the outstanding voting stock of the Company in a single transaction or series of related transactions. "Good Reason" shall mean a material reduction in the duties and responsibilities of the Employee or the assignment to the Employee of duties and responsibilities that are inconsistent in a material and adverse respect with his or her current position. "Ineligibility Period" shall mean that portion of the Benefit Period when the Employee is ineligible for coverage under the Company's group life or group health insurance policies. "Termination Date" shall mean the effective date of the termination of the Employee's employment with the Company. 2. Severance. --------- In the event the Employee's employment by the Company is terminated (i) without Cause by the Company or any successor or (ii) for Good Reason by the Employee, in either case within twelve (12) months following a Change in Control, the Company or its successor shall (A) pay the Employee within five days after the Termination Date a lump sum amount equal to twelve (12) times the Employee's monthly base salary in effect at the time of such termination (less applicable withholding taxes and FICA) and (B) continue to provide during the Benefit Period life and health insurance coverage to the Employee, with benefits substantially comparable to those provided to executive officers of the Company generally immediately prior to such termination. Notwithstanding the foregoing, the Company shall have the right, in lieu of providing such coverage during any Ineligibility Period, to pay the Employee an amount equal to 200% of the amount it would have cost the Company to provide such coverage during any Ineligibility Period, assuming the Employee were eligible for coverage under the Company's group insurance policies and assuming further no increase in premium costs under such policies after the commencement of any Ineligibility Period. 3. Acceleration of Vesting; Extension of Exercise Period of Stock Options. ---------------------------------------------------------------------- Upon a Change in Control, all options held by the Employee to purchase common stock of the Company shall become fully vested and immediately exercisable in full, notwithstanding any terms to the contrary contained in the stock option agreements pursuant to which such options were granted. In the event the Employee's employment by the Company is terminated (i) without Cause by the Company or any successor or (ii) for Good Reason by the Employee, in either case, within twelve (12) months following a Change in Control, all options held by the Employee to purchase common stock of the Company shall be exercisable at any time prior to the earlier of (i) the first anniversary of the date of termination of the Employee's employment with the Company and (ii) the expiration date of the option, notwithstanding any terms to the contrary contained in the stock option agreements pursuant to which such options were granted. 4. Miscellaneous. ------------- 4.1 This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. 4.2 This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. 2 4.3 This Agreement shall be construed, interpreted and enforced in accordance with the laws of The Commonwealth of Massachusetts. 4.4 This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to its assets or business. 4.5 The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. 4.6 In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. ASECO CORPORATION By: /s/ Sebastian J. Sicari ------------------------------ Title: President & CEO --------------------------- EMPLOYEE /s/ Richard S. Sidell ---------------------------------- Richard S. Sidell 3 EX-10.18 15 SEPARATION AGREEMENT Exhibit 10.18 SEPARATION AGREEMENT -------------------- This Separation Agreement is entered into as of this 11th day of August, 1998 by and between Aseco Corporation, a Delaware corporation (the "Company"), and Carl S. Archer, Jr. ("Archer"). Recitals: -------- WHEREAS, Archer has served as the President and Chief Executive Officer of the Company; WHEREAS, Archer relinquished his position as President of the Company on May 12, 1998 and as Chief Executive Officer of the Company on August 11, 1998; WHEREAS, Archer and the Company are parties to a Severance Agreement dated as of December 30, 1996 (the "1996 Severance Agreement"); and WHEREAS, in connection with the termination of Archer's employment with the Company, the Company and Archer wish to provide for the payment of certain compensation and the provision of certain benefits to Archer by the Company in lieu of Archer's rights under the 1996 Severance Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Interim Employment. From the date of this Agreement until October 31, 1998 (the "Employment Period"), Archer shall remain a full-time employee of the Company reporting directly to the Chief Executive Officer of the Company. 2. Consulting. From November 1, 1998 until August 10, 1999 (the "Consulting Period", and together with the Employment Period, the "Service Period"), Archer shall render such executive-level consulting services as the Chief Executive Officer of the Company may reasonably request; provided, however, that Archer shall not be required to render more than 5 days of service per month and shall not be required to travel outside of Massachusetts in connection with performing such services. Archer's obligations under this Section 2 shall terminate upon a Change in Control (as defined below). 3. Compensation. As consideration for agreeing to provide the foregoing employment and consulting services, the Company shall pay Archer during the Service Period a fee of $200,000, payable in bi-weekly installments (net of all applicable withholding taxes). The Company's obligation under this Section 3 shall be absolute and unconditional, but shall terminate upon a Change in Control. 4. Severance Payments. As consideration for past services rendered by Archer, the Company shall pay him $15,000 per month (net of all applicable withholding taxes) during the two-year period commencing on the first anniversary of the date of this Agreement; provided, however, that upon a Change in Control the Company shall pay Archer an amount equal to $560,000 minus the total amount theretofore paid to him pursuant to Sections 3 and 4 of this Agreement. The Company, in its sole discretion, shall have the right to prepay any or all amounts that it is required to pay pursuant to Sections 3 and 4 of this Agreement. As used in this Agreement, the term "Change in Control" shall mean (i) the sale, lease, transfer or other disposition by the Company of all or substantially all of its assets in a single transaction or a series of related transactions; (ii) the merger or consolidation of the Company with another entity in which the stockholders of the Company immediately prior to such merger or consolidation hold less than 50% of the outstanding voting stock of the surviving or resulting corporation immediately following such transaction; or (iii) the sale or exchange (to or with any person or entity other than the Company) by the stockholders of the Company of more than 50% of the outstanding voting stock of the Company in a single transaction or series of related transactions. 5. Benefits Continuation. During the four-year period commencing on the date of this Agreement, the Company shall provide to Archer the health, dental and life insurance benefits made generally available to executive officers of the Company; provided, however, that the Company shall have no obligation to provide the foregoing benefits if the annual cost to the Company of doing so is greater than $15,000. In the event the annual cost to the Company of providing the foregoing benefits is greater than $15,000 Archer may either pay the Company an amount equal to the excess (and the Company shall thereafter be obligated to provide such benefits) or Archer may designate certain of the foregoing benefits the annual cost of which to the Company is less than $15,000 (and the Company shall thereupon be obligated to provide the benefits so designated.) 6. Stock Options. Exhibit A hereto lists all options held by Archer to purchase shares of the Company's common stock. Notwithstanding the terms of the stock option agreements pursuant to which such options were granted and the termination of Archer's employment by the Company, each such option shall be exercisable at any time prior to the earlier of (i) August 11, 2001 and (ii) the expiration date of the option. Each of the options listed on Exhibit A shall be fully vested and therefore exercisable in full as of the date of this Agreement. 2 7. Release. Archer does hereby release, acquit, remise and forever discharge the Company, its agents, officers, directors, shareholders, employees, affiliates, successors and assigns (collectively, "Released Parties") from all claims (including, without limitation, any claim to employment or reemployment, wages, or back wages, fees, expenses, benefits or compensation), damages, demands, liabilities, equities and causes of action of every kind and character, both known and unknown, in contract, tort or otherwise, including those past and present, accruing to Archer against the Released Parties, or any of them, at any time prior to the date of this Agreement. Archer hereby acknowledges and warrants that he is over eighteen years of age, is of sound mind, has fully read and understands all terms and conditions set forth herein, has had an opportunity to fully consult with his own counsel in connection herewith and is entering into this Agreement voluntarily and without any promise or benefit other than as set forth herein. 8. Miscellaneous. ------------- (a) This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement, including without limitation the 1996 Severance Agreement. (b) This Agreement may be amended or modified only by a written instrument executed by both the Company and Archer. (c) This Agreement shall be construed, interpreted and enforced in accordance with the laws of The Commonwealth of Massachusetts. (d) This Agreement shall be binding upon and inure to the benefit of both parties and their respective heirs, successors and assigns, including any entity with which or into which the Company may be merged or which may succeed to its assets or business. (e) The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. (f) In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. 3 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. ASECO CORPORATION By: /s/ Sebastian J. Sicari -------------------------------- Title: President ----------------------------- /s/ Carl S. Archer, Jr. ------------------------------------ Carl S. Archer, Jr. 4 Exhibit A ---------
Number of Expiration Grant Date Shares Exercise Price Date - ---------- ------ -------------- ---- 01/12/94 90,000 $ 5.375 01/12/2004 - ------------------------------------------------------------------ 08/23/96 108,750 $10.375 08/23/2006 - ------------------------------------------------------------------ 10/18/96 36,250 $ 9.875 10/18/2006 - ------------------------------------------------------------------ 05/10/97 30,000 $ 9.875 05/10/2007 - ------------------------------------------------------------------ 08/11/98 20,000 $ 3.16 08/11/2008 - ------------------------------------------------------------------
5 EX-21 16 SUBSIDIARIES OF THE COMPANY Exhibit 21 SUBSIDIARIES OF THE REGISTRANT
Percentage of Voting Securities Owned by Organized Under Registrant as of Law Of March 28, 1999 --------------- -------------------- Aseco Investment Corporation Massachusetts 100% Aseco International Sales Corporation Barbados 100% Aseco International Inc. Delaware 100% Aseco Malaysia Sdn. Bhd. Malaysia 100% Aseco (Singapore) Pte. Ltd. Singapore 100% Aseco Branch, Inc. Delaware 100% Western Equipment Developments (Holdings) Ltd. England 100%
EX-23.1 17 CONSENT OF ERNST & YOUNG LLP Exhibit 23.1 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statements (Forms S-8 No. 33-66250, 33-80425, 33-89036, 333-18337 and 333-68907) of Aseco Corporation of our report dated May 10, 1999, except of Note O, as to which the date is July 9, 1999, with respect to the consolidated financial statements and schedule of Aseco Corporation included in the Annual Report (Form 10-K) for the year ended March 28, 1999. ERNST & YOUNG LLP Boston, Massachusetts July 9, 1999 EX-27 18 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 28, 1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR MAR-28-1999 MAR-30-1998 MAR-28-1999 1,229 0 5,068 1,027 5,893 13,081 7,341 5,207 15,324 5,319 0 0 0 38 9,967 15,324 19,218 19,218 17,856 17,856 15,682 0 146 (14,363) (690) (13,673) 0 0 0 (13,673) (3.64) (3.64)
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