-----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, Bplv/yl2/oz+Ftdy5oPcd9LqpNBHxPBmZ2aSbJOj4D3JOVb2lxpcWd0Z+7cfsr6I vevW8xnOafNH6LeUkBDViQ== 0000927016-99-003664.txt : 19991111 0000927016-99-003664.hdr.sgml : 19991111 ACCESSION NUMBER: 0000927016-99-003664 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990926 FILED AS OF DATE: 19991110 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-Q SEC ACT: SEC FILE NUMBER: 000-21294 FILM NUMBER: 99746240 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-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 26, 1999 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) (508) 481-8896 (Registrant's telephone number, including area code) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of September 26, 1999. Common Stock, $.01 par value 3,908,370 (Title of each class) (Number of shares) 1 ASECO CORPORATION TABLE OF CONTENTS
Page ---- PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets (unaudited) at September 26, 1999 and March 28, 1999 3 Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended September 26, 1999 and September 27, 1998 4 Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended September 26, 1999 and September 27, 1998 5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-12 Item 3. Quantitative and Qualitative Disclosure About Market Risk 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 2. Changes in Securities and Use of Proceeds 13 Item 3. Defaults upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14
2 PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements ASECO CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
September 26, March 28, (in thousands, except share and per share data) 1999 1999 - ----------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $ 1,652 $ 1,229 Accounts receivable, less allowance for doubtful accounts of $1,014 at September 26, 1999 and $1,027 at March 28, 1999 6,437 4,041 Inventories, net 5,624 5,893 Prepaid expenses and other current assets 330 1,918 ------------------- ----------------- Total current assets 14,043 13,081 Plant and equipment, at cost 7,341 7,341 Less accumulated depreciation and amortization 5,666 5,207 -------------------- ----------------- 1,675 2,134 Other assets, net 124 109 ------------------- ----------------- $15,842 $ 15,324 =================== ================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Line of credit $ 1,351 $ 475 Accounts payable 2,865 1,964 Accrued expenses 2,509 2,868 Current portion of capital lease obligations 4 12 ------------------- ----------------- Total current liabilities 6,729 5,319 Stockholders' equity Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued and outstanding -- -- Common stock, $.01 par value: Authorized 15,000,000 shares, issued and outstanding 3,908,370 and 3,832,799 shares at September 26, 1999 and March 28, 1999, respectively 39 38 Additional paid in capital 18,422 18,321 Accumulated deficit (9,376) (8,382) Foreign currency translation adjustment 28 28 ------------------- ----------------- Total stockholders' equity 9,113 10,005 ------------------- ----------------- $ 15,842 $ 15,324 =================== =================
See notes to condensed consolidated financial statements 3 ASECO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except share and per share data)
Three months ended Six months ended September 26, 1999 September 27, 1998 September 26, 1999 September 27, 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Net sales $ 5,652 $ 4,395 $ 10,369 $ 11,025 Cost of sales 3,345 3,641 6,158 7,701 --------------------- --------------------- --------------------- --------------------- Gross profit 2,307 754 4,211 3,324 Research and development costs 850 1,217 1,706 2,876 Selling, general and administrative expense 1,859 2,151 3,473 4,537 Restructuring charge -- 1,300 -- 1,300 --------------------- --------------------- --------------------- --------------------- Loss from operations (402) (3,914) (968) (5,389) Other income (expense): Interest income -- 31 58 Interest expense (41) (54) (50) (59) Other, net -- 20 24 11 --------------------- --------------------- --------------------- --------------------- (41) (3) (26) 10 --------------------- --------------------- --------------------- --------------------- Loss before income taxes (443) (3,917) (994) (5,379) Income tax benefit -- (347) -- (689) --------------------- --------------------- --------------------- --------------------- Net loss ($ 443) ($ 3,570) ($ 994) ($4,690) ===================== ===================== ===================== ===================== Loss per share, basic ($ 0.11) ($ 0.96) ($ .26) ($ 1.26) Shares used to compute loss per share, basic 3,881,000 3,735,000 3,861,000 3,734,000 Loss per share, diluted ($ 0.11) ($ 0.96) ($ .26) ($ 1.26) Shares used to compute loss per share, diluted 3,881,000 3,735,000 3,861,000 3,734,,000
See notes to condensed consolidated financial statements 4 ASECO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands) Six months ended ---------------------------------------------- September 26, September 27, 1999 1998 - ------------------------------------------------------------------------------------------------------------------ Operating activities: Net loss $ (994) $(4,690) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 504 1,009 Loss on sale of plant and equipment -- 5 Restructuring charge -- 1,300 Inventory write-off -- 850 Changes in assets and liabilities: Accounts receivable (2,396) 3,246 Inventories, net 269 (978) Prepaid expenses and other current assets 1,588 66 Accounts payable and accrued expenses 542 (3,988) ----------------- ------------------ Total adjustments 507 1,510 ----------------- ------------------ Cash used in operating activities (487) (3,180) Investing activities: Proceeds from sale of plant and equipment -- 7 Acquisition of plant and equipment -- (342) Increase in software development costs and other assets (60) (136) ----------------- ------------------ Cash used in investing activities (60) (471) Financing activities: Net proceeds from issuance of common stock 102 50 Borrowings on line of credit 876 4,390 Payments of long-term capital lease obligations (8) (16) ----------------- ------------------ Cash provided by financing activities 970 4,424 ----------------- ------------------ Effect of exchange rate changes on cash -- 3 Net increase in cash and cash equivalents 423 776 Cash and cash equivalents at the beginning of period 1,229 4,431 ----------------- ------------------ Cash and cash equivalents at the end of period $ 1,652 $ 5,207 ================= ==================
See notes to condensed consolidated financial statements 5 ASECO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 26, 1999 1. Basis of Presentation -- The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended September 26, 1999 are not necessarily indicative of the results that may be expected for the year ended March 26, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended March 28, 1999. 2. Comprehensive Income -- Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" (SFAS 130) requires the reporting and display of comprehensive income and its components. 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. During the second quarter of fiscal 2000, total comprehensive loss amounted to $443,000 versus comprehensive loss of $3,534,000 for the second quarter of fiscal 1999. Comprehensive loss for the first six months of fiscal 2000 was $994,000 versus comrehensive loss for the first six months of fiscal 1999 of $4,665,000. The difference between comprehensive loss and net loss as reported on the Consolidated Statements of Operations is attributable to the foreign currency translation adjustment. 3. New Accounting Pronouncements -- 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 2002, as amended by Financial Accounting Standards No. 137. Adoption of this standard is not expected to have a material impact on the Company's financial position or results of operations. 4. Inventories -
September 26, March 28, (in thousands) 1999 1999 ------------- -------------- Raw Materials $ 1,833 $ 1,966 Work in Process 3,413 3,441 Finished Goods 378 486 ------------- -------------- $ 5,624 $ 5,893 ============= ==============
5. 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 6 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 included $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 reflected 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 included 1) a $5.0 million charge to cost of goods sold for write-downs related principally to 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. 6. Credit Facility -- On August 19, 1999, the Company entered into a two-year revolving credit agreement (the "Credit Agreement") allowing for maximum availability of $3.0 million based on a percentage of qualified accounts receivable and inventory. Borrowings under the Credit Agreement are secured by all the assets of the Company and are subject to certain financial covenants including specified levels of net worth, and debt to net worth ratios and limitations on capital expenditures. Interest accrues on outstanding balances under the Credit Agreement at prime plus 1.5%. As of November 5, 1999, availability under this facility was $3.0 million. The Company's indebtedness for borrowed money was $1,351,000 at September 26, 1999, compared to $475,000 at March 28, 1999. As of September 26, 1999, the Company was in compliance with all covenants under the Credit Agreement. 7. Repayment of Loan -- On July 6, 1999, an executive officer repaid $140,000 to the Company in settlement of the principal portion of an outstanding loan. The Board of Directors agreed to forgive all accrued interest on such loan. 8. Taxes -- No tax benefit was recorded in the second quarter of fiscal 2000 because no benefit from operating loss carryback provisions was available to the Company. 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. 9. Merger -- On September 20, 1999, the Company announced a definitive merger agreement with Micro Component Technology, Inc., a test handler manufacturer. The transaction, which is structured as a stock merger, is valued at approximately $16.3 million, subject to certain adjustments. The agreement has been approved by the Board of Directors of each company and is subject to approval by the shareholders of each company and regulatory agencies. The Company anticipates that the merger will close in December 1999. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and six months ended September 26, 1999 and September 27, 1998 Pending Merger -------------- On September 20, 1999, the Company announced a definitive merger agreement with Micro Component Technology, Inc., a test handler manufacturer. The transaction, which is structured as a stock merger, is valued at approximately $16.3 million, subject to certain adjustments. The agreement has been approved by the Board of Directors of each company and is subject to approval by the shareholders of each company and regulatory agencies. The Company anticipates that the merger will close in December 1999. Results of Operations-Overview ------------------------------ During fiscal 1999, the Company undertook several actions to address the impact of the market downturn on the Company. In the second quarter of fiscal 1999, the Company recorded a special charge of $2.2 million 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 included $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 reflected 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 included 1) a $5.0 million charge to cost of goods sold for write-downs related principally to 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. Three and Six Months Ended September 26, 1999 and September 27, 1998 - --------------------------------------------------------------------- Net sales for the second quarter of fiscal 2000 increased 29% to $5.7 million from $4.4 million for the second quarter of fiscal 1999. For the first six months of fiscal 2000, net sales decreased 6% to $10.4 8 million from $11.0 million for the same period last year. The increase in quarterly net sales resulted from an increase in demand for the Company's products, particularly those serving the small outline (SO) and accelerometer product markets, resulting from improved semiconductor capital equipment market conditions. International sales represented approximately 18% of net sales in the second quarter and first six months of fiscal 2000 compared to 35% and 42% of net sales in the second quarter and first six months of fiscal 1999, respectively. Gross profit for the second quarter of fiscal 2000 was $2.3 million, or 41% of net sales, compared to $754,000, or 17% of net sales, in the second quarter of fiscal 1999. During the first six months of fiscal 2000, gross profit was $4.2 million, or 41% of net sales compared to $3.3 million, or 30% of net sales, for the same period in fiscal 1999. Gross profit in the second quarter of fiscal 1999 was impacted by a special charge of $850,000 described above in the section "Results of Operations-Overview". Additionally, gross profit in both periods was significantly influenced by a product shipment mix including a larger component of the Company's lower gross margin products. Research and development costs decreased 30% to $850,000 in the second quarter of fiscal 2000 from $1.2 million in the same quarter last year. Research and development costs for the first six months of fiscal 2000 decreased 41% to $1.7 million from $2.9 million in the first six months of the prior year. The decrease in spending was primarily the result of workforce reductions implemented during fiscal 1999. Development spending in the first six months of fiscal 2000 was focused on various enhancements and features for the Company's existing products and a new test handler platform. Selling, general and administrative expenses decreased 14% to $1.9 million in the second quarter of fiscal 2000 from $2.2 million in the second quarter of fiscal 1999. During the first six months of fiscal 2000, selling, general and administrative expenses decreased 23% to $3.5 million compared to $4.5 million for the same period in fiscal 1999. The decrease in selling, general and administrative expenses was a result of reductions in headcount during fiscal 1999 and strict controls over discretionary spending. As a result of the above, the Company generated an operating loss of $402,000 for the second quarter of fiscal 2000 and $968,000 for the first six months of fiscal 2000 compared to an operating loss of $3.9 million and $5.4 million in the second quarter and first six months of fiscal 1999, respectively. Other income (expense), net consists primarily of interest expense paid on the Company's outstanding line of credit balance. The Company recorded no income tax benefit in the second quarter and first six months of fiscal 2000 because no benefits from operating loss carryback provisions were available to the Company. 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 the second quarter of fiscal 2000 was $443,000, or $.11 per share, compared to net loss of $3.6 million, or $.96 per share, in the second quarter of fiscal 1999. Net loss for the first six months 9 of fiscal 2000 was $994,000, or $.26 per share, compared to net loss of $4.7 million, or $1.26 per share, in the same period last year. 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 September 26, 1999, the Company had cash, net of borrowings, of $301,000 and working capital of approximately $7.3 million. The Company used approximately $487,000 in cash for operating activities during the first six months of fiscal 2000. The primary working capital factors affecting cash from operations were accounts receivable, inventory and accounts payable and accrued expenses. Accounts receivable increased approximately $2.4 million as a result of an increase in net sales from March 1999. Additionally, the majority of second quarter equipment shipments occurred in the last month of the second quarter. Inventory decreased approximately $269,000 during the first six months of fiscal 2000 as the Company was able to manage material receipts and ship product from finished inventory. Accounts payable and accrued expenses increased approximately $542,000 during the first six months of the year as a result of the increase in business volume. Lastly, in the second quarter of fiscal 2000, the Company received an income tax refund in the amount of approximately $1.3 million related to federal taxes paid by the Company in fiscal 1998 and prior periods. The Company used approximately $30,000 to fund internal software development costs while capital expenditures were deminimus as a result of a Company-wide freeze on capital spending. On August 19, 1999, the Company entered into a two-year revolving credit agreement (the "Credit Agreement") allowing for maximum availability of $3.0 million based on a percentage of qualified accounts receivable and inventory. Borrowings under the Credit Agreement are secured by all the assets of the Company and are subject to certain financial covenants including specified levels of net worth, and debt to net worth ratios and limitations on capital expenditures. Interest accrues on outstanding balances under the Credit Agreement at prime plus 1.5%. As of November 5, 1999, availability under this facility was $3.0 million. The Company's indebtedness for borrowed money was $1,351,000 at September 26, 1999, compared to $475,000 at March 28, 1999. As of September 26, 1999, the Company was in compliance with all covenants under the Credit Agreement. Although the Company is cautiously optimistic regarding market conditions in the semiconductor industry, the Company continues to expect to be effected by a more gradual recovery in the market 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. 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. 10 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 has also 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. 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. 11 Cautionary Statement for Purposes of "Safe Harbor" Provisions of the Private - ---------------------------------------------------------------------------- Securities Litigation Reform Act of 1995 - ---------------------------------------- This Report on Form 10Q contains forward-looking statements relating to future events or the future financial performance of the Company. 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 September 26, 1999 the Company had cash, net of borrowings, of $301,000 and working capital of approximately $7.3 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. 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 Distributor -- 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 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 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 retain its current distribution agreement with Rasco. 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 the second quarter and first six months of fiscal 2000, 18% of the Company's net sales were derived from customers in international markets compared to 35% and 42% in the second quarter and first six months of fiscal 1999. 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 affect 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 fiscal 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. 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 3. Quantitative and Qualitative Disclosure About Market Risk There has been no material change in the Company's assessment of its sensitivity to market risk from that described in the Company's Annual Report on Form 10-K for the fiscal year ended March 28, 1999. 12 ASECO CORPORATION PART II - OTHER INFORMATION Item 1. Legal Proceedings: None. Item 2. Changes in Securities and Use of Proceeds: None. Item 3. Defaults upon Senior Securities: None. Item 4. Submissions of Matters to a Vote of Security Holders: On August 11, 1999, the annual Meeting of Stockholders was held and the following matters were voted upon: 1. Dr. Sheldon Buckler and Dr. Gerald L. Wilson were elected to the Board of Directors, for three year terms. The vote was 3,388,932 in favor, 173,543 withheld. 2. An amendment to the Company's Employee Stock Purchase Plan increasing the number of shares issuable under such plan from 150,000 to 500,000. The vote was 3,354,756 in favor, 196,348 against, and 8,371 abstaining. 3. Certain amendments to the Company's 1993 Non-Employee Director Stock Option Plan. The vote was 3,322,796 in favor, 223,626 against, and 16,053 abstaining. 4. The Board of Directors' selection of Ernst & Young LLP as the Company's independent auditors for the year ended March 26, 2000 was ratified with 3,442,091 in favor, 101,799 against, and 18,585 abstaining. Item 5. Other Information: None. Item 6. Listing of Exhibits Exhibit Description No. 10.24 Commercial Revolving Loan and Security Agreement dated August 19, 1999, between the Company and American Commercial Finance Corporation, filed herewith. 2.0 Agreement and Plan of Merger, dated as of September 18, 1999 by and between the Company, Micro Technology, Inc., and MCT Acquisition, Inc. 13 ASECO CORPORATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Signature Title Date /s/ Sebastian J. Sicari President, Chief Executive Officer November 10, 1999 - ------------------------- (principal executive officer) Sebastian J. Sicari /s/ Mary R. Barletta Vice President, Chief Financial November 10, 1999 - ------------------------- Officer, Treasurer Mary R. Barletta (principal financial and accounting officer) 14 EX-10.24 2 AMERICAN COMMERCIAL FINANCE CORP LOAN AGREEMENT EXHIBIT 10.24 AMERICAN COMMERCIAL FINANCE CORPORATION COMMERCIAL REVOLVING LOAN AND SECURITY AGREEMENT August 19, 1999 1. SECURITY INTEREST. Aseco Corporation, a Delaware corporation with its chief executive office and principal place of business at 500 Donald Lynch Boulevard, Marlboro, Massachusetts 01752 (hereinafter referred to as the "Borrower"), for valuable consideration, receipt whereof is hereby acknowledged, hereby grants to American Commercial Finance Corporation, a Delaware corporation with an office at 433 South Main Street, West Hartford, Connecticut 06110, the secured party hereunder (hereinafter called the "Lender"), a continuing security interest in and to, and assigns to Lender, the following property of the Borrower, wherever located and whether now owned or hereafter acquired: (a) all inventory, including 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 contracts of service or used or consumed in Borrower's business (all hereinafter called the "Inventory"); (b) all accounts (as defined in the Uniform Commercial Code, hereinafter "Accounts"), contracts, contract rights, notes, bills, drafts, acceptances, general intangibles (including without limitation registered and unregistered tradenames, copyrights, customer lists, goodwill, computer programs, computer records, computer software, computer data, trade secrets, trademarks, patents, ledger sheets, files, records, data processing records relating to any Accounts and all tax refunds of every kind and nature to which Borrower is now or hereafter may become entitled to, no matter how arising), instruments, documents, chattel paper, securities, security entitlements, security accounts, investment property, 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 to replevy goods, and all rights of an unpaid seller of merchandise or services (all hereinafter called the "Receivables"); (c) all machinery, equipment, fixtures and other goods (as defined in Article 9 of the Uniform Commercial Code) whether now owned or hereafter acquired by the Borrower and wherever located, all replacements and substitutions therefor or accessions thereto and all proceeds thereof (all hereinafter called the "Equipment"); and (d) all proceeds and products of all of the foregoing in any form, including, without limitation, all proceeds of credit, fire or other insurance, and also including, without limitation, rents and profits resulting from the temporary use of any of the foregoing (which, with Inventory, Receivables and Equipment are all hereinafter called "Collateral"). 2. OBLIGATIONS SECURED. The security interest granted hereby is to secure payment and performance of all debts, liabilities and obligations of Borrower to Lender hereunder and also any and all other debts, liabilities and obligations of Borrower to Lender of every kind and description, direct or indirect, absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising, whether or not such obligations are related to the transactions described in this Agreement, by class, or kind, or whether or not contemplated by the parties at the time of the granting of this security interest, regardless of how they arise or by what agreement or instrument they may be evidenced or whether evidenced by any agreement or instrument, and includes obligations to perform acts and refrain from taking action as well as obligations to pay money including, without limitation, all interest, fees, charges, expenses and overdrafts, and also including, without limitation, all obligations and liabilities which Lender may incur or become liable for, on account of, or as a result of, any transactions between Lender and Borrower including any which may arise out of any letter of credit, acceptance or similar instrument or obligation guaranteed or issued by Lender for the account of Borrower (all hereinafter called "Obligations"). 3. BORROWER'S PLACES OF BUSINESS, INVENTORY LOCATIONS AND RETURNS POLICY. Borrower warrants that Borrower has no places of business other than that shown at the beginning of this Agreement, unless other places of business are listed on Schedule "A", annexed hereto, in which event Borrower represents that it has additional places of business at those locations set forth on Schedule "A". a) Borrower's principal executive office and the office where Borrower keeps its records concerning its accounts, contract rights and other property, is that shown at the beginning of this Agreement. All Inventory presently owned by Borrower is stored at the locations set forth on Schedule "A". b) Borrower will promptly notify Lender in writing of any change in the location of any place of business or the location of any Inventory or the establishment of any new place of business or location of Inventory or office where its records are kept which would be shown in this Agreement if it were executed after such change. c) Borrower represents and warrants that Exhibit 1 attached hereto describes its returns policy and that it does now, and will continue to, apply the material provisions of such policy consistently in the conduct of its business and agrees that it shall notify Lender in writing before materially changing its policy or the application thereof. 4. BORROWER'S ADDITIONAL REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants that: (a) Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and shall hereafter remain in good standing as a corporation in that state, and is duly qualified and in good standing in every other state in which the failure to qualify or become licensed could have a material adverse effect on the financial condition, business or operations of the Borrower. (b) Borrower's exact legal name is as set forth in this Agreement and Borrower will not undertake or commit to undertake any act which will result in a change of Borrower's legal name, without giving Lender at least thirty (30) days' prior written notice of the same. (c) The execution, delivery and performance of this Agreement, and any other document executed in connection herewith, are within the Borrower's corporate powers, have been duly authorized, are not in contravention of law or the terms of the Borrower's charter, by-laws or other incorporation papers, or of any indenture, agreement or undertaking to which the Borrower is a party or by which it or any of its properties may be bound. (d) The Certificate of Incorporation and all amendments thereto of Borrower have been duly filed. All capital stock issued by Borrower and outstanding was and is properly issued. (e) Borrower owns all of the assets reflected in the most recent of Borrower's financial statements provided to Lender, except assets sold or otherwise disposed of in the ordinary course of business since the date thereof, and such assets together with any assets acquired since such date, including without limitation the Collateral, are free and clear of any lien, pledge, security interest, charge, mortgage or encumbrance of any nature whatsoever, except (i) the security interests and other encumbrances (if any) listed on Schedule "B" annexed hereto, (ii) those leases set forth on Schedule "C" annexed hereto, (iii) those liens permitted pursuant to Section 13(h) of this Agreement, and (iv) liens and security interests in favor of Lender. (f) Except as set forth on Schedule "D" annexed hereto, Borrower has made or filed all tax returns, reports and declarations relating to any material tax liability required by any jurisdiction to which it is subject (any tax liability which may result in a lien on any Collateral being hereby deemed material); has paid all taxes shown or determined to be due thereon except those being contested in good faith and which Borrower has, prior to the date of such contest, identified in writing to Lender as being contested; and has made adequate provision for the payment of all taxes so contested, so that no lien will encumber any Collateral. (g) Borrower (i) is subject to no charter, corporate or other legal restriction, or any judgment, award, decree, order, governmental rule or regulation or contractual restriction which could have a material adverse effect on its financial condition, business or prospects, and (ii) is in compliance with its charter documents and by-laws, all material contractual requirements by which it or any of its properties may be bound and all applicable laws, rules and regulations (including without limitation those relating to environmental protection) other than laws, rules or regulations the validity or applicability of which it is contesting in good faith or provisions of any of the foregoing the failure to comply with which cannot reasonably be expected to materially adversely affect its financial condition, business or prospects or the value of any Collateral. (h) There is no action, suit, proceeding or investigation pending or, to Borrower's knowledge, threatened against or affecting it or any of its assets before or by any court or other governmental authority which, if determined adversely to it, would have a material adverse effect on its financial condition, business or prospects or the value of any Collateral. (i) Borrower is in compliance with ERISA; no Reportable Event has occurred and is continuing with respect to any Plan; and it has no unfunded vested liability under any Plan. The word "Plan" as used in this Agreement means any employee plan subject to Title IV of the Employee Retirement Income Security Act of 1974 ("ERISA") maintained for employees of Borrower, any subsidiary of Borrower or any other trade or business under common control with Borrower within the meaning of Section 414(c) of the Internal Revenue Code of 1986 or any regulations thereunder. 3 5. LOANS AND OTHER FINANCIAL ACCOMMODATIONS. (a) From time to time upon Borrower's request, so long as the sum of the aggregate principal amount of all loans outstanding and the requested loan does not exceed the lesser of (i) the Borrowing Base (as defined below), or (ii) the Credit Limit (as defined below), Lender shall make such requested loan, provided that there has not occurred an Event of Default or an event which, with notice or the lapse of time or both, would constitute an Event of Default. (b) All loans shall bear interest and at the option of the Lender shall be evidenced by notes in a form satisfactory to Lender, but in the absence of notes shall be evidenced by Lender's records of loans and repayments. Interest will be charged to Borrower at a fluctuating rate which is the daily equivalent to a rate equal to the aggregate of : (x) the Prime Rate, and (y) one and one-half (1.50%) percent per annum, or at such other rate agreed on from time to time by the parties, upon any balance owing to Lender at the close of each day and shall be payable (i) on the first day of each month in arrears; (ii) on termination of this Agreement pursuant to Section 18 hereof; (iii) on acceleration of the time for payment of the Obligations pursuant to Section 14 hereof; and (iv) on the date the Obligations are paid in full. Any change in the interest rate because of a change in the Prime Rate shall become effective, without notice or demand, on the first day of each month immediately following the month in which any change in the Prime Rate occurs so that the Prime Rate in effect on the last day of any month shall be the Prime Rate for interest computation purposes for the next succeeding month. Interest shall be computed on the basis of the actual number of days elapsed over a year of three hundred sixty (360) days. The term "Prime Rate" as used herein shall mean the Prime Rate as published from time to time in the "Money Rates" section of The --- Wall Street Journal or any successor publication, or in the event that such rate - ------------------- is no longer published in The Wall Street Journal, a comparable index or ----------------------- reference selected by Lender in its reasonable discretion. The Prime Rate may not be the lowest or most favorable rate charged by Lender. Interest shall be payable in lawful money of the United States of America to Lender, or as Lender shall direct, without set-off, deduction or counterclaim. Borrower and Lender have agreed that, because Lender is arranging for the availability to Lender of sufficient funds to finance the loans, interest will be charged on a minimum assumed principal balance of not less than Two Million One Hundred Thousand ($2,100,000.00) Dollars. Accordingly, interest for each month shall accrue on the loans, at the rate set forth above, on the greater of: (i) the average daily unpaid loan balance of the loan; or (ii) a minimum assumed principal balance of not less than Two Million One Hundred Thousand ($2,100,000.00) Dollars and shall be payable as set forth above. (c) The term "Borrowing Base" as used herein shall mean the sum of the following: (i) seventy (70%) percent of the unpaid face amount of Qualified Accounts (as defined below) or such other percentage thereof as may from time to time be fixed by Lender upon notice to Borrower, if Lender determines in its reasonable judgment that there has been a change in circumstances relating to any or all Accounts from those circumstances in existence on or prior to the date hereof; PLUS (ii) the lesser of (A) $800,000.00, or (B) twenty-five (25%) of the cost or market value, whichever is lower, of all Eligible Inventory (as defined below) consisting of inventory located on the premises of Borrower, or such other percentage thereof as may from time to time be fixed by Lender upon notice to Borrower, if Lender determines in its reasonable judgment that there has been a change in circumstances relating to any or all such Inventory from those circumstances in existence on or prior to the date hereof; but in no event shall the sum of all loans plus the sum of the aggregate amount undrawn on all letters of credit and acceptances be in excess of the Credit Limit. For purposes of computing the Borrowing Base, the value of any Qualified Account with a net face value in excess of Fifty Thousand ($50,000.00) Dollars shall be reduced to Fifty Thousand ($50,000.00) Dollars prior to the application of such Borrowing Base. Lender may, in its sole discretion, raise or lower the Fifty Thousand ($50,000.00) Dollars limit set forth in the immediately preceding sentence without in any way creating a course of conduct which requires Lender to maintain such raised or lowered limit or to raise or lower such limit again in the future. Lender, in the exercise of its discretion, has set credit limits on those customers of Borrower set forth on Schedule "E" annexed hereto. Lender may, in its sole discretion, raise or lower the credit limits described on Schedule "E" without in any way creating a course of conduct which requires Lender to maintain such raised or lowered credit limits or to raise or lower such credit limits again in the future. (d) The term "Credit Limit" as used herein shall mean an amount equal to Three Million ($3,000,000.00) Dollars. (e) Borrower hereby authorizes and directs Lender, in Lender's sole discretion (provided, however, Lender shall have no obligation to do so): (i) to pay accrued interest as the same becomes due and payable pursuant to this Agreement or pursuant to any note or other agreement between Borrower and Lender, and to treat the same as a loan to Borrower, which shall be added to Borrower's loan balance pursuant to this Agreement; or (ii) apply the proceeds of Collateral, including, without limitation, payments on Accounts and other payments from sales or lease of Inventory and any other funds to the payment of such items. Lender shall promptly notify Borrower of any such charges or applications. (f) Borrower shall pay to Lender the principal amount of all loans as follows: (i) Borrowing Base Exceeded. Whenever the outstanding principal ----------------------- balance of all loans exceeds the Borrowing Base, Borrower shall immediately pay to Lender the excess of the outstanding principal balance of the loans over the Borrowing Base. (ii) Payment in Full on Termination. On termination of this ------------------------------ Agreement, pursuant to Section 18 or acceleration of the obligations pursuant to Section 14, Borrower shall pay to Lender the entire outstanding principal balance of all loans and shall deliver to Lender cash collateral in an amount equal to the aggregate of amounts then undrawn on all outstanding Letters of Credit guaranteed by the Lender for the account of the Borrower. 5 (g) The making of loans, advances, and credits by Lender to the Borrower in excess of the above described Borrowing Base formula is for the benefit of the Borrower and does not affect the obligations of Borrower hereunder; all such loans constitute Obligations and must be repaid by Borrower in accordance with the terms of this Agreement. (h) Lender may, at any time and from time to time, in its reasonable judgment establish reserves against the Accounts and/or the Inventory of the Borrower. The amount of such reserves shall be subtracted from Qualified Accounts or Eligible Inventory, as applicable, when calculating the amount of the Borrowing Base. (i) Borrower shall also pay to Lender a nonrefundable commitment fee equal to the greater of (i) one-half of one (.50%) percent of the Credit Limit, or (ii) Fifteen Thousand ($15,000.00) Dollars, on the date hereof and on each anniversary date of this Agreement. It is understood that the determination of the Credit Limit shall be made without regard to the components of the Borrowing Base based upon Qualified Accounts and Eligible Inventory. For example, for purposes of this provision, on the date hereof the maximum principal amount of the Loan is Three Million ($3,000,000.00) Dollars and the commitment fee payable on the date hereof is Fifteen Thousand ($15,000.00) Dollars. (j) It is the intention of the parties hereto to comply strictly with applicable usury laws, if any; accordingly, notwithstanding any provisions to the contrary in this Agreement or any other documents or instruments executed in connection herewith, in no event shall this Agreement or such documents or instruments require or permit the payment, taking, reserving, receiving, collecting or charging of any sums constituting interest under applicable laws which exceed the maximum amount permitted by such laws. If any such excess interest is called for, contracted for, charged, paid, taken, reserved, collected or received in connection with the Obligations or in any communication by Lender or any other person to the Borrower or any other person, or in the event all or part of the principal of the Obligations or interest thereon shall be prepaid or accelerated, so that under any of such circumstances or under any other circumstance whatsoever the amount of interest contracted for, charged, taken, collected, reserved, or received on the amount of principal actually outstanding from time to time under this Agreement shall exceed the maximum amount of interest permitted by applicable usury laws, if any, then in any such event it is agreed as follows: (i) the provisions of this paragraph shall govern and control, (ii) neither the Borrower nor any other person or entity now or hereafter liable for the payment of the Obligations shall be obligated to pay the amount of such interest to the extent such interest is in excess of the maximum amount of interest permitted by applicable usury laws, if any, (iii) any such excess which is or has been received notwithstanding this paragraph shall be credited against the then unpaid principal balance hereof or, if the Obligations have been or would be paid in full by such credit, refunded to the Borrower, and (iv) the provisions of this Agreement and the other documents or instruments executed in connection herewith, and any communication to the Borrower, shall immediately be deemed reformed and such excess interest reduced, without the necessity of executing any other document, to the maximum lawful rate allowed under applicable laws as now or hereafter construed by courts having jurisdiction hereof or thereof. Without limiting the foregoing, all calculations of the rate of interest contracted for, charged, taken, collected, reserved, or received in connection herewith which are made for the purpose of determining whether such rate exceeds the maximum lawful rate shall be made to the extent permitted by applicable laws by amortizing, prorating, allocating and spreading during the period of the full term of the Obligations, including all prior and subsequent renewals and extensions, all interest at any time contracted for, charged, taken, collected, reserved or received. The terms of this paragraph shall be deemed to be incorporated in every Loan Document and communication relating to the Obligations. (k) In the event Borrower's Accounts suffer a dilution at any time resulting from bad debts, credit memos, returned merchandise or any other reason or any combination thereof (other than payment) in an amount equal to or greater than five (5%) percent of that portion of the Borrowing Base computed pursuant to Section 5(c)(i), Lender, in its sole discretion, may reduce the applicable percentage to be applied to the face amount of Qualified Accounts used to determine that portion of the Borrowing Base computed pursuant to Section 5(c)(i). 6. DEFINITION OF QUALIFIED ACCOUNT. The term "Qualified Account", as used herein, means an Account owing to Borrower which met the following specifications at the time it came into existence and continues to meet the same until it is collected in full: (a) The Account is not more than ninety (90) days from the date of the invoice thereof. (b) The Account arose from the performance of services or an outright sale of goods by Borrower, such goods have been shipped to the account debtor, and Borrower has possession of, or has delivered to Lender, shipping and delivery receipts evidencing such shipment. (c) The Account is not subject to any prior assignment, claim, lien, or security interest, and Borrower will not make any further assignment thereof or create any further security interest therein, nor permit Borrower's rights therein to be reached by attachment, levy, garnishment or other judicial process. (d) The Account is not subject to set-off, credit, allowance or adjustment by the account debtor, except discount allowed for prompt payment and the account debtor has not disputed his liability thereon and has not returned any of the goods from the sale of which the Account arose. (e) The Account arose in the ordinary course of Borrower's business and did not arise from the performance of services or a sale of goods to a supplier or employee of the Borrower. (f) No notice of bankruptcy or insolvency of the account debtor has been received by or is known to the Borrower. (g) The Account is not owed by an account debtor whose principal place of business is outside the United States of America, unless the Account is insured by an entity, acceptable to Lender, on terms and conditions satisfactory to Lender pursuant to a credit insurance policy that names Lender as a co-insured. (h) The Account is not owed by an entity which is a parent, brother/sister, subsidiary or affiliate of Borrower. (i) The account debtor is not located in the State of New Jersey or in the State of Minnesota, unless Borrower has filed and shall file all legally required Notice of Business Activities Reports with the New Jersey Division of Taxation or the Minnesota Department of Revenue, as the case may be. 7 (j) The Account (the "Excess Account") when aggregated with all of the Accounts of that account debtor does not exceed twenty (20%) percent of the then aggregate of Qualified Accounts, provided that, in such event, only the Excess Account will be excluded from the definition of Qualified Account. (k) The Account is not evidenced by a promissory note. (l) The Account did not arise out of any sale made on a bill and hold, dating or delayed shipment basis. (m) Lender, in accordance with its normal credit policies, has not deemed the Account to be unacceptable for any reason. PROVIDED THAT if at any time twenty-five (25%) percent or more of the aggregate amount of the Accounts due from any account debtor are unpaid in whole or in part more than ninety (90) days from the respective dates of invoice, from and after such time none of the Accounts (then existing or hereafter arising) due from such account debtor shall be deemed to be Qualified Accounts until such time as all Accounts due from such account debtor are (as a result of actual payments received thereon) no more than ninety (90) days from the date of invoice; Accounts payable by Borrower to an account debtor shall be netted against Accounts due from such account debtor and the difference (if positive) shall constitute Qualified Accounts from such account debtor for purposes of determining the Borrowing Base (notwithstanding paragraph (d) above); characterization of any Account due from an account debtor as a Qualified Account shall not be deemed a determination by Lender as to its actual value nor in any way obligate Lender to accept any Account subsequently arising from such account debtor to be, or to continue to deem such Account to be, a Qualified Account; it is Borrower's responsibility to determine the creditworthiness of account debtors and all risks concerning the same and collection of Accounts are with Borrower; and all Accounts whether or not Qualified Accounts constitute Collateral. 7. DEFINITION OF ELIGIBLE INVENTORY. The term "Eligible Inventory", as used herein, means Borrower's raw materials, work in process and finished goods which are initially and at all times until sold: new and unused (except, with Lender's written approval, used equipment held for sale or lease), in first-class condition, merchantable and saleable through normal trade channels; at a location which has been identified in writing to Lender, at a location that has been approved by Lender in writing; subject to a perfected security interest in favor of Lender; owned by Borrower free and clear of any lien except in favor of Lender; not obsolete; not scrap, waste, defective goods and the like; have been produced by Borrower in accordance with the Federal Fair Labor Standards Act of 1938, as amended, and all rules, regulations and orders promulgated thereunder; not stored with a bailee, warehouseman or similar party unless Lender has given its prior written consent thereto and Borrower has caused each such bailee, warehouseman or similar party to issue and deliver to Lender warehouse receipts in Lender's name for such Inventory; and have not been designated by Lender, in accordance with its normal credit policies, as unacceptable for any reason by notice to Borrower. As of the date hereof, the only approved Inventory location is the principal executive office of Borrower. 8. LENDER'S REPORTS. After the end of each month, Lender will render to Borrower a statement of Borrower's loan account with Lender hereunder, showing all applicable credits and debits. Each statement shall be considered correct and to have been accepted by Borrower and shall be conclusively binding upon Borrower in respect of all charges, debits and credits of whatsoever nature contained therein under or pursuant to this Agreement, and the closing balance shown therein, unless Borrower notifies Lender in writing of any discrepancy within ten (10) days from the mailing by Lender to Borrower of any such monthly statement. 9. COLLECTIONS; SET OFF; NOTICE OF ASSIGNMENT; EXPENSES; POWER OF ATTORNEY. (a) Unless Lender notifies Borrower that it specifically dispenses with one or more of the following requirements, Borrower will, immediately upon receipt of the proceeds of Collateral (i.e., all checks, drafts, cash and other remittances in payment of any Inventory sold or in payment or on account of Borrower's accounts, contracts, contract rights, notes, bills, drafts, acceptances, general intangibles, choses in action and all other forms of obligations), deliver the same to Lender accompanied by a remittance report in form specified by Lender. Said proceeds shall be delivered to Lender in the same form received except for the endorsement of Borrower where necessary to permit collection of items, which endorsement Borrower agrees to make. So long as Lender elects to keep a Collateral Account (as defined below) in existence, Borrower shall deposit the proceeds of Collateral in the Collateral Account and shall, on the day of each deposit, forward to Lender a copy of the deposit receipt of the depository bank indicating that such deposit has been made. All collections of the proceeds of Collateral shall be set forth on a schedule in form and substance satisfactory to Lender. Collections of proceeds of Collateral shall be credited to the Obligations of Borrower on the day of actual receipt by Lender; provided, however, that all credits shall be conditional credits subject to collection and that returned items, at Lender's option, may be charged to Borrower; and further provided that for purposes of the computation of interest, items shall not be deemed to be collected until three (3) days after their actual receipt by Lender. The order and method of such application shall be in the reasonable discretion of Lender and any portion of such funds which Lender elects not to so apply shall be paid over from time to time by Lender to Borrower. Lender will at all times have the right to require Borrower (i) to enter into a lockbox arrangement with a bank (satisfactory to Lender) for the collection of such remittances and payments, or (ii) to maintain its deposit accounts at a financial institution which has agreed to accept drafts drawn on it by Lender under a written depository transfer agreement with Lender and to block Borrower's account and to waive its rights as against such account. The term "Collateral Account" as used herein shall mean a bank account to the proceeds of Collateral are credited and over which Lender has the sole power of application and withdrawal. 9 (b) Any and all deposits or other sums at any time credited by or due from Lender to Borrower shall at all times constitute additional security for the Obligations and may be set-off against any Obligations at any time following the occurrence of an Event of Default or an event which with notice or the lapse of time, or both, would constitute an Event of Default whether or not they are then due or other security held by Lender is considered by Lender to be adequate. Any and all instruments, documents, policies and certificates of insurance, securities, goods, accounts, choses in action, general intangibles, chattel papers, cash, property and the proceeds thereof (whether or not the same are Collateral or proceeds thereof hereunder) owned by Borrower or in which Borrower has an interest, which now or hereafter are at any time in possession or control of Lender or in transit by mail or carrier to or from Lender or in the possession of any third party acting in Lender's behalf, without regard to whether Lender received the same in pledge, for safekeeping, as agent for collection or transmission or otherwise or whether Lender had conditionally released the same, shall constitute additional security for the Obligations and may be applied at any time following the occurrence of an Event of Default or an event which with notice or the lapse of time, or both, would constitute an Event of Default, to any Obligations which are then owing, whether due or not due. Lender shall be entitled to presume, in the absence of clear and specific written notice to the contrary hereinafter provided by Borrower to Lender, that any and all deposits maintained by Borrower with Lender are general accounts as to which no person or entity other than Borrower has any legal or equitable interest whatsoever. (c) Lender may at any time, after the occurrence of an Event of Default or an event which, with notice or the passage of time or both, would constitute an Event of Default, notify account debtors that Collateral has been assigned to Lender and that payments shall be made directly to or as directed by Lender. Upon request of Lender at any time, Borrower will so notify such account debtors and will indicate on all billings to such account debtors that their Accounts must be paid directly to or as directed by Lender. Lender shall have full power to collect, compromise, endorse, sell or otherwise deal with the Collateral or proceeds thereof in its own name or in the name of Borrower. (d) Borrower shall pay to Lender on demand any and all reasonable counsel fees and other expenses incurred by Lender in connection with the preparation, interpretation, enforcement, administration or amendment of this Agreement, or of any documents relating thereto, and any and all reasonable expenses, including, but not limited to, a collection charge on all Accounts collected, all reasonable attorneys' fees and expenses, and all other expenses of like or unlike nature which may be expended by Lender to obtain or enforce payment of any Account either as against the account debtor, Borrower, or any guarantor or surety of Borrower or in the prosecution or defense of any action or concerning any matter growing out of or connected with the subject matter of this Agreement, the Obligations or the Collateral or any of Lender's rights or interests therein or thereto, including, without limiting the generality of the foregoing, any counsel fees or expenses incurred in any bankruptcy or insolvency proceedings and all reasonable costs and expenses incurred or paid by Lender in connection with the administration, supervision, protection or realization on any security held by Lender for the debt secured hereby, whether such security was granted by Borrower or by any other person primarily or secondarily liable (with or without recourse) with respect to such debt, and all reasonable costs and expenses incurred by Lender in connection with the defense, settlement or satisfaction of any action, claim or demand asserted against Lender in connection with the debt secured hereby, all of which amounts shall be considered advances to protect Lender's security, and shall be secured hereby. At its option, and without limiting any other rights or remedies, Lender may at any time pay or discharge any taxes, liens, security interests or other encumbrances at any time levied against or placed on any of the Collateral, and may procure and pay any premiums on any insurance required to be carried by Borrower, and provide for the maintenance and preservation of any of the Collateral, and otherwise take any action reasonably deemed necessary to Lender to protect its security, and all amounts expended by Lender in connection with any of the foregoing matters, including reasonable attorneys' fees, shall be considered obligations of Borrower and shall be secured hereby. (e) Borrower does hereby make, constitute and appoint any officer or agent of Lender as Borrower's true and lawful attorney-in-fact, with power to endorse the name of Borrower or any of Borrower's officers or agents upon any notes, checks, drafts, money orders, or other instruments of payment (including payments payable under any policy of insurance on the Collateral) or Collateral that may come into possession of Lender in full or part payment of any amounts owing to Lender; to sign and endorse the name of Borrower or any of Borrower's officers or agents upon any invoice, freight or express bill, bill of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with Accounts, and any instrument or documents relating thereto or to Borrower's rights therein; to give written notice to such office and officials of the United States Post Office to effect such change or changes of address so that all mail addressed to Borrower may be delivered directly to Lender; granting upon Borrower's said attorney full power to do any and all things necessary to be done in and about the premises as fully and effectually as Borrower might or could do, and hereby ratifying all that said attorney shall lawfully do or cause to be done by virtue hereof. Neither Lender nor the attorney shall be liable for any acts or omissions nor for any error of judgment or mistake, except for their gross negligence or willful misconduct. This power of attorney shall be irrevocable for the term of this Agreement and all transactions hereunder and thereafter as long as Borrower may be indebted to Lender. Except for the endorsement of checks and other items of payment that may come into possession of Lender, Lender agrees not to exercise the foregoing power of attorney prior to the occurrence of an Event of Default. 10. FINANCING STATEMENTS. At the request of Lender, Borrower will join with Lender in executing one or more Financing Statements pursuant to the Uniform Commercial Code or other notices appropriate under applicable law in form satisfactory to Lender and will pay the cost of filing the same in all public offices wherever filing is deemed by Lender to be necessary or desirable. A legible carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement. 11. BORROWER'S REPORTS. Borrower covenants and agrees that from the date hereof until payment and performance in full of all Obligations, and until the termination of this Agreement, unless Lender otherwise consents in writing, Borrower shall deliver or cause to be delivered to Lender: (a) Within thirty (30) days after the close of each fiscal month of Borrower, internally prepared, unaudited, financial statements of Borrower including balance sheets as of the close of each month and statements of income and retained earnings for such month and for that portion of the fiscal year-to- date then ended, which shall be prepared on a basis consistent with that of the preceding period or containing disclosure of the effect on financial condition or results of operations, and which shall be certified by the chief financial officer of Borrower as being accurate and fairly presenting the financial condition of Borrower. 11 (b) Within ninety (90) days after the close of each fiscal year of Borrower, consolidated and consolidating audited financial statements including a balance sheet as of the close of such fiscal year and statements of income, stockholders' capital and cash flow for the year then ended, prepared in conformity with generally accepted accounting principles, applied on a basis consistent with that of the preceding year or containing disclosure of the effect on financial condition or results of operations of any change in the application of accounting principles during the year, and accompanied by a report thereon containing an unqualified opinion of a recognized certified public accounting firm selected by Borrower and reasonably satisfactory to Lender, which opinion shall state that such financial statements fairly present the financial condition and results of operations of Borrower in accordance with generally accepted accounting principles, and also accompanied by a written statement from such accountants stating that they have reviewed such financial statements and the financial covenants set forth in Section 13 and have found no evidence of an Event of Default having occurred or of an event which with passage of time and/or giving of notice would constitute an Event of Default having occurred. (c) Within ten (10) days of the close of each month, monthly aging of accounts receivable and accounts payable and inventory status reports in form, scope and substance satisfactory to Lender. Inventory status reports shall include and identify all Inventory not located at the chief executive office of Borrower. (d) Daily loan and collateral designations in the form supplied by Lender to Borrower. (e) Within ten (10) days after Borrower's receipt, any management letter prepared by Borrower's independent auditors. (f) Contemporaneously with the delivery to shareholders or governmental agencies, including, without limitation, the Securities and Exchange Commission, copies of all reports and information delivered to shareholders or filed with governmental agencies. (g) Within ninety (90) days after the close of each fiscal year of Aseco (Singapore) PTE LTD, a guarantor of the obligations of Borrower, consolidated and consolidating audited financial statements of Aseco (Singapore) PTE LTD and Borrower prepared by independent public accountants reasonably satisfactory to Lender and accompanied by an unqualified opinion of such independent public accountants as to the consolidated financial statements. The consolidating portion of the financial statements will be unaudited. (h) Within ninety (90) days after the close of each fiscal year of Aseco International, Inc., a guarantor of the obligations of Borrower, internally prepared financial statements as of the end of such fiscal year, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period for the prior fiscal year, all prepared in accordance with generally accepted accounting principles consistently applied and certified by the chief financial officer of Aseco International, Inc. (i) As soon as available and in any event within thirty (30) days after the close of each quarterly period of Borrower's fiscal year, a Compliance Certificate in the form of Exhibit 2 annexed hereto prepared by Borrower's certified public accountants. (j) Promptly upon Lender's written request, such other information about the financial condition and operations of Borrower or any guarantor, as Lender may, from time to time, reasonably request. (k) Immediately upon becoming aware of any Event of Default, or if any representation or warranty contained herein is no longer true or accurate, notice thereof in writing. Commencing ninety (90) days from the date hereof, all information regarding sales, cash receipts, Accounts and Inventory shall be transmitted to Lender electronically, in ASCII readable formats, either on disk or transmitted to Lender via modem. In the event that Borrower fails to report such information to Lender electronically, Lender reserves the right, in its sole discretion, toadjust the margin over the Prime Rate payable by Borrower hereunder upon ten (10) days notice to Borrower. 12. GENERAL AGREEMENTS OF BORROWER. (a) Borrower agrees to keep all the Collateral insured with coverage and in amounts not less than that usually carried by one engaged in a like business and in any event not less than that required by Lender with loss payable to Lender and Borrower, as their interests may appear, hereby appointing Lender as attorney for Borrower in obtaining, adjusting, settling and canceling such insurance and endorsing any drafts. As further assurance for the payment and performance of the Obligations, Borrower hereby assigns to Lender all sums, including returns of 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 Lender. (b) Lender or its agents have the right during ordinary business hours to inspect the Collateral and all records pertaining thereto at intervals to be determined by Lender and without hindrance or delay. (c) Borrower will at all times keep accurate and complete records of Borrower's Inventory, Accounts and other Collateral, and will permit Lender to audit the books and records of Borrower and to conduct or cause to be conducted appraisals of Borrower's assets at such times, upon reasonable notice, and in such manner and detail as Lender deems reasonable. Without limiting the generality of the foregoing, Lender shall be allowed to verify the Receivables and Inventory of Borrower and to confirm with account debtors the validity and amount of Receivables. Borrower shall promptly pay to Lender reasonable audit fees and any out-of-pocket expenses incurred by any third party retained by Lender in connection with any audit if Lender, in its sole discretion, deems it necessary to hire outside auditors after the occurrence of an Event of Default. In addition, Borrower shall promptly pay or reimburse Lender for the costs of any such appraisals conducted by or for Lender. Lender may pay any such audit fees and out-of-pocket expenses and treat the same as a loan to Borrower. (d) Borrower will maintain a standard and modern system of accounting which enables Borrower to produce financial statements in accordance with generally accepted accounting principles and maintain records pertaining to the Collateral that contain information as from time to time may be requested by Lender. (e) Borrower will maintain its corporate existence in good standing and comply in all material respects with all laws and regulations of the United States or of any state or states thereof or of any political subdivision thereof, or of any governmental authority which may be applicable to it or to its business. (f) Borrower will pay all real and personal property taxes, assessments and charges and all franchises, income, unemployment, old age benefits, withholding, sales and other taxes assessed against it, or payable by it at such times and in such manner as to prevent any penalty from accruing or any lien or charge from attaching to its property. (g) Lender may in its own name or in the name of others communicate with account debtors in order to verify with them to Lender's reasonable satisfaction the existence, amount and terms of any Accounts. its sole discretion, to adjust the margin over the Prime Rate payable by Borrower hereunder upon ten (10) days notice to Borrower. 13 (h) This Agreement may but need not be supplemented by separate assignments of Accounts and if such assignments are given the rights and security interests given thereby shall be in addition to and not in limitation of the rights and security interests given by this Agreement. (i) If any of Borrower's Accounts arise out of contracts with the United States or any department, agency, or instrumentality thereof, Borrower will immediately notify Lender thereof in writing and execute any instruments and take any steps reasonably required by Lender in order that all monies due and to become due under such contracts shall be assigned to Lender and notice thereof given to the Government under the Federal Assignment of Claims Act. (j) If any of Borrower's Accounts should be evidenced by promissory notes, trade acceptances, or other instruments for the payment of money, Borrower will immediately deliver same to Lender, appropriately endorsed to Lender's order and, regardless of the form of such endorsement, Borrower hereby waives presentment, demand, notice of dishonor, protest and notice of protest and all other notices with respect thereto. (k) Borrower will promptly pay when due all taxes and assessments upon the Collateral or for its use or operation or upon this Loan and Security Agreement, or upon any note or notes evidencing the Obligations, and will, at the request of Lender, promptly furnish Lender the receipted bills therefor. At its option, Lender may discharge taxes, liens or security interests or other encumbrances at any time levied or placed on the Collateral, may pay for insurance on the Collateral and may pay for the maintenance and preservation of the Collateral. Borrower agrees to reimburse Lender on demand for any payments made, or any expenses incurred by Lender pursuant to the foregoing authorization, and upon failure of the Borrower so to reimburse Lender, any such sums paid or advanced by Lender shall be deemed secured by the Collateral and constitute part of the Obligations. (l) Borrower will immediately notify Lender upon receipt of notification of any potential or known release or threat of release of hazardous materials, hazardous waste, hazardous or toxic substance or oil from any site operated by Borrower or of the incurrence of any expense or loss in connection therewith or with the Borrower's obtaining knowledge of any investigation, action or the incurrence of any expense or loss by any governmental authority in connection with the assessment, containment or removal of any hazardous material or oil for which expense or loss the Borrower may be liable. As used herein, the terms "hazardous waste," "hazardous or toxic substance," "hazardous material" or "oil" shall have the same meanings as defined and used in any of the following (the "Acts"): the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq.; the Federal ------ Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901 et seq.; the ------ Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801 et seq.; the ------ Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; M.G.L.A. c. 21E ------ (Massachusetts Oil and Hazardous Material Release Prevention Act); M.G.L.A. c. 21C (Massachusetts Hazardous Waste Management Act); and/or the regulations adopted and publications promulgated pursuant to any of the Acts, as the same may be amended from time to time. (m) Except for Lender's gross negligence or willful misconduct, Borrower will indemnify and save Lender harmless from all loss, costs, damage, liability or expenses (including, without limitation, court costs and reasonable attorneys' fees) that Lender may sustain or incur by reason of defending or protecting this 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 in connection with this Agreement and/or any other documents now or hereafter executed in connection with this Agreement and/or the Obligations and/or the Collateral. This indemnity shall survive the repayment of the Obligations and the termination of Lender's agreement to make loans available to Borrower and the termination of this Agreement. (n) At the option of Lender, Borrower will furnish to Lender, from time to time, within five (5) days after the accrual in accordance with applicable law of Borrower's obligation to make deposits for F.I.C.A. and withholding taxes and/or sales taxes, proof satisfactory to Lender that such deposits have been made as required. (o) Should Borrower fail to make any of such deposits or furnish such proof then Lender may, in its sole and absolute discretion, (a) make any of such deposits or any part thereof, (b) pay such taxes, or any part thereof, or (c) set-up such reserves as Lender, in its judgment, shall deem necessary to satisfy the liability for such taxes. Each amount so deposited or paid shall constitute an advance under the terms hereof, repayable on demand with interest, as provided herein, and secured by all Collateral and any other property at any time pledged by Borrower with Lender. Nothing herein shall be deemed to obligate Lender to make any such deposit or payment or set-up such reserve and the making of one or more of such deposits or payments or the setting-up of such reserve shall not constitute (i) an agreement on Lender's part to take any further or similar action, or (ii) a waiver of any default by Borrower under the terms hereof. (p) All advances by Lender to Borrower under this Agreement and under any other agreement constitute one general revolving fluctuating loan, and all indebtedness of Borrower to Lender under this and under any other agreement constitute one general Obligation. Each advance to Borrower hereunder or otherwise shall be made upon the security of all of the Collateral held and to be held by Lender. It is distinctly understood and agreed that all of the rights of Lender contained in this Agreement shall likewise apply, insofar as applicable, to any modification of or supplement to this Agreement and to any other agreements between Lender and Borrower. Any default of this Agreement by Borrower shall constitute, likewise, a default by Borrower of any other existing agreement with Lender, and any default by Borrower of any other agreement with Lender shallconstitute a default of this Agreement. The entire Obligation of Borrower to Lender shall become due and payable when payments become due and payable hereunder upon termination of this Agreement. (q) Borrower hereby grants to Lender for a term to commence on the date of this Agreement and continuing thereafter until all debts and Obligations of any kind or character owing from Borrower to Lender are fully paid and discharged, the right to use all premises or places of business which Borrower presently has or may hereafter have and where any of the Collateral may be located, at a total rental for the entire period of $1.00. Lender agrees not to exercise the rights granted in this paragraph unless and until Lender determines to exercise its rights against the Collateral. 15 (r) Borrower will, at its expense, upon request of Lender promptly and duly execute and deliver such documents and assurances and take such actions as may be necessary or desirable or as Lender may request in order to correct any defect, error or omission which may at any time be discovered or to more effectively carry out the intent and purpose of this Agreement and to establish, perfect and protect Lender's security interest, rights and remedies created or intended to be created hereunder. (s) Borrower shall perform any and all further steps reasonably requested by Lender to perfect Lender's security interest in Inventory, placing and maintaining signs, appointing custodians, maintaining stock records and transferring Inventory to warehouses. A "cycle count" of all Inventory, wherever located, shall be taken by Borrower at least annually and whenever requested by Lender if one or more of the Events of Default exist. (t) Borrower hereby grants to Lender for a term to commence on the date of this Agreement and continuing thereafter until all debts and Obligations of any kind or character owed to Lender are fully paid and discharged, a non-exclusive irrevocable royalty-free license in connection with Lender's exercise of its rights hereunder, to use, apply or affix any trademark, trade name logo or the like and to use any patents, in which the Borrower now or hereafter has rights, which license may be used by Lender upon and after the occurrence of any one or more of the Events of Default, provided, however, that such use by Lender shall be suspended if such Events of Default are cured. This license shall be in addition to, and not in lieu of, the inclusion of all of Borrower's trademarks, servicemarks, tradenames, logos, goodwill, patents, franchises and licenses in the Collateral; in addition to the right to use said Collateral as provided in this paragraph, Lender shall have full right to exercise any and all of its other rights regarding Collateral with respect to such trademarks, servicemarks, tradenames, logos, goodwill, patents, franchises and licenses. Lender agrees not to exercise the license granted pursuant to this section prior to the occurrence of an Event of Default which is continuing. (u) Borrower will maintain its main operating account and depository accounts at Fleet National Bank. Borrower also maintains bank accounts at USTrust, correspondents of Fleet National Bank in Singapore, The Royal Bank of Canada in Barbados and Midland Bank in England. 13. BORROWER'S NEGATIVE COVENANTS. Borrower will not at any time without Lender's prior written consent: (a) (Tangible Net Worth) permit its tangible net worth to be less -------------------- than $6,000,000.00; (b) (Debt to Worth) permit the aggregate amount of its indebtedness --------------- to be more than 1.25 times the amount of its tangible net worth; (c) (Capital Expenditures) during any fiscal year of Borrower, make, ---------------------- directly or indirectly, capital expenditures in an aggregate amount greater than $500,000.00; (d) (Capital Base) (i) permit its tangible capital base to be less -------------- than $6,000,000.00, or (ii) permit its senior indebtedness to be more than 1.25 times the amount of its tangible capital base; (e) (Subchapter S Corporation) if Borrower is a Subchapter S -------------------------- corporation, make distributions to its shareholders during any fiscal year of Borrower in an aggregate amount greater than the amount necessary to pay federal and state income taxes upon Borrower's undistributed income for such year; (g) (Disposition of Collateral) sell, assign, exchange or otherwise --------------------------- dispose of any of the Collateral, other than Inventory consisting of (i) scrap, waste, defective goods and the like; (ii) obsolete goods; (iii) finished goods sold in the ordinary course of business or any interest therein to any individual, partnership, trust or other corporation; and (iv) Equipment which is no longer required or deemed necessary for the conduct of Borrower's business, so long as Borrower receives therefor a sum substantially equal to such Equipment's fair value, remits such sum to Lender in accordance with the terms of this Agreement or replaces such Equipment with other equipment of similar value which is subject to a first security interest in Lender's favor; (h) (Liens) create, permit to be created or suffer to exist any lien, ------- encumbrance or security interest of any kind ("Lien") upon any of the Collateral or any other property of Borrower, now owned or hereafter acquired, except: (i) landlords', carriers', warehousemen's, mechanics' and other similar liens arising by operation of law in the ordinary course of Borrower's business; (ii) arising out of pledge or deposits under worker's compensation, unemployment insurance, old age pension, social security, retirement benefits or other similar legislation; (iii) purchase money Liens arising in the ordinary course of business (so long as the indebtedness secured thereby does not exceed the lesser of the cost or fair market value of the property subject thereto, and such Lien extends to no other property); (iv) Liens for unpaid taxes that are either (x) not yet due and payable, or (y) are subject of permitted protests; (v) Liens which are the subject of permitted protests; (vi) those Liens and encumbrances set forth on Schedule "B" annexed hereto; and (vii) in favor of Lender; the term "permitted protests" as used herein means the right of the Borrower to protest any Lien (other than a Lien that secures the Obligations), tax (other than payroll taxes or taxes that are the subject of a federal or state tax lien) or rental payment, provided that (x) a reserve with respect to such liability is established on the books of the Borrower in an amount that is reasonably satisfactory to the Lender, (y) any such protest is instituted and diligently prosecuted by the Borrower in good faith, and (z) the Lender is satisfied that, while such protest is pending, there will be no impairment of the enforceability, validity or priority of any of the Liens of the Lender in and to the Collateral; (i) (Dividends) pay any dividends on or make any distribution on ----------- account of (except, if Borrower is a Subchapter S corporation, consistent with paragraph (f) above) any class of Borrower's capital stock in cash or in property (other than additional shares of such stock), or redeem, purchase or otherwise acquire, directly or indirectly, any of such stock; (j) (Loans) make any loans or advances to any individual, ------- partnership, trust or other corporation, including without limitation Borrower's directors, officers and employees, except advances to officers or employees with respect to expenses incurred by them in the ordinary course of their duties which are properly reimbursable by Borrower; (k) (Guarantees) assume, guaranty, endorse or otherwise become ------------ directly or contingently liable in respect of (including without limitation by way of agreement, contingent or otherwise, to purchase, provide funds to or otherwise invest in a debtor or otherwise to assure a creditor against loss), any indebtedness (except guarantees by endorsement of instruments for deposit or collection in the ordinary course of business and guarantees in favor of Lender) of any individual, partnership, trust or other corporation; 17 (l) (Investments) (i) use any loan proceeds to purchase or carry any ------------- "margin stock" (as defined in Regulation U of the Board of Governors of the Federal Reserve System) or (ii) invest in or purchase any stock or securities of any individual, partnership, trust or other corporation except (x) readily marketable direct obligations of, or obligations guaranteed by, the United States of America or any agency thereof or (y) cash collateral maintained with Lender. Lender agrees to pay interest on any such cash collateral in an amount equal to the interest that would be paid by Fleet National Bank on certificates of deposit issued for a similar amount for a similar time period. (m) (Transactions with Affiliates) enter into any lease or other ------------------------------ transaction with any shareholder, officer or affiliate on terms any less favorable than those which might be obtained at the time from persons who (or entities which) are not such a shareholder, officer or affiliate; (n) (Subsidiaries) sell, transfer or otherwise dispose of any stock -------------- of any subsidiary of Borrower; or (o) (Mergers, Consolidations or Sales) (a) merge or consolidate with ---------------------------------- or into any corporation; (b) enter into any joint venture or partnership with any person, firm or corporation; (c) convey, lease or sell all or any material portion of its property or assets or business to any other person, firm or corporation, except for the sale of Inventory in the ordinary course of its business; or (d) convey, lease or sell any of its assets to any person, firm or corporation for less than the fair market value thereof. For purposes of this section: "affiliate" shall mean any person or entity (i) which directly or indirectly controls, or is controlled by or is under common control with the Borrower or a subsidiary, (ii) which directly or indirectly beneficially holds or owns five (5%) percent or more of any class of voting stock of the Borrower or any subsidiary, or (iii) five (5%) percent or more of the voting stock of which is directly or indirectly beneficially owned or held by the Borrower or a subsidiary; "capital assets" shall mean assets that, in accordance with generally accepted accounting principles, are required or permitted to be depreciated or amortized on the Borrower's balance sheet; "capital expenditures" shall mean but not be limited to amounts paid during such fiscal year for capital assets or capital leases and shall include, in the case of a purchase, the entire purchase price and, in the case of a capital lease (but not an operating lease), the entire rental for the term; "capital leases" shall mean capital leases, conditional sales contracts and other title retention agreements relating to the purchase or acquisition of capital assets; "cash flow" shall mean EBITDA, minus unfinanced capital expenditures, minus taxes actually paid; "CMLTD" shall mean the current maturity of long term indebtedness paid during the applicable period, including but not limited to, amounts required to be paid during such period under capital leases; "control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of any person or entity, whether through the ownership of voting securities, by contract or otherwise; "distributions" shall mean all payment or distributions to shareholders in cash or in property other than reasonable salaries, bonuses and expense reimbursements; "EBITDA" shall mean, for the applicable period, income from continuing operations before the payment of interest and taxes, plus depreciation and amortization, determined in accordance with generally accepted accounting principles; "fixed charges" shall mean interest, plus CMLTD; "indebtedness" shall mean (i) all liabilities for borrowed money, for the deferred purchase price of property or services, and under leases which are or should be, under generally accepted accounting principles, recorded as capital leases, in respect of which a person or entity is directly or indirectly, absolutely or contingently liable as obligor, guarantor, endorser or otherwise, or in respect of which such person or entity otherwise assures a creditor against loss, (ii) all liabilities of the type described in (i) above which are secured by (or for which the holder has an existing right, contingent or otherwise, to be secured by) any lien upon property owned by such person or entity, whether or not such person or entity has assumed or become liable for the payment thereof, and (iii) all other liabilities or obligations which would, in accordance with generally accepted accounting principles, be classified as liabilities of such person or entity; "interest" shall mean, for the applicable period, all interest paid or payable, including, but not limited to, interest paid or payable on indebtedness and on capital leases, determined in accordance with generally accepted accounting principles; "senior indebtedness" shall mean any indebtedness which is not subordinated indebtedness; "subordinated indebtedness" shall mean indebtedness which is expressly stated to be subordinated or junior in right of payment to Borrower's Obligations to Lender in a manner and in a form which is satisfactory to Lender; "tangible capital base" shall mean Borrower's tangible net worth plus its subordinated indebtedness; "tangible net worth" shall mean Borrower's stockholders' equity determined in accordance with generally accepted accounting principles, consistently applied, subtracting therefrom (i) intangibles (as ----------- --------- determined in accordance with such principles so applied) and (ii) accounts and indebtedness owing to Borrower from any employee or parent, subsidiary or other affiliate of Borrower; and "unfinanced capital expenditures" shall mean capital expenditures, minus long term indebtedness issued during the applicable period for the acquisition of capital assets. 14. DEFAULT; RIGHTS AND REMEDIES UPON DEFAULT. (a) Upon the occurrence of any one or more of the following events (herein, "Events of Default"), Lender may decline to make any or all further loans hereunder or under any other agreements with Borrower, any and all Obligations of the Borrower to Lender shall become immediately due and payable, at the option of Lender and without notice or demand. The occurrence of any such Event of Default shall also constitute, without notice or demand, a default under all other agreements between Lender and the Borrower and instruments and papers given Lender by the Borrower, whether such agreements, instruments, or papers now exist or hereafter arise, namely: (i) The failure by the Borrower to pay when due any principal, interest, fees, costs, and expenses due pursuant to this Agreement. (ii) The failure by the Borrower to pay, when due, any other Obligations. (iii) Default by the Borrower in the observance or performance of any of the covenants or agreements of the Borrower contained in Sections 9(a) or 13 of this Agreement. (iv) The failure by the Borrower to promptly, punctually and faithfully perform, or observe any term, covenant or agreement on its part to be performed or observed pursuant to any of the provisions of this Agreement, other than those described in Sections 5(b), 5(f), 5(i), 9(a), 9(d), 13, or in any other agreement with Lender which is not remedied within the earlier of fifteen (15) days after (i) notice thereof by Lender to Borrower, or (ii) the date Borrower was required to give notice to Lender pursuant to Section 11(i) hereof. (v) The determination by Lender that any representation or warranty heretofore, now or hereafter made by the Borrower to Lender, in any documents, instrument, agreement, or paper was not true or accurate when given in any material respect. (vi) The occurrence of any event such that any material indebtedness of the Borrower from any lender other than Lender could be accelerated, notwithstanding that such acceleration has not taken place. 19 (vii) The occurrence of any event which would cause a lien creditor, as that term is defined in Section 9-301 of the Code, to take priority over advances made by Lender. (viii) A filing against or relating to the Borrower of (A) a federal tax lien in favor of the United States of America or any political subdivision of the United States of America, or (B) a state tax lien in favor of any state of the United States of America or any political subdivision of any such state. (ix) The occurrence of any event of default under any agreement between Lender and the Borrower or instrument or paper given Lender by the Borrower, whether such agreement, instrument, or paper now exists or hereafter arises (notwithstanding that Lender may not have exercised its rights upon default under any such other agreement, instrument or paper). (x) Any act by, against, or relating to the Borrower, or its property or assets, which act constitutes the application for, consent to, or sufferance of the appointment of a receiver, trustee or other person, pursuant to court action or otherwise, over all, or any part of the Borrower's property. (xi) The granting of any trust mortgage or execution of an assignment for the benefit of the creditors of the Borrower, or the occurrence of any other voluntary or involuntary liquidation or extension of debt agreement for the Borrower; the failure by the Borrower to generally pay the debts of the Borrower as they mature; adjudication of bankruptcy or insolvency relative to the Borrower; the entry of an order for relief or similar order with respect to the Borrower in any proceeding pursuant to Title 11 of the United States Code entitled "Bankruptcy" (hereinafter the "Bankruptcy Code") or any other federal bankruptcy law; the filing of any complaint, application, or petition by or against the Borrower initiating any matter in which the Borrower is or may be granted any relief from the debts of the Borrower pursuant to the Bankruptcy Code or any other insolvency statute or procedure; the calling or sufferance of a meeting of creditors of the Borrower; the meeting by the Borrower of a formal or informal creditor's committee; the offering by or entering into by the Borrower of any composition, extension or any other arrangement seeking relief or extension for the debts of the Borrower, or the initiation of any other judicial or non-judicial proceeding or agreement by, against or including the Borrower which seeks or intends to accomplish a reorganization or arrangement with creditors. (xii) The entry of any judgment(s) against Borrower, which judgment(s) is not satisfied or appealed from (with execution or similar process stayed) within thirty (30) days of its entry. (xiii) The occurrence of any event or circumstance with respect to the Borrower such that Lender shall believe in good faith that the prospect of payment of all or any part of the Obligations or the performance by the Borrower under this Agreement or any other agreement between Lender and the Borrower is impaired or there shall occur any material adverse change in the business or financial condition of the Borrower. (xiv) The entry of any court order which enjoins, restrains or in any way prevents the Borrower from conducting all or any part of its business affairs in the ordinary course of business. (xv) The service of any process upon Lender seeking to attach by trustee process any funds of the Borrower on deposit with Lender. (xvi) Any change in the identity, authority or responsibilities of any person having management or policy authority with respect to the Borrower from that existing at the execution of this Agreement, unless such person is replaced within thirty (30) days by another person acceptable to Lender. (xvii) The occurrence of any material uninsured loss, theft, damage or destruction to any material asset(s) of the Borrower. (xviii) Any act by or against, or relating to the Borrower or its assets pursuant to which any creditor of the Borrower seeks to reclaim or repossess or reclaims or repossesses all or a portion of the Borrower's assets. (xix) The death, termination of existence, dissolution, or liquidation of the Borrower, or the ceasing to carry on actively any substantial part of Borrower's current business. (xx) This Agreement shall, at any time after its execution and delivery and for any reason, cease (A) to create a valid and perfected first priority security interest in and to the property purported to be subject to this Agreement; or (B) to be in full force and effect or shall be declared null and void, or the validity or enforceability hereof shall be contested by the Borrower or any guarantor of the Borrower denies it has any further liability or obligation hereunder. (xxi) Any of the following events occur or exist with respect to the Borrower or any ERISA affiliate: (A) any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Internal Revenue Code) involving any Plan; (B) any "reportable event" (as defined in Section 4043 of ERISA and the regulations issued under such Section) shall occur with respect to any Plan; (C) The filing under Section 4041 of ERISA of a notice of intent to terminate any Plan or the termination of any Plan; (D) any event or circumstance exists which might constitute grounds entitling the Pension Benefit Guaranty Corporation (PBGC) to institute proceedings under Section 4042 of ERISA for the termination of, or for the appointment of a trustee to administer, any Plan, or the institution by the PBGC of any such proceedings; (E) or partial withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer Plan or the reorganization, insolvency, or termination of any Multiemployer Plan; and in each case above, such event or condition, together with all other events or conditions, if any, could in the opinion of Lender subject the Borrower to any tax, penalty, or other liability to a Plan, a Multiemployer Plan, the PBGC, or otherwise. (xxii) The occurrence of (A) any of the Events of Default described in Sections 14(vi), 14(viii), 14(xi), 14(xii), or 14(xix), with respect to any guarantor to Lender of the Obligations, as if such guarantor were the "Borrower" described therein, or (B) the failure by any guarantor to Lender of the Obligations to perform in accordance with the terms of any agreement between such guarantor and the Lender. (xxiii) The termination of any guaranty by any guarantor of the Obligations. Upon the occurrence and during the continuance of an Event of Default, Lender may declare any obligation Lender may have hereunder to be cancelled, declare all Obligations of Borrower to be due and payable and proceed to enforce payment of the Obligations and to exercise any and all of the rights and remedies afforded to Lender by the Uniform Commercial Code or under the terms of this Agreement or otherwise. In addition, upon the occurrence and during the continuation of an Event of Default, if Lender proceeds to enforce payment of the Obligations, Borrower shall be obligated to deliver to Lender cash collateral in an amount equal to the aggregate amounts then undrawn on all outstanding Letters of Credit or acceptances issued or guaranteed by Lender for the account of Borrower, if any, and Lender may proceed to enforce payment of the same and to exercise all rights and remedies afforded to Lender by the Uniform Commercial Code or under the terms of this Agreement or otherwise. Upon the occurrence of, and during the continuance of, an Event of Default, the Borrower, as additional compensation to the Lender for its increased credit risk, promises to pay interest on all Obligations (including, without limitation, principal, whether or not past due, past due interest and any other amounts past due under this Agreement) at a per annum rate of three (3%) percent greater than the rate of interest then specified in Section 5 of this Agreement. (b) Upon the filing of any complaint, application, or petition by or against the Borrower initiating any matter in which the Borrower is or may be granted any relief from the debts of the Borrower pursuant to the Bankruptcy Code, Lender's obligation hereunder shall be 21 cancelled immediately, automatically, and without notice, and all Obligations of the Borrower then outstanding shall become immediately due and payable without presentation, demand, or notice of any kind to the Borrower. (c) Any sale or other disposition of the Collateral may be at public or private sale upon such terms and in such manner as the Lender deems advisable, having due regard to compliance with any statute or regulation which might affect, limit or apply to the Lender's disposition of the Collateral. The Lender may conduct any such sale or other disposition of the Collateral upon the Borrower's premises. Unless the Collateral is perishable or threatens to decline speedily in value, or is of a type customarily sold on a recognized market (in which event the Lender shall provide the Borrower with such notice as may be practicable under the circumstances), the Lender shall give the Borrower at least the greater of the minimum notice required by law or seven (7) days prior written notice of the date, time and place of any proposed public sale, and of the date after which any private sale or other disposition of the Collateral may be made. The Lender may purchase the Collateral, or any portion of it at any such sale. (d) In connection with the Lender's exercise of the Lender's rights after the occurrence of an Event of Default, the Lender may enter upon, occupy and use any premises owned or occupied by the Borrower, and may exclude the Borrower from such premises or portion thereof as may have been so entered upon, occupied, or used by the Lender. The Lender shall not be required to remove any of the Collateral from any such premises upon the Lender's taking possession thereof, and may render any Collateral unusable to the Borrower. In no event, absent gross negligence or willful misconduct, shall the Lender be liable to the Borrower for use or occupancy by the Lender of any premises pursuant to this Agreement. (e) Upon the occurrence and during the continuation of any Event of Default, the Lender may require the Borrower to assemble the Collateral and make it available to the Lender at the Borrower's sole risk and expense at a place or places which are reasonably convenient to both the Lender and the Borrower. 15. PROCESSING AND SALES OF INVENTORY. So long as Borrower is not in default hereunder, Borrower shall have the right, in the regular course of business, to process and sell Borrower's Inventory. A sale in the ordinary course of business shall not include a transfer in total or partial satisfaction of a debt. 16. WAIVER OF JURY TRIAL. BORROWER AND Lender EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE OR HEREAFTER HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. Borrower hereby certifies that neither Lender nor any of its representatives, agents or counsel has represented, expressly or otherwise, that Lender would not, in the event of any such suit, action or proceeding, seek to enforce this waiver of right to trial by jury. Borrower acknowledges that Lender has been induced to enter into this Agreement by, among other things, this waiver. Borrower acknowledges that it has read the provisions of this Agreement and in particular, this section; has consulted legal counsel; understands the right it is granting in this Agreement and is waiving in this section in particular; and makes the above waiver knowingly, voluntarily and intentionally. 17. CONSENT TO JURISDICTION. Borrower and Lender agree that any action or proceeding to enforce or arising out of this Agreement may be commenced in the Superior Court for the judicial District of Hartford or the United States District Court for the District of Connecticut at Hartford, and Borrower waives personal service of process and agrees that a summons and complaint commencing an action or proceeding in any such court shall be properly served and confer personal jurisdiction if served by registered or certified mail to Borrower, or as otherwise provided by the laws of the State of Connecticut or the United States of America. 18. TERMINATION (a) Unless renewed in writing, this Agreement shall terminate on August 31, 2001 (the "Termination Date"), and all Obligations shall be due and payable in full without presentation, demand, or further notice of any kind, whether or not all or any part of the Obligations is otherwise due and payable pursuant to the agreement or instrument evidencing same. Lender may terminate this Agreement immediately and without notice upon the occurrence of an Event of Default. Notwithstanding the foregoing or anything in this Agreement or elsewhere to the contrary, the security interest, Lender's rights and remedies hereunder and Borrower's obligations and liabilities hereunder shall survive any termination of this Agreement and shall remain in full force and effect until all of the Obligations outstanding, or contracted or committed for (whether or not outstanding), before the receipt of such notice by Lender, and any extensions or renewals thereof (whether made before or after receipt of such notice), together with interest accruing thereon after such notice, shall be finally and irrevocably paid in full. No Collateral shall be released or financing statement terminated until such final and irrevocable payment in full of the Obligations, as described in the preceding sentence. 23 (b) If Borrower pays in full all or substantially all of the Obligations prior to the Termination Date, other than temporarily from funds internally generated in the ordinary course of business, at the time of such payment Borrower shall also pay to Lender a prepayment premium in an amount equal to: (i) five (5%) percent of the Credit Limit, if paid during the first year after the date of this Agreement, and (ii) three (3%) percent of the Credit Limit, if prepaid during the second year after the date of this Agreement. Any tender of payment in full of the Obligations following an acceleration by Lender of the Obligations pursuant to Section 14 shall be for purposes of this section deemed to be a prepayment requiring Borrower to pay the aforementioned prepayment premium. Such prepayment premium shall be paid to Lender as liquidated damages for the loss of the bargain by Lender and not as a penalty. The foregoing notwithstanding, Lender will waive the three (3%) percent prepayment premium in the second year if Borrower pays all of its Obligations to Lender with the proceeds of a loan from USTrust or any successor to USTrust. (c) In the event that Lender continues to make loans hereunder after the Termination Date without a written extension of the Termination Date, all such loans: (i) shall be made in the sole and absolute discretion of Lender; and (ii) shall, together with all other Obligations, be payable thereafter ON DEMAND. 19. MISCELLANEOUS. (a) No delay or omission on the part of Lender in exercising any rights shall operate as a waiver of such right or any other right. Waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion. All Lender's rights and remedies, whether evidenced hereby or by any other agreement, instrument or paper, shall be cumulative and may be exercised singularly or concurrently. (b) Lender is authorized to make loans under the terms of this Agreement upon the request, either written or oral, in the name of Borrower or any authorized person whose name appears at the end of this Agreement or of any of the following named person, or persons, from time to time, holding the following offices of Borrower, President, Treasurer and such other officers and authorized signatories as may from time to time be set forth in separate banking and borrowing resolutions. (c) This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties hereto; provided, -------- however, that Borrower may not assign this Agreement or any rights or duties - ------- hereunder without Lender's prior written consent and any prohibited assignment shall be absolutely void. No consent to an assignment by Lender shall release Borrower from its Obligations. Lender may assign this Agreement and its rights and duties hereunder and no consent or approval by Borrower is required in connection with any such assignment. Lender reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in Lender's rights and benefits hereunder. In connection with any assignment or participation, Lender may disclose all documents and information which Lender now or hereafter may have relating to Borrower or Borrower's business. To the extent that Lender assigns its rights and obligations hereunder to another party, Lender thereafter shall be released from such assigned obligations to Borrower and such assignment shall effect a novation between Borrower and such other party. (d) Borrower agrees that any and all loans made by Lender to Borrower or for its account under this Agreement shall be conclusively deemed to have been authorized by Borrower and to have been made pursuant to duly authorized requests therefor on its behalf. (e) Unless otherwise defined in this Agreement, capitalized words shall have the meanings set forth in the Uniform Commercial Code as in effect in the Commonwealth of Massachusetts as of the date of this Agreement. (f) Paragraph and section headings used in this Agreement are for convenience only, and shall not effect the construction of this Agreement. If one or more provisions of this Agreement (or the application thereof) shall be invalid, illegal or unenforceable in any respect in any jurisdiction, the same shall not, invalidate or render illegal or unenforceable such provision (or its application) in any other jurisdiction or any other provision of this Agreement (or its application). This Agreement is the entire agreement of the parties with respect to the subject matter hereof and supersedes any prior written or verbal communications or instruments relating thereto. (g) Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other loan document shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail (postage prepaid, return receipt requested ), overnight courier, or telefacsimile to Borrower or to Lender, as the case may be, at its address set forth below: If to Lender: American Commercial Finance Corporation 433 South Main Street West Hartford, Connecticut 06110 Attn: Richard E. Mount, President Telephone: (800) 970-9997 Telecopier: (800) 217-0500 With a copy to: Michael J. Ruberto, Esq. Shapiro, Israel & Weiner, P.C. 100 North Washington Street Boston, Massachusetts 02110 Telephone: (617) 742-4200 Telecopier: (617) 742-2355 If to Borrower: Aseco Corporation 500 Donald Lynch Boulevard Marlboro, Massachusetts 01752 Attn: Sebestian J. Sicari, President Telephone: (508) 481-8896 Telecopier: With a copy to: Robert V. Jahrling, Esq. Choate, Hall & Stewart Exchange Place, 53 State Street Boston, Massachusetts 02109 Telephone: (617) 248-5000 Telecopier:(617) 248-4000 The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other. All notices or demand sent in accordance with this section shall be deemed received on the earlier of the date of actual receipt or three (3) days after the deposit thereof in the mail. (h) Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against Lender or Borrower, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto. (i) Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. (j) This Agreement, together with the other documents and instruments executed concurrently herewith represent the entire and final understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by evidence of any prior, contemporaneous or subsequent other agreement, oral or written, before the date hereof. 25 (k) This Agreement can only be amended by a writing signed by both Lender and Borrower. (l) This Agreement and other financing agreements, and all transactions, assignments and transfers hereunder and thereunder, and all the rights of the parties, shall be governed as to validity, construction, enforcement and in all other respects by the laws of the State of Connecticut (but not its conflicts of law provisions). Borrower hereby designates and appoints, without power of revocation, the Secretary of the State of Connecticut as Borrower's agent upon whom may be served all process, pleadings, notices or other papers which may be served upon it as a result of any of its Obligations under this Agreement. Borrower agrees that the Superior Court for the Judicial District of Hartford or the United States District Court for the District of Connecticut at Hartford shall have jurisdiction to hear and determine any claims or disputes pertaining to the financing transactions of which this Agreement is a part and/or to any matter arising or in any way related to this Agreement or any other agreement between Lender and Borrower, and Borrower expressly submits and consents in advance to such jurisdiction in any action or proceeding. 20. WAIVERS. (a) BORROWER ACKNOWLEDGES THAT THE LOAN EVIDENCED HEREBY IS A COMMERCIAL TRANSACTION AND WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH LENDER MAY DESIRE TO USE, AND FURTHER WAIVES ITS RIGHTS TO REQUEST THAT LENDER POST A BOND, WITH OR WITHOUT SURETY, TO PROTECT BORROWER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY LENDER. BORROWER FURTHER WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT, NOTICE OF NONPAYMENT, PROTEST AND NOTICE OF ANY RENEWALS OR EXTENSIONS. (b) BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS AGREEMENT IS A PART AND/OR THE ENFORCEMENT OF ANY OF LENDER'S RIGHTS, INCLUDING WITHOUT LIMITATION, TORT CLAIMS. BORROWER ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS. BORROWER FURTHER ACKNOWLEDGES THAT LENDER HAS NOT REPRESENTED TO BORROWER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. (c) BORROWER ACKNOWLEDGES THAT IT MAKES THE FOREGOING WAIVERS IN (a) AND (b) ABOVE, KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF SUCH WAIVERS WITH ITS ATTORNEYS. Witnessed by: ASECO CORPORATION ______________________________ By:/s/ Mary R. Barletta --------------------------- ______________________________________ Mary R. Barletta, Treasurer AMERICAN COMMERCIAL FINANCE CORPORATION By:/s/ Richard E.Mount ------------------------------- Richard E. Mount, President COMMONWEALTH OF MASSACHUSETTS Suffolk, ss. August 19, 1999 Then personally appeared the above-named, Mary R. Barletta, Treasurer, and acknowledged the foregoing instrument to be the free act and deed of Aseco Corporation, before me, /s/Michael J. Ruberto, Notary Public My Commission Expires: June 15, 2001 27 EX-2.0 3 AGREEMENT AND PLAN OF MERGER EXHIBIT 2.0 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of the 18th day of September, 1999, by and among Micro Component Technology, Inc., a Minnesota corporation ("Parent"), MCT Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and Aseco Corporation, a Delaware corporation (the "Company"). WHEREAS, the Board of Directors of the Parent and the Company deem it advisable and in the best interests of their respective stockholders to consummate, and have approved, the business combination transaction provided for herein in which Merger Sub would merge (the "Merger") with and into the Company, and the Company would become a wholly-owned subsidiary of Parent. WHEREAS, the parties hereto intend that (i) the issuance of the Parent Common Stock (as defined below) to the shareholders of the Company in connection with the Merger shall be on a tax-free basis to the shareholders of the Company and (ii) this transaction shall qualify for federal income tax purposes as a reorganization within the meaning of (S)(S) 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, the parties hereto agree as follows: ARTICLE I THE MERGER Section 1.1 Effective Time of the Merger. Subject to the provisions of this Agreement, articles of merger (the "Articles of Merger") shall be properly executed and thereafter duly filed with the Secretary of State of Delaware as provided in the Delaware General Corporation Law (the "Delaware Law"), as soon as practicable on or after the Closing (as defined in Section 1.2). The Merger shall become effective upon the filing of the Articles of Merger with the Secretary of State of Delaware or at such other time as the parties may agree upon in writing pursuant to applicable law (the "Effective Time"). Section 1.2 Closing. The closing of the Merger (the "Closing") will take place as set forth in Section 6.4 hereof at the offices of Best & Flanagan LLP, 4000 U.S. Bank Place, 601 Second Avenue South, Minneapolis, Minnesota, or at such other place and time as is agreed to in writing by the parties hereto. Section 1.3 Effects of the Merger. (a) At the Effective Time (i) Merger Sub shall be merged with and into the Company which shall be the surviving corporation (the "Surviving Corporation"; Merger Sub and the Company are sometimes referred to herein as the "Constituent Corporations") and the separate existence of Merger Sub shall cease, (ii) the Certificate of Incorporation of Merger Sub shall be the Certificate of Incorporation of the Surviving Corporation, and (iii) the Bylaws of the Merger Sub as in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation. (b) Upon the effectiveness of the Merger, all of the estate, property, rights, privileges, powers and franchises of the Constituent Corporations and all of their property, real, personal and mixed, and all the debts due on whatever account to either of them, as well as all stock subscriptions and other choses in action belonging to either of them shall be transferred to and vested in the Surviving Corporation; and all claims, demands, property and other interests shall be the property of the Surviving Corporation, and the title to all real estate vested in either of the Constituent Corporations shall not revert or be in any way impaired by reason of the Merger, but shall be vested in the Surviving Corporation all as provided in Section 251 and 259 and other applicable provisions of Delaware Law. The Merger is intended to constitute a tax-free reorganization under Section 368(a) of the Code. The parties hereby adopt this Agreement as a "plan of reorganization" within the meaning of Section 368(a) of the Code and the regulations thereunder. Section 1.4 Directors and Officers of Surviving Corporation. (a) The directors of Merger Sub at the Effective Time shall be the initial directors of the Surviving Corporation and shall hold office from the Effective Time until their respective successors are duly elected or appointed and qualify in the manner provided in the Certificate of Incorporation and Bylaws of the Surviving Corporation, or as otherwise provided by law. (b) The officers of the Merger Sub at the Effective Time shall be the initial officers of the Surviving Corporation and shall hold office from the Effective Time until their respective successors are duly elected or appointed and qualify in the manner provided in the Certificate of Incorporation and Bylaws of the Surviving Corporation, or as otherwise provided by law. ARTICLE II CONVERSION OF SECURITIES Section 2.1 Conversion of Capital Stock. As of the Effective Time, by virtue of the Merger and without any action on the part of the holders thereof: (a) Each issued and outstanding share of the Company's Common Stock, $.01 par value (the "Shares") not owned by Parent, Merger Sub or any other direct or indirect subsidiary of Parent (other than those Shares held by stockholders of the Company who properly exercise any dissenters' rights available under applicable law) immediately prior to the Effective Time shall be converted into the right to receive its pro rata share of the Shareholder Consideration (as defined below). (b) Each then outstanding Share owned by Parent, Merger Sub or any other direct or indirect subsidiary of Parent shall be cancelled. (c) Each share of the common stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into one share of the common stock of the Surviving Corporation. (d) All Shares that are owned by the Company as treasury stock or by any wholly owned Subsidiary (as hereinafter defined) of the Company shall be cancelled and retired for no value and shall cease to exist and no consideration shall be delivered in exchange therefor. As used in this Agreement, the word "Subsidiary" means, with respect to any party, any corporation or other organization, whether incorporated or unincorporated, of which (i) at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the Board of Directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party or (ii) such party or any other Subsidiary of such party is a general partner (excluding partnerships, the general partnership interests of which held by such party or any Subsidiary of such party do not have a majority of the voting interest in such partnership). Section 2.2 Consideration. The total consideration to be paid in connection with the Merger shall be $16,300,000, subject to any adjustment pursuant to in Section 6.6 and the effect of the maximum and minimum prices set forth below (the "Acquisition Consideration"). Except as provided in Section 2.3(b), the Acquisition Consideration, shall be paid solely in shares of the Parent's Common Stock, $.01 par value per share (the "Parent Common Stock"). The Shareholder Consideration shall be the aggregate number of shares of Parent Common Stock, subject to Section 2.3(b), to be issued upon conversion pursuant to Section 2.1(a), determined as follows: (a) The Acquisition Consideration, subject to Section 6.6, shall be divided by the average closing sale price per share of the Parent Common Stock over the last twenty trading days prior to the day of the Closing, as reported by Nasdaq, provided that if such average closing price is less than $3.565 per share, the divisor shall be $3.565, and if such average closing price is more than $5.563, the divisor shall be $5.563 as so adjusted (the "Parent Stock Price"). The result shall be the "Total Share Consideration". (b) The Total Share Consideration shall be divided by the actual number of Shares outstanding immediately prior to the Closing (plus 709,152 shares to reflect shares reserved to options (which was calculated on the treasury stock method as of the execution of this Agreement)). The result shall be the "Exchange Ratio". (c) The number of shares of Parent Common Stock determined by multiplying the Exchange Ratio by the number of issued and outstanding shares of Shares immediately prior to the Closing shall be the "Shareholder Consideration". Section 2.3 Payment of the Acquisition Consideration. (a) Exchange Agent. As of the Effective Time, the Parent shall deposit with Norwest Bank Minnesota, N.A. (the "Exchange Agent"), the Shareholder Consideration. The Exchange Agent shall hold such shares in a separate account for exchange pursuant to the terms of this Agreement (the "Exchange Fund"). Promptly after the Effective Time, the Exchange Agent shall mail to each holder of record of Shares immediately prior to the Effective Time (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Shares shall pass, only upon proper delivery of certificates for the Shares (the "Certificates") to the Exchange Agent and shall be in customary form) and (ii) instructions for use in effecting the surrender of the Certificates (or affidavits in lieu thereof) in exchange for certificates representing shares of Parent Common Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent, together with such letter of transmittal, duly executed, and such other documents as may be required pursuant to such instructions, the holder of such Certificate shall receive in exchange therefore a new certificate representing that number of whole shares of Parent Common Stock determined by multiplying the number of Shares represented by such Certificate by the Exchange Ratio, and subtracting any resulting fractional Shares. The holder shall also receive cash in lieu of any fractional shares, and the Certificate so surrendered shall forthwith be cancelled. In the event of a transfer of ownership of Shares which is not registered in the transfer records of the Company, a certificate representing the proper number of shares of Parent Common Stock may be issued to a transferee if the certificate representing such Shares is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid. Until surrendered as contemplated by this Section 2.4, each Certificate shall be deemed at any time after the Effective Time to represent the shares of Parent Common Stock (and cash in lieu of fractional shares) into which the Shares previously represented by such Certificate were converted at the Effective Time. All shares of Parent Common Stock issued upon conversion of the Shares (including any cash paid in lieu of fractional shares) shall be deemed to have been issued in full satisfaction of all rights pertaining to such Shares. (b) No Fractional Shares. No certificates or scrip representing fractional shares of Parent Common Stock shall be issued upon the surrender for exchange of Certificates for the Shares and the owner of such fractional share interests will not be entitled to vote or to any rights of a stockholder of the Parent. Each holder of Certificates who otherwise would be entitled to receive a fractional share of Parent Common Stock shall receive, in lieu of such fractional share interest, an amount of cash (without interest) determined by multiplying (i) the Parent Stock Price, by (ii) the fractional share interest to which such holder would otherwise be entitled. The Parent shall transfer to the Exchange Agent on a timely basis the cash necessary to make payments under this paragraph (b). (c) Lost, Stolen or Destroyed Certificates. If any Certificate has been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person or entity that claims such Certificate to be lost, stolen or destroyed, Parent will issue in exchange for such lost, stolen or destroyed Certificate such pro rata share of the Shareholder Consideration deliverable in respect thereof as determined in accordance with this Agreement; provided that Parent may require that the owner of such lost, stolen or destroyed Certificate deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Parent, the Company or the Exchange Agent with respect to the Certificates alleged to have been lost, stolen or destroyed. Section 2.4 Termination of Exchange Fund. (a) Termination of Exchange Fund. Any portion of the Exchange Fund which remains undistributed to the holders of Shares for two years after the Effective Time shall be delivered to the Parent, upon demand, and any holders of Shares who have not theretofore complied with this Article II shall thereafter look only to the Parent for the shares of the Parent Common Stock and any cash in lieu of fractional shares to which they are entitled. (b) No Liability. Neither the Parent nor the Company shall be liable to any holder of Shares for any such shares of the Parent Common Stock or cash delivered to a public official pursuant to any abandoned property, escheat or similar Law. For the purposes of this Agreement, "Law" shall mean any federal, state or local law, statute, ordinance, rule, regulation, order, judgment or decree. (c) Stock Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed and there shall be no further registration of transfers of Shares thereafter on the records of the Company. From and after the Effective Time, the holders of certificates representing Shares outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such Shares except as otherwise provided in this Agreement or by Law. On or after the Effective Time, any Certificates presented to the Exchange Agent or Parent for any reason shall be converted into shares of the Parent Common Stock and any cash in lieu of fractional shares of the Parent Common Stock to which the holders of the Certificates are entitled pursuant to this Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES OF COMPANY The Company represents and warrants to Parent and Merger Sub as follows: Section 3.1 Organization; Subsidiaries. Each of the Company and its respective Subsidiaries is a corporation or other organization duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation and has all requisite corporate power and corporate authority and all necessary governmental approvals to own, lease and operate its properties and to carry on its business as now being conducted, except where the failure to have such power, authority, and governmental approvals would not have a Material Adverse Effect (as defined herein) on or of the Company and its Subsidiaries. In this Agreement, the term "Material Adverse Effect" used in reference to the Company means any event, change or effect, which either alone or in the aggregate with all other such events, changes or effects, is, or is reasonably likely to be, materially adverse to the business, financial condition, properties, assets, capitalization, stockholders' equity, liabilities (including contingent liabilities), results of operations, licenses or franchises of the Company and its Subsidiaries on consolidated basis. Each of Company and its Subsidiaries is duly qualified or licensed to do business and in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing would not have a Material Adverse Effect. Section 3.1 of the disclosure schedule delivered by the Company to Parent on the date hereof (the "Company Disclosure Schedule") sets forth a complete and accurate list of all jurisdictions in which Company or its Subsidiaries is qualified to do business as a foreign corporation and sets forth a complete and accurate list of all of its Subsidiaries (including jurisdiction of incorporation or formation and the capitalization of each Subsidiary). All of the outstanding shares of capital stock of Company's Subsidiaries are duly authorized, validly issued, fully paid and nonassessable and are owned, directly or indirectly, by the Company. Except as disclosed in Section 3.1 of the Company Disclosure Schedule, Company does not have any Subsidiaries or, directly or indirectly, own any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity. The copies of the Certificate of Incorporation and Bylaws of Company, and of the comparable organizational documents of each of its Subsidiaries, provided to Parent, are true and complete copies of all such documents, in each case as amended to the date hereof and shall be as of the Effective Time. Except as disclosed in Section 3.1, neither the Company nor any of its Subsidiaries is in violation of its Certificate of Incorporation, Bylaws or comparable organizational documents. Section 3.2 Capitalization. The authorized capital stock of Company consists of: 15,000,000 shares of common stock, no par value (the "Company Common Stock"), of which 3,887,543 shares are issued and outstanding, and 1,000,000 shares of preferred stock, par value $.01 per share, of which none are issued and outstanding. All of the outstanding shares of Company Common Stock are, and immediately prior to the Effective Time the outstanding shares of the Company Common Stock shall be, duly authorized, validly issued, fully paid and non- assessable and free of any preemptive rights in respect thereto. Except as set forth on Section 3.2 of the Company Disclosure Schedule, no bonds, debentures, notes or other indebtedness having the right to vote (or convertible into securities having the right to vote) ("Voting Debt") of Company are issued or outstanding. Except as set forth above or in Section 3.2 of the Company Disclosure Schedule, there are no existing options, warrants, calls, subscriptions or other rights or other agreements or commitments of any character relating to the issued or unissued capital stock or Voting Debt of Company or any of its Subsidiaries or obligating Company or any of its Subsidiaries to issue, transfer or sell or cause to be issued, transferred or sold any shares of the respective capital stock or Voting Debt or securities convertible into or exchangeable for such shares or equity interests or obligating Company or any of its Subsidiaries to grant, extend or enter into any such option, warrant, call, subscription or other right, agreement or commitment. Company is not a party to any voting trust or other arrangement or understanding with respect to the voting of Company Common Stock. There are no contractual obligations of Company or its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of Company or any of its Subsidiaries. Section 3.3 Authority. Company has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of the Merger and of the other transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Company, and no other corporate proceedings on the part of Company are necessary to authorize this Agreement or to consummate the transactions so contemplated hereby (other than, with respect to the Merger, the adoption of this Agreement by the stockholders of the Company as set forth in Section 7.1 (d)). The Board of Directors of Company has duly approved this Agreement, determined that the Merger is fair to, and in the best interest of, its stockholders and resolved to recommend that such stockholders approve this Agreement and the Merger, and such resolutions are in full force and effect. Duly certified, true and correct copies of such resolutions adopted will be provided to Parent. This Agreement has been duly executed and delivered by Company, and this Agreement constitutes a valid and binding obligation of Company, enforceable against Company in accordance with its terms. Section 3.4 Consents and Approvals; No Violations. Except as disclosed in the Company's filings pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") or as set forth in Section 3.4 of the Company Disclosure Schedule, and except for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the Exchange Act and Delaware Law, neither the execution, delivery or performance of this Agreement nor the consummation by Company of the transactions contemplated hereby nor compliance by Company with any of the provisions hereof will (i) conflict with or result in any breach of any provision of the Articles of Incorporation or Bylaws of Company or of the comparable organizational documents of any of its Subsidiaries, (ii) require any filing with, or permit, authorization, consent or approval of, any court, arbitral tribunal, legislative body, administrative agency or commission or other governmental or other regulatory authority or agency (a "Governmental Entity"), (iii) result in a violation or breach of, or constitute (with notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) or require any authorization, consent or approval under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which Company or any of its Subsidiaries is a party or by which any of them or any of their properties or assets may be bound or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Company or any of its Subsidiaries or any of their properties or assets, except in the case of (ii) or (iii) for violations, breaches or defaults which would not, and except for failures to obtain such permits, authorizations, consents or approvals or to make such filings which would not, individually or in the aggregate, have a Material Adverse Effect. Section 3.5 SEC Reports. The Company has furnished to Parent a true and complete copy of each prospectus, definitive proxy statement and report filed by the Company with the SEC since the date of the Company's year end for fiscal year 1996 (the "SEC Reports"), including the Company's Annual Report on Form 10-K, for the fiscal year ended March 28, 1999 (the "Form 10-K"). None of the SEC Reports (as of their respective filing dates) contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements made therein not misleading. The consolidated balance sheet of the Company, as of March 28, 1999, included in SEC Reports (including the related notes and schedules), presents fairly, in all material respects, the consolidated financial position of the Company as of its date and the related consolidated statements of operations, cash flows and changes in stockholders' equity included in the SEC Reports (including any related notes and schedules) present fairly, in all material respects, the consolidated results of operations and cash flows of the Company for the periods set forth therein, in each case, in accordance with generally accepted accounting principles ("GAAP"), except as otherwise specified therein (including in the related notes). Section 3.6 Proxy Statement/Prospectus. The combined proxy statement and Form S- 4 registration statement to be prepared jointly by the parties and filed with the Securities and Exchange Commission for the purpose of soliciting shareholder votes for the Merger and registering shares of the Parent to be issued to the Company's shareholders in the Merger, respectively, is referred to herein as the "Proxy Statement/Prospectus". The information provided by the Company for inclusion in the Proxy Statement/Prospectus shall be true and complete, shall not contain any untrue statement of a material fact and shall not omit to state any material fact required to be stated therein or necessary in order to make the statements made therein not misleading. Section 3.7 Employee Benefits. All employment contracts, all termination agreements with executive officers and all bonus, deferred compensation, pension, retirement, profit sharing, severance pay, stock option, stock purchase and other material employee benefit plans (other than medical and other similar welfare plans made generally available to all employees of the Company or a subsidiary of the Company) to which the Company or any of its subsidiaries is a party are listed, summarized or otherwise described or incorporated by reference in the SEC Reports or in Section 3.7 of the Company Disclosure Schedule. Section 3.8 Absence of Certain Changes or Events. Since March 28, 1999, (i) Company and Company's Subsidiaries have conducted their respective businesses only in the ordinary and usual course of such businesses and (ii) there has not been (A) any change, or any development of which management of Company has knowledge, which has had or is reasonably likely to have a Material Adverse Effect; (B) any declaration, setting aside or payment of any dividend or other distribution with respect to the capital stock of Company other than regular quarterly cash dividends; (C) any material change by Company in accounting principles, practices or methods; or (D) any increase of more than $40,000 in aggregate in the compensation payable or which could become payable by Company and Company's Subsidiaries to their officers or key employees, or any material amendment of any Company Benefit Plans. Section 3.9 ERISA Compliance. (a) Company Disclosure Schedule 3.09(a) attached hereto contains a list and brief description of all "employee pension benefit plans" (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) (sometimes referred to herein as "Pension Plans"), all "employee welfare benefit plans" (as defined in Section 3(1) of ERISA) and all other bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, stock bonus, phantom stock, retirement, vacation, severance, disability, death benefit, welfare, Christmas bonus, hospitalization, medical or other plan, arrangement or understanding, whether or not legally binding, providing benefits to any current or former employee, officer or director of Company, or maintained or contributed to by Company for the benefit of any employee, officer or director of Company currently or within the last five years (collectively, "Benefit Plans"). (b) On or prior to the date of this Agreement, Company has delivered to Parent true and complete copies of (i) each Benefit Plan or, in the case of any unwritten Benefit Plans, descriptions thereof (ii) the most recent annual report on Form 5500 filed with the IRS with respect to each Benefit Plan, if any such report was required, (iii) the most recent summary plan description for each Benefit Plan for which such summary plan description is required, (iv) each trust agreement and group annuity contract relating to any Benefit Plan, (v) the most recent actuarial report relating to any Benefit Plan, and (vi) the most recent IRS determination letter or opinion letter for each Benefit Plan. (c) Except as disclosed in Company Disclosure Schedule 3.09(c) attached hereto, all Pension Plans have been the subject of determination letters from the IRS to the effect that such Pension Plans are qualified and exempt from federal income taxes, and no such determination letter has been revoked nor has revocation been threatened, nor has any such Pension Plan been amended since the date of its most recent determination letter or application therefor in any respect that could adversely affect its qualification or increase its costs. (d) Except as disclosed on Company Disclosure Schedule 3.09(d) attached hereto, no Pension Plan that Company maintains, or to which Company is or was previously obligated to contribute, had, as of the respective last annual valuation date for each Pension Plan, any unfunded "benefit liabilities,"(as defined in Section 4001(a)(16) of ERISA) based on actuarial assumptions which have been furnished to Parent. None of the Pension Plans has an "accumulated funding deficiency," (as defined in Section 412(a) of the Code) whether or not waived. None of Company, any officer of Company or any of the Benefit Plans which are subject to ERISA, including, without limitation, the Pension Plans, or any trusts created thereunder, or, to the best knowledge of the Company, any trustee or administrator thereof, has engaged in a "prohibited transaction" (as defined in Section 406 of ERISA in Section 4975(c) of the Code) or any other breach of fiduciary responsibility that could subject Company or any officer of Company to a material amount of tax or penalty on prohibited transactions or to any material liability under ERISA. Except as disclosed on Company Disclosure Schedule 3.09(d) attached hereto, neither any of such Pension Plans nor any of such trusts have been terminated, nor has there been any "reportable event" (as defined in Section 4043(c) of ERISA) with respect to which the 30-day notice requirement has not been waived and Company is not aware of any other reportable events with respect thereto during the last five years. Company has never had an obligation to contribute to a "multi- employer plan" as defined in Section 3(37) of ERISA. No liability to the Pension Benefit Guaranty Corporation (the "PBGC") has been or is expected to be incurred with respect to any Benefit Plan by reason of a Benefit Plan termination. The PBGC has not instituted proceedings to terminate any Benefit Plan. Except as noted on Company Disclosure Schedule 3.09(d), there is no Benefit Plan to which Title IV of ERISA applies which has terminated and whose "date of termination" (as defined in Section 4048 of ERISA) occurred after September 1, 1974 or any such Benefit Plan to which Title IV of ERISA applies which has partially terminated. No event has occurred, and there exists no condition or set of circumstance which presents a material risk of the termination or partial termination of any such Benefit Plan, which could result in a liability on the part of Company to the PBGC. (e) With respect to any Benefit Plan that is an employee welfare benefit plan, except as disclosed in Company Disclosure Schedule 3.09(e) attached hereto, (i) no such Benefit Plan is a "welfare benefit fund", (as defined in Section 419(e) of the Code), (ii) each such Benefit Plan that is a group health plan complies in all material respects with the applicable requirements of the Code and the Social Security Act and (iii) each such Benefit Plan, including, without limitation, any such Plan covering retirees or other former employees, may be amended or terminated without liability to Parent or Company on or at any time after the Effective Date of the Merger. (f) Each Benefit Plan and all related trust or other agreements conform in form and operation to, and comply with, all applicable laws and regulations, including, without limitation, ERISA and the Code, and all reports or information relating to each such Benefit Plan required to be filed with any Governmental Entity or disclosed to participants have been timely filed and disclosed. (g) Company has not announced a plan to create or amend, or noes it have any legally binding commitment to create or amend, any Benefit Plan or to create any new arrangement which would be a Benefit Plan. (h) All insurance premiums with respect to any Benefit Plan, including, without limitation, premiums to the PBGC, have been paid in full. Except as disclosed on Company Disclosure Schedule 3.09(h) attached hereto, there are no retrospective adjustments provided for under any insurance contracts maintained pursuant to any Benefit Plan with regard to policy years or other periods ending on or before the Effective Date of the Merger. (i) No Benefit Plan, or the deduction of any contributions thereto by Company, has been the subject of audit by the IRS or the Department of Labor, and no litigation or asserted claims exist against Company or any Benefit Plan or fiduciary with respect thereto, other than such benefit claims as are made in the normal operation of a Benefit Plan. There are no known facts which could give rise to any action, suit, grievance, arbitration or other claim in connection with any Benefit Plan. (j) With respect to any Benefit Plan which covers current or former employees, officers or directors who are not residents of the United States of America, any references in this Company Disclosure Schedule 3.09(j) to ERISA, the Code or any other applicable law will be read to mean any applicable law of similar import for the jurisdiction in which such individuals reside. Section 3.10 Litigation. Section 3.10 of the Company Disclosure Schedule sets forth a complete and accurate list and description of all suits, claims, actions, proceedings and investigations which are pending or threatened against the Company or any of its Subsidiaries, judicial, administrative or otherwise. Section 3.11 Environmental Matters. (a) As used in this Agreement: "Environmental Claim" means any claim, action, cause of action, investigation or notice (written or oral) by any person or entity alleging potential liability (including, without limitation, potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from (i) the presence, or release into the environment, of any Materials of Environmental Concern (as hereinafter defined) at any location, whether or not owned or operated by Company or its Subsidiaries or (ii) circumstances forming the basis of any violation, or alleged violation, of any Environmental Laws (as hereinafter defined). "Environmental Laws" means all federal, state, local and foreign laws and regulations relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), including, without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of Materials of Environmental Concern, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern. "Materials of Environmental Concern" means chemicals, pollutants, contaminants, hazardous wastes, toxic substances, petroleum and petroleum products. (b) Except as set forth in Section 3.11 of the Company Disclosure Schedule, Company and its Subsidiaries for their respective businesses as previously or now being conducted are in material compliance with all applicable Environmental Laws, which compliance includes, but is not limited to, the possession by Company and its Subsidiaries of all permits and other governmental authorizations required under applicable Environmental Laws, and compliance with the terms and conditions thereof. Except as set forth in Section 3.11(b) of the Company Disclosure Schedule, neither Company nor its Subsidiaries have received any communication (written or oral), whether from a governmental authority, citizens group, employee or otherwise, that alleges that Company or its Subsidiaries are not in such full compliance and, to Company's best knowledge, there are no circumstances that may prevent or interfere with such full compliance in the future. All material permits and other governmental authorizations currently held by Company and its Subsidiaries pursuant to the Environmental Laws are identified in Section 3. 11 of the Company Disclosure Schedule. (c) Except as set forth in Section 3.11 of the Company Disclosure Schedule, there is no Environmental Claim pending or threatened against Company or its Subsidiaries or, to Company's best knowledge, against any person or entity whose liability for any Environmental Claim Company or its Subsidiaries have or may have retained or assumed either contractually or by operation of law. (d) Except as set forth in Section 3.11 of the Company Disclosure Schedule, there are no past or present actions, activities, circumstances, conditions, events or incidents, including, without limitation, the release, emission, discharge, presence or disposal of any Material of Environmental Concern, that could form the basis of any Environmental Claim against Company or its Subsidiaries or, to Company's best knowledge, against any person or entity whose liability for any Environmental Claim Company or its subsidiaries have or may have retained or assumed either contractually or by operation of law. (e) Without in any way limiting the generality of the foregoing to the knowledge of the Company, (i) all on-site and off-site locations where Company or its Subsidiaries have stored, disposed or arranged for the disposal of Materials of Environmental Concern are identified in Section 3.11 of the Company Disclosure Schedule, (ii) to the best knowledge of Company without having made any inquiries to third parties with respect thereto, all underground storage tanks, and the capacity and contents of such tanks, located on property owned or leased by Company or its Subsidiaries are identified in Section 3.11 of the Company Disclosure Schedule, (iii) except as set forth in Section 3.11 of the Company Disclosure Schedule, there is no asbestos contained in or forming part of any building, building component, structure or office space owned or leased by Company or its Subsidiaries, and (iv) except as set forth in Section 3.11 of the Company Disclosure Schedule, to the best knowledge of Company without having made any inquiries to third parties with respect thereto, no polychlorinated biphenyls (PCBIs) are used or stored at any property owned or on or within any premises leased by Company or its Subsidiaries. Section 3.12 Absence of Certain Practices. Neither Company nor any of its Subsidiaries nor, to the best knowledge of Company, any director, officer, agent, employee, or other person acting on behalf of Company or any of its Subsidiaries, has used or received any corporate or other funds for unlawful contributions, payments, gifts, or entertainment, or made any unlawful expenditures relating to political activity to, or on behalf of, government officials or others. Section 3.13 Intellectual Property. Section 3.13 of the Company Disclosure Schedule contains a complete and accurate list of (i) all patents, registered trademarks, trade names and copyrights owned by Company, used or proposed to be used by Company or any of its Subsidiaries and all applications therefor (indicating whether or not such patent, trademark, trade name, or copyright is owned by Company) and (ii) all agreements relating to technology, know-how or processes which Company or any of its Subsidiaries is licensed or authorized to use by others. Except as set forth in Section 3.13 of the Company Disclosure Schedule, no claims have been asserted by any person challenging or questioning the use by Company or any of its Subsidiaries of any such patents, trademarks, trade names, copyrights, technology, or processes (the "Intellectual Property"), with respect to Intellectual Property by Company or its subsidiaries, challenging or questioning said ownership, or the Company's use of any know-how owned by or used by Company or any of its Subsidiaries or challenging or questioning the validity or effectiveness of any such license or agreement and, to the knowledge of Company, there exists no valid basis for any such claim, except for such claim or claims an adverse determination of which, individually or in the aggregate, would not have a Material Adverse Effect; and to the knowledge of the Company, the use of such Intellectual Property by Company or any of its Subsidiaries does not infringe on the rights of any person, except for such infringement or infringements which, individually or in the aggregate, would not have a Material Adverse Effect on Company. For the purposes of this Agreement, "knowledge of the Company" shall mean the actual knowledge of any of its directors, officers, employees, investment bankers, attorneys or accountants, and shall include any information which any of such persons could have discovered through reasonable investigation in the ordinary course of their duties. Except as set forth on Section 3.13 of the Company Disclosure Schedule, the Intellectual Property registrations and patents owned by Company or any of its Subsidiaries, and any applications therefore, are to the knowledge of the Company subsisting and enforceable, and none has lapsed, expired, or been abandoned, and all such registrations, patents and applications therefore are currently standing in the name of Company or its Subsidiaries, except where any of the aforementioned defects in such registrations, patents or applications would not have a Material Adverse Effect. Company and each of its Subsidiaries owns (free and clear of any lien, encumbrance or other restriction), or is otherwise licensed or has the right to use, all Intellectual Property used in or necessary for the conduct of its business, except where any failure to own, be licensed to use or have the right to use would not, individually or in the aggregate, have a Material Adverse Effect, and the consummation of the transactions contemplated by this Agreement will not alter or impair any such rights. Section 3.14 Taxes. Except as disclosed in Section 3.14 of the Company Disclosure Schedule, the Company has filed all federal, state and local tax returns required to be filed by it and paid all taxes due thereon. Section 3.15 No Undisclosed Liabilities. Except as and to the extent set forth in the audited consolidated balance sheets of Company as of March 28, 1999 included in the Company Financial Statements, none of Company or Company's Subsidiaries had as of that date any liabilities or obligations of any nature, whether or not accrued, contingent or otherwise, that would be required by GAAP to be reflected on a consolidated balance sheet of Company and Company's Subsidiaries (including the notes thereto) which constituted a Material Adverse Effect. Except as and to the extent set forth in the interim balance sheets, since March 28, 1999, neither Company, nor any of Company's Subsidiaries has incurred any liabilities of any nature, whether or not accrued, contingent or otherwise, which would have, individually or in the aggregate, a Material Adverse Effect. Section 3.16 Real Properties. Neither the Company nor its Subsidiaries own any real property. The Company leases real estate under the leases listed on Section 3.16 of the Company Disclosure Schedule, all of which are in full force and there exists no event of default under said leases by any party thereto. Section 3.17 Compliance with Applicable Law. Company and Company's Subsidiaries hold and are in compliance with all permits, licenses, variances, exemptions, orders and approvals of all Governmental Entities necessary for the lawful conduct of their respective businesses (the "Company Permits"), except for failures to hold or comply with such permits, licenses, variances, exemptions, orders and approvals which do not, individually or in the aggregate, have a Material Adverse Effect. To the knowledge of the Company, the businesses of Company and Company's Subsidiaries are not being conducted in violation of any order, writ, injunction, decree, statute, rule or regulation of any Governmental Entity applicable to Company or any of Company's Subsidiaries. Section 3.18 Employee Matters. Section 3.18 of the Company Disclosure Schedule sets forth a complete and accurate list of the titles and annual compensation (including any bonuses) of all directors and officers of Company, and all employees of Company or any of Company's Subsidiaries whose annual base income exceeds $50,000 (excluding any bonuses). Except as set forth in Section 3.18 of the Company Disclosure Schedule, none of Company or any of Company's Subsidiaries is a party to or bound by any contract, agreement or arrangement regarding the employment, services, consulting or severance from or termination of employment, of any director, officer or employee (past or present) (each an "Employment Agreement"). Company and its Subsidiaries have paid in full to, or accrued on behalf of, all of their respective employees, wages, salaries, commissions, bonuses and other direct compensation for all services performed by them to the date hereof and all amounts required to be reimbursed to such employees except those which in the aggregate total less than $35,000. Company and its Subsidiaries are in material compliance with all applicable laws and regulations respecting employment and employment practices; there is no unfair labor practice complaint against Company or any of its Subsidiaries pending before any Government Entity; there is no labor strike, dispute, slowdown or stoppage pending or, to the knowledge of the Company, threatened against or involving Company or any of its Subsidiaries; no representation question or to the knowledge of the Company any pending organization attempt by any collective bargaining representative exists respecting the employees of Company or any of its Subsidiaries. There are no collective bargaining agreements or other employee representation agreements which exist or are currently being negotiated by Company or any of Company's Subsidiaries. Section 3.19 Insurance Policies. Section 3.19 of the Company Disclosure Schedule contains a complete and accurate list of all insurance policies providing coverage in favor of Company and Company's Subsidiaries, or relating to real property, whether leased or owned by Company or Company's Subsidiaries, specifying the insurer, amount of coverage and type of insurance under each and indicating which of such policies provide for retrospective premium adjustments. Each such policy is in full force and effect and all premiums are currently paid or accruals provided for and no notice of cancellation or termination has been received with respect to any such policy. Such policies are sufficient for compliance with all material requirements of law. Section 3.20 Contracts. (a) Section 3.20(a)(i) of the Company Disclosure Schedule sets forth a complete and accurate list of all contracts, agreements and other arrangements to which Company or any of Company's Subsidiaries is a party or by which Company, any of Company's Subsidiaries or any of their respective assets are bound (excluding plans referred to in Sections 3.9 and 6.5 and leases referred to in Section 3.16) pursuant to which (i) any party thereto is entitled prospectively to receive in excess of $35,000, (ii) any party thereto has the right or option prospectively to order products or services the consideration for which would exceed $35,000, or (iii) payments are based on the profits or revenues of Company or any of Company's Subsidiaries (hereinafter referred to collectively as (the "Contracts"). Each of the Contracts is in full force and effect and enforceable in accordance with its terms. Neither Company nor Company's Subsidiaries have received any formal or official notice (written or oral) of cancellation or termination of, or intent to cancel or terminate, any of the Contracts. With respect to each Contract which by its terms will terminate within one year of the date hereof (or unless an option to extend such Contract is exercised), neither Company nor any of Company's Subsidiaries has received any formal or official notice (written or oral) that any such Contract will not be so renewed or that any such extension option will not be exercised. Except as set forth in Section 3.20(a)(ii) of the Company Disclosure Schedule, there exists no event of default or occurrence, condition or act on the part of Company or any of Company's Subsidiaries or, to the best knowledge of Company, on the part of the other parties to such Contracts which constitutes or would constitute (with notice or lapse of time or both) a breach of or default under any of the Contracts, or cause or permit acceleration of any obligation of Company or any of Company's Subsidiaries thereunder, which individually or in the aggregate would have a Material Adverse Effect. Except as set forth in Section 3.20(a) of the Company Disclosure Statement, no consent of any other party to the Contracts is required in connection with the execution, delivery and performance of this Agreement or in order for the Contracts to remain in full force and effect following the Merger. (b) None of Company nor any of Company's Subsidiaries is a party to any agreement which materially limits the freedom of Company or any of Company's Subsidiaries to compete in any line of business or with any person. Section 3.21 Billed Accounts Receivable. All notes and billed accounts receivable of Company and Company's Subsidiaries, represent sales or services made or rendered in the ordinary course of business and represent the legal, valid and binding obligations of the obligors thereon. The Company has reviewed customer receivables and has established adequate reserves to provide for doubtful accounts of, any valid counterclaims by, and allowances to, its customers. Section 3.22 Disclosure. No representation, warranty or statement made by Company in this Agreement or the Company Disclosure Schedules contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact required to be stated herein or therein, or necessary in order to make, in light of the circumstances under which such statements were made, not misleading. Section 3.23 Vote Required. The affirmative vote of the holders of a majority of the outstanding shares of the Company Common Stock is the only vote of the holders of any class or series of the Company's capital stock necessary to approve this Agreement and the transactions contemplated hereby. Section 3.24 Banks; Powers of Attorney. Section 3.24 of the Company Disclosure Schedule sets forth (a) the names and locations of all banks, trust companies, savings and loan associations and other financial institutions at which Company or any of Company's Subsidiaries maintain safe deposit boxes or accounts of any nature and the names of all persons authorized to draw thereon, make withdrawals therefrom or have access thereto, and (b) the names of all persons to whom Company or any of Company's Subsidiaries have granted a power of attorney, together with a description thereof. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB Parent and Merger Sub represent and warrant to Company as follows: Section 4.1 Organization: Parent and Subsidiaries. Each of Parent, Merger Sub and each of the respective Subsidiaries of the Parent, is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and corporate authority and all necessary governmental approvals to own, lease and operate its properties and to carry on its business as now being conducted except where the failure to be so organized, existing and in good standing or to have such power, authority, and governmental approvals would not have a Material Adverse Effect on or of Parent and its Subsidiaries. In this Agreement, the term "Material Adverse Effect" used in reference to the Parent means any event, change or effect, which either alone or in the aggregate with all other such events, changes or effects, is, or is reasonably likely to be, materially adverse to the business, financial condition, properties, assets, capitalization, stockholders' equity, liabilities (including contingent liabilities), results of operations, licenses or franchises of the Parent and its Subsidiaries on consolidated basis. Each of Parent and Merger Sub is duly qualified or licensed to do business and in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing would not have a Material Adverse Effect. Section 4.2 Capitalization. The authorized capital stock of Parent consists of: (i) 20,000,000 shares of Parent Common Stock, of which, as of the date hereof 7,476,922 shares are issued and outstanding and (ii) 1,000,000 shares of preferred stock, of which, as of the date hereof no shares are issued and outstanding. As of the date hereof, there are outstanding pursuant to Parent's incentive and stock option plans, and other rights to purchase shares other than under its ESPP (the "Parent Stock Plans") to purchase 1,396,000 shares of Parent Common Stock, and warrants to purchase 268,307 shares of Parent Common Stock. All issued shares of Parent Common Stock are duly authorized, validly issued, fully paid and non-assessable and free of any preemptive rights in respect thereto. As of the date hereof, the authorized capital stock of Merger Sub consists of 1,000 shares of Common Stock, par value $1.00 per share, all of which are validly issued, fully paid and nonassessable and are owned directly by Parent. Section 4.3 Parent Authority. Parent has the requisite corporate power and authority to execute and deliver this Agreement. The execution, delivery and performance of this Agreement and the consummation of the Merger and of the other transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Parent and no other corporate proceedings on the part of Parent shall be necessary to authorize this Agreement or to consummate the transactions so contemplated other than obtaining the requisite approval of its Shareholders. This Agreement has been duly executed and delivered by Parent and constitutes a valid and binding obligation of Parent enforceable against it in accordance with its terms. Section 4.4 Merger Sub Authority. Merger Sub has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of the Merger and of the other transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Merger Sub and no -other corporate proceedings on the part of Merger Sub are necessary to authorize this Agreement or to consummate the transactions so contemplated. This Agreement has been duly executed and delivered by Merger Sub and constitutes a valid and binding obligation of Merger Sub, enforceable against it in accordance with its terms. Section 4.5 Consents and Approvals; No Violations. Except for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of the Securities Act of 1933, the Exchange Act, the HSR Act, any applicable "Blue Sky" laws and the Minnesota Law, neither the execution, delivery or performance of this Agreement by Parent and Merger Sub nor the consummation by Parent and Merger Sub of the transactions contemplated hereby nor compliance by Parent and Merger Sub with any of the provisions hereof will (i) conflict with or result in any breach of any provision of the Articles of Incorporation or Bylaws of Parent and Merger Sub, (ii) require any filing with, or permit, authorization, consent or approval of, any Governmental Entity, (iii) result in a violation or breach of, or constitute (with notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) or require any authorization, consent or approval under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, lease, contract, agreement or other instrument or obligation to which Parent or any of its Subsidiaries is a party or by which any of them or any of their properties or assets may be bound or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Parent, any of its Subsidiaries or any of their properties or assets, except in the case of (ii) and (iii) for violations, breaches or defaults which would not, and except for failures to obtain such permits, authorizations, consents or approvals or to make such filings which would not, individually or in the aggregate, have a Material Adverse Effect. Section 4.6 SEC Reports and Financial Statements. Parent has filed with the SEC, and has heretofore furnished to the Company, true and complete copies of all forms, reports, schedules, statements and other documents required to be filed by it and actually filed under the Exchange Act or the Securities Act of 1933, as amended (the "Securities Act"), (as such documents have been amended since the time of such filing for the periods since Fiscal Year 1996, collectively, the "Parent SEC Documents"). The Parent SEC Documents, including without limitation any financial statements or schedules included therein, at the time filed, (a) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (b) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be, and the applicable rules and regulations of the SEC thereunder. The financial statements of Parent included in the Parent SEC Documents comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited statements, as permitted by Form 10-Q of the SEC), and fairly present (subject, in the case of the unaudited statements, to normal year-end audit adjustments) the consolidated financial position of Parent and its consolidated subsidiaries as at the dates thereof and the consolidated results of their operations and cash flows for the periods then ended. Section 4.7 Proxy Statement/Prospectus. The information provided by Parent and Merger Sub for inclusion in the Proxy Statement/Prospectus shall be true and complete, shall not contain any untrue statement of a material fact and shall not omit to state any material fact required to be stated therein or necessary in order to make the statements made therein not misleading. Section 4.8 Issuance of Shares. Upon issuance of Parent's shares to the Company's shareholders pursuant to the Merger, such shares shall be duly authorized, validly issued, fully paid, and nonassessable shares of Parent's Common Stock. Section 4.9 Operation of Merger Sub. Merger Sub is a direct, wholly-owned subsidiary of Parent, was formed solely for the purpose of engaging in the transactions contemplated hereby and has not engaged in any business activities or conducted any operations other than in connection with the transactions contemplated hereby. Section 4.10 Litigation. There are no suits, claims, actions, proceedings and investigations which are pending or threatened against the Parent or any of its Subsidiaries, judicial, administrative or otherwise. Section 4.11 No Undisclosed Liabilities. Except as and to the extent set forth in the audited consolidated balance sheets of Parent as of June 28, 1999 included in the Parent Financial Statements, none of Parent or Parent's Subsidiaries had as of that date any liabilities or obligations of any nature, whether or not accrued, contingent or otherwise, that would be required by GAAP to be reflected on a consolidated balance sheet of Parent and Parent's Subsidiaries (including the notes thereto) which constituted a Material Adverse Effect. Since June 28, 1999, neither Parent, nor any of Parent's Subsidiaries has incurred any liabilities of any nature, whether or not accrued, contingent or otherwise, which would have, individually or in the aggregate, a Material Adverse Effect. Section 4.12 Compliance with Applicable Law. Parent and Parent's Subsidiaries hold and are in compliance with all permits, licenses, variances, exemptions, orders and approvals of all Governmental Entities necessary for the lawful conduct of their respective businesses (the "Parent Permits"), except for failures to hold or comply with such permits, licenses, variances, exemptions, orders and approvals which do not, individually or in the aggregate, have a Material Adverse Effect. To the knowledge of the Parent, the businesses of Parent and Parent's Subsidiaries are not being conducted in violation of any order, writ, injunction, decree, statute, rule or regulation of any Governmental Entity applicable to Parent or any of Parent's Subsidiaries. Section 4.13 Disclosure. No representation, warranty or statement made by Parent or Merger Sub in this Agreement contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact required to be stated herein or therein, or necessary in order to make, in light of the circumstances under which such statements were made, not misleading. ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER Section 5.1 Covenants of Company. Prior to the Effective Time, except as expressly permitted by this Agreement, or to the extent that Parent in its sole discretion shall otherwise consent in writing: (a) Ordinary Course. Company and its Subsidiaries shall carry on their respective businesses in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and use their reasonable best efforts to preserve intact their present business organizations, preserve their working capital, keep available the services of their present officers and employees and preserve their relationships with customers, suppliers and others having business dealings with them to the end that their goodwill and ongoing business shall not be impaired in any material respect following the Merger. (b) Dividends; Changes in Stock. The Company shall not, and shall not permit any of its Subsidiaries to, (i) declare, set aside or pay any dividends on or make other distributions in respect of any of its capital stock, (ii) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) directly or indirectly repurchase, redeem or otherwise acquire, any shares of its capital stock or capital stock of any Subsidiary. (c) Issuance of Securities. Company shall not, and shall not permit any of its Subsidiaries to, issue, deliver or sell, pledge, or authorize or propose the issuance, delivery or sale of, any shares of its capital stock of any class, any Voting Debt or any securities convertible into or exchangeable for, or any Stock Options and rights to acquire, any such shares or Voting Debt other than: (i) shares of Company Common Stock issuable upon the valid exercise of currently outstanding options (other than new options for not more than 30,000 Shares in the aggregate for new employees) under the Company's stock option plans listed on Section 3.9 of the Company Disclosure Schedule (the "Company Stock Option Plans"); (ii) shares of Company Common Stock issued under the Company Employee Stock Purchase Plan (the "ESPP") on or before September 30, 1999; and (iii) shares of Company Common Stock contractually issuable to certain executive officers of the Company as non-cash compensation prior to the Effective Date. (d) Company shall not grant, issue, modify or amend any options, warrants or other rights to acquire its equity securities including under its ESPP after September 30, 1999. (e) Governing Documents. Company shall not, nor shall it permit any of its Subsidiaries to, amend their respective Certificates of Incorporation, Bylaws or comparable organizational documents. (f) Standstill Agreement. Except as contemplated herein, for the period from the date hereof through the earlier of the Closing or the first anniversary of the date of this Agreement, the Company will not, and will use its best efforts to cause each affiliate, not to (i) purchase, acquire or own, or offer or agree to purchase, acquire or own, directly or indirectly, any Voting Securities (as hereinafter defined) or direct or indirect rights or options to acquire Voting Securities (or enter into any arrangements or understandings with any third party to do any of the foregoing), or (ii) propose to enter into, directly or indirectly, any merger or business combination involving Parent or any of its subsidiaries, or in any way seek to control the management, policies or Board of Directors of Parent provided that nothing contained in this clause (ii) shall limit the right to vote as a stockholder for any merger or business combination. For purposes of this Agreement, the term "Voting Securities" shall mean (i) any securities which are entitled to vote generally in the election of directors of Parent and (ii) any securities of Parent convertible into or exchangeable for any security described in clause (i) above. (g) No Acquisitions or Dispositions. Company shall not, and shall not permit any of its Subsidiaries to: (x) acquire or agree to acquire by merging or consolidating with, or by purchasing equity interests in or a portion of the assets of, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to Company and its Subsidiaries taken as a whole; (y) other than in the ordinary course of business, sell, assign, lease, license, pledge, encumber or otherwise dispose of, or agree to sell, assign, lease, license, encumber or otherwise dispose of, any of its assets which are material, individually or in the aggregate, to Company and its Subsidiaries taken as a whole, or any stock in any Subsidiary. (h) Indebtedness. Except as required to operate its business in the ordinary course and after written notice to Parent, Company shall not, and shall not permit any of its Subsidiaries to, (i) incur or assume any long-term debt or, except in the ordinary course of business under lines of credit existing on the date hereof, incur or assume any short-term debt; (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person except in the ordinary course of business and consistent with past practice; or (iii) make any loans, advances (other than advances to employees for travel and entertainment in the ordinary course of business) or capital contributions to, or investments in, any other person. (i) Benefit Plans and Compensation. Company shall not, and shall not permit any of its Subsidiaries to, terminate, adopt, amend or enter into any employment agreements or employee benefit plans of the type set forth in Sections 3.7 and 3.9, except as may be required by applicable law or regulation, or pay benefits not required by any existing plan or arrangement or increase in any manner the compensation, stock options, or fringe benefits of any director, officer or employee without the written approval of Parent; (j) Other Matters. Other than as provided for herein, the Company shall not permit any of Company's Subsidiaries to: (x) pay, discharge, settle or satisfy or agree to pay, discharge, settle or satisfy, any claims, liabilities or obligations (absolute, accrued, contingent or otherwise), other than when due in accordance with their respective terms and other than claims, liabilities, and obligations in an amount not in excess of $25,000 individually or $150,000 in the aggregate, or (y) waive, release, grant or transfer any rights of value or modify or change any existing license, lease, contract or other agreement or arrangement which modifications or changes would have, individually or in the aggregate, a Material Adverse Effect or (z) fail to maintain all property and equipment useful and necessary in its business in good working order and condition or fail to continue its maintenance programs consistent with past practice. (k) Affiliate Transactions. Company and its Subsidiaries shall not enter into any contract, loan or other transaction with any of the following persons, or in which any of the following persons have a direct or indirect impact interest: (i) any director or officer of Company or, any Subsidiary of it; (ii) any of the spouses, parents, siblings, children or other close relatives of any person described in clause (i); and (iii) any corporation, partnership, trust or other entity in which any person described in clauses (i) or (ii) has a beneficial interest. (l) Capital Expenditures. Except as set forth in Section 5.01(l) of the Company Disclosure Schedule, Company shall not, and shall not permit any of Company's Subsidiaries to, other than in the ordinary course of business and consistent with past practice and in an amount not in excess of $50,000 in respect of any individual project or $250,000 in the aggregate, make any capital expenditures or commitments for capital expenditures. (m) Tax Matters; Accounting Policies. Company shall not, and shall not permit any of Company's Subsidiaries to, make any tax elections or settle or compromise any income or excise tax liability or, except as required by law or applicable accounting standards, change any accounting policies or procedures. Company shall promptly advise Parent of any tax audit or tax adjustment or proposed or threatened tax audit or tax adjustment with respect to Company and shall also notify Parent of any adverse determination by any Governmental Entity with respect to taxes. (n) Advice of Changes; Filings. Company shall confer on a regular and frequent basis with Parent, inform on operational matters and with respect to any significant new contracts and promptly advise Parent orally and in writing of any change, event or effect having, or which, insofar as can reasonably be foreseen, could have, a Material Adverse Effect on Company and Company's Subsidiaries taken as a whole. Company shall promptly provide Parent (or its counsel) copies of all filings made by Company with any Governmental Entity in connection with this Agreement and the transactions contemplated hereby. (o) Other Actions. Company shall not, and shall not permit any of its Subsidiaries to, agree or commit to take any action that would be prohibited by this Section 5.1. Notwithstanding the fact that an action might otherwise be permitted pursuant to this Section 5.1, Company shall not, and shall not permit any of its Subsidiaries to, take any action that would or is reasonably likely to result in any of Company's representations and warranties set forth in this Agreement being untrue in any material respect or in any of the conditions to the Merger set forth in Article VII not being satisfied. Section 5.2 Company's Pre-Closing Conditions. The Company shall satisfy each of the conditions set forth below at the time specified but in no case later than the Closing: (a) ESPP. The Company will not make another offering or accept contributions under the plan between September 30, 1999 and the Closing and no further rights to purchase Shares under the ESPP will accrue between September 30, 1999 and the Closing. (b) The Company will rescind or modify the stock issuances and other compensation authorized for executive officers on May 11, 1999 so that all obligations and liabilities terminated on or before the Effective Date. (c) Rights Plan. The Company will amend or terminate its rights plan and redeem all rights outstanding prior to the Effective Date to the extent necessary to permit the completion of this transaction. (d) All options for non-employee Directors will be amended to require exercise within six months of the Effective Date. Section 5.3 Covenants of the Parent and Merger Sub. Prior to the effective Time, except as expressly permitted by this Agreement, or to the extent that the Company in its sole discretion shall otherwise consent in writing. (a) Ordinary Course. Except as expressly noted herein, Parent and its Subsidiaries shall carry on their respective businesses in the usual, regular and ordinary course and in a manner which shall not materially adversely affect the value of the Parent Common Stock issuable to the Company's stockholders as the Shareholder Consideration. (b) Governing Documents. Parent shall not, nor shall it permit any of its Subsidiaries to, amend their respective Certificate of Incorporation, Bylaws or comparable organizational documents. (c) Dividends, Changes in Stock. Parent shall not, and shall not permit any of its Subsidiaries to (i) declare, set aside, or pay any dividends on or make other distributions in respect of any of its capital stock other than in the form of Parent Common Stock, (ii) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) directly or indirectly repurchase, redeem or otherwise acquire, any shares of its capital stock or capital stock of any Subsidiary. (d) Directors. Within 30 days following the Effective Time, Parent shall cause Sebastian J. Sicari and another person (to be designated by the Company prior to the Effective Date) to be appointed or elected to the Board of Directors of Parent. (e) NASDAQ National Market. Parent shall use its reasonable best efforts to effect the inclusion of all shares of Parent Common Stock issuable to the Company's shareholders on the NASDAQ National Market and shall take all actions required under applicable federal or state securities laws in connection with the issuance of Parent Common Stock pursuant to this Agreement. (f) Other Actions. Parent shall not, and shall not permit any of its Subsidiaries to, agree or commit to take any action that would be prohibited by this Section 5.3. Notwithstanding the fact that an action might otherwise be permitted pursuant to this Section 5.3, Parent shall not, and shall not permit any of its Subsidiaries to, take any action that would or is reasonably likely to result in any of Parent's representations and warranties set forth in this Agreement being untrue in any material respect or in any of the conditions to the Merger set forth in Article VII not being satisfied. ARTICLE VI ADDITIONAL AGREEMENTS Section 6.1 Access to Information. Upon reasonable notice and subject to applicable law, Company shall (and shall cause each of its Subsidiaries to) afford to the officers, employees, accountants, counsel, and other representatives of Parent, access, during normal business hours during the period prior to the Effective Time, to all its properties (including its plants, offices, warehouses and other facilities), books, contracts, commitments and records and, during such period, subject to applicable law, the Company shall (and shall cause each of its Subsidiaries to) furnish promptly to Parent all information concerning its business (including financial and operating data), properties and personnel as Parent may reasonably request. The Company will keep Parent advised of significant developments in Company's business and of any significant decisions concerning the operation of their business. Parent and the Company shall each use its best efforts to preserve the confidentiality of any proprietary, confidential or trade secret information obtained from the other party during the negotiations of the Merger. In the event the Merger is not completed for any reason, Parent and the Company shall each return to the other all of such information of the other party, together with all copies thereof, and shall not misappropriate or disclose any of such information to any third parties. Section 6.2 Proxy Statement/Prospectus. As soon as practicable after the execution of this Agreement, the parties shall prepare and file with the Securities and Exchange Commission the Proxy Statement/Prospectus, and shall use their reasonable efforts to have the Proxy Statement/Prospectus approved as soon as possible thereafter. Section 6.3 Shareholders' Meetings. (a) The Company and Parent, acting through their respective Boards, shall, in accordance with applicable law: (i) as promptly as practicable, duly call, give notice of, convene and hold special meetings of their shareholders for the purpose of causing their shareholders to consider and vote upon a proposal to approve the Merger (the "Special Meetings"); (ii) subject to their fiduciary duties under applicable laws as advised by counsel, include in the Proxy Statement/Prospectus the recommendation of their Boards that shareholders of the Company and the Parent, respectively, vote in favor of the approval of the Merger; and (iii) use all reasonable efforts to obtain and furnish the information required to be included by them in the Proxy Statement/Prospectus, and, after consultation with each other, respond promptly to any comments made by the SEC with respect to the Proxy Statement/Prospectus and any preliminary version thereof and to cause the Proxy Statement/Prospectus to be mailed to shareholders as promptly as practicable. (b) If at any time prior to the Special Meetings any event should occur relating to Company, Parent or their officers or directors which should be described in this Proxy Statement/Prospectus, the affected party will promptly inform the other party thereof and, if the parties determine that any such event should be described in an amendment of or a supplement to the Proxy Statement/Prospectus, will cooperate with each other in promptly preparing, filing and clearing with the SEC and mailing such amendment or supplement. Section 6.4 Closing. Upon the terms and subject to the conditions hereof, as soon as practicable after shareholder approval of the Merger has been obtained, Merger Sub and the Company will sign and deliver to the Secretary of State of Delaware duly signed Certificates of Merger with respect the Merger, all in the manner and as required by the Delaware Law, and the parties shall take all other and further actions as may be required by law to make the Merger effective. Section 6.5 Stock Option and Employee Stock Purchase Plans. (a) At the Effective Time, each outstanding option to purchase shares of Company Common Stock (each a "Company Stock Option") under the Company Stock Option plans including the Directors' Option Plan, whether or not exercisable, will be assumed by Parent. Each Company Stock Option so assumed by Parent under this Agreement will continue to have, and be subject to, terms and conditions substantially similar to those set forth in the applicable Company Stock Option plan immediately prior to the Effective Time except that (i) each Company Stock Option will be exercisable (or will become exercisable in accordance with its terms) for that number of whole shares of Parent Common Stock equal to the product of the number of shares of Company Common Stock that were issuable upon exercise of such Company Stock Option immediately prior to the Effective Time multiplied by the Exchange Ratio and (ii) the per share exercise price for the shares of Parent Common Stock issuable upon exercise of such assumed Company Stock Option will be equal to the quotient determined by dividing the exercise price per share of Company Common Stock at which said Company Stock Option was exercisable immediately prior to the Effective Time by the Exchange Ratio, rounded down to the nearest whole cent. After the Effective Time, Parent will issue to each holder of an outstanding Company Stock Option a notice describing the foregoing assumption of such Company Stock Option by Parent. (b) Parent will reserve on and after the Effective Date sufficient shares of Parent Common Stock for issuance under this Section 6.5. Section 6.6 Expenses. Whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses provided that the Parent shall pay Sixty-five Percent (65%) and Company shall pay Thirty- five Percent (35%) of all costs and expenses for printing. The Company will use its best efforts to not pay, incur, or become liable for, any such expenses including, but not limited to, legal, accounting, investment banking, the Company's share of printing costs set forth above and proxy solicitation fees (the "Transactional Expenses") in excess of $650,000 in the aggregate (with $150,000 payable one year after the Effective Date). If the Transactional Expenses of the Company exceed $650,000 any excess shall reduce the Acquisition Consideration set forth in Section 2.2. Section 6.7 Public Announcements. Parent and the Company will consult with each other before issuing any press release or otherwise making any public statements and shall not issue any such press release or make any such public statement without the consent of the other parties hereto, except as may be required by law or by obligations pursuant to any listing agreement with NASDAQ. Section 6.8 Notification of Certain Matters. Company shall promptly supplement or amend the Company Disclosure Schedule with respect to any material matter hereafter arising or discovered which, if existing or known at the date hereof, would have been required to be disclosed in the Company Disclosure Schedule; provided, however, that any such supplemental or amended disclosure shall not be deemed to have been disclosed as of the date hereof. Section 6.9 Further Assurances; Best Efforts. Subject to the terms and conditions of this Agreement, each of Company, Parent and Merger Sub agrees to use their best efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each of Company, Parent and Merger Sub shall take all such necessary action. Section 6.10 Form S-8. Parent agrees to file promptly a registration statement on Form S-8 or, if possible, an amendment to Parent's then effective registration statement on Form S-8, for the shares of Parent Common Stock issuable with respect to the assumed Company Stock Options and shall keep such registration statement effective for so long as any such options remain outstanding. Section 6.11 Indemnification; Directors' and Officers' Insurance. (a) From and after the Effective Time, Parent agrees that it will indemnify and hold harmless each current director and officer of Company (when acting in such capacity) (each an "Indemnified Party" and, collectively, the "Indemnified Parties"), against any costs or expenses (including, without limitation, reasonable attorneys' fees, costs of investigation and fees of other advisers and experts), judgments, fines, losses, claims, damages or liabilities (collectively, "Costs") incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, including, without limitation, claims, actions, suits, proceedings or investigations by or on behalf of any present or former shareholder of Company, arising out of matters existing or occurring at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time, to the fullest extent that Parent would have been permitted under Minnesota Law and its Articles of Incorporation or Bylaws in effect on the date hereof to indemnify such person (and Parent shall also advance expenses as incurred to the fullest extent permitted under applicable law; provided the person to whom expenses are advanced provides a written affirmation of his or her good faith belief that the standard of conduct necessary for indemnification has been met, and an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification). (b) Any Indemnified Party wishing to claim indemnification under paragraph (a) of this Section 6.11, upon learning of any such claim, action, suit, proceeding or investigation, shall promptly notify Parent thereof, but the failure to so notify shall not relieve Parent of any liability it may have to such Indemnified Party if such failure does not materially prejudice the indemnifying party. In the event of any such claim, action, suit, proceeding or investigation (whether arising before or after the Effective Time), (i) Parent shall have the right to assume the defense thereof and Parent shall not be liable to such Indemnified Parties for any legal expenses of other counsel or any other expenses subsequently incurred by such Indemnified Parties in connection with the defense thereof, except that if Parent elects not to assume such defense or counsel for the Indemnified Parties advises that there are issues which raise conflicts of interest between Parent and the Indemnified Parties, the Indemnified Parties may retain counsel satisfactory to them, and Parent shall pay all reasonable fees and expenses of such counsel for the Indemnified Parties promptly as statements therefor are received; provided, however, that Parent shall be obligated pursuant to this paragraph (b) to pay for only one firm of counsel for all Indemnified Parties in any jurisdiction unless the use of one counsel for such Indemnified Parties would present such counsel with a conflict of interest, (ii) the Indemnified Parties will cooperate in the defense of any such matter and (iii) Parent shall not be liable for any settlement effected without its prior written consent; and provided, further, that Parent shall not have any obligation hereunder to any Indemnified Party if and when a court of competent jurisdiction shall ultimately determine, and such determination shall have become final and non-appealable, that the indemnification of such Indemnified Party in the manner contemplated hereby is prohibited by applicable law. (c) The Parent shall maintain Company's existing officers' and directors' liability insurance for a period of three (3) years after the Effective Time; provided, however, that if the existing officers' and directors' insurance expires, is terminated or canceled during such three-year period, the Parent will obtain officers' and directors' liability insurance for the remainder of such period of at least $3,000,000 containing terms and conditions that are not materially less advantageous to the Indemnified Parties and that is issued by an insurer having a claims-paying rating at least as good as the rating of the issuer of Company's existing policy. (d) The provisions of this Section 6.11 are intended to be for the benefit of, and shall be enforceable by, each of the Indemnified Parties, their heirs and their representatives. The provisions of this Section 6.11 will be effective for a period of six (6) years after the Effective Date. ARTICLE VII CONDITIONS Section 7.1 Conditions of Obligations of Parent and Merger Sub. The obligations of Parent and Merger Sub to effect the Merger are subject to the satisfaction of the following conditions unless waived in writing by Parent and Merger Sub: (a) Approvals. Other than the filing of Articles of Merger provided for by Section 1.1, all authorizations, consents, orders or approvals of, or declarations or filings with, or expirations of waiting periods imposed by any Governmental Entity, the failure of which to obtain would have a Material Adverse Effect on Parent and its Subsidiaries or the Surviving Corporation and its Subsidiaries, in each case taken as a whole, shall have been filed, occurred or been obtained. (b) Representations and Warranties. The representations and warranties of Company set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Effective Time as though made on and as of the Effective Time. (c) Performance of Obligations of Company. Company shall have performed in all material respects all obligations required to be performed by it under this Agreement specifically including those set forth in Section 5.2 by the earlier of the specific deadline set forth herein or at or prior to the Effective Time. (d) Stockholder Approval. The Company shall have distributed the proxy statement in compliance with SEC requirements. This Agreement shall have been adopted by the affirmative vote of the holders of at least a majority of the outstanding shares of the Company Common Stock and the Parent Common Stock. (e) Officer's Certificates. Parent shall have received a certificate signed on behalf of the Company by the chief executive officer and the chief financial officer of the Company to the effect that the conditions set forth in Section 7.1 have been satisfied. (f) Opinion. Parent shall have received an opinion from counsel to the Company in customary form reasonably acceptable to Parent. (g) Other Agreements. (i) the Severance Agreement with Sebastian J. Sicari (the "CEO") shall have been modified to effect the following changes: A. CEO shall receive (but not before January 1, 2000) $400,000 worth of Parent Common Stock, registered pursuant to the Securities Act of 1933, at the Parent Stock Price, in lieu of cash. CEO shall sell such stock on the public market within 15 days after the Effective Time, at Parent's direction. If the net proceeds from such sale exceed $400,000, CEO shall pay promptly such excess to Parent, and if the net proceeds are less than $400,000, Parent shall promptly make a payment in cash to CEO equal to such deficit. B. CEO shall exercise all stock options assumed by Parent within 18 months after the Closing, and such options will be exercised at the rate of at least 16.66% thereof each calendar quarter after the Closing. Notwithstanding the foregoing, if the closing price of Parent Common Stock is less than the Parent Stock Price for at least 75% of the trading days in any quarter, CEO may elect to defer the portion of the options otherwise exercisable in such quarter to the next quarter and, in addition, may on one occasion elect to defer for one quarter regardless of price, the options otherwise exercisable in such quarter, provided that in no event may the exercise of any portion of the options be deferred beyond the 18th month following the Closing. (iii) the Severance Agreement with Carl S. Archer, Jr. (the "Former Chairman") shall have been modified to effect the following changes: A. Former Chairman shall receive (but not before January 1, 2000) Parent Common Stock, registered pursuant to the Securities Act of 1933, at the Parent Stock Price, in lieu of cash, equal to any amounts payable to him under the Separation Agreement dated August 11, 1998, less any amounts previously paid to him by the Company (the "Severance Payment"). Former Chairman shall sell such stock on the public market within 15 days after the Effective Time, at Parent's direction. If the net proceeds from such sale exceed Severance Payment, Former Chairman shall pay promptly such excess to Parent, and if the net proceeds are less than Severance payment, Parent shall promptly make a payment in cash to Former Chairman equal to such deficit. B. Former Chairman shall exercise all stock options assumed by Parent within six (6) months after the Closing, and such options must be exercised at the rate of at least 50% of such options within the first three (3) months after Closing. (h) Delivery of Documents. The Company shall have delivered to Parent (i) control of all of its books and records, including but not limited to all corporate and other records or it and any predecessors including the minute books, stock books, stock register, deeds and title documents; and (ii) such other documents and certificates as shall be reasonably requested by Parent. (i) No Restraints. There shall have been no order or preliminary or permanent injunction entered in any action or proceeding before any Governmental Entity or other action taken, nor statute, rule, regulation, legislation, interpretation, judgment or order enacted, entered, enforced, promulgated, amended, issued or deemed applicable to Parent, Company or any of their Subsidiaries, or the Merger or this Agreement by any Governmental Entity and which shall have remained in effect or any suit, claim, action or proceeding pending before any Governmental Entity, which, if adversely decided, would have the effect of: (i) making illegal, materially delaying or otherwise directly or indirectly restraining or prohibiting or making materially more costly the Merger or the consummation of any of the other transactions contemplated by this Agreement; (ii) prohibiting or materially limiting the ownership or operation by Parent or Company or any of their Subsidiaries of all or any material portion of the business or assets of Parent or Company or any of their Subsidiaries or compelling Parent or any of its subsidiaries to dispose of or hold separate all or any material portion of the business or assets of Parent or Company or any of its Subsidiaries, as a result of the Merger; (iii) imposing or confirming material limitations on the ability of the Parent or any Subsidiary of Parent effectively to exercise full rights of ownership of any Company Common Stock, including, without limitation, the right to vote such Company Common Stock on all matters properly presented to the Company's stockholders; or (iv) requiring divestiture by Parent or any Subsidiary of Parent of any Company Common Stock. (j) Form S-4. The Form S-4 filed by the Parent with the SEC with respect to the Merger shall have been declared effective by the SEC and no stop order suspending the effectiveness of the Form S-4 shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC. (k) Dissenting Shares. There shall not have been filed with the Company by the holders of more than 5% of the shares of Company Common Stock before the vote on this Agreement and the transactions contemplated hereby at the stockholders' meeting written objection to the Merger and the intention to demand payment contemplated by Section 262 of the Delaware Law. (l) Delaware Anti-Takeover. The Board of Directors of the Company shall have approved this Agreement, and the merger contemplated herein, for purposes of Delaware Corporate Law ss. 106. (m) Parent shall have received from its tax counsel an opinion that the merger will qualify for federal income tax purposes as a reorganization within the meaning of (S)(S) 368(A) of the Code, in a form reasonably acceptable to Parent. (n) Material Adverse Changes. None of the following changes in the business of the Company shall have occurred prior to the Effective Time: (i) The net book value of the Company shall not have decreased by more than $500,000 from that reflected in the balance sheet of the Company dated June 28, 1999, excluding the losses for the fiscal quarters ending in September and December projected in the forecast provided to Parent by the Company dated June 28, 1999. (ii) Net losses for the Company for the fiscal quarters ending in September and December 1999 shall not exceed $600,000 and $262,500, respectively. (iii) The Company's cash requirements remain within current working capital financing agreement limits, and the Line of Credit with its current lender remains in effect on its current terms until the Effective Time, and no defaults under such Line of Credit by the Company have occurred. (iv) The Company has gross revenue equal to $4,500,000 and $4,800,000 for the fiscal quarters respectively ending in September and December, 1999. Section 7.2 Conditions of Obligations of Company. The obligation of Company to effect the Merger is subject to the satisfaction of the following conditions unless waived by the Company: (a) Representations and Warranties. The representations and warranties of Parent set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak of an earlier date) as of the Effective Time as though made on and as of the Effective Time. (b) Performance of Obligations of Parent and Merger Sub. Parent and Merger Sub shall have performed in all material respects all obligations required to be performed by them by the earlier of the specific deadline set forth herein or prior to Effective Time. (c) Stockholder Approval. This Agreement shall have been adopted by the affirmative vote of the holders of at least a majority of the outstanding shares of each of the Company Common Stock and the Parent Common Stock respectively. (d) No Restraints. here shall have been no order or preliminary or permanent injunction entered in any action or proceeding before any Governmental Entity or other action taken, nor statute, rule, regulation, legislation, interpretation, judgment or order enacted, entered, enforced, promulgated, amended, issued or deemed applicable to Parent or Company or any of their Subsidiaries or the Merger or this Agreement, by any Governmental Entity which shall have remained in effect and which shall have had the effect of making illegal, materially delaying or otherwise directly or indirectly restraining or prohibiting the Merger, or the consummation of any of the other transactions contemplated by this Agreement. (e) Form S-4. The Form S-4 filed by the Parent shall have been declared effective and no stop order suspending the effectiveness of the Form S-4 shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC. Any and all state securities approvals for the issuance of the Parent Common Stock pursuant to this Agreement shall have been obtained. (f) Officer's Certificate. The Company shall have received a certificate signed on behalf of Parent by the chief executive officer of Parent to the effect that the conditions set forth in Section 7.2 have been satisfied. (g) Opinion. The Company shall have received opinion from Counsel to Parent in customary form reasonably acceptable to the Company. (h) Tax Opinion. Company shall have received an opinion from its tax counsel that the merger will qualify for federal income tax purposes as a reorganization within the meaning of ss.368(a) of the Code, in a form reasonably acceptable to the Company. (i) NASDAQ Listing. The Parent Common Stock issuable to the Company's shareholders shall have been authorized for inclusion on the NASDAQ National Market. ARTICLE VIII TERMINATION AND AMENDMENT Section 8.1 Termination. This Agreement may be terminated upon notice at any time prior to the Effective Time, whether before or after adoption of this Agreement and the Merger by the stockholders of the Company: (a) by mutual written consent of Parent and Company; (b) by Parent or Company if there shall have been a material breach of any representation, warranty, covenant or agreement on the part of the other party set forth in this Agreement which breach shall not have been cured, in the case of a representation or warranty, prior to the Closing or, in the case of a covenant or agreement, within 5 business days following receipt by the breaching party of notice of such breach; (c) by either Parent or Company if any permanent injunction or other order of a court or other competent authority preventing the consummation of the Merger shall have become final and non-appealable; (d) by either Parent or Company if the Merger shall not have been consummated on or before February 28, 2000, or if the Proxy Statement/Prospectus has not been declared effective on or before January 31, 2000, provided however, that the right to terminate this Agreement pursuant to this Section 8.1(d) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Merger to have occurred on or before the aforesaid date; (e) by Parent or Company, if the terminating party is not otherwise in breach of this Agreement, if, in the exercise of its good faith judgment as to its fiduciary duties under applicable corporate law, the Board of Directors of Parent or Company determines, after consultation with the financial advisors and counsel, and in reliance upon the written opinion of such counsel, that such termination is required by such fiduciary duties by reason of a proposal from a third party that either constitutes a Business Combination Transaction or may reasonably be expected to lead to a Business Combination Transaction; provided, that any termination of this Agreement pursuant to this Section 8.1(g) shall not be effective until the terminating party has made payment of the full termination fee provided for by Section 8.2(b) hereof. As used herein, the term "Business Combination Transaction" shall mean any of the following involving the Company or any Subsidiary or Parent or any Parent Subsidiary, as applicable: (1) any merger, consolidation, share exchange, business combination or other similar transaction (other than the Transactions); (2) any sale, lease, exchange, transfer or other disposition (other than a pledge or mortgage) of 25% or more of the assets of the Company and the Subsidiaries or Parent and the Parent Subsidiaries, as applicable, taken as a whole, in a single transaction or series of transactions; or (3) the acquisition by a person or entity or any "group" (as such term is defined under Section 13(d) of the Exchange Act and the rules and regulations thereunder) of beneficial ownership of 33% or more of the shares of Company Common Stock or Parent Common Stock, as applicable, whether by tender offer, exchange offer or otherwise. Section 8.2 Effect of Termination. (a) In the event of a termination of this Agreement by either Company or Parent as provided in Section 8.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Parent, Merger Sub or Company or their respective officers or directors, except for Sections 5.1(f), the second full paragraph of 6.1, first sentence of 6.6, 8.2(b), 8.5 and 9.2, which shall survive such termination. (b) Termination Fee. Upon termination by a party pursuant to Section 8.1(e) above, that party shall pay to the other party, if that other party is not otherwise in breach of this Agreement, $1,000,000 in immediately available funds immediately upon effectiveness of the termination. Section 8.3 Amendment. This Agreement may be amended by the parties hereto, by action taken or authorized by their respective Boards of Directors, at any time before or after approval of this Agreement by the stockholders of the Company but, after such approval, no amendment shall be made which by law requires further approval by such stockholders without such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Section 8.4 Extension; Waiver. At any time prior to the Effective Time, the parties hereto, by action taken or authorized by their respective Boards of Directors, may (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. Section 8.5 Liquidated Damages. The parties expressly agree that the damages incurred by a non-breaching party upon breach of this Agreement by another party would be speculative and difficult to measure. Therefore, upon the failure of any party to proceed to completion of this transaction at the Closing, as contemplated by this Agreement, in breach of this Agreement, the breaching party (but not Merger Sub) shall pay to the non-breaching party (but not to Merger Sub) $1,000,000 as liquidated damages, to compensate the non-breaching party for expenses incurred in pursuit of the transactions contemplated by this Agreement. Payment shall be made immediately upon such breach. The breaching party shall not be liable to the non-breaching party for any damages, costs or expenses in connection with such breach other than the payment required by this Section. ARTICLE IX MISCELLANEOUS Section 9.0 No Solicitations. From the date hereof until the Closing, the Company will not, and will instruct its officers, directors, employees, agents and other representatives not to, directly or indirectly, solicit or initiate any proposals or offers from any person relating to any acquisition or purchase of all or a material amount of the assets off or any securities of, or any merger, consolidation or business combination with, the Company or any of its subsidiaries; provided, however, that the Company may furnish information to and otherwise cooperate with, and may engage in discussions or negotiations with, any person with respect to any of the foregoing and may waive any provision of any confidentiality or standstill agreement to which it or any of its representatives is a party if counsel advises the Board that failure to do so could involve the Company's directors in a breach of their fiduciary duties and, provided, further, that nothing herein shall prevent the Board from taking, and disclosing to the Company's shareholders, a position contemplated by Rules 14d-9 or 14e-2 promulgated under the Exchange Act with respect to any tender offer or making such other disclosure to the Company's shareholders as, in the judgment of the Board, on advice of counsel, is required by applicable law. Subject to the fiduciary duties of the Board, the Company will promptly advise Parent of, and communicate the principal terms (other than the identity of such person) of, any such inquiry or proposal the Company may receive. Section 9.1 Survival of Representations and Warranties. The representations and warranties of the Parent, Merger Sub and Company shall not survive the termination of this Agreement or the Effective Time. Section 9.2 Brokers or Finders. Company represents and warrants to Parent that no broker, finder or financial advisor is entitled to any brokerage, finder's or other fee or commission in connection with the Merger or the transactions contemplated by this Agreement other than Adams, Harkness & Hill, Inc. Section 9.3 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Parent or Merger Sub, at the address shown in its most recent SEC filing, with copies to Best & Flanagan LLP, 4000 U.S. Bank Place, 601 Second Avenue South, Minneapolis, MN 55402-4331, Attn: James C. Diracles, Esq., Telecopy No.: (612) 339-5897; and (b) if to Company: at the address shown in its most recent SEC filing, with copies to Choate, Hall & Stewart, Exchange Place, 53 State Street, Boston, MA 02109-2891, Attn: Robert V. Jahrling, Telecopy No.: (617) 248-4000. Section 9.4 Interpretation. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 9.5 Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts, including facsimile signature pages, have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. Section 9.6 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership. This Agreement (including the documents and the instruments referred to herein) (a) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof except that the Confidentiality Agreement between the parties dated July 22, 1999 shall continue in full force and effect in accordance with its terms, and (b) is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. Section 9.7 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Minnesota without regard to any applicable conflicts of law. Section 9.8 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties, except that Merger Sub may assign, in its sole discretion, any or all of its rights, interests and obligations hereunder to Parent or to any direct or indirect wholly owned Subsidiary of Parent. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. IN WITNESS WHEREOF, Parent, Merger Sub and Company have caused this agreement to be signed by their respective officers thereunto duly authorized as of the date first written above. MICRO COMPONENT TECHNOLOGY, INC. By: /s/ Jeffrey S. Mathiesen ------------------------ Name: Jeffrey S. Mathiesen -------------------- Title: Vice President and Chief Financial Officer ------------------------------------------ MCT ACQUISITION, INC. By: /s/ Jeffrey S. Mathiesen ------------------------ Name: Jeffrey S. Mathiesen -------------------- Title: Vice President and Chief Financial Officer ------------------------------------------ ASECO CORPORATION By: /s/ Sebastian J. Sicari ----------------------- Name: Sebastian J. Sicari ------------------- Title: President and CEO ----------------- EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ASECO CORPORATION'S FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 26, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS MAR-26-2000 MAR-29-1999 SEP-26-1999 1,652 0 7,451 1,014 5,624 14,043 7,341 5,666 15,842 6,729 0 0 0 39 9,074 15,842 10,369 10,369 6,158 6,158 5,179 0 50 (994) 0 (994) 0 0 0 (994) (.26) (.26)
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