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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM
----------------------- TO
-----------------------
COMMISSION FILE NO. 0-27104
YIELDUP INTERNATIONAL CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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DELAWARE 77-0341206
(STATE OR OTHER JURISDICTION OF INCORPORATION) (I.R.S. EMPLOYER ID #)
117 EASY STREET 94043
MOUNTAIN VIEW, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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Issuer's telephone number, including area code:
(650) 964-0100
Securities registered under Section 12(b) of the Act:
NONE
Securities registered under Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.001
CLASS B WARRANTS, NO PAR VALUE
(TITLE OF CLASS)
Check whether the issuer: 1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The Issuer's revenues for the fiscal year ended December 31, 1997 were
$7,465,447.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing price of the Registrant's Common Stock on
December 31, 1997 in the over-the-counter-market, was approximately $42,967,000.
Shares of voting stock held by each officer and director and by each person who
on that date owned 5% or more of the outstanding voting stock have been excluded
for purposes of the preceding computation, in that such persons may be deemed to
be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of December 31, 1997, Registrant had 4,341,711 shares of Common Stock
outstanding and 1,413,653 shares of Class A Common Stock outstanding for a total
of 5,755,364 shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for Registrant's 1998 Annual Meeting of
Stockholders are incorporated by reference in Part III of this Form 10-KSB
Report.
Transitional Small Business Disclosure Format YES [ ] NO [X]
The exhibit index appears on page 27 of this Form 10-KSB Report.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
YieldUP International Corporation ("YieldUP" or "the Company") develops,
manufactures, and markets cleaning, rinsing, and drying equipment used during
several steps in the manufacturing process for semiconductors and other defect
sensitive substrates. Based on the results obtained by customers using its
products, the Company believes its technology allows more thorough and efficient
cleaning, rinsing and drying than conventional approaches, and that the products
based on its technology may enable manufacturers to obtain improvements in the
percentage of good product produced, or yield. The Company's cleaning, rinsing
and drying products also reduce the usage of certain environmentally hazardous
materials, and occupy less floor space when compared to conventional equipment.
The Company currently has approximately 70 cleaning, rinsing and drying systems
installed at about 50 customer sites in the semiconductor, semiconductor
equipment, magnetic disk, flat-panel display, and photo-mask industries.
Disc-shaped wafers composed of silicon are the foundation on which
integrated circuits ("ICs") are manufactured in semiconductor fabrication
facilities. During the typical four to six week process of fabricating IC's on
these wafers, semiconductor manufacturers typically clean, rinse and dry the
wafers several times to prepare the wafer for the next IC fabrication step. The
likelihood of completing these steps successfully and producing good ICs depends
significantly upon the cleanliness of the wafers throughout all the process
steps. The Company's products are designed to reduce wafer particle
contamination, stains, surface roughness, and other defects that reduce IC
yields, offering a cost-effective, integrated cleaning, rinsing and drying
system using patented filtration, rinsing and drying technology with no
mechanical motion and greatly reduced use of environmentally hazardous
materials.
The Company is marketing its products for application at several points in
the IC fabrication process, and for use in the manufacturing processes of
magnetic disks, photo-masks and flat-panel displays. The Company believes that
there are numerous sites within typical high technology manufacturing facilities
where manufacturers could improve processes and reduce defects by replacing or
retrofitting existing equipment with the Company's products.
The Company's products include the CleanPoint de-ionized water filtration
system, the Omega 1000 Rinsing and Drying System designed to replace the
conventional Spin-Rinse Dryers ("SRD's"), the Omega 2000 Cleaning, Rinsing and
Drying system designed to handle large substrates including 12 inch (300mm)
wafers and flat panels, and the Omega 4000 Cleaning Rinsing and Drying system
that provides integrated hydrofluoric acid cleaning capability.
PRODUCTS
Through analyzing the fabrication process of leading semiconductor
manufacturers, the Company determined that the cleaning, rinsing and drying
steps of the manufacturing process present a significant, unfilled opportunity
for yield improvement. The Company has developed and is marketing equipment that
incorporates Company's patented rinsing, and drying technologies which it
believes may help manufacturers achieve significant contamination reduction, and
resulting yield improvement. The Company currently markets the following
products:
CleanPoint Water Filtration System
The CleanPoint Water Filtration System is a patented de-ionized water
filtration system designed to eliminate microscopic particle contamination in
de-ionized water at the point of use. The CleanPoint system is an integral part
of the Company's cleaning, rinsing, and drying systems and is also marketed
independently for other filtration applications. The Company is also
investigating other industrial applications for its CleanPoint water filtration
system, including the pharmaceutical and chemical industries, both of which
require ultra-pure water for product processing.
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Omega 1000
The Omega 1000 system is a low cost, stand-alone rinsing and drying system
with a small footprint designed to replace conventional SRD technology in
semiconductor manufacturing facilities. It has an advanced two chamber design
which provides two independently controlled rinsing and drying chambers for
increased flexibility and throughput. The Omega 1000 incorporates the Company's
patented Surface Tension Gradient ("STG") drying technology and patented
CleanPoint water filtration system. This process is designed to reduce
contamination and water spots which can be left by conventional equipment.
The Omega 1000 system provides the following benefits to semiconductor
manufacturers:
- No mechanical motion of wafers, thus preventing wafer breakage problems
associated with SRD's
- Minimal moving parts provide higher system reliability and reduced
equipment maintenance cost
- No particle contamination at 0.2 micron and above added to product wafers
by rinse/dry process
- Reduced water spots and organic residues by eliminating the build-up of
water meniscus common in SRD's
Omega 2000
The Omega 2000 system is an integrated cleaning, rinsing and drying system
that uses the same rinse and dry technology as in the Omega 1000 and couples it
with additional cleaning options and system control capabilities. The Omega 2000
system combines the advantages of immersion technology and the convenience of
full flow processors and is designed to process larger substrates at higher
throughputs. The Company offers chemical injection and megasonic cleaning as
options on the Omega 2000. The Company procures these cleaning subsystems from
one of several manufacturers of such systems. The Omega 2000 is available as a
stand-alone system or as a drop-in upgrade to an existing wet bench system. The
drop-in upgrade version of the Omega 2000 is being marketed to existing wet
bench manufacturers (Original Equipment Manufacturers or OEM's) as the Omega
2100 system.
The Omega 2000 and the Omega 2100 provide the following advantages compared
to conventional equipment:
- Single chamber cleaning, rinsing and drying of wafers, eliminating
cumbersome handling
- Improved rinse and dry cycle times for increased throughput
- Reduced build-up of scum that sometimes occurs with IsoPropyl Alcohol
("IPA") dryers
- Significantly lower usage of IPA, an environmentally hazardous material,
compared to conventional IPA dryers
- Reduction in surface roughness and haze on wafers
Omega 4000
The Omega 4000 is a cleaning, rinsing and drying system that builds on the
Omega 2000 product by offering an integrated hydrofluoric acid (HF) cleaning
capability in addition to the cleaning, rinsing, and drying capabilities found
on the Omega 2000 product. The HF cleaning module allows more thorough cleaning
of certain types of processed wafers than the Omega 2000. The Company procures
the HF capability from one of several manufacturers of such systems. The Omega
4000 system is also configured with robotics for wafer cassette handling.
The purchase price of the Omega products ranges from $95,000 for the Omega
1000 to $550,000 for the fully configured Omega 4000.
The Company is investigating the development of single chamber cleaning,
rinsing and drying systems based on the Company's patented technologies that can
greatly simplify and enhance wet processing. No assurance can be given that
these development efforts will be successful or that any products developed will
achieve commercial success.
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STRATEGY
YieldUP's goal is to become a leading provider of cleaning, rinsing, and
drying equipment used in modern semiconductor manufacturing facilities. The
Company is marketing its products and providing evaluation systems to leading IC
and wafer manufacturers for wet processing applications with the highest IC
yield leverage. The Company believes that integration of the Company's products
into the manufacturing lines of several major semiconductor manufacturers will
provide support for sales into other manufacturers' facilities. In addition, the
Company is marketing its products to the research and development areas within
the semiconductor companies to gain acceptance of the Company's technology in
the development of future semiconductor manufacturing processes that require
lower contamination. The Company has also achieved success in additional markets
for its products in other defect sensitive industries including magnetic disks,
flat panel displays, and photo-masks.
The Company has adapted its products to capitalize on the expected shift in
the semiconductor industry from six and eight inch (150mm and 200mm) silicon
wafers to twelve inch (300mm) silicon wafers. That move will require IC
manufacturers to either refurbish existing manufacturing sites or construct new
ones. During the transition to larger wafers, the Company expects that
semiconductor manufacturers will reevaluate those aspects of the manufacturing
process which have a significant impact on yield, since the potential losses
associated with reduced yield will increase as wafer size increases and critical
dimensions decrease.
The Company has greatly expanded its sales to manufacturers of wet benches
who can incorporate the Company's rinsing and drying systems into their existing
or new wet benches. The Company has announced several such partnerships and
intends to continue its OEM relationships. The Company expects a significant
part of its future business may come from OEM sales.
The Company is actively targeting the magnetic disk market and has achieved
initial success in adapting its technology to the needs of the disk industry.
The Company has recruited qualified personnel and obtained the required test and
measurement system for its laboratory for this purpose. The Company believes
that a significant part of its future business may come from disk manufacturers.
CUSTOMERS, MARKETING AND SERVICE
The Company is marketing its cleaning, rinsing, and drying systems for
application at several points in the IC fabrication process. Thus, potential
customers with large manufacturing facilities could potentially have use for
several of the Company's products within a single facility. The Company has sold
systems to semiconductor manufacturers who have integrated YieldUP products into
existing or new wet benches or have used them in a stand-alone configuration.
The Company has also sold systems to semiconductor equipment manufacturers,
magnetic disk manufacturers, flat panel display manufacturers, and photo-mask
manufacturers. The Company is also collaborating with several automated
wet-bench manufacturers, for integrating its systems into the wet-benches of
these manufacturers.
In the United States, the Company markets its products through direct
customer contact and manufacturer representatives. These representatives provide
sales support to end users in their territories. The Company uses its own
personnel to provide service support for end users in the United States. In
Europe, the Company markets its products through divisions of Teltec
Semiconductor which provide both sales and service support to end users. In
Japan, the Company distributes its products through Kanematsu Semiconductor
Corp., which provides both sales and service support to end users. Other
distributors include Premtek in Taiwan, WKK in Singapore and Malaysia, and
Sekwang Hitech Company in Korea. The Company has agreements with its
representatives and distributors which generally grant the representative or
distributor an exclusive right to sell products in a specified territory and
allow termination by either party without cause on 90 days written notice.
In the United States, the Company uses its own personnel for all equipment
installations, field service and maintenance. In Europe, the Company has
agreements with divisions of Teltec Semiconductor to perform all equipment
installations, field service and maintenance, and the Company has no plans to
discontinue this agreement. In Japan, the Company has similar agreements with
Kanematsu Semiconductor, and is similarly
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using its distributors in Taiwan, Singapore and Korea. The Company typically
provides customers with a twelve month warranty covering parts and labor.
During 1997, the major portion of the Company's revenues came from
shipments to North America, with a smaller portion of revenues coming from
shipments to Asia-Pacific region and from shipments to Europe. The Company has
significantly expanded its international marketing efforts.
BACKLOG
The Company schedules production of its systems based upon backlog,
informal customer commitments and general economic forecasts for its targeted
markets. The Company includes in its backlog only those customer orders for
systems for which it has accepted purchase orders and for which delivery has
been specified within twelve months as well as orders for spare parts and
service and support of systems. The Company has not entered into any long-term
purchase agreements with any customers. Customers commit to purchase the
Company's products by issuing purchase orders. The timing of the purchase
orders' issuance depends on the customer's delivery requirements.
The Company's backlog of orders was approximately $2,517,000 as of December
31, 1997, all of which the Company expects to deliver within the next six
months. The systems included in the backlog have been ordered by semiconductor
manufacturers, equipment manufacturers, and magnetic disk manufacturers. The
equipment requirements of manufacturers cannot be determined with accuracy, and
therefore the Company's backlog at any particular date is not indicative of
future growth. In addition, because of possible changes in delivery schedules,
the ability of customers to cancel, defer or reschedule, and potential delays in
system shipments, the Company's backlog at any particular date is not
necessarily representative of actual sales of any succeeding period. Further,
all potential sales will depend on final delivery and testing of equipment.
MANUFACTURING, ASSEMBLY AND TESTING
The Company's equipment manufacturing operations consist of assembly of
systems into final configuration and final testing in a cleanroom prior to
customer shipment. The Company fabricates certain custom plastic components that
are incorporated into its systems, and also procures subsystems and materials
from a number of distributors and multiple outside suppliers.
The Company's strategic goal is to continue to use contract manufacturers
for its standard subsystems as unit manufacturing volumes increase and product
designs mature. The Company does not have written contracts with its suppliers
and chooses suppliers based on considerations of quality, cost and delivery
time.
PRODUCT DEVELOPMENT
The Company incurred research and development expenses of $2,021,790 in
1997 and $1,223,002 in 1996. Research and development expenses represent costs
incurred for the design and development of new products, the redesign of
existing products, and the costs associated with technology development. None of
the Company's research and development costs in 1997 and 1996 were paid for by
customers or other outside organizations.
The market for semiconductor fabrication equipment is characterized by
rapid technological advancement and product innovation. The Company believes
that development of new products will be required to allow it to compete
effectively in the market. As of December 31, 1997, the Company had 22 full time
employees whose duties included research and development. The Company intends to
hire additional research and development personnel in 1998.
The Company has established an Advanced Applications Laboratory complete
with a Class 1 Cleanroom and measurement and test equipment to assist in the
development of its processes and products, perform customer demonstrations and
evaluations, and assure the quality of products shipped to customers. The
Company intends to continue its research and development activities through
internal research and cooperative research relationships with customers and
other technology companies.
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The Company intends to continue product enhancement programs focusing on
improving reliability and performance, developing additional features and
capabilities, increasing throughput capacity, promoting ease of equipment
operations, and reducing costs. The Company also believes it can improve
standardization of its systems, and improve product quality, reduce costs and
shorten lead times using molds, contract manufacturing and pre-fabricated items.
INTELLECTUAL PROPERTY RIGHTS
The Company relies on patent, trade secret, and copyright protection for
its products and technology. The Company has received five United States patents
relating to its products and technologies, one additional patent allowed, and
has filed seventeen additional U.S. and foreign patent applications. The process
of obtaining patents can be expensive and time-consuming and there can be no
assurance that the patent applications will result in the issuance of patents,
that any issued patents will provide the Company with meaningful competitive
advantage, or that challenges will not be issued against the validity or
enforceability of any patent issued to the Company.
The Company also relies on trade secrets and proprietary technology that it
seeks to protect, in part, through confidentiality agreements with employees,
consultants and other parties. There can be no assurance that these agreements
will not be breached, that the Company will have adequate remedies for any
breach, or that the Company's trade secrets will not otherwise become known to
or independently developed by others.
In the absence of significant patent or other proprietary protection,
competitors may be able to copy the Company's technology or design approaches,
replicate its processes or gain access to its trade secrets. Moreover there can
be no assurance that competitors will not be able to develop technologies
similar to or more advanced than the Company's or design around any patent
aspects of the Company's products or technology. No assurance can be given that
the Company's current or future products will not infringe on the patents of
others.
There has been substantial litigation regarding patent and other
intellectual property rights in semiconductor-related industries. Further
commercialization of the Company's products and technologies could provoke
claims of infringement from third parties. In the future, litigation may be
necessary to enforce patents issued to the Company, to protect trade secrets or
know-how owned by the Company or to defend the Company against claimed
infringement of the rights of others to determine the scope and validity of the
proprietary rights of others. Any such litigation would likely result in
substantial cost and diversion of effort by the Company, which by itself could
have a material adverse effect on the Company's business, financial condition
and operating results. Further adverse determinations in such litigation could
result in the Company's loss of proprietary rights, subject the Company to
significant liabilities to third parties, require the Company to seek licenses
from third parties or prevent the Company from manufacturing or selling its
products, any of which could have a material adverse effect on the Company's
business, financial condition and operating results. See "Legal Proceedings."
COMPETITION
There is intense competition in the market for the Company's products. The
Company's relatively smaller resources makes it vulnerable to competition from
larger companies, many of which have significantly greater financial, employee,
product development and marketing resources. Leading competitors have a larger
installed base of products which can provide them a significant advantage over
the Company, because the Company's technology has not been widely deployed and
therefore presents potential customers with uncertainty not associated with
existing equipment. In addition, many semiconductor manufacturers are reluctant
to choose small companies as key suppliers due to concerns about long term
viability and product support. There can be no assurance that the Company will
overcome these disadvantages.
Competition for the Company's products currently comes from makers of
traditional and new cleaning, rinsing, and drying equipment. Competitors include
manufacturers of SRDs such as Verteq and Semitool, IPA dryer manufacturers such
as S&K and integrated wet processing system manufacturers such as Santa Clara
Plastics, SubMicron Systems, Steag, FSI, CFM Technologies, and Dai Nippon
Screen. There can be no
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assurance that these competitors will not develop new products or improve their
existing products which, when combined with their existing market presence,
would make the Company's products obsolete or unmarketable. Additional
competition for the Company's products comes from a large number of small
companies making cleaning, rinsing, and drying equipment which is less expensive
than the Company's products. Because the Company's products sell for
significantly higher prices than such products, the Company may not be able to
compete effectively against them without lowering its prices.
The Company also expects that competition may arise from new competitors
and from new technological approaches adopted by existing competitors. Because
of the increasing focus on yield management in the semiconductor manufacturing
industry, equipment manufacturers are likely to put an increased emphasis on
contaminant reduction. Thus competitive technologies or manufacturing techniques
may be developed which could make the Company's products obsolete, thereby
materially adversely affecting the Company.
The Company currently competes principally on the basis of of superior
contamination reduction, better price/performance, improved equipment
reliability, smaller footprint, lower operating costs, and reduction in
hazardous chemical usage. The Company believes that these factors as well as the
ease of use, price, reputation, service and familiarity are important
competitive criteria for selection of cleaning, rinsing and drying equipment by
potential customers. There can be no assurance that the Company will compete
favorably with respect to these or other factors in the future, and any failure
to do so may have a material adverse impact on the Company's business or
operating results.
EMPLOYEES
On December 31, 1997, the Company had 70 full-time employees, including 31
in manufacturing, 22 in research, engineering and product development, 11 in
sales and marketing and 6 in finance and administration. All of the employees
were located in the United States. No employee of the Company is currently
represented by a labor union. Management considers its employee relations to be
good.
The Company intends to add employees from time to time as necessary to meet
its evolving management, research and development, sales and marketing, service
and manufacturing needs. The Company believes that its future success is
dependent to a significant degree on its ability to attract and retain
additional skilled personnel to enable the Company to develop and compete.
BUSINESS RISKS
In addition to the other information in this Annual Report, the following
risk factors should be considered carefully in evaluating the Company and its
business. This Annual Report contains forward-looking statements that involve
risks and uncertainties. The statements contained in this Annual Report that are
not purely historical are forward-looking statements within the meaning of
Section 27A of the Securities and Exchange Act of 1934, including without
limitation statements regarding the Company's expectations, beliefs, intentions,
plans or strategies regarding the future. All forward looking statements
included in this document are based on information available to the Company on
the date thereof, and the Company assumes no obligation to update any such
forward-looking statements.
The Company's operations are subject to numerous risks, including
unforeseeable expenses as well as specific risks of the semiconductor equipment
industry. There can be no assurance that the Company will achieve profitable
operations. See Financial Statements and Notes thereto.
HISTORY OF OPERATING LOSSES; NEED FOR ADDITIONAL FINANCING; LIMITED OPERATING
HISTORY
The Company has experienced significant operating losses since its
inception in June 1993 and only commenced significant shipments in fourth
quarter of 1995. Accordingly, the Company has a limited operating history on
which to base the evaluation of its business, and its prior operating results
are not indicative of the results which may be achieved in the future. As of
December 31, 1997, the Company's accumulated deficit was $9,588,014. The
Company's operating losses have been and will continue to be principally the
result of the various costs associated with the Company's product development,
manufacturing
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and sales and marketing activities. The Company believes that its existing
capital resources will enable it to fund its operations through 1998. The
Company may obtain additional capital to continue its operations beyond that
time, which may result in dilution to the current stockholders. The existence of
Class B Warrants may also complicate future capital raising activities because
of their potentially dilutive effect on the purchasers of the Company's equity
securities and the anti-dilution provisions of the Warrants. If the Company is
unable to obtain the necessary capital, it will be required to significantly
curtail its growth. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" and the Financial Statements and Notes
thereto.
RELIANCE ON SINGLE PRODUCT FAMILY
The Company anticipates that the substantial majority of its future
revenues will come from the sale of its cleaning, rinsing and drying systems.
Should the demand for, or pricing of, the Company's products decline due to
increased competitive pressure, the introduction of superior systems or
processes by competitors, or changes in the semiconductor, magnetic disk, flat
panel display or photo-mask industries, the Company's business, financial
condition and results of operations would be materially adversely affected. The
ability of the Company to diversify its operations through introduction and sale
of new products is dependent on the success of Company's continuing research and
development activities as well as its marketing efforts. No assurance can be
given that the Company will be able to develop, acquire introduce or market new
products in a timely or cost-effective manner. Accordingly, the Company may be
dependent on the overall market acceptance of its existing products.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company expects to derive a substantial portion of its revenues from
the sale of a relatively small number of systems, which typically range in
purchase price from $95,000 to $550,000. As a result, a small reduction in
number of systems shipped in a quarter due to changing demand, rescheduling or
cancellation of order, or supplier delays would have a material adverse effect
on the Company's revenues and results of operations for that quarter.
In addition, the Company's need for continued investment in research and
development and sales, marketing and service will limit the Company's ability to
reduce expenses in response to any such decrease in sales. If the Company's
anticipated level of revenues is not achieved for a particular period, the
Company's operating results could be adversely affected by its inability to
reduce costs. Because the Company builds certain sub-assemblies according to
forecast, a reduction in customer orders could also result in excessive
inventories which could adversely affect the Company's results of operations and
liquidity. The impact of these and other factors on the Company's operating
results in any future period cannot be accurately forecast. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations."
LENGTHY SALES CYCLE
Sales of the Company's products have been, and are expected to continue to
be, characterized by a relatively long sales cycle due to such factors as the
substantial time required by potential customers for technical evaluation of the
Company's products prior to purchase, and the high cost and the critical role
the Company's products will play in the manufacturing process. The Company
believes that the sales cycle will continue to be lengthy as certain of its
anticipated customers centralize purchasing decisions, which is expected to
intensify the evaluation process and require additional sales and marketing
expenditures by the Company.
NEED TO DEVELOP NEW PRODUCTS AND TECHNOLOGIES
Semiconductor, magnetic disk, flat-panel display and photo-mask
manufacturing equipment and processes are subject to rapid technological changes
and product obsolescence. The Company believes that its future success will
depend in part upon its ability to develop and enhance its current products and
develop new products, processes and technologies to meet such anticipated
changes. If the Company does not successfully
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introduce new products in a timely manner, any competitive position the Company
may develop could be lost, and the Company's sales reduced. There can be no
assurance that the Company will be able to develop and introduce new products
which satisfy customer needs and achieve market acceptance. Any failure of the
Company to manage its research and development efforts would have a material
adverse effect upon its business and prospects.
RISKS RELATED TO YEAR 2000 PROBLEM
In the next two years, most companies could face a potentially serious
information systems problem because many software applications and operational
programs written in the past were designed to handle date formats with two-digit
years and thus may not properly recognize calendar dates beginning in the Year
2000. This problem could result in computers either outputting incorrect data or
shutting down altogether when attempting to process a date such as "01/01/00."
The Company has examined all of its critical software and operational
applications and found no potential problems related to the Year 2000 issue. In
addition, however, the Company could be exposed to a potential adverse impact
resulting from the failure of financial institutions and other third parties to
adequately address the Year 2000 problem. The Company intends to devote the
necessary resources to identify and resolve Year 2000 issues that may exist with
third parties. However, the Company cannot estimate the cost of this effort at
this time, nor can any assurance be given that the Year 2000 problem will not
have a material adverse effect on the Company's business, operating results or
financial condition.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal administrative, manufacturing, engineering and
development, and sales/ marketing facilities occupy approximately 14,400 square
feet in a single story building in Mountain View, California. The property is
occupied under a lease that expires in September 1998. The Company has exercised
its option to extend the lease for three additional years beyond September 1998.
The Company has also leased an additional 3,000 square feet for its expanded
Sales and Marketing Operations in Pleasanton, California. Management believes
its facilities should be adequate for the Company's operations for at least the
near term.
ITEM 3. LEGAL PROCEEDINGS
CFM Technologies, Inc. and CFMT, Inc. (collectively "CFM") filed a
complaint against the Company in United States District Court for the District
of Delaware in September 1995. The complaint alleged that the drying process
incorporated in certain of the Company's products infringes a patent held by
CFM. On October 14, 1997, a federal court for the District of Delaware ruled in
favor of the defendant, YieldUP International Corporation. In a written opinion
granting summary judgment for YieldUP, the United States District Court held
that CFM had failed to produce evidence on three separate elements of the patent
claim. To establish infringement, evidence of all three elements was required.
However, there can be no assurance that this judgment will not be overturned
should there be an appeal by CFM. A loss, if any, resulting from an unfavorable
adjudication, cannot presently be estimated. Accordingly, no provision for any
liability that may result upon adjudication has been made in the accompanying
financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders during the
Company's fourth quarter.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Since November 1995, the Company's Common Stock has traded on the Nasdaq
SmallCap Market under the symbol "YILD." The following table sets forth for the
periods indicated the high and the low sale prices of the Common Stock as
reported by the Nasdaq SmallCap Market. These figures reflect the inter-dealer
prices without retail markup, mark-down or commission and may not represent
actual transactions.
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HIGH LOW
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1996
1st Quarter............................................... $ 6 $ 4 7/16
2nd Quarter............................................... 8 5/8 5 3/8
3rd Quarter............................................... 6 13/16 4 1/2
4th Quarter............................................... 6 4 1/2
1997
1st Quarter............................................... $10 7/8 $ 5 5/8
2nd Quarter............................................... 13 1/4 6 3/8
3rd Quarter............................................... 15 1/8 11 3/4
4th Quarter............................................... 14 3/8 8 3/8
</TABLE>
On December 31, 1997, the last reported sale price of the Common Stock on
the Nasdaq SmallCap Market was $9 1/2 per share. As of December 31, 1997, there
were 13 holders of record of the Common Stock and 34 holders of record for the
Class A Common Stock, and the Company believes that there were over 700
beneficial owners of Common Stock.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock or Class A
Common Stock. It is the present policy of the Company to retain any earnings to
finance the growth and development of the business, and, therefore, the Company
does not anticipate paying cash dividends on its Common Stock or Class A Common
Stock in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The information in this section contains forward-looking statements
describing the Company's plans to increase revenues and gross margins on its
products and for debt and equity financing to meet its capital needs. Such
statements are made in reliance on the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The Company's plans and intentions
with respect to increasing revenues and improving gross margins are subject to
risks and uncertainties, and actual results could differ materially from those
projected in the forward-looking statements. The Company's ability to execute
its plans may be adversely affected by competitive conditions, failure to timely
complete development and installation of new products and product enhancements,
supply disruptions, customer purchasing cycles and other factors described under
"Business Risks" and elsewhere in this Annual Report.
RESULTS OF OPERATIONS
During the years ended December 31, 1997 and 1996, the Company's revenues
were $7,465,447 and $2,204,590, respectively. The 239% increase in revenue in
1997 was due to an increase in shipments of the Company's cleaning, rinsing, and
drying systems.
The Company's cost of sales was $5,964,228 for the year ended December 31,
1997, and $2,630,970 for the year ended December 31, 1996. The Company generated
a gross profit of $1,501,219 or 20.1% for the year ended December 31, 1997, and
a negative gross margin of $(426,380) or (19.3%) for the year ended
9
<PAGE> 11
December 31, 1996. The improvement in gross margin was due to more efficient
production, design simplifications, and increased revenues. The Company's cost
of sales remained high during 1997 due to manufacturing expenses being allocated
over relatively few units. The Company expects that its gross margin will
improve in the future to the extent unit shipments and revenue increase and to
the extent the Company is able to transition to increased shipments of
standardized products and lower unit material costs.
Research and development expenses were $2,021,790 for the year ended
December 31, 1997, and $1,223,002 for the year ended December 31, 1996. The
increase in research and development expenses was due mainly to an increase in
engineering personnel and an increase in expenses for prototype development of
the Company's new products compared to 1996. In addition, in 1997, the Company
continued to invest in enhancement of its existing product line. The Company
expects to continue to invest in new product research and development and
enhancement of existing products, although these expenses may decline as a
percentage of revenues to the extent revenues increase.
Selling, general, and administrative expenses were $3,724,100 for the year
ended December 31, 1997, and $1,829,460 for the year ended December 31, 1996.
The increase in selling, general, and administrative expenses reflected the
Company's increased expenses for representative sales commissions due to higher
shipment levels and increased legal expense for litigation and patent activity
compared to 1996. Selling, general and administrative expenses declined as a
percentage of revenues to 49.9% in 1997 from 83.0% in 1996 due to increased
revenues. The Company expects that selling, general, and administrative expenses
will continue to decline as a percentage of revenues to the extent revenues
increase.
Net interest income was $251,029 for the year ended December 31, 1997, and
$104,807 for the year ended December 31, 1996. The increase in net interest
income in 1997 was due to interest income on a portion of the funds raised in
the Company's financing from the exercise of its Class A Warrants in April 1997.
The Company expects that interest income may decline in the future due to lower
short term investment balances caused by operating losses in 1997.
The Company sustained a net loss of $3,993,642 for the year ended December
31, 1997, as compared to a net loss of $3,374,035 for the year ended December
31, 1996. The net loss in 1997 included an $808,469 inventory write-off, due
primarily to a decision by the Company to discontinue its old product lines, and
a non-cash expense of $300,000 in the first quarter of 1997 related to an
amendment to certain of the Company's Class A Warrants to resolve a potential
dispute with holders of such warrants. Excluding these two items, the net loss
for 1997 would have been $2,885,173. The continued net loss was due primarily to
the continued product development activities and increased manufacturing
operations. In addition, the Company expanded its marketing, support, and
administrative organizations to manage increased sales and shipments of the
Company's products. Net losses are expected to continue until the Company is
able to sell sufficient numbers of cleaning, rinsing and drying systems to cover
operating expenses, of which there can be no assurance.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity in the year ended December 31,
1997 has been the cash flow generated from the Company's exercise of its Class A
warrants, resulting in total net proceeds to the Company of approximately $14.5
million. As of December 31, 1997, the Company had cash and cash equivalents of
$2,145,785, restricted cash of $406,749, short term investments of $1,506,150,
accounts receivable of $4,324,760 and inventories of $4,678,600.
Net cash used for operating activities was approximately $3,370,000 for the
year ended December 31, 1996 and $9,948,000 for the year ended December 31,
1997. The increase in cash used in operations in the year ended December 31,
1997 was primarily attributable to the increase in accounts receivable and
inventories as the working capital requirements of the Company increased due to
business expansion during the period.
Net cash provided by investing activities was approximately $436,000 in the
year ended December 31, 1996 as compared to net cash used for investing
activities of approximately $3,187,000 in the year ended December 31, 1997. The
increase in cash used for investing activities during 1997 primarily reflects
the
10
<PAGE> 12
investment activity of funds received through the Company's exercise of its
Class A warrants and an equity and debt investment in another company.
The Company's financing activities provided net cash of approximately
$677,060 for the year ended December 31, 1996, and approximately $14,662,000 for
the year ended December 31, 1997. During 1996, the Company received proceeds of
$750,000 from a term loan. During 1997, the Company received proceeds of
$250,000 from a term loan and then decreased its bank borrowings by $360,000.
The increase in cash provided by financing activities during 1997 primarily
reflects cash provided by the exercise of Company's Class A warrants and stock
options.
On March 30, 1998, the Company completed a $6 million equity financing in a
private placement of convertible preferred stock (Series A Preferred Stock). The
Company, subject to certain conditions, may exercise a put option for up to an
additional $6 million and the investors, subject to certain conditions, may
exercise a call option for up to an additional $6 million. The Company has
agreed to file a registration statement for the resale of the shares of the
Company's Common Stock acquired on conversion of the Series A Preferred Stock.
Under the securities purchase agreement, the Company has issued 600 shares
of convertible preferred stock which are initially convertible into an aggregate
of approximately 615,000 shares of the Company's Common Stock. After the
satisfaction of certain holding periods, each of the newly issued shares of
Series A Preferred Stock is convertible, at the option of the holder, into
shares of common stock of the Company based upon a conversion price of $10.8625
per share or if lower, 100% of the market price, defined as the lowest closing
bid price during the 20 trading days preceding a conversion. The convertible
preferred stock bears a dividend of 5% per year, payable in kind. The shares of
Series A Preferred Stock are subject to automatic conversion after three years
if not previously converted.
The Company has also obtained a commitment from a commercial lender to
receive a loan of up to $500,000 for its capital equipment and to create a $4
million revolving credit line collateralized by the Company's qualifying
accounts receivable. The funds available to the Company, if any, under such line
of credit will depend on the Company's ability to generate revenues in the near
term. The Company believes that the $6 million equity financing and the two
credit facilities should provide the Company with the necessary funds to finance
operations through 1998. The Company may be required to seek additional capital
beyond that time, which may result in dilution to the current stockholders. If
the Company is unable to obtain the necessary capital, the Company's business,
financial, and operating results may be materially adversely affected.
11
<PAGE> 13
ITEM 7. FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
YieldUP International Corporation:
We have audited the accompanying balance sheet of YieldUP International
Corporation (the Company), as of December 31, 1997, and the related statements
of operations, stockholders' equity, and cash flows for each of the years in the
two-year period then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of YieldUP International
Corporation as of December 31, 1997, and the results of its operations and its
cash flows for each of the years in the two-year period then ended in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Mountain View, California
February 13, 1998, except as
to Note 8, which is
as of March 30, 1998
12
<PAGE> 14
YIELDUP INTERNATIONAL CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,145,785
Restricted cash........................................... 406,749
Short-term investments.................................... 1,506,150
Accounts receivable....................................... 4,324,760
Inventories............................................... 4,678,600
Prepaid expenses and other assets......................... 308,419
-----------
Total current assets.............................. 13,370,463
-----------
Property, plant, and equipment.............................. 1,409,817
Other assets................................................ 2,144,660
-----------
Total assets...................................... $16,924,940
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,512,204
Accrued liabilities....................................... 693,699
Capital lease obligations and debt........................ 617,854
-----------
Total current liabilities......................... 3,823,757
-----------
Stockholders' equity:
Preferred stock:
$.001 par value; 5,000,000 shares authorized; no shares
issued and outstanding................................. --
Class A common stock:
$.001 par value; 2,229,927 shares authorized; 1,413,653
shares issued and outstanding; each share is entitled
to five votes.......................................... 1,414
Common stock:
$.001 par value; 20,000,000 shares authorized;
4,341,711 shares issued and outstanding; each share is
entitled to one vote................................... 4,341
Additional paid-in capital................................ 22,685,283
Notes receivable from stockholders........................ (1,841)
Accumulated deficit....................................... (9,588,014)
-----------
Total stockholders' equity........................ $13,101,183
-----------
Total liabilities and stockholders' equity........ $16,924,940
===========
</TABLE>
See accompanying notes to financial statements
13
<PAGE> 15
YIELDUP INTERNATIONAL CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues.................................................... $ 7,465,447 $ 2,204,590
Cost of sales............................................... 5,964,228 2,630,970
----------- -----------
Gross margin................................................ 1,501,219 (426,380)
----------- -----------
Operating expenses:
Research and development.................................. 2,021,790 1,223,002
Selling, general, and administrative...................... 3,724,100 1,829,460
----------- -----------
Total operating expenses............................... 5,745,890 3,052,462
----------- -----------
Operating loss......................................... (4,244,671) (3,478,842)
Interest income, net........................................ 251,029 104,807
----------- -----------
Net loss.................................................... $(3,993,642) $(3,374,035)
=========== ===========
Basic and diluted net loss per share........................ $ (0.81) $ (0.99)
=========== ===========
Shares used in per share computations....................... 4,946,858 3,406,395
=========== ===========
</TABLE>
See accompanying notes to financial statements
14
<PAGE> 16
YIELDUP INTERNATIONAL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A NOTES
COMMON STOCK COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
------------------ ------------------ PAID-IN FROM ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS DEFICIT EQUITY
--------- ------ --------- ------ ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of December 31,
1995....................... 1,910,301 $1,910 1,495,00 $1,495 $ 7,570,302 $ (41,281) $(2,220,337) $ 5,312,089
Exercise of Class A common
stock options.............. 1,810 2 -- -- 1,248 -- -- 1,250
Payment of notes
receivable................. -- -- -- -- -- 25,933 -- 25,933
Net loss..................... -- -- -- -- -- -- (3,374,035) (3,374,035)
--------- ------ --------- ------ ----------- --------- ----------- -----------
Balances as of December 31,
1996....................... 1,912,111 1,912 1,495,000 1,495 7,571,550 (15,348) (5,594,372) 1,965,237
Exercise of Class A common
stock options.............. 46,861 47 -- -- 86,173 -- -- 86,220
Exercise of common stock
options.................... -- -- 88,971 89 238,564 -- -- 238,653
Exercise of Class A
warrants................... -- -- 2,211,421 2,211 14,477,997 -- -- 14,480,208
Expense related to certain
Class A warrants........... -- -- -- -- 300,000 -- -- 300,000
Exercise of Class B
warrants................... 1,000 1 10,999 -- -- 11,000
Conversion of Class A common
stock to common stock...... (545,319) (545) 545,319 545 -- -- -- --
Payment of notes
receivable................. -- -- -- -- -- 13,507 -- 13,507
Net loss..................... -- -- -- -- -- -- (3,993,642) (3,993,642)
--------- ------ --------- ------ ----------- --------- ----------- -----------
Balances as of December 31,
1997....................... 1,413,653 $1,414 4,341,711 $4,341 $22,685,283 $ (1,841) $(9,588,014) $13,101,183
========= ====== ========= ====== =========== ========= =========== ===========
</TABLE>
See accompanying notes to financial statements
15
<PAGE> 17
YIELDUP INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(3,993,642) $(3,374,035)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization.......................... 293,322 154,819
Expense related to certain Class A Warrants
amendment............................................. 300,000 --
Changes in operating assets and liabilities:
Accounts receivable.................................. (3,625,301) (20,032)
Inventories.......................................... (4,001,217) (171,451)
Prepaid expenses and other assets.................... (198,597) 59,110
Accounts payable..................................... 1,869,115 (75,000)
Accrued liabilities.................................. 169,422 157,156
Customer deposits.................................... (43,000) (101,000)
----------- -----------
Net cash used for operating activities............ (9,229,898) (3,370,433)
----------- -----------
Cash flows from investing activities:
Purchase of plant and equipment........................... (794,245) (751,892)
Sale of fixed asset....................................... -- 22,000
Increase in restricted cash............................... -- (888,741)
Decrease in restricted cash............................... 103,129 --
Other assets.............................................. (718,543) --
Proceeds from sales of short-term investments............. -- 4,554,645
Purchases of short-term investments, net.................. (1,496,150) (2,499,933)
Purchases of other investments............................ (1,000,000) --
----------- -----------
Net cash (used for) provided by investing
activities..................................... (3,905,809) 436,079
----------- -----------
Cash flows from financing activities:
Principal payments under capital lease obligations........ (57,268) (40,123)
Proceeds from term loan................................... 250,000 750,000
Principal payments of term loan........................... (360,000) (60,000)
Proceeds of notes receivable from stockholders............ 13,507 25,933
Issuance of Common Stock from option exercise............. 238,653 --
Issuance of Common Stock from warrant exercise, net....... 14,491,208 --
Issuances of Class A Common Stock from option exercise.... 86,220 1,250
----------- -----------
Net cash provided by financing activities......... 14,662,320 677,060
----------- -----------
Net increase (decrease) in cash and cash equivalents........ 1,526,613 (2,257,294)
Cash and cash equivalents at beginning of year.............. 619,172 2,876,466
----------- -----------
Cash and cash equivalents at end of year.................... $ 2,145,785 $ 619,172
=========== ===========
Non-cash financing and investing activity:
Acquisition of equipment under capital lease
obligations............................................ $ -- $ 42,000
----------- -----------
Cash paid for interest...................................... $ 75,870 $ 24,756
=========== ===========
</TABLE>
See accompanying notes to financial statements
16
<PAGE> 18
YIELDUP INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
YieldUP International Corporation (the Company or YieldUP) develops,
manufactures, and markets cleaning, rinsing and drying equipment used in the
manufacturing of semiconductor wafers and other defect sensitive substrates.
Cash Equivalents
Cash equivalents consist primarily of highly liquid debt instruments with
original maturity dates up to 90 days.
Short-Term Investments
Short-term investments are classified as "available-for-sale" and are
stated at fair value. Any unrealized gains and losses are reported as a separate
component of stockholders' equity, but to date have not been significant.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentration of credit risk consist primarily of cash equivalents, short-term
investments and trade receivables. Substantially all of the Company's cash
equivalents are invested in certificates of deposit and money market funds. The
Company performs ongoing credit evaluations of its customers and generally
requires no collateral. The Company maintains reserves for potential credit
losses; historically, such losses have been minor and within management's
expectations.
Inventories
Inventories are stated at the lower of first-in, first-out cost or market.
The Company periodically reviews its inventories for potential slow-moving and
obsolete items and writes down impaired items to net realizable value.
Property, Plant and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the related assets, generally three to five years. Property,
plant and equipment recorded under capital leases and leasehold improvements are
amortized on a straight-line basis over the shorter of the lease terms or their
estimated useful lives.
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of ", requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
17
<PAGE> 19
YIELDUP INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Revenue is recognized after shipment when there is no significant
uncertainty regarding customer acceptance and payment.
Product Warranty
A provision for the estimated future costs of warranty repair is provided
at the time of sale.
Income Taxes
The Company is accounting for income taxes using an asset and liability
approach that results in the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in
the Company's financial statements or tax returns. In estimating future tax
consequences generally all expected future events other than the enactment of
changes in tax laws or rates are considered. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
Stock Based Compensation
The Company accounts for its stock based compensation plans using the
intrinsic value method. As such, compensation expense is recorded if on the date
of grant the current market price of the underlying stock exceeds the exercise
price.
Fair Value of Financial Instruments
The carrying amounts of the Company's cash and cash equivalents, restricted
cash, short-term investments, equity investment in a semiconductor equipment
company and a cash advance to that company (included in other assets), accounts
receivable, accounts payable and long term debt approximate their respective
fair values.
Use of Estimates
The Company's management has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
Net Loss Per Share
Basic net loss per share is based on the weighted average number of shares
of common stock outstanding. Diluted net loss per share is based on the weighted
average number of shares of common stock outstanding and dilutive common
equivalent shares from stock options and warrants outstanding using the treasury
stock method. In 1997 and 1996 the Company had 658,806 options and 4,182,149
warrants and 610,287 options and 4,160,000 warrants outstanding, respectively,
that could potentially dilute basic EPS in the future that were not included in
the computation of diluted EPS because to do so would have been antidilutive for
those years.
Reclassifications
Certain amounts in the 1996 financial statements have been reclassified to
conform with the 1997 financial statement presentation.
18
<PAGE> 20
YIELDUP INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 establishes standards for reporting and displaying comprehensive
income and its components in the consolidated financial statements. It does not,
however, require a specific format for the statement, but requires the Company
to display an amount representing total comprehensive income for the period in
that financial statement. The Company is in the process of determining its
preferred format. This statement is effective for fiscal years beginning after
December 15, 1997.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. SFAS No. 131 establishes standards for
the way public business enterprises report information about operating segments
in annual financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
stockholders. SFAS 131 is effective for financial statements for periods
beginning after December 31, 1997. The Company has not yet determined whether it
has any separately reportable business segments.
(2) BALANCE SHEET COMPONENTS
Restricted Cash
As of December 31, 1997, the Company had restricted cash in the form of
certificates of deposit, of $406,749.
Short-Term Investments
Short-term investments, all of which are maturing in one year or less,
consisted of the following as of December 31, 1997 (fair value approximates
cost):
<TABLE>
<CAPTION>
MARKET
VALUE
----------
<S> <C>
Auction rate securities..................................... $1,000,000
Commercial paper............................................ 496,150
Certificates of deposit..................................... 10,000
----------
$1,506,150
==========
</TABLE>
Inventories
A summary of inventories follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Raw materials............................................... $1,762,780
Work in process............................................. 941,576
Evaluation units............................................ 1,001,958
Finished goods.............................................. 972,286
----------
$4,678,600
==========
</TABLE>
Evaluation units are systems installed at potential customers' sites. These
units are stated at cost less accumulated depreciation. Depreciation is provided
using the straight-line method over the estimated useful lives of the units,
generally three years.
19
<PAGE> 21
YIELDUP INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment
A summary of property, plant and equipment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Machinery and equipment..................................... $1,015,446
Furniture and fixtures...................................... 57,295
Leasehold improvements...................................... 767,940
----------
1,840,681
Less accumulated depreciation and amortization.............. 430,864
----------
$1,409,817
==========
</TABLE>
Other Assets
Other assets include a $1,000,000 equity investment in a semiconductor
equipment company comprising 7% ownership in that company, and a cash advance of
$1,000,000 to that company for purchase of materials.
(3) INCOME TAXES
The Company has a net operating loss carryforward for federal and
California purposes at December 31, 1997 of $7,341,000 and $3,669,000,
respectively. The difference between the federal net operating loss and the
accumulated deficit is primarily attributed to the years ending December 31,
1993 and 1994 when the Company was an S corporation for taxation purposes. The
difference between the federal and California net operating loss carryforward is
due to the 50% limitation of net operating loss carry-forwards for California
purposes. The federal net operating loss carryforwards expire in the years 2010
through 2012. The California net operating loss carryforwards expire in the
years 2000 through 2002.
Federal and California tax laws impose significant restrictions on the
utilization of net operating loss carryforwards in the event of a shift in the
ownership of the Company, which constitutes an "ownership change" as defined by
Internal Revenue Code Section 382. The initial public offering ("IPO") of
YieldUP common stock in November 1995 resulted in such a change. As a result,
$1,400,000 of YieldUP's federal and $699,000 of the California net operating
loss carryforwards are subject to an annual limitation approximating $525,000.
Any unused annual limitations may be carried forward to increase the limitations
in subsequent years.
The following reconciles the expected corporate federal income tax expense
(computed by multiplying the Company's income before taxes by 34%) to the
Company's income tax expense for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Expected income tax expense..................... $(1,358,000) $(1,118,000)
Net operating loss not benefited................ 1,358,000 1,118,000
----------- -----------
Actual income tax expense............... $ -- $ --
=========== ===========
</TABLE>
20
<PAGE> 22
YIELDUP INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities as of December 31,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards................ $ 2,710,000 $ 1,658,000
Reserves and accruals........................... 506,000 80,000
Other........................................... 113,000 32,000
----------- -----------
Total gross deferred tax assets.............. 3,329,000 1,770,000
Less valuation allowance.......................... (3,329,000) (1,770,000)
----------- -----------
Net deferred tax assets................. $ -- $ --
=========== ===========
</TABLE>
The net change in the total valuation allowance was an increase of
$1,559,000 and $1,167,000 for the years ended December 31, 1997 and 1996,
respectively.
(4) DEBT
Debt comprises of two bank loans, both maturing in 1998. The first is a
bank term loan which is fully collateralized by a certificate of deposit. The
loan is payable in monthly installments of $30,000, and bears interest at the
bank's prime rate plus 2.25%. The second is a revolving credit line
collateralized by the Company's qualifying accounts receivable, and bears
interest at the bank's prime rate plus 1.75%.
As of December 31, 1997, maturity in 1998 for these loans is $580,000. The
Company was in violation of a covenant of the loan and obtained a waiver from
the bank.
(5) COMMITMENTS AND CONTINGENCIES
Leases
The Company is obligated under operating leases for certain equipment and
its facilities, and capital leases for certain equipment, furniture and fixtures
that expire at various dates during the next three years. The amount of
equipment, furniture, and fixtures and related accumulated amortization recorded
under capital leases were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Machinery and equipment..................................... $103,500
Furniture and fixtures...................................... 37,930
--------
141,430
Less accumulated amortization............................... 94,287
--------
$ 47,143
========
</TABLE>
21
<PAGE> 23
YIELDUP INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under the Company's non-cancelable operating
leases and future minimum capital lease payments as of December 31, 1997, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------ ------- ---------
<S> <C> <C>
1998.................................................. $51,913 $218,286
1999.................................................. -- 94,704
2000.................................................. -- 85,693
------- --------
Total minimum lease payments............................ $51,913 $398,683
========
Less amount representing interest....................... 3,050
-------
Present value of minimum lease payments................. 48,863
=======
</TABLE>
Rent expense was approximately $149,751 and $140,789 for the years ended
December 31, 1997 and 1996, respectively.
Patent Matters
CFM Technologies, Inc. and CFMT, Inc. (collectively "CFM") filed a
complaint against the Company in United States District Court for the District
of Delaware in September 1995. The complaint alleged that the drying process
incorporated in certain of the Company's products infringes a patent held by
CFM. On October 14, 1997, a federal court for the District of Delaware ruled in
favor of the defendant, YieldUP International Corporation. In a written opinion
granting summary judgment for YieldUP, the United States District Court held
that CFM had failed to produce evidence on three separate elements of the patent
claim. To establish infringement, evidence of all three elements was required.
However, there can be no assurance that this judgment will not be overturned
should there be an appeal by CFM. A loss, if any, resulting from an unfavorable
adjudication, cannot presently be estimated. Accordingly, no provision for any
liability that may result upon adjudication has been made in the accompanying
financial statements.
(6) STOCKHOLDERS' EQUITY
Common Stock And Class A Common Stock
The terms of the Common Stock and the Class A Common Stock are essentially
identical, except that: (i) the holders of the Common Stock are entitled to one
vote per share and holders of Class A Common Stock are entitled to five votes
per share, (ii) if stock dividends, splits, distributions, reverse splits,
combinations, reclassification of shares, or other recapitalizations
(collectively, "recapitalizations") are declared or effected, such
recapitalizations shall be effected in a like manner with respect to the Common
Stock and the Class A Common Stock, except that payments in shares of capital
stock shall be paid in Common Stock with respect to Common Stock and Class A
Common Stock with respect to Class A Common Stock, and (iii) shares of Class A
Common Stock are convertible into Common Stock on a share-for-share basis option
of the holder at any time and all remaining shares of Class A Common Stock will
automatically be converted to Common Stock at such time as there are fewer than
400,000 shares of Class A Common Stock outstanding.
In addition, the shares of Class A Common Stock are automatically converted
into shares of Common Stock upon their transfer to any person other than the
permitted transferees which are mainly the stockholders family members.
Preferred Stock
The Preferred Stock may be issued in series, and shares of each series will
have such rights and preferences as are fixed by the Board in the resolutions
authorizing the issuance of that particular series.
22
<PAGE> 24
YIELDUP INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Warrants
As of December 31, 1997, all of the Company's Class A Warrants had been
exercised or redeemed except 1,780 Class A warrants outstanding which can be
redeemed by the holders at a price of $0.05 per warrant. The Company incurred a
non-cash expense of $300,000 in the first quarter of 1997 related to an
amendment to certain of the Company's Class A Warrants to resolve a potential
dispute with holders of such warrants.
As of December 31, 1997, the Company had issued and outstanding 4,155,421
Class B warrants. The holder of each Class B warrant is entitled, upon payment
of the exercise price of $11.00, to purchase one share of common stock. Unless
previously redeemed, the Class B warrants are exercisable at any time until
November 21, 2000. The Class B warrants are subject to redemption by the
Company, at a price of $0.05 per warrant, if the average closing bid price of
the common stock exceeds certain prices within certain time periods. As of
December 31, 1997, 1000 Class B warrants have been exercised and no Class B
warrants have been redeemed.
Stock Option Plans
As of December 31, 1997, the Company has three stock-based compensation
plans, which are described below.
The Board of Directors has reserved 750,000 shares of common stock for
issuance under the Company's 1995 Stock Option Plan (the Option Plan). Options
may be granted to employees (including officers), consultants, advisers and
directors, although only employees and directors and officers, who are also
employees, may receive "incentive stock options" intended to qualify for certain
tax treatment. The exercise price of non-qualified stock options must equal at
least 85% of the fair market value of the common stock on the date of grant, and
the exercise price of incentive stock options must be no less than the fair
market value on the date of grant. Options granted under the Option Plan vest
over 4 years and must be exercised within 10 years. As of December 31, 1997,
378,063 options are outstanding under the Option Plan.
Prior to the adoption of the Option Plan in September 1995, the Company
granted 346,411 options to purchase shares of Class A common stock at prices
ranging from $0.69 to $3.17 per share under a separate option plan (the Prior
Plan). The Company does not anticipate granting any additional options to
purchase Class A common stock under the Prior Plan, and any shares subject to
options under the Prior Plan that terminate, or are canceled, will not be issued
or used for new options. As of December 31, 1997, 200,743 options are
outstanding under the Prior Plan.
Under the Company's 1995 Outside Directors Stock Option Plan (the Directors
Plan), 100,000 shares of common stock have been reserved for issuance. The
Directors Plan provides for the automatic granting of non-qualified stock
options to directors of the Company who are not employees of the Company
(Outside Directors). Under the Directors Plan, each new Outside Director elected
will automatically be granted an option to purchase 20,000 shares of common
stock at the date of his election. Additionally, each Outside Director, except
for Outside Directors who have received an initial grant of an option to
purchase 20,000 shares within six months of the annual meeting of stockholders,
will automatically be granted an option to purchase 5,000 shares of common stock
on the date of each annual meeting of stockholders. The exercise price of the
options in all cases will be equal to the fair market value of the common stock
on the date of grant. Options granted under the Directors Plan vest over 4 years
and, generally, must be exercised within 10 years. As of December 31, 1997,
80,000 options are outstanding under the Director's Plan.
23
<PAGE> 25
YIELDUP INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the Company's three fixed stock option plans as
of December 31, 1997 and 1996, and changes during the years ended on those dates
is presented below:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICES
--------- ----------------
<S> <C> <C>
Balance as of December 31, 1995................... 376,008 $ 1.97
Granted......................................... 339,500 $ 5.75
Exercised....................................... (1,810) $ 0.69
Canceled........................................ (103,411) $ 4.63
-------- ------
Balance as of December 31, 1996................... 610,287 $ 3.63
-------- ------
Granted......................................... 344,750 $10.04
Exercised....................................... (89,563) $ 3.63
Canceled........................................ (206,668) $ 6.10
-------- ------
Balance as of December 31, 1997................... 658,806 $ 6.21
======== ======
</TABLE>
As of December 31, 1997, 415,829 shares were available for grant. As of
December 31, 1997 and 1996, the number of options exercisable were 237,374 and
223,341, respectively.
The Company uses the intrinsic value method in accounting for its plans.
Accordingly, no compensation cost has been recognized for any of the plans. Had
compensation cost for the Company's three stock-based compensation plans been
determined consistent with SFAS No. 123, the Company's net loss and net loss per
share would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net loss as reported.............................. $(3,993,642) $(3,374,035)
Pro forma....................................... $(4,738,585) $(3,692,023)
Net loss per share as reported.................... $(0.81) $(0.99)
Pro forma....................................... $(0.96) $(1.08)
</TABLE>
The effects of applying SFAS 123 in this proforma disclosure is not
indicative of the effects on reported results for future years. SFAS 123 does
not apply to awards prior to 1995, and additional awards in future years are
anticipated.
The weighted-average fair value of options granted in 1997 and 1996, was
$6.79 and $3.84, respectively.
The fair value of each option grant is estimated on the date of grant using
Black Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997 and 1996, respectively: no dividend yield;
expected volatility of 67.5%; risk free interest rates of 6%; expected lives of
four years for the Prior Plan and five years for the other two plans.
24
<PAGE> 26
YIELDUP INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about fixed stock options
outstanding as of December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED --------------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICES OF SHARES CONTRACTUAL LIFE EXERCISE PRICE OF SHARES EXERCISE PRICE
--------------- --------- ---------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.69 - $ 0.69................... 74,771 7.40 $ 0.6900 53,625 $0.6900
$ 0.76 - $ 0.76................... 125,971 7.32 $ 0.7600 125,971 $0.7600
$ 3.17 - $ 5.00................... 96,501 8.52 $ 4.9483 35,301 $4.9601
$ 5.25 - $ 7.00................... 89,563 8.79 $ 6.2356 22,477 $6.0123
$ 7.50 - $ 8.38................... 68,500 9.17 $ 8.1794 --
$ 9.66 - $ 9.66................... 66,000 9.47 $ 9.6600 --
$10.75 - $10.75................... 28,500 9.38 $10.7500 --
$11.75 - $11.75................... 10,000 9.41 $11.7500 --
$12.88 - $12.88................... 20,000 9.71 $12.8800 --
$13.00 - $13.00................... 79,000 9.58 $13.0000 --
------- -------
$ 0.69 - $13.00................... 658,806 8.58 $ 6.2077 237,374 $1.8662
======= ========
</TABLE>
(7) MAJOR CUSTOMERS
For the year ended December 31, 1997, sales to only one customer exceeded
10% of total revenues. Sales to this customer as a percent of total annual
revenues were 19.8% for the year ended December 31, 1997, 15.5% for the year
ended December 31, 1996, and 23.6% for the year ended December 31, 1995.
Export sales to the Company's international customers outside North
America, primarily to Japan and Europe comprised approximately 5%, 33%, and 32%
of net revenues for the years ended December 31, 1997, 1996 and 1995,
respectively.
(8) SUBSEQUENT EVENTS
On March 30, 1998, the Company completed a $6 million equity financing in a
private placement of convertible preferred stock (Series A Preferred Stock).
Under the securities purchase agreement, the Company has issued 600 shares of
convertible preferred stock which are initially convertible into an aggregate of
approximately 615,000 shares of the Company's Common Stock (these shares could
potentially dilute basic EPS in the future). After the satisfaction of certain
holding periods, each of the newly issued shares of Series A Preferred Stock is
convertible, at the option of the holder, into shares of common stock of the
Company based upon a conversion price of $10.8625 per share or if lower, 100% of
the market price, defined as the lowest closing bid price during the 20 trading
days preceding a conversion. The convertible preferred stock bears a dividend of
5% per year, payable in kind. The shares of Series A Preferred Stock are subject
to automatic conversion after three years if not previously converted.
The Company has also obtained a commitment from a commercial lender to
receive a loan up to $500,000 for its capital equipment, at an interest rate of
the lender's prime rate plus 1.75%, and to create a $4 million revolving credit
line collateralized by the Company's qualifying accounts receivable, at an
interest rate of the lender's prime rate plus 1.25%.
25
<PAGE> 27
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information required by this item is incorporated by reference to the
registrant's proxy statements for the 1998 Annual Meeting of Stockholders.
ITEM 10. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference to the
registrant's proxy statements for the 1998 Annual Meeting of Stockholders.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference to the
registrant's proxy statements for the 1998 Annual Meeting of Stockholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference to the
registrant's proxy statements for the 1998 Annual Meeting of Stockholders.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See the index of exhibits on pages 27 of this report
(b) Reports on Form 8-K: None filed
26
<PAGE> 28
YIELDUP INTERNATIONAL CORPORATION
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
3.2(*) Certificate of Incorporation.
3.3 Bylaws.
4.1(*) Form of Warrant Agreement between the Company and the
Warrant Agent, including the form of warrants.
10.1(*) Form of Indemnity Agreement.
10.2(*) 1995 Stock Option Plan and forms of agreement thereunder.
10.3(*) 1995 Outside Directors Stock Option Plan and forms of
agreement thereunder.
10.5(*) Facilities lease between the Company and Lori A. Halligan
Trust, dated September 11, 1995.
10.7(*) Loan and Security Agreement with Silicon Valley Bank dated
September 16, 1996.
23.1 Consent of Independent Auditors.
24.3 Power of Attorney. (See page 28)
27.1 Financial Data Schedule
</TABLE>
- ---------------
(*) The exhibit is incorporated by reference to Form SB-2 (Registration No.
33-97792-LA)
27
<PAGE> 29
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
YIELDUP INTERNATIONAL CORPORATION
(REGISTRANT)
/s/ RAJ MOHINDRA
--------------------------------------
Raj Mohindra, Chairman and Chief
Executive
(Principal Executive Officer)
Date: March 31, 1998
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Raj Mohindra and Abhay K. Bhushan,
and each of them acting individually, as his attorney-in-fact, each with full
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Annual Report, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be signed
by our said attorney to any and all amendments to said Annual Report. In
accordance with the Exchange Act, this report has been signed by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ RAJ MOHINDRA Chairman, Chief Executive March 31, 1998
- ----------------------------------------------------- Officer, and Director
Raj Mohindra
/s/ ABHAY K. BHUSHAN Chief Financial Officer, and March 31, 1998
- ----------------------------------------------------- Director
Abhay K. Bhushan
(PRINCIPAL ACCOUNTING AND FINANCIAL OFFICER)
/s/ WERNER KERN Director March 31, 1998
- -----------------------------------------------------
Werner Kern
/s/ RAM PAUL GUPTA Director March 31, 1998
- -----------------------------------------------------
Ram Paul Gupta
/s/ SURAJ PURI Director March 31, 1998
- -----------------------------------------------------
Suraj Puri
</TABLE>
28
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED BYLAWS
OF
YIELDUP INTERNATIONAL CORPORATION
<PAGE> 2
INDEX
Page
ARTICLE I - STOCKHOLDERS.................................................... 1
1.1 - Annual Meeting..................................................... 1
1.2 - Special Meetings................................................... 1
1.3 - Notice of Meetings................................................. 1
1.4 - Quorum............................................................. 1
1.5 - Conduct of the Stockholders' Meeting............................... 2
1.6 - Conduct of Business................................................ 2
1.7 - Notice of Stockholder Business..................................... 2
1.8 - Proxies and Voting................................................. 3
1.9 - Stock List......................................................... 3
ARTICLE II - BOARD OF DIRECTORS............................................. 4
2.1 - Number and Term of Office.......................................... 4
2.2 - Vacancies and Newly Created Directorships.......................... 4
2.3 - Removal............................................................ 4
2.4 - Regular Meetings................................................... 5
2.5 - Special Meetings................................................... 5
2.6 - Quorum............................................................. 5
2.7 - Participation in Meetings by Conference Telephone.................. 5
2.8 - Conduct of Business................................................ 5
2.9 - Powers............................................................. 5
2.10 - Compensation of Directors......................................... 6
2.11 - Nomination of Director Candidates................................. 6
ARTICLE III - COMMITTEES.................................................... 7
3.1 - Committees of the Board of Directors............................... 7
3.2 - Conduct of Business................................................ 8
ARTICLE IV - OFFICERS....................................................... 8
4.1 - Generally.......................................................... 8
4.2 - Chairman of the Board.............................................. 8
4.3 - President.......................................................... 8
4.4 - Vice President..................................................... 9
4.5 - Treasurer.......................................................... 9
4.6 - Secretary.......................................................... 9
4.7 - Delegation of Authority............................................ 9
4.8 - Removal............................................................ 9
4.9 - Action With Respect to Securities of Other Corporations............ 9
ARTICLE V - STOCK........................................................... 9
5.1 - Certificates of Stock.............................................. 9
5.2 - Transfers of Stock................................................. 9
5.3 - Record Date........................................................ 10
i
<PAGE> 3
INDEX
Page
5.4 - Lost, Stolen or Destroyed Certificates............................. 10
5.5 - Regulations........................................................ 10
ARTICLE VI - NOTICES........................................................ 10
6.1 - Notices............................................................ 10
6.2 - Waivers............................................................ 10
ARTICLE VII - MISCELLANEOUS................................................. 11
7.1 - Facsimile Signatures............................................... 11
7.2 - Corporate Seal..................................................... 11
7.3 - Reliance Upon Books, Reports and Records........................... 11
7.4 - Fiscal Year........................................................ 11
7.5 - Time Periods....................................................... 11
ARTICLE VIII - INDEMNIFICATION OF DIRECTORS AND OFFICERS.................... 11
8.1 - Right to Indemnification........................................... 11
8.2 - Right of Claimant to Bring Suit.................................... 12
8.3 - Non-Exclusivity of Rights.......................................... 13
8.4 - Indemnification Contracts.......................................... 13
8.5 - Insurance.......................................................... 13
8.6 - Effect of Amendment................................................ 13
ARTICLE IX - AMENDMENTS..................................................... 13
9.1 - Amendment of Bylaws................................................ 13
ii
<PAGE> 4
YIELDUP INTERNATIONAL CORPORATION
A DELAWARE CORPORATION
AMENDED AND RESTATED BYLAWS
ARTICLE I
STOCKHOLDERS
1.1 Annual Meeting. An annual meeting of the stockholders, for the
election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, on such date, and at such time as the Board of
Directors shall each year fix, which date shall be within thirteen months
subsequent to the later of the date of incorporation or the last annual meeting
of stockholders.
1.2 Special Meetings. Special meetings of the stockholders, for any
purpose or purposes prescribed in the notice of the meeting, may be called only
(i) by the Board of Directors pursuant to a resolution adopted by a majority of
the total number of authorized directors (whether or not there exists any
vacancies in previously authorized directorships at the time any such resolution
is presented to the Board of Directors for adoption) or (ii) by the holders of
not less than 10% of all shares entitled to cast votes at the meeting, voting
together as a single class and shall be held at such place, on such date, and at
such time as they shall fix. Business transacted at special meetings shall be
confined to the purpose or purposes stated in the notice.
1.3 Notice of Meetings. Written notice of the place, date, and time of all
meetings of the stockholders shall be given, not less than ten (10) nor more
than sixty (60) days before the date on which the meeting is to be held, to each
stockholder entitled to vote at such meeting, except as otherwise provided
herein or required by law (meaning, here and hereinafter, as required from time
to time by the Delaware General Corporation Law or the Certificate of
Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
1.4 Quorum. At any meeting of the stockholders, the holders of one third
of all of the shares of stock entitled to vote at the meeting, present in person
or by proxy, shall constitute
<PAGE> 5
a quorum for all purposes, unless or except to the extent that the presence of a
larger number may be required by law.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date
or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
1.5 Conduct of the Stockholders' Meeting. At every meeting of the
stockholders, the Chairman, if there is such an officer, or if not, the
President of the Corporation, or in his absence the Vice President designated by
the President, or in the absence of such designation any Vice President, or in
the absence of the President or any Vice President, a chairman chosen by the
majority of the voting shares represented in person or by proxy, shall act as
Chairman. The Secretary of the Corporation or a person designated by the
Chairman shall act as Secretary of the meeting. Unless otherwise approved by the
Chairman, attendance at the stockholders' meeting is restricted to stockholders
of record, persons authorized in accordance with Section 1.8 of these Bylaws to
act by proxy, and officers of the Corporation.
1.6 Conduct of Business. The Chairman shall call the meeting to order,
establish the agenda, and conduct the business of the meeting in accordance
therewith or, at the Chairman's discretion, it may be conducted otherwise in
accordance with the wishes of the stockholders in attendance. The date and time
of the opening and closing of the polls for each matter upon which the
stockholders will vote at the meeting shall be announced at the meeting.
The Chairman shall also conduct the meeting in an orderly manner, rule on
the precedence of and procedure on, motions and other procedural matters, and
exercise discretion with respect to such procedural matters with fairness and
good faith toward all those entitled to take part. The Chairman may impose
reasonable limits on the amount of time taken up at the meeting on discussion in
general or on remarks by any one stockholder. Should any person in attendance
become unruly or obstruct the meeting proceedings, the Chairman shall have the
power to have such person removed from participation. Notwithstanding anything
in the Bylaws to the contrary, no business shall be conducted at a meeting
except in accordance with the procedures set forth in this Section 1.6 and
Section 1.7, below. The Chairman of a meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this Section 1.6 and
Section 1.7, and if he should so determine, he shall so declare to the meeting
and any such business not properly brought before the meeting shall not be
transacted.
1.7 Notice of Stockholder Business. At an annual or special meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before a meeting, business
must be (a) specified in the
2
<PAGE> 6
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (b) properly brought before the meeting by or at the
direction of the Board of Directors, (c) properly brought before an annual
meeting by a stockholder, or (d) properly brought before a special meeting by a
stockholder, but if, and only if, the notice of a special meeting provides for
business to be brought before the meeting by stockholders. For business to be
properly brought before a meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a stockholder proposal to be presented at an annual meeting shall be
received at the Corporation's principal executive offices not less than 120
calendar days in advance of the date that the Corporation's (or the
Corporation's predecessor's) proxy statement was released to stockholders in
connection with the previous year's annual meeting of stockholders, except that
if no annual meeting was held in the previous year or the date of the annual
meeting has been changed by more than 30 calendar days from the date
contemplated at the time of the previous year's proxy statement, or in the event
of a special meeting, notice by the stockholder to be timely must be received
not later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. A stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before the annual or special meeting (a) a
brief description of the business desired to be brought before the annual or
special meeting and the reasons for conducting such business at the special
meeting, (b) the name and address, as they appear on the Corporation's books, of
the stockholder proposing such business, (c) the class and number of shares of
the Corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business.
1.8 Proxies and Voting. At any meeting of the stockholders, every
stockholder entitled to vote may vote in person or by proxy authorized by an
instrument in writing or by a transmission permitted by law filed in accordance
with the procedure established for the meeting. No stockholder may authorize
more than one proxy for his shares.
Each stockholder shall have one vote for every share of stock entitled to
vote which is registered in his or her name on the record date for the meeting,
except as otherwise provided herein or required by law.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballots, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law, all other matters shall be determined by a
majority of the votes cast.
1.9 Stock List. A complete list of stockholders entitled to vote at any
meeting of stockholders, arranged in alphabetical order for each class of stock
and showing the address of
3
<PAGE> 7
each such stockholder and the number of shares registered in his or her name,
shall be open to the examination of any such stockholder, for any purpose
germane to the meeting, during ordinary business hours for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
ARTICLE II
BOARD OF DIRECTORS
2.1 Number and Term of Office. The number of directors shall initially be
six (6) and, thereafter, shall be fixed from time to time exclusively by the
Board of Directors pursuant to a resolution adopted by a majority of the total
number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is presented
to the Board for adoption). The directors shall be divided into three classes,
with the term of office of the class to expire at the annual meeting of
stockholders held in 1996, the term of office of the second class to expire at
the annual meeting of stockholders held in 1997, the term of office of the third
class to expire at the annual meeting of stockholders held in 1998; and
thereafter for each such term to expire at each third succeeding annual meeting
of stockholders after such election. A vacancy resulting from the removal of a
director by the stockholders as provided in Article II, Section 2.3 below may be
filled at special meeting of the stockholders held for that purpose. All
directors shall hold office until the expiration of the term for which elected
and until their respective successors are elected, except in the case of the
death, resignation or removal of any director.
2.2 Vacancies and Newly Created Directorships. Subject to the rights of
the holders of any series of Preferred Stock then outstanding, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification or other cause (other than removal from office by a
vote of the stockholders) may be filled only by a majority vote of the directors
then in office, though less than a quorum, and directors so chosen shall hold
office for a term expiring at the next annual meeting of stockholders at which
the term of office of the class to which they have been elected expires. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
2.3 Removal. Subject to the rights of holders of any series of Preferred
Stock then outstanding, any directors, or the entire Board of Directors, may be
removed from office at any time, with or without cause, but only by the
affirmative vote of the holders of at least a majority of the voting power of
all of the then outstanding shares of capital stock of the Corporation
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<PAGE> 8
entitled to vote generally in the election of directors, voting together as a
single class. Vacancies in the Board of Directors resulting from such removal
may be filled by a majority of the directors then in office, though less than a
quorum, or by the stockholders as provided in Article II, Section 2.1 above.
Directors so chosen shall hold office until the new annual meeting of
stockholders.
2.4 Regular Meetings. Regular meetings of the Board of Directors shall be
held at such place or places, on such date or dates, and at such time or times
as shall have been established by the Board of Directors and publicized among
all directors. A notice of each regular meeting shall not be required.
2.5 Special Meetings. Special meetings of the Board of Directors may be
called by one-third of the directors then in office (rounded up to the nearest
whole number) or by the chief executive officer and shall be held at such place,
on such date, and at such time as they or he or she shall fix. Notice of the
place, date, and time of each such special meeting shall be given each director
by whom it is not waived by mailing written notice not fewer than five (5) days
before the meeting or by telegraphing or personally delivering the same not
fewer than twenty-four (24) hours before the meeting. Unless otherwise indicated
in the notice thereof, any and all business may be transacted at a special
meeting.
2.6 Quorum. At any meeting of the Board of Directors, a majority of the
total number of authorized directors shall constitute a quorum for all purposes.
If a quorum shall fail to attend any meeting, a majority of those present may
adjourn the meeting to another place, date, or time, without further notice or
waiver thereof.
2.7 Participation in Meetings by Conference Telephone. Members of the
Board of Directors, or of any committee thereof, may participate in a meeting of
such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and such participation shall constitute presence in
person at such meeting.
2.8 Conduct of Business. At any meeting of the Board of Directors,
business shall be transacted in such order and manner as the Board may from time
to time determine, and all matters shall be determined by the vote of a majority
of the directors present, except as otherwise provided herein or required by
law. Action may be taken by the Board of Directors without a meeting if all
members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors.
2.9 Powers. The Board of Directors may, except as otherwise required by
law, exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, including, without limiting the generality
of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
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<PAGE> 9
(3) To authorize the creation, making and issuance, in such form as
it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any officer upon any
other person for the time being;
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for directors, officers, employees and agents
of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of the Corporation
and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent with
these bylaws, for the management of the Corporation's business and affairs.
2.10 Compensation of Directors. Directors, as such, may receive, pursuant
to resolution of the Board of Directors, fixed fees and other compensation for
their services as directors, including, without limitation, their services as
members of committees of the Board of Directors.
2.11 Nomination of Director Candidates. Subject to the rights of holders
of any class or series of Preferred Stock then outstanding, nominations for the
election of Directors may be made by the Board of Directors or a proxy committee
appointed by the Board of Directors or by any stockholder entitled to vote in
the election of Directors generally. However, any stockholder entitled to vote
in the election of Directors generally may nominate one or more persons for
election as Directors at a meeting only if timely notice of such stockholder's
intent to make such nomination or nominations has been given in writing to the
Secretary of the Corporation. To be timely, a stockholder nomination for a
director to be elected at an annual meeting shall be received at the
Corporation's principal executive offices not less than 120 calendar days in
advance of the date that the Corporation's (or the Corporation's Predecessor's)
Proxy statement was released to stockholders in connection with the previous
year's annual meeting of stockholders, except that if no annual meeting was held
in the previous year or the date of the annual meeting has been changed by more
than 30 calendar days from the date contemplated at the time of the previous
year's proxy statement, or in the event of a nomination for director to be
elected at a special meeting, notice by the stockholders to be timely must be
received not later than the close of business on the tenth day following the day
on which such notice of the date of the special meeting was mailed or such
public disclosure was made. Each such notice shall set forth: (a) the name and
address of the stockholder who intends to make the nomination and of the person
or persons to be nominated; (b) a representation that the stockholder is a
holder of
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<PAGE> 10
record of stock of the Corporation entitled to vote for the election of
Directors on the date of such notice and intends to appear in person or by proxy
at the meeting to nominate the person or persons specified in the notice; (c) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (d) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated, by the Board of Directors;
and (e) the consent of each nominee to serve as a director of the Corporation if
so elected.
In the event that a person is validly designated as a nominee in
accordance with this Section 11 and shall thereafter become unable or unwilling
to stand for election to the Board of Directors, the Board of Directors or the
stockholder who proposed such nominee, as the case may be, may designate a
substitute nominee upon delivery, not fewer than five days prior to the date of
the meeting for the election of such nominee, of a written notice to the
Secretary setting forth such information regarding such substitute nominee as
would have been required to be delivered to the Secretary pursuant to this
Section 2.11 had such substitute nominee been initially proposed as a nominee.
Such notice shall include a signed consent to serve as a director of the
Corporation, if elected, of each such substitute nominee.
If the chairman of the meeting for the election of Directors determines
that a nomination of any candidate for election as a Director at such meeting
was not made in accordance with the applicable provisions of this Section 2.11,
such nomination shall be void; provided, however, that nothing in this Section
2.11 shall be deemed to limit any voting rights upon the occurrence of dividend
arrearages provided to holders of Preferred Stock pursuant to the Preferred
Stock designation for any series of Preferred Stock.
ARTICLE III
COMMITTEES
3.1 Committees of the Board of Directors. The Board of Directors, by a
vote of a majority of the whole Board, may from time to time designate
committees of the Board, with such lawfully delegable powers and duties as it
thereby confers, to serve at the pleasure of the Board and shall, for those
committees and any others provided for herein, elect a director or directors to
serve as the member or members, designating, if it desires, other directors as
alternate members who may replace any absent or disqualified member at any
meeting of the committee. Any committee so designated may exercise the power and
authority of the Board of Directors to declare a dividend, to authorize the
issuance of stock or to adopt a certificate of ownership and merger pursuant to
Section 253 of the Delaware General Corporation Law if the resolution which
designates the committee or a supplemental resolution of the Board of Directors
shall so provide. In the absence or disqualification of any member of any
committee
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<PAGE> 11
and any alternate member in his place, the member or members of the committee
present at the meeting and not disqualified from voting, whether or not he or
she or they constitute a quorum, may by unanimous vote appoint another member of
the Board of Directors to act at the meeting in the place of the absent or
disqualified member.
3.2 Conduct of Business. Each committee may determine the procedural rules
for meeting and conducting its business and shall act in accordance therewith,
except as otherwise provided herein or required by law. Adequate provision shall
be made for notice to members of all meetings; one-third of the authorized
members shall constitute a quorum unless the committee shall consist of one or
two members, in which event one member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
ARTICLE IV
OFFICERS
4.1 Generally. The officers of the Corporation shall consist of a
President, one or more Vice Presidents, a Secretary and a Treasurer. The
Corporation may also have, at the discretion of the Board of Directors, a
Chairman of the Board and such other officers as may from time to time be
appointed by the Board of Directors. Officers shall be elected by the Board of
Directors, which shall consider that subject at its first meeting after every
annual meeting of stockholders. Each officer shall hold office until his or her
successor is elected and qualified or until his or her earlier resignation or
removal. The Chairman of the Board, if there shall be such an officer, and the
President shall each be members of the Board of Directors. Any number of offices
may he held by the same person.
4.2 Chairman of the Board. The Chairman of the Board, if there shall be
such an officer, shall, if present, preside at all meetings of the Board of
Directors, and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by these
bylaws.
4.3 President. The President shall be the chief executive officer of the
Corporation. Subject to the provisions of these bylaws and to the direction of
the Board of Directors, he or she shall have the responsibility for the general
management and control of the business and affairs of the Corporation and shall
perform all duties and have all powers which are commonly incident to the office
of chief executive or which are delegated to him or her by the Board of
Directors. He or she shall have power to sign all stock certificates, contracts
and other instruments of the Corporation which are authorized and shall have
general supervision and direction of all of the other officers, employees and
agents of the Corporation.
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4.4 Vice President. Each Vice President shall have such powers and duties
as may be delegated to him or her by the Board of Directors. One Vice President
shall be designated by the Board to perform the duties and exercise the powers
of the President in the event of the President's absence or disability.
4.5 Treasurer. Unless otherwise designated by the Board of Directors, the
Chief Financial Officer of the Corporation shall be the Treasurer. The Treasurer
shall have the responsibility for maintaining the financial records of the
Corporation and shall have custody of all monies and securities of the
Corporation. He or she shall make such disbursements of the funds of the
Corporation as are authorized and shall render from time to time an account of
all such transactions and of the financial condition of the Corporation. The
Treasurer shall also perform such other duties as the Board of Directors may
from time to time prescribe.
4.6 Secretary. The Secretary shall issue all authorized notices for, and
shall keep, or cause to be kept, minutes of all meetings of the stockholders,
the Board of Directors, and all committees of the Board of Directors. He or she
shall have charge of the corporate books and shall perform such other duties as
the Board of Directors may from time to time prescribe.
4.7 Delegation of Authority. The Board of Directors may from time to time
delegate the powers or duties of any officer to any other officers or agents,
notwithstanding any provision hereof.
4.8 Removal. Any officer of the Corporation may be removed at any time,
with or without cause, by the Board of Directors.
4.9 Action With Respect to Securities of Other Corporations. Unless
otherwise directed by the Board of Directors, the President or any officer of
the Corporation authorized by the President shall have power to vote and
otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE V
STOCK
5.1 Certificates of Stock. Each stockholder shall be entitled to a
certificate signed by, or in the name of the Corporation by, the President or a
Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer
or an Assistant Treasurer, certifying the number of shares owned by him or her.
Any of or all the signatures on the certificate may be facsimile.
5.2 Transfers of Stock. Transfers of stock shall be made only upon the
transfer books of the Corporation kept at an office of the Corporation or by
transfer agents designated to
9
<PAGE> 13
transfer shares of the stock of the Corporation. Except where a certificate is
issued in accordance with Section 4 of Article V of these bylaws, an outstanding
certificate for the number of shares involved shall be surrendered for
cancellation before a new certificate is issued therefor.
5.3 Record Date. The Board of Directors may fix a record date, which shall
not be more than sixty (60) nor fewer than ten (10) days before the date of any
meeting of stockholders, nor more than sixty (60) days prior to the time for the
other action hereinafter described, as of which there shall be determined the
stockholders who are entitled: to notice of or to vote at any meeting of
stockholders or any adjournment thereof; to receive payment of any dividend or
other distribution or allotment of any rights; or to exercise any rights with
respect to any change, conversion or exchange of stock or with respect to any
other lawful action.
5.4 Lost, Stolen or Destroyed Certificates. In the event of the loss,
theft or destruction of any certificate of stock, another may be issued in its
place pursuant to such regulations as the Board of Directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.
5.5 Regulations. The issue, transfer, conversion and registration of
certificates of stock shall be governed by such other regulations as the Board
of Directors may establish.
ARTICLE VI
NOTICES
6.1 Notices. Except as otherwise specifically provided herein or required
by law, all notices required to be given to any stockholder, director, officer,
employee or agent shall be in writing and may in every instance be effectively
given by hand delivery to the recipient thereof, by depositing such notice in
the mails, postage paid, or by sending such notice by prepaid telegram,
mailgram, telecopy or commercial courier service. Any such notice shall be
addressed to such stockholder, director, officer, employee or agent at his or
her last known address as the same appears on the books of the Corporation. The
time when such notice shall be deemed to be given shall be the time such notice
is received by such stockholder, director, officer, employee or agent, or by any
person accepting such notice on behalf of such person, if hand delivered, or the
time such notice is dispatched, if delivered through the mails or be telegram or
mailgram.
6.2 Waivers. A written waiver of any notice, signed by a stockholder,
director, officer, employee or agent, whether before or after the time of the
event for which notice is to be given, shall be deemed equivalent to the notice
required to be given to such stockholder, director, officer, employee or agent.
Neither the business nor the purpose of any meeting need be specified in such a
waiver.
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<PAGE> 14
ARTICLE VII
MISCELLANEOUS
7.1 Facsimile Signatures. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
7.2 Corporate Seal. The Board of Directors may provide a suitable seal,
containing the name of the Corporation, which seal shall be in the charge of the
Secretary. If and when so directed by the Board of Directors or a committee
thereof, duplicates of the seal may be kept and used by the Treasurer or by an
Assistant Secretary or Assistant Treasurer.
7.3 Reliance Upon Books, Reports and Records. Each director, each member
of any committee designated by the Board of Directors, and each officer of the
Corporation shall, in the performance of his duties, be fully protected in
relying in good faith upon the books of account or other records of the
Corporation, including reports made to the Corporation by any of its officers,
by an independent certified public accountant, or by an appraiser selected with
reasonable care.
7.4 Fiscal Year. The fiscal year of the Corporation shall be as fixed by
the Board of Directors.
7.5 Time Periods. In applying any provision of these bylaws which require
that an act be done or not done a specified number of days prior to an event or
that an act be done during a period of a specified number of days prior to an
event, calendar days shall be used, the day of the doing of the act shall be
excluded, and the day of the event shall be included.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
8.1 Right to Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative, is or was a director, officer or employee of
the Corporation or is or was serving at the request of the Corporation as a
director, officer or employee of another corporation, or of a Partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer or employee or in any other capacity
while serving as a director, officer or employee, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by Delaware Law, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such
11
<PAGE> 15
amendment permits the Corporation to provide broader indemnification rights than
said Law permitted the Corporation to provide prior to such amendment) against
all expenses, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties, amounts paid or to be paid in settlement and
amounts expended in seeking indemnification granted to such person under
applicable law, this bylaw or any agreement with the Corporation) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer or employee and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
Section 8.2 of this Article VIII, the Corporation shall indemnify any such
person seeking indemnity in connection with an action, suit or proceeding (or
part thereof) initiated by such person only if (a) such indemnification is
expressly required to be made by law, (b) the action, suit or proceeding (or
part thereof) was authorized by the Board of Directors of the Corporation, (c)
such indemnification is provided by the Corporation, in its sole discretion,
pursuant to the powers vested in the Corporation under the Delaware General
Corporation Law, or (d) the action, suit or proceeding (or part thereof) is
brought to establish or enforce a right to indemnification under an indemnity
agreement or any other statute or law or otherwise as required under Section 145
of the Delaware General Corporation Law. Such right shall be a contract right
and shall include the right to be paid by the Corporation expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, unless the Delaware General Corporation Law then so prohibits,
the payment of such expenses incurred by a director or officer of the
Corporation in his or her capacity as a director or officer (and not in any
other capacity in which service was or is tendered by such person while a
director or officer, including, without limitation. service to an employee
benefit plan) in advance of the final disposition of such proceeding, shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf of
such director or officer, to repay all amounts so advanced if it should be
determined ultimately that such director or officer is not entitled to be
indemnified under this Section or otherwise.
8.2 Right of Claimant to Bring Suit. If a claim under Section 8.1 is not
paid in full by the Corporation within ninety (90) days after a written claim
has been received by the Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim
and, if such suit is not frivolous or brought in bad faith, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. The burden of
proving such claim shall be on the claimant. It shall be a defense to any such
action (other then an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any, has been tendered to this Corporation) that the claimant
has not met the standards of conduct which make it permissible under the
Delaware General Corporation Law for the Corporation to indemnify the claimant
for the amount claimed. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) to have made
a determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not
12
<PAGE> 16
met such applicable standard of conduct, shall be a defense to the action or
create a presumption that claimant has not met the applicable standard of
conduct.
8.3 Non-Exclusivity of Rights. The rights conferred on any person in
Sections 1 and 2 shall not be exclusive of any other right which such persons
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, bylaw, agreement, vote of stockholders or disinterested directors
or otherwise.
8.4 Indemnification Contracts. The Board of Directors is authorized to
enter into a contract with any director, officer, employee or agent of the
Corporation, or any person serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including employee benefit plans, providing
for indemnification rights equivalent to or, if the Board of Directors so
determinates, greater than, those provided for in this Article VIII.
8.5 Insurance. The Corporation shall maintain insurance to the extent
reasonably available, at its expense, to protect itself and any such director,
officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any such expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the Delaware
General Corporation Law.
8.6 Effect of Amendment. Any amendment, repeal or modification of any
provision of this Article VIII by the stockholders and the directors of the
Corporation shall not adversely affect any right or protection of a director or
officer of the Corporation existing at the time of such amendment, repeal or
modification.
ARTICLE IX
AMENDMENTS
9.1 Amendment of Bylaws. The Board of Directors is expressly empowered to
adopt, amend or repeal Bylaws of the Corporation. Any adoption, amendment or
repeal of Bylaws of the Corporation by the Board of Directors shall require the
approval of a majority of the total number of authorized directors (whether or
not there exist any vacancies in previously authorized directorships at the time
any resolution providing for adoption, amendment or repeal is presented to the
Board). The stockholders shall also have power to adopt, amend or repeal the
Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the
Corporation by the stockholders shall require, in addition to any vote of the
holders of any class or series of stock of the Corporation required by law or by
this Certificate of Incorporation, the affirmative vote of the holders of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single class.
13
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
YieldUP International Corporation
We consent to incorporation by reference in the registration statements
(Nos. 333-19645, 333-19647 and 333-19649) on Forms S-3 and S-8 of YieldUP
International Corporation of our report dated February 13, 1998, except as to
Note 8, which is as of March 30, 1998, relating to the balance sheet of YieldUP
International Corporation as of December 31, 1997, and the related statements of
operations, stockholders' equity, and cash flows for each of the years in the
two-year period then ended, which report appears in the December 31, 1997,
annual report on Form 10-KSB of YieldUP International Corporation.
KPMG Peat Marwick LLP
Mountain View, California
March 31, 1998
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