INTEST CORP, 10-K, 2000-03-30

INTEST CORP
10-K, 2000-03-30
INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS

Previous: HORIZON PHARMACIES INC, NT 10-K, 2000-03-30

Next: COBALT GROUP INC, 10-K, 2000-03-30

<PAGE>

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1999 or

/ / Transaction report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period
from ____________________ to ________________________

Commission file number: 0-22529
-------

inTEST Corporation
- -----------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)

Delaware 22-2370659
- --------------------------------- -----------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
or incorporation or organization)

2 Pin Oak Lane, Cherry Hill, NJ 08003
- --------------------------------------- ----------
(Address of principal executive office) (Zip Code)

Registrant's telephone number, including area code: 856-424-6886

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $0.01 per share.

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant computed by reference to the closing price
of such stock on March 22, 2000 as quoted on the Nasdaq National Market
system was $90,354,167.

The number of shares outstanding of the Registrant's Common Stock, as of
March 22, 2000 is 8,582,827.

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. / /

<PAGE>

inTEST Corporation
Annual Report on Form 10-K

INDEX

Part I: Page
- ------- ----
Item 1: Business 3

Item 2: Properties 13

Item 3: Legal Proceedings 14

Item 4: Submission of Matters to a Vote of Security Holders 14

Part II:
- -------
Item 5: Market for Registrant's Common Equity and Related
Stockholder Matters 15

Item 6: Selected Financial Data 17

Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations 18

Item 7A: Quantitative and Qualitative Disclosures About
Market Risk 23

Item 8: Financial Statements and Supplementary Data 23

Item 9: Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 23

Part III:
- --------
Item 10: Directors and Executive Officers 24

Item 11: Executive Compensation 24

Item 12: Security Ownership of Certain Beneficial Owners and
Management 24

Item 13: Certain Relationships and Related Transactions 24

Part IV:
- -------
Item 14: Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 24

Signatures 26

Index to Exhibits 27

Index to Consolidated Financial Statements and Consolidated
Financial Statement Schedule 28

<PAGE>

inTEST Corporation
Annual Report on Form 10-K

PART I:
- ------
Item 1. BUSINESS

INTRODUCTION
- ------------

On March 9, 2000, we acquired all of the stock of Temptronic Corporation.
The acquisition was in the form of a merger of Temptronic into a subsidiary of
ours, and was accounted for as a pooling of interests. (The financial
statements included in this report do not reflect the acquisition of
Temptronic.) Temptronic makes and sells high-performance temperature
management products used in the manufacture and testing of integrated circuits,
or ICs, and other electronic products. These temperature management products
are complementary to the manipulator and docking hardware and tester interface
products manufactured by us prior to the merger.

Although the merger occurred after the period covered by this report, the
following discussion of our business is presented on a post-merger, combined
basis, except where information is specifically given as of December 31, 1999
(such as in the sections describing "Employees," "Backlog," "Customers,"
"Patents and Other Proprietary Rights," and "Engineering and Product
Development") or as otherwise noted. The portions of this discussion of our
business that describe the design, manufacture and marketing of "temperature
management products" relate to the business of Temptronic and did not
contribute to our results of operations in 1999.

We are a leading independent designer and manufacturer of test head
manipulators, docking hardware, temperature management products and tester
interface products. Semiconductor manufacturers use our products in
conjunction with automatic test equipment, or ATE, in the testing of ICs. The
testing of integrated circuits is an essential step in the IC manufacturing
process and comprises a significant percentage of the total cost of
manufacturing integrated circuits. We focus on producing high quality products
and developing innovative proprietary technologies designed to improve the
efficiency and cost-effectiveness of the ATE used in the IC testing process.
Our products are used by leading semiconductor manufacturers worldwide.

We were incorporated in New Jersey in 1981 and reincorporated in Delaware
in April 1997. We established inTEST Limited in the U.K. in 1985, inTEST
Kabushiki Kaisha in Japan in 1987 and inTEST PTE, Limited in Singapore in 1990.
inTEST Limited designs, manufactures and markets our products principally in
the European market. inTEST Kabushiki Kaisha acts as a liaison office with
Japanese ATE manufacturers and markets our products in Japan. In addition,
inTEST Kabushiki Kaisha initiated our business of designing and marketing
related tester interface products, including sockets and interface boards.
inTEST PTE, Limited designs, manufactures, markets and provides technical
support to customers in Southeast Asia. In 1997, we completed our initial
public offering. In 1998, we acquired all of the stock of TestDesign
Corporation, which expanded our capabilities in the design, manufacture and
marketing of tester interface products. As described above, we acquired all of
the stock of Temptronic Corporation in the first quarter of 2000.

IC INDUSTRY BACKGROUND
- ----------------------

Overview
- --------
The semiconductor market is a high volume, high growth market
characterized by rapid technological change and wide fluctuations in demand.
Semiconductor manufacturers generally compete based on product performance and
price. Therefore, they seek to maintain high production yields and maximize
the utilization of the expensive facilities and capital equipment required in
the manufacturing process. The quality of testing during manufacturing
directly affects both production yield and efficiency. Accordingly,
semiconductor manufacturers seek to use testing processes that optimize the
utilization of ATE and floor space dedicated to testing.

<PAGE>

The demand for ATE is driven by several factors, including demand for
products that incorporate ICs, increasing complexity of ICs and the emergence
of new IC technologies. The increasing use of ICs in a variety of consumer
products is well recognized, as are the continuing advances in the performance
characteristics of ICs. Some of the newer IC technologies include the use of
300 mm wafers in production and system-on-a-chip ("SOC") where digital, analog
and memory functions are combined on a single IC. As a result of these and
other advances, semiconductor manufacturers must purchase additional ATE to
handle the increased production and more sophisticated testing requirements.

Driven by higher demand for ICs and the emergence of new IC technologies,
we believe semiconductor manufacturers will increase their capital expenditures
for the expansion and upgrading of their manufacturing operations over the next
few years.

IC Test Process
- ---------------

ICs are the building blocks of modern electronics. Microprocessors,
memory chips, telecommunication ICs, digital signal processors and various
other types of ICs are used in a variety of products, ranging from complex
products such as computers, cell phones, televisions, automobile electronics,
digital cameras and DVD players to a simple household lamp dimmer. As
electronic products become more intricate, so do the ICs that perform the
necessary functions. Manufacturers have continued to seek innovation in the
design, architecture and functionality of the ATE used in the testing of ICs
because of the need to produce increasingly complex products more efficiently.

ICs are typically manufactured in multiples of several hundred on a
silicon wafer which are later separated or "diced" into individual ICs.
Extended leads are then attached to the individual ICs, for later connection to
other electrical components, and the ICs are put in a plastic, ceramic or other
protective housing. This process step is called "packaging." Wafers are
tested before being diced and packaged, to insure that only properly
functioning ICs are packaged. This testing step has several names including
"front-end test," "wafer test" or "wafer probe." In front-end test, a
piece of equipment known as a wafer prober automatically positions the wafer
under a "test head," which is connected electronically to a test system.
Once the good ICs have been identified, they are packaged. The packaged IC also
requires testing, called "back-end test," to determine if it meets design and
performance specifications. Packaged ICs are placed into a machine called a
handler, which then plugs the packaged ICs into an environmentally-controlled
test head, which includes a test socket, for testing.

Testers range in price from approximately $500,000 to over $3.0 million
each, depending primarily on the complexity of the IC to be tested and the
number of test heads, typically one or two, with which each tester is
configured. Probers and handlers range in price from approximately $100,000 to
$500,000. A typical test floor of a large semiconductor manufacturer may have
100 test heads and 100 probers or 250 handlers supplied by various vendors for
use at any one time.

Test head manipulators facilitate the movement of the test head to the
wafer prober in front-end test, and to the handler in back-end test. Docking
hardware connects the test head to the wafer prober and handler. Tester
interface products provide the electrical connection between the test head and
the wafer or packaged IC. Traditionally, temperature management products are
used in back-end test to allow a manufacturer to test packaged ICs under the
extreme temperature conditions in which the IC may be required to operate.
However, inTEST believes temperature-controlled testing will be an increasingly
important part of front-end wafer testing as the demand for front-end testing
grows.

<PAGE>

Trends in IC Testing
- --------------------

While the basic purpose of testing ICs during production is to identify
unacceptable products, a related goal of the semiconductor manufacturer is to
perform the test in the most efficient and cost-effective manner possible. To
provide testing equipment that can help manufacturers meet this goal, the ATE
industry must respond to the following developments:

Change in Technology. Currently, most semiconductor manufacturers use 150
mm and 200 mm wafer technology. In order to increase throughput and lower IC
cost, 300 mm wafer production capability will be needed over the next few
years. In addition, end-user applications are demanding ICs with increasingly
higher performance, greater speeds, and smaller sizes. ICs that meet these
higher standards are more complex and dense. SOC designs are expected to be
subject to growing demand in the future. These technology trends have
significant implications for the IC testing process, including:

* the need for larger, heavier and more complex test heads;
* higher pin densities;
* increasing test speeds; and
* a new generation of testers for SOC and other technologies.

Need for Plug-Compatibility and Integration. Semiconductor manufacturers
need test methodologies that will perform increasingly complex tests while
lowering the overall cost of testing. This can require combining ATE
manufactured by various companies into optimally performing systems.
Semiconductor manufacturers have to work closely with various test hardware,
software, interface and component vendors, therefore, to resolve design and
compatibility issues. Independent ATE manufacturers not only have to meet
higher product performance requirements, but they must make their products
plug-compatible with test equipment manufactured by other vendors.

Testing under Extreme Conditions. ICs are expected to perform across a
wider spectrum of temperature and environmental conditions than ever before.
Temperature testing is expected to find an increasing role in front-end, wafer
level testing. Creating a uniform thermal profile over much larger areas, as
in the case of wafer level testing, represents a significant engineering and
design challenge for ATE manufacturers.

Demand for Higher Level of Technical Support. As IC testing becomes more
complex, IC manufacturers are increasingly demanding higher level of technical
support on a routine basis. ATE manufacturers must commit greater resources
to technical support in order to develop close working relationships with
their customers. This level of support also requires close proximity of
service and support centers to customers' facilities.

Cost Reduction through Front-End Testing. As the cost of testing ICs
increases, semiconductor manufacturers will continue to look for ways to
streamline the testing process to make it more cost-effective. inTEST believes
that this factor will lead to more front-end wafer testing.

inTEST'S SOLUTIONS
- ------------------

We have focused our efforts on designing and producing only high quality
products that provide superior performance and cost-effectiveness. We seek to
address a manufacturer's individual needs through innovative, customized
designs, use of the best materials available, quality manufacturing practices
and personalized service. We design solutions to overcome the evolving
challenges facing the ATE industry by providing the following advantages:

High Performance Technology. Our universal test head manipulators provide
six degrees of motion freedom to enable the maximum flexibility with the
minimum amount of effort. As a result, our products can be used in virtually
any test setting. Our manipulators have kept pace with the rapidly increasing
size of test heads, which can weigh up to 900 pounds and are expected to
continue to get larger as the required level of testing sophistication
increases. Our docking hardware offers precise control over the connection to

<PAGE>

test sockets, probing assemblies and interface boards, reducing downtime and
minimizing costly damage to fragile components. We believe that these
characteristics will become even more important as testing becomes more
complicated.

Broad ATE compatibility. A hallmark of our products has been, and
continues to be, compatibility with a wide variety of ATE. Our universal
manipulators can handle different test heads produced by different
manufacturers. We also design and manufacture docking hardware that can be
used with otherwise incompatible ATE. Such an integrated approach to ATE leads
to smooth changeover from one tester to another, longer lives for interface
components, better test results and lower overall test costs.

Wafer Level Testing. Our redesigned ThermoChuck* products can be used for
front-end temperature stress screening at the wafer level. This can provide
significant cost savings from early identification of IC that will not perform
at specified temperatures, thus improving IC production yields as well as
product quality and reliability. ThermoChuck products are capable of handling
any size wafer, including a 300 mm wafer, for thermal test without causing the
wafer distortion that can occur as temperature changes are introduced. In
addition, our Pro Dock* can be used in front-end testing by a single operator
to position a test head weighing up to 1,000 pounds. The Pro Dock has a
relatively small footprint that significantly increases test floor space
utilization. We believe that these characteristics will become even more
important as testing becomes more complicated.

Worldwide Customer Service and Support. We have long recognized the need
to maintain a physical presence near our customers' facilities. We have
manufacturing facilities in New Jersey, Massachusetts, California, the U.K. and
Singapore, and we provide service to our customers from 11 sales and service
offices in the U.S., the U.K., Japan, and Singapore. Thus, our engineers are
easily accessible to, and can work directly with, our customers from the time
we begin developing our initial proposal through the delivery, installation and
use of the product by our customer. In this way, we are able to develop and
maintain close relationships with our customers.

* "ThermoChuck" and "Pro Dock" are registered trademarks of inTEST
Corporation.

inTEST'S STRATEGY

Our goals are to increase our recognition as the designer and manufacturer
of the highest quality products in our markets, and to become a supplier for
all of our customers' ATE needs, other than probers, handlers and testers. Our
general strategies to achieve these goals include the following:

Providing technologically advanced solutions. We are committed to
designing and producing only the highest quality products which incorporate
innovative designs to achieve optimal cost-effectiveness and functionality for
each customer's particular situation. Our engineering and design staff are
continually engaged in developing new and improved products and manufacturing
processes.

Leveraging strong OEM relationships. Our technical personnel work closely
with ATE manufacturers to design tester interface and docking hardware that are
compatible with their ATE. As a result, we are often privy to proprietary
technical data and information about these manufacturers' products. We believe
that because we do not compete with ATE manufacturers in the prober, handler
and tester markets, we have been able to establish strong collaborative
relationships with these manufacturers that enable us to develop ancillary ATE
products on an accelerated basis.

Continuing our international expansion. Our existing and potential
customers are concentrated in certain regions throughout the world. We believe
that we must maintain a presence in the markets in which our customers operate.
We currently have offices in the U.S., the U.K., Japan, and Singapore, and we
will be opening an office in Germany in the near future.

<PAGE>

Pursuing synergistic acquisitions. A key element of our growth strategy
is to acquire businesses, technologies or products that are complementary to
our current product offerings. Our TestDesign and Temptronic acquisitions have
expanded our line of product offerings and given us the opportunity to market a
broader range of products to our customer base. We expect to make acquisitions
that will further expand our product lines, enabling us to become a single
source supplier to the test floor for a complete selection of equipment
compatible with testers, probers and handlers of all manufacturers.

OUR PRODUCTS
- ------------

We design and manufacture manipulators, docking hardware, temperature
management products and tester interface products, all of which are designed
to improve the utilization and performance of ATE used by semiconductor
manufacturers in the testing of ICs. Our primary line of manipulators and our
docking hardware are used most frequently during back-end testing of
specialized packaged ICs. Our temperature management products and tester
interface products are used in either front-end or back-end testing of
specialized packaged ICs. Specialized ICs include microprocessors, digital
signal processing chips, application specific ICs and specialized memory ICs,
and are used primarily in the automotive, computer, consumer products and
telecommunications industries. Most of our products are custom-designed for
our customer's particular combination of ATE. We have designed over 5,000
products, each of which is used to facilitate the use of one or more of over
175 different test heads with one or more of over 30 probers or 300 handlers,
all of which are mechanically different models.

Manipulator Products
- --------------------

Universal Manipulators: Our primary line of manipulator products consists of
the in2* Test Head Positioners, which are free-standing universal manipulators.
Universal manipulators are manipulators that can hold a variety of test heads
and enable the test head to be repositioned for alternate use with any one of
several probers or handlers on a test floor. The in2 is distinguished from
universal manipulators manufactured by competitors by our innovative, floating-
head design. This design permits a test head weighing up to 900 pounds to be
held in an effectively weightless state, so it can be moved manually up or
down, right or left, forward or backward and rotated around each axis by an
operator using no more than 22 pounds of force. Consequently, an operator can
manually reposition the test head by grasping it in his or her hands and gently
moving the test head into position to dock with the prober or handler. This
same design feature enables the operator to dock the test interface board
without causing inadvertent damage to the fragile electrical contacts. As a
result, after testing a particular production lot of ICs, a test head held in
an in2 manipulator and equipped with our docking hardware can be disconnected
quickly and easily and docked to another handler for testing either a
subsequent lot of the same packaged IC or to test a different IC. in2
manipulators range in price from approximately $12,000 to $100,000.

Dedicated Manipulators: In addition to our free-standing universal
manipulators, we manufacture several models of dedicated manipulators. We
recently developed a fully-automatic, electrically-powered and microprocessor-
controlled dedicated manipulator we call the Pro Dock. We believe it is the
only fully-automatic manipulator which enables a test head to be automatically
docked to a prober or handler with the push of one button. The patented,
overhead design of the Pro Dock series manipulator uses a powered scissor
mechanism to raise and lower a test head to a prober or a top docking handler.
This design enables a Pro Dock to dock very large test heads (weight tested to
1,000 pounds). We believe that the Pro Dock series of manipulators will be
attractive to semiconductor manufacturers for testing 300 mm wafers and
packaged memory ICs because the size of test heads for these wafers and ICs
make manual manipulation cumbersome. In addition, we believe that the Pro Dock
will enable semiconductor manufacturers to increase floor space utilization of
their ATE systems by 25% to 40% over that achieved by other dedicated or
universal manipulators because a Pro Dock series manipulator has virtually a
zero footprint. We have not yet sold, and do not expect significant sales of,
Pro Dock manipulators until demand for 300 mm wafers reach levels warranting
significant investment in new testing equipment by semiconductor manufacturers.

* "in2" is a registered trademark of inTEST Corporation.

<PAGE>

Docking Hardware
- ----------------

Our docking hardware products mechanically control the delicate
interface between the test head's interface board and the prober's probing
assembly or the handler's test socket, and protects them from damage as
they are brought together, or "docked." A simple cam action docks and
locks the test head to the prober or handler, thus eliminating motion of
the test head relative to the prober or handler. This minimizes
deterioration of the interface boards, test sockets and probing assemblies
which is caused by the constant vibration during testing. Our docking
hardware is used primarily with floating-head universal manipulators when
maximum mobility and inter-changeability of handlers between test heads is
required. Our docking hardware enables semiconductor manufacturers to
achieve cost savings by improving ATE utilization, improving the accuracy
and integrity of test results, and reducing the need to repair or replace
expensive ATE interface products.

Our docking hardware products are distinguished from those offered by
competing ATE manufacturers by our ability to make multiple competing
brands of test heads compatible with multiple brands of probers and
handlers used by a semiconductor manufacturer by only changing interface
boards. This is called "plug-compatibility." Plug-compatibility reduces
the changeover time required to undock a test head from one handler and
dock it to another handler between production lots or when changing the IC
type being tested. This enables increased flexibility and utilization of
test heads, probers and handlers purchased from various manufacturers. We
believe that because we do not compete with ATE manufacturers in the sale
of probers, handlers or testers, ATE manufacturers are willing to provide
us with the information that is integral to the design of plug-compatible
products. Our docking hardware products range in price from approximately
$2,000 to $12,000.

Temperature Management Products
- -------------------------------

Our temperature management products enable a manufacturer to test a
semiconductor wafer or IC over the extreme and variable temperature conditions
that can occur in the actual use of the electronic device containing the ICs.
Temperature management products must test ICs over a variety of temperature
ranges, rapidly shifting between temperature levels, without removing the wafer
or IC from its testing environment. Our temperature management products
control and quickly change test temperatures, within a range of temperatures
specified by the customer.

ThermoChuck Products: Our ThermoChuck precision vacuum platform assemblies
contain heating and cooling elements and associated equipment such as
temperature controllers, compressors, heaters and dehumidifiers, for quickly
changing and stabilizing the temperature of semiconductor wafers prior to their
dicing and packaging. Such temperatures can range from as low as -65 degrees
Celsius to a high of +400 degrees Celsius. They are incorporated into wafer
prober equipment for laboratory analysis and for in-line production testing of
semiconductor wafers. The ThermoChuck product line was recently redesigned,
and an innovative manufacturing process for the product line was developed. We
believe this new design and manufacturing process will improve the reliability
and performance of ThermoChuck products. Specifically, new ThermoChuck
products stay flatter, remain more level and maintain more uniform temperatures
during testing than our previous design. In addition, the new manufacturing
process is expected to reduce production costs for these products. We expect
to be able to market the redesigned ThermoChuck products during 2000. Our
ThermoChuck products range in price from approximately $14,000 to $55,000.

<PAGE>

ThermoStream* Products: Our ThermoStream stand-alone temperature management
systems use a temperature-controlled air stream to rapidly change and stabilize
the temperature of packaged ICs and printed circuit boards. ThermoStreams
provide a source of heated and cooled air which can be directed over the
component or device under test. ThermoStream products contain heating
elements, refrigeration systems, air dryers, and sophisticated computer
controls. These systems are capable of controlling temperatures to within 1.0
degree Celsius over a -80 degrees Celsius to +225 degrees Celsius range.
Traditionally, our customers used ThermoStream products primarily in
engineering, quality assurance and short-run manufacturing environments,
however, these products are being used increasingly in longer-run production
applications. Our ThermoStream products range in price from approximately
$4,200 to $36,000.

* "ThermoStream" is a registered trademark of inTEST Corporation.

Other temperature management products: We also manufacture ancillary
temperature management products including temperature-controlled contact
probes, temperature-controlled enclosures, and precision temperature platforms.

Tester Interface Products
- -------------------------

We custom design our tester interface products for each application to
ensure a secure electrical connection between the tester and the probe card on
the prober or the test socket on the handler. Our designs optimize the
integrity of the transmitted signal which increases the accuracy of the test
data, so our tester interface products can be used with high speed, high
frequency, digital or mixed signal interfaces used in testing more complex ICs.
Because our tester interface products enable the tester to provide more
reliable yield data, our interfaces may also reduce IC production costs. We
offer over 200 different types of tester interface products that range in price
from $6,000 to $46,000.

MARKETING, SALES AND CUSTOMER SUPPORT
- -------------------------------------

We market and sell our products in all markets where semiconductors or ATE
are manufactured. North American and European semiconductor manufacturers have
located most of their back-end factories in Southeast Asia. The front-end
wafer fabrication plants of U.S. semiconductor manufacturers are primarily in
the U.S. Likewise, European, Taiwanese, South Korean and Japanese
semiconductor manufacturers generally have located their wafer fabrication
plants in their respective countries.

Manipulator Products, Docking Hardware and Tester Interface Products: In North
America, we sell to semiconductor manufacturers principally through
independent, commissioned sales representatives. Sales to ATE manufacturers
are handled by our account managers. North American sales representatives also
coordinate product installation and support with our technical staff and
participate in trade shows. Technical support is provided to North American
customers and independent sales representatives by employees based in New
Jersey, California, Texas, Arizona, and Oregon.

In Europe and Japan, we sell to semiconductor and ATE manufacturers
through our account managers. In China, Hong Kong, Malaysia, the Philippines,
South Korea, Taiwan and Thailand, we sell through independent sales
representatives. International sales representatives are responsible for
sales, installation, support and trade show participation in their geographic
market areas.

Our account managers are responsible for a portfolio of customer accounts
and for managing certain independent sales representatives. In addition, our
account managers are responsible for applications engineering, custom product
design, pricing, quotations, proposals and transaction negotiations.

Temperature Management Products: In the U.S., we sell to semiconductor
manufacturers through thirteen independent sales representative organizations,
except in New England and upstate New York where we sell directly through our
sales staff. Sales to ATE manufacturers are handled by our direct sales force.

<PAGE>

We are represented in over 30 countries by 21 distributors. Typically,
we sell our products overseas through distributors, except in some countries
(India, Israel, Italy and South Korea) where we sell directly to the customer.
Almost all of our international distributors have represented us for between
five and fifteen years. We visit our distributors regularly and have trained
them to sell and service all of our temperature management products.

Post-merger Integration: We believe one of the benefits that may result from
the merger of inTEST and Temptronic is the opportunity to combine our sales and
distribution efforts. In the several weeks since the merger occurred, we have
started the process of cross-training our sales forces, and will continue
integrating our sales and marketing teams over the balance of the year.

CUSTOMERS
- ---------

We market all of our products to semiconductor manufacturers and ATE
manufacturers. In the case of temperature management products, we also market
our products to independent testers of semiconductors, manufacturers of
electronic products, and semiconductor research facilities. Our products are
used by our customers principally in production testing, although our
ThermoStream products have been used largely in engineering development and
quality assurance. We believe we sell to most major semiconductor
manufacturers in the world.

During 1999, sales to two customers exceeded 10% of our consolidated net
revenues (not including the net revenues of Temptronic): Teradyne - 14% and
Lucent Technologies - 11%. On a post-merger, pooled basis (that is, including
the net revenues of Temptronic), no one customer accounted for more than 10%
of our net revenues in 1999.

Our largest customers include:

Semiconductor Manufacturers ATE Manufacturers
--------------------------- -----------------
Hewlett Packard Analog Devices
Lucent Technologies LTX
Motorola Teradyne
ST Microelectronics Cascade Microtech*
Texas Instruments Electroglas*
Tokyo Seimitsu*

* Sales consist primarily of temperature management products.

MANUFACTURING AND SUPPLY
- ------------------------

Our principal manufacturing operations consist of assembly and testing at
our facilities in New Jersey, Massachusetts, California, the U.K., and
Singapore. By maintaining manufacturing facilities and technical support in
geographic markets where our customers are located, we believe that we are able
to respond more quickly and effectively to our customers' needs. We have
recently expanded our manufacturing facilities in California, and will be
moving our headquarters, manufacturing and warehouse facility in New Jersey in
the third quarter of this year to a larger facility located within half-a-mile
of our current facility.

We assemble most of our products from a combination of standard components
and custom parts which have been fabricated to our specifications by either
third party manufacturers or our own fabrication operations in New Jersey and
California. The manufacturing of ThermoStreams also involves a plating
operation which is currently performed in our Massachusetts facility. Our
practice is to use the highest quality raw materials and components in our
products. The primary raw materials used in fabricated parts are all widely
available. Substantially all components are purchased from multiple suppliers.
Although certain raw materials and components are purchased from single
suppliers, we believe that all materials and components are available in
adequate amounts from other sources.

<PAGE>

We seek to control the quality of raw materials, fabricated parts and
components by conducting incoming inspections using sophisticated measurement
equipment. This includes testing with coordinate measuring machines in New
Jersey, Massachusetts, the U.K. and Singapore, to ensure that products with
critical dimensions meet our specifications. Our inspection standards have
been designed to comply with applicable MIL specifications and ANSI standards.
We have retained a consultant to prepare a quality manual and assist in our
application for ISO 9001 certification.

ENGINEERING AND PRODUCT DEVELOPMENT
- -----------------------------------

Our success is dependent on our ability to provide our customers with
products and solutions that are well engineered, and to design those products
and solutions before, or at least no later than, our competitors. As of
December 31, 1999, inTEST (exclusive of Temptronic) employed a total of 25
engineers who are engaged full time in engineering and product development.
Our practice in most cases has been to assign engineers to work with specific
customers rather than on specific products, thereby enabling us to develop the
relationships and free exchange of information that is most conducive to
successful product development and enhancement.

We have not historically maintained a separate research and development
department or group. Rather, since most of our products are customized, we
consider substantially all our engineering activities to be engineering and
product development. Temptronic has historically taken a different approach
and, as of December 31, 1999, employed 16 engineers and technicians for new
product research and development in Newton, Massachusetts. The principal focus
of Temptronic's research and development activities during the past several
years has been on the design and manufacturing process for the redesigned
ThermoChuck.

inTEST (exclusive of Temptronic) spent approximately $3.2 million on
engineering and product development in 1999, $1.9 million in 1998, and $1.7
million in 1997.

PATENTS AND OTHER PROPRIETARY RIGHTS
- ------------------------------------

As of December 31, 1999, inTEST (exclusive of Temptronic) held 14 U.S.
patents and 68 foreign patents and had pending 3 U.S. patent applications and
more than 38 foreign applications that cover various aspects of our technology.
Our policy is to protect our technology by filing patent applications for the
technologies that we consider important to our business. Our U.S. issued
patents will expire at various times beginning in 2002 and extending through
2014. We cannot assure you that the U.S. Patent and Trademark Office will
issue additional patents on our pending and future applications. Furthermore,
any patents now or hereafter owned by us may not be afforded protection against
competitors that develop similar technology or products. There are no pending
lawsuits or claims against us regarding infringement of any existing patents or
other intellectual property rights of others.

We also rely on trade secrets and unpatentable know-how to protect our
proprietary rights. It is our practice to require, as a condition of permanent
employment, that all of our employees agree to assign to us all rights to
inventions or other discoveries relating to our business made while employed by
us. In addition, all employees agree not to disclose any information about us
which is private or confidential.

COMPETITION
- -----------

Our competitors include independent manufacturers, ATE manufacturers and,
to a lesser extent, semiconductor manufacturers' in-house ATE interface groups.
We compete on the basis of product performance, functionality, reliability,
customer service, applications support, price and timely product delivery. We
believe that our long-term relationships with the industry's leading
semiconductor manufacturers and other customers, and our commitment to and
reputation for providing high quality products are important elements in our
ability to compete effectively in all our markets.

<PAGE>

The independent manufacturers of docking hardware and manipulators that
compete with us include Reid-Ashman Manufacturing and Microhandling GmbH, each
of which manufactures docking hardware and manipulators. The manufacturers of
ATE that compete with us in the sale of docking hardware and universal
manipulators include Credence Systems, LTX, Schlumberger and Teradyne. Some
manufacturers of ATE are both our competitors and our customers. Our principal
competitors for temperature management products are ERS Elektronik GmbH,
Thermonics, Inc. and Trio Tech International. The independent manufacturers of
tester interface products that compete with us include Cerprobe Corporation,
Synergetix, a division of IDI, and Xandex Corporation. ATE manufacturers that
compete with us in the sale of tester interface products include Credence
Systems, Electroglas, LTX and Teradyne. In addition, while we do not know the
precise number of competitors that sell related ATE interface products, we
believe there are at least 20 manufacturers of interface boards and at least
five manufacturers of high performance test sockets.

BACKLOG
- -------

At December 31, 1999, our backlog of unfilled orders for all products
(exclusive of Temptronic's backlog) was approximately $9.5 million compared
with approximately $3.4 million at December 31, 1998. Our backlog includes
customer purchase orders which we have accepted, substantially all of which we
expect to deliver in the current fiscal year. While backlog is calculated on
the basis of firm purchase orders, a customer may cancel an order or accelerate
or postpone currently scheduled delivery dates. As a result, our backlog at a
particular date is not necessarily indicative of sales for any future period.

EMPLOYEES
- ---------

At December 31, 1999, inTEST (exclusive of Temptronic) employed a total of
164 full time employees, including 64 in customer service and support, 80 in
manufacturing operations and 20 in administration. We also had 5 temporary
employees, primarily in manufacturing jobs. Substantially all of our key
employees are highly skilled and trained technical personnel. None of our
employees is represented by a labor union, and we have never experienced a work
stoppage. We believe that our relationship with our employees is very good.

<PAGE>

Item 2: Properties

At December 31, 1999, we leased nine facilities worldwide. We expanded
our Singapore and U.K. facilities during 1999, our Sunnyvale, California
facility and Japan facilities during the first quarter of 2000, and we plan
to move to larger facilities in Cherry Hill, NJ in the second quarter of 2000.
The following chart provides information regarding each of the facilities we
occupied at December 31, 1999, the facilities occupied by Temptronic at
December 31, 1999, and the facilities which we have occupied or signed
leases for in the first quarter of 2000. We believe that additional space
to meet our current and foreseeable future needs is readily available.

<TABLE>
<CAPTION>
Lease Approximate
Location Expiration Square Footage Principal Uses
- -------- ---------- -------------- --------------
<S> <C> <C> <C>
Cherry Hill, NJ(1) 9/2010 80,000 Future headquarters, design, manufacturing,
service and sales - manipulators and
docking hardware.

Cherry Hill, NJ(2) 5/2003 28,630 Headquarters, design, manufacturing, service
and sales - manipulators and docking
hardware.

Cherry Hill, NJ(2) 2/2003 11,082 Warehouse storage space.

Cherry Hill, NJ 8/2004 11,000 Machine shop.

Newton, MA(3) 8/2001 44,000 Design, manufacturing, service and sales -
temperature management products.

Sunnyvale, CA 12/2004 18,255 Design, manufacturing, service and sales -
tester interface products.

Sunnyvale, CA 12/2001 1,109 Machine shop.

Sunnyvale, CA 8/2001 1,900 Storage area. 67% is occupied by subtenant.

San Diego, CA(3) 5/2002 1,604 Design, manufacturing, service and sales -
temperature management products.

Thame, UK 12/2005 4,600 Design, manufacturing, service and sales -
manipulators and docking hardware.

Surrey, UK(3) 12/2001 1,200 Service and sales - temperature management
products.

Singapore 4/2001 3,077 Design, manufacturing, service and sales -
manipulators, docking hardware and certain
tester interface products, including
sockets and interface boards.
Upon
Kichijoji, Japan(4) notice 1,200 Design, service and sales - manipulators,
docking hardware and certain tester
interface products, including sockets and
interface boards.

Tokyo, Japan(5) 3/2002 1,932 Design, service and sales - manipulators,
docking hardware and certain tester
interface products, including sockets and
interface boards.

</TABLE>
- -------
(1) Lease to commence September 2000.
(2) These leases will be terminated upon occupancy of the new headquarters.
(3) Facility occupied by Temptronic.
(4) Lease terminated March 2000.
(5) Lease commenced March 2000.

<PAGE>

Item 3: Legal Proceedings

On April 16, 1999, inTEST and its subsidiary, inTEST IP Corp., which
holds title to all Company intellectual property, filed suit in the
Federal District Court in Wilmington, DE against Reid-Ashman Manufacturing,
Inc., the defendant, for infringement of a United States patent held by
inTEST. The patent is referred to as the 815 Patent. The invention
disclosed and claimed in the 815 Patent is directed to a system for
positioning and docking a heavy electronic test head of a test system
with respect to an electronic device handler. The system is used in the
automatic testing of IC's and other electronic devices. inTEST sells
products covered by the 815 Patent worldwide.

As alleged in the complaint, the defendant began manufacturing,
offering to sell, and selling products as early as 1991 that, without
license, infringed upon claims of the 815 Patent. The complaint asks
the court to enjoin the defendant from further acts of infringement,
including the acts of manufacturing, using, offering for sale, selling
and importing positioner systems that embody the invention claimed in
the 815 Patent. The complaint also asks the Court to award inTEST
damages, including lost profits. Alleging that the defendant's
infringement is and has been deliberate, willful, and wanton, with
knowledge of inTEST's patent rights, the complaint asks the Court to
award increased damages up to three times the amount assessed. The
complaint also seeks an award of interest, costs and reasonable
attorney fees.

The presiding judge has attempted to facilitate a settlement
through mediation. Discovery has begun in parallel with the mediation
process. The Court granted the defendant's motion for partial summary
judgment, ruling that damages for infringement of claims 3 through 9 of
the 815 Patent can only be obtained for products that infringe after the
date when the reexamination proceedings were completed. The parties
continue to negotiate in an effort to settle the litigation. To date,
however, the negotiations have been unsuccessful. All legal fees
incurred in connection with this matter have been expensed.

Item 4: Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote during the fourth quarter of 1999.

During the first quarter of 2000, a Special Meeting of Shareholders
was held on March 9, 2000 for the purpose of considering and voting upon
the proposal to approve the merger agreement among inTEST, Temptronic
Corporation and one of our wholly-owned subsidiaries.

The number of votes cast for or against as well as the number of
abstentions and broker non-votes for the above proposal were as follows:

<TABLE>
<CAPTION>
For Against Abstentions Broker Non-Votes
--------- ------- ----------- ----------------
<C> <C> <C> <C>
5,445,958 450 200 0

</TABLE>

<PAGE>

Part II:
- -------

Item 5: Market for Registrant's Common Equity and Related Stockholder
Matters

(a) Our common stock trades on the Nasdaq National Market system under
the symbol "INTT".

The table below sets forth the high and low prices of our common
stock, as reported in published financial sources during the periods
indicated. Sales prices have been rounded to the nearest full cent:

<TABLE>
<CAPTION>
High Low
------ -----
<S> <C> <C>
Fiscal Year Ended December 31, 1998:
First Quarter $10.25 $6.25
Second Quarter 9.50 6.00
Third Quarter 6.50 3.75
Fourth Quarter 9.63 4.00

Fiscal Year Ended December 31, 1999:
First Quarter $ 8.25 $5.25
Second Quarter 8.00 3.63
Third Quarter 11.25 6.50
Fourth Quarter 20.38 6.63

</TABLE>

As of March 22, 2000, there were approximately 1,000 holders of record
of the Company's common stock.

We have not paid dividends on our common stock since our initial public
offering, and we do not plan to pay cash dividends in the foreseeable
future. Our current policy is to retain any future earnings for
reinvestment in the operation and expansion of our business, including
possible acquisitions of other business, technologies or products.
Payment of any future dividends will be at the discretion of our
board of directors. In addition, our current credit agreement prohibits
us from paying cash dividends without the lender's prior consent.

(b) Use of Proceeds from Offering:

On June 17, 1997, the Commission declared inTEST's registration
statement on Form S-1 covering the offering of 2,275,000 shares
of inTEST's common stock, Commission file number 333-26457,
effective. The offering closed on June 20, 1997, managed by Janney
Montgomery Scott Inc. and Needham & Company, Inc. as representatives
of the several underwriters named in the registration statement.

Of the 2,275,000 shares sold under the offering, 1,820,000 shares
were sold by inTEST and 455,000 were sold by certain selling
stockholders. In addition, the underwriters exercised an over-
allotment option to purchase an additional 341,250 shares of inTEST's
common stock from the selling shareholders. The total purchase price
to the public for the shares offered and sold by inTEST and the
selling shareholders was $13,650,000 and $5,971,875, respectively.

The amount of expenses incurred for inTEST's account in connection
with the offering were as follows:

<PAGE>

<TABLE>

<S> <C>
Underwriting discounts and commissions $1,023,750
Finders fees None
Expenses paid to or for the Underwriters 16,650
Other expenses 954,758
----------
Total expenses $1,995,158
==========

</TABLE>

All of the foregoing expenses were direct or indirect payments to persons
other than (i) directors, officers or their associates; (ii) persons
owning ten percent (10%) or more of inTEST's common stock; or (iii)
affiliates of inTEST.

The net proceeds of the offering to inTEST (after deducting the foregoing
expenses) was $11,654,842. From the effective date of the registration
statement, the net proceeds have been used for the following
purposes through December 31, 1999:

<TABLE>

<S> <C>
Construction of plant, building and facilities $ -
Purchase and installation of machinery and equipment 1,655,822
Purchase of real estate -
Acquisition of businesses 4,825,000
Repayment of indebtedness 388,098
Working capital 599,725
Temporary investments, including cash & cash equivalents 3,585,432
Other purposes (for which at least $100,000 has been used) including:
Payment of final S corporation distribution 600,765
-----------
Total $11,654,842
===========
</TABLE>

In connection with the termination of inTEST's status as an S
corporation, we used approximately $601,000 of the net proceeds to pay a
portion of the $4.3 million final distribution of previously taxed but
undistributed earnings of inTEST.

All of the foregoing payments with the exception of the final S
corporation distribution were direct or indirect payments to persons other
than (i) directors, officers or their associates; (ii) persons owning ten
percent (10%) or more of inTEST's common stock; or (iii) affiliates
of inTEST.

<PAGE>

Item 6: Selected Financial Data

The following table contains certain selected consolidated financial
data of inTEST and is qualified by the more detailed Consolidated Financial
Statements and Notes thereto included elsewhere in this Annual Report on
Form 10-K and should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations"
and the other financial information included in this Annual Report on
Form 10-K.

<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- ------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Earnings Data:

Net revenues. . . . . . . . . . . . . . . . $34,496 $19,075 $20,746 $18,582 $14,442
Gross margin. . . . . . . . . . . . . . . . 18,891 10,673 12,938 11,827 9,251
Operating income. . . . . . . . . . . . . . 6,322 2,518 6,187 5,616 4,037
Net earnings. . . . . . . . . . . . . . . . 4,094 1,927 4,332 4,646 3,252
Earnings per share (1997 and 1996 information
is pro forma):
Basic. . . . . . . . . . . . . . . . . .63 .31 .74 .83
Diluted. . . . . . . . . . . . . . . . .62 .31 .73 .83
Weighted average shares outstanding (1997
and 1996 information is pro forma):
Basic. . . . . . . . . . . . . . . . . 6,536 6,170 5,068 4,091
Diluted. . . . . . . . . . . . . . . . 6,626 6,186 5,092 4,091

</TABLE>

As of December 31,
--------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- ------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents . . . . . . . . . $12,018 $ 8,468 $12,035 $ 3,692 $ 1,919
Working capital . . . . . . . . . . . . . . 16,978 13,312 14,655 4,377 4,201
Total assets. . . . . . . . . . . . . . . . 31,260 23,218 19,945 7,716 6,352
Long term debt. . . . . . . . . . . . . . . - - - 155 -
Total stockholders' equity. . . . . . . . . 25,386 21,226 16,557 4,587 4,048

</TABLE>

<PAGE>

Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations

The following discussion relates to the results of operations and
financial condition of inTEST Corporation on a historical basis and,
thus, does not reflect the performance of Temptronic Corporation or the
merged entities on a pooled basis.

Overview
- --------

Our revenues are substantially dependent upon the demand for ATE by
semiconductor manufacturers and, therefore, fluctuate generally in
response to the cyclicality in the semiconductor manufacturing
industry. During the past several years, the demand for ATE by the
semiconductor industry exhibited a high degree of cyclicality. In
1996, we experienced sequential quarterly declines in orders for and
sales of our products. We believe this was due to a reduced level of
semiconductor manufacturing activity and corresponding cutbacks in
semiconductor manufacturers' capital budgets. 1997 marked a turnaround
in the semiconductor industry, which was evidenced by renewal in demand
for ATE and related equipment, which resulted in sequential quarterly
increases in orders for and sales of our products. 1998, like 1996,
was another year of sequential quarterly declines in orders for and
sales of our products, but to a more significant degree than in 1996.
In 1998, we believe worldwide demand for ICs fell dramatically due to
excess inventory of older IC designs, and slower transition to new IC
designs resulting from softening demand for end user products. In
addition, the economic downturns in many world economies, especially
those in Southeast Asia and Japan, exacerbated the semiconductor
industry downturn. The combination of these conditions contributed to
a reduced demand for products manufactured by semiconductor
manufacturers, which in turn significantly reduced their need for new
or additional ATE equipment.

1999, like 1997, marked a turnaround in the semiconductor industry
and we experienced significant increases in the level of orders for our
products ("bookings"). Bookings were $42.1 million for 1999 compared
with $17.4 million for 1998. As a result of the increased booking
activity, our backlog increased from $3.4 million at December 31, 1998
to $9.5 million at December 31, 1999. During 1999, we experienced
significant quarterly increases in our net revenues, which grew from
$4.8 million for the quarter ended March 31, 1999 to a record $13.1
million for the quarter ended December 31, 1999. We believe the
increases in our bookings, net revenues and backlog reflect the
increased demand for ATE by semiconductor manufacturers resulting from
increased worldwide demand for ICs combined with back end ATE capacity
constraints caused by the significantly reduced capital spending during
1998. While bookings and backlog are calculated on the basis of firm
orders, no assurance can be given that customers will purchase the
equipment subject to such orders. As a result, our bookings for any
period and backlog at any particular date are not necessarily
indicative of actual sales for any succeeding period.

Certain portions of our business are less dependent upon the
capital expenditure budgets of semiconductor manufacturers and so are
less subject to fluctuation. For example, some of our tester interface
products are consumable, and sales depend upon operating expenditures
of our semiconductor manufacturer customers. Also, semiconductor
manufacturers may purchase our products for the purpose of upgrading,
or to improve the utilization, performance and efficiency of, existing
ATE. Such upgrades tend to be counter cyclical to sales of new ATE.

<PAGE>

Results of Operations
- ---------------------

1999 Compared to 1998

Net Revenues. Net revenues were a record $34.5 million for 1999 compared
to $19.1 million for 1998, an increase of $15.4 million or 81%. The
significant increase in net revenues over the comparable prior period is the
result of the aforementioned turnaround in the demand for ATE in 1999
compared to 1998. Net revenues for 1999 excluding the net revenues of inTEST
Sunnyvale (formerly, TestDesign Corporation) which was acquired on August 3,
1998 increased $8.7 million or 49% over 1998.

Gross Margin. Gross margin decreased to 55% for 1999 from 56% in 1998.
The reduction in gross margin was primarily the result of the additional
fixed costs of manufacturing of inTEST Sunnyvale as well as the higher
component material costs of the inTEST Sunnyvale products as compared with
our traditional products. In addition, the fixed costs of our new domestic
fabrication operation and our manufacturing operations in Singapore, both of
which commenced late in the third quarter of 1999, had a negative impact on
the gross margin as these operations were not fully functional until late in
the fourth quarter of 1999.

Selling Expense. Selling expense was $4.9 million for 1999 compared to
$3.3 million for 1998, an increase of $1.5 million or 46%. The increase was
attributable to several factors including the salary expense of new sales and
marketing staff, increased expenditures for travel, increased commission
expenses for external sales representatives resulting from the higher sales
levels, increased advertising costs and higher levels of freight expenses.

Engineering and Product Development Expense. Engineering and product
development expense was $3.2 million for 1999 compared to $1.9 million for
1998, an increase of $1.3 million or 66%. The increase was attributable, in
large part, to the additional salary expense of inTEST Sunnyvale engineering
and technical staff coupled with an increase in the number of engineering and
technical staff. To a lesser extent, increased costs of materials used in
product development and travel expenses to facilitate collaboration among our
several offices contributed to the overall increase in this expense category.

General and Administrative Expense. General and administrative expense
was $4.5 million for 1999 compared to $2.9 million for 1998, an increase of
$1.6 million or 56%. The increase was primarily attributable to increases in
administrative salary expense due to both staffing additions (including the
staff of inTEST Sunnyvale) and salary and incentive compensation increases
for existing staff, legal costs related to both our patent infringement suit
and to maintain existing patents and file for new patents worldwide and the
amortization of goodwill resulting from the acquisition of inTEST Sunnyvale.

Income Tax Expense. Income tax expense increased to $2.6 million for
1999 from $1.1 million for 1998, an increase of $1.5 million. Our effective
tax rate was 39% for 1999 compared to 36% for 1998. The increase in the
effective tax rate is primarily the result of goodwill amortization related
to the acquisition of inTEST Sunnyvale, which is not deductible for tax
purposes, and a higher effective tax rate in Japan, caused by certain
recurring expenses which are not deductible for tax purposes which was
compounded by the reduced profitability of our Japanese operations in 1999
compared to 1998.

1998 Compared to 1997

Net Revenues. Net revenues were $19.1 million for 1998 compared to $20.7
million for 1997, a decrease of $1.7 million or 8%. The decline in net
revenues from the prior year is the result of the aforementioned severe
downturn that the ATE industry experienced during 1998 offset, in part, by
the net revenues of inTEST Sunnyvale from its acquisition in August 1998
through year end.

<PAGE>

Gross Margin. Gross margin declined to 56% for 1998 from 62% in
1997. The reduction in gross margin was primarily the result of the
additional fixed costs of manufacturing of inTEST Sunnyvale which were
impacted unfavorably by the significantly reduced revenue levels during
the year. In addition, material costs as a percentage of sales
increased over the comparable prior period due to an increase in the
level of sales of certain products with a greater component material
cost in 1998 compared to 1997.

Selling Expense. Selling expense was $3.3 million for 1998
compared to $2.8 million for 1997, an increase of $557,000 or 20%. The
increase was attributable to several factors including the additional
salary and commission expenses of inTEST Sunnyvale and increased
travel expenses incurred in connection with inTEST's sales activities,
higher levels of warranty expenses and increased advertising
expenditures.

Engineering and Product Development Expense. Engineering and
product development expense was $1.9 million for 1998 compared to $1.7
million for 1997, an increase of $197,000 or 11%. The increase was
primarily attributable to the additional salary expense of inTEST
Sunnyvale coupled with a growth in the number of engineering and
technical staff offset in part by reductions in spending on product
development materials and travel expenses in 1998 as compared to 1997.

General and Administrative Expense. General and administrative
expense was $2.9 million in 1998 compared to $2.2 million in 1997, an
increase of $650,000 or 29%. The increase was primarily attributable
to the additional salary and other administrative costs of inTEST
Sunnyvale. Also contributing to the increase in 1998 were the
amortization of goodwill resulting from the acquisition, additional
administrative staff, increases in professional fees, and the increase
in amortization of certain prepaid expenses.

Income Tax Expense. Income tax expense decreased to $1.1 million
for 1998 from $2.1 million in 1997, a decrease of $991,000 or 47%. Our
effective tax rate was 36% for 1998 compared to 32% in 1997. The
increase in the effective tax rate was caused by the accrual of federal
income tax on our earnings due to the change of tax status from an S
corporation to a C corporation in June 1997, offset in part by the
implementation of tax favorable corporate structures and a lower
percentage of earnings attributable to inTEST's Japanese subsidiary in
1998 as compared to 1997.

Liquidity and Capital Resources
- -------------------------------

Net cash provided from operations for 1999 was $4.9 million.
Accounts receivable increased $3.2 million from $3.3 million at
December 31, 1998 to $6.5 million at December 31, 1999 due to the
significant increase in sales activity during 1999. Inventories
increased $1.3 million also as a result of the increased sales activity
as we made purchases for future product shipments. Refundable domestic
and foreign income taxes decreased $664,000 due to a refund of excess
Federal taxes paid during 1998. Other current assets increased
$399,000, primarily as a result of increases in prepaid expenses.
Accounts payable increased $1.6 million due to the higher production
levels during 1999. Accrued expenses increased $920,000 primarily as a
result of the increased sales activity and staffing additions and their
related expense accruals. Domestic and foreign income taxes payable
increased $1.8 million as a result of the accrual of income taxes on
earnings during 1999.

Purchases of machinery and equipment were $1.4 million for 1999,
which consisted primarily of improvements to our facilities in the
United States and, to a lesser extent, the UK and Singapore. During
the third quarter of 1999 we increased our domestic fabrication
capacity through the addition of a machining operation in Cherry Hill
and acquired machinery for this operation at a cost of approximately

<PAGE>

$600,000. During 1999, we acquired additional production equipment and
computer equipment for our domestic operations at a cost of
approximately $210,000 and made leasehold improvements to existing
facilities and furnished these improvements at a cost of approximately
$90,000. We completed a renovation of our UK manufacturing facility
during the third quarter of 1999 and spent approximately $70,000 on
leasehold improvements and $150,000 on a new coordinate measuring
machine for this facility. During the fourth quarter of 1999, we spent
approximately $200,000 on leasehold improvements for a new facility for
our inTEST Sunnyvale operation, which relocated during the first
quarter of 2000. We estimate that we will spend a total of $400,000 to
complete this new facility. We commenced manufacturing operations at
our Singapore facility late in the third quarter of 1999 and invested
approximately $40,000 for new manufacturing equipment related to this
operation.

On March 9, 2000, we completed our merger with Temptronic
Corporation. We estimate the costs incurred by both inTEST and
Temptronic in connection with the merger to be approximately $2.5
million, including fees paid to investment bankers, professional fees,
printing, escrow and other miscellaneous costs. We will expense these
costs at the end of the first quarter of 2000. We are beginning to
assess ways to cross-train our personnel and promote collaborative
product development. Such efforts may temporarily increase operating
costs or distract us from customary day-to-day business.

At December 31, 1999, we had $12.0 million of existing cash and
cash equivalents and a $1.5 million unused line of credit. We believe
that these sources of liquidity plus the anticipated net cash provided
from operations will be sufficient to satisfy our cash requirements,
including those of Temptronic, for the foreseeable future. However,
future acquisitions may require additional equity or debt financing to
meet working capital requirements or capital expenditure needs. We do
not anticipate paying dividends in the foreseeable future.

Year 2000
- ---------

We rely on our telephone and computer systems, software and other
systems in operating and monitoring all aspects of our business. We
also rely heavily on the systems of our suppliers. Both inTEST's and
Temptronic's efforts to be prepared for the Year 2000 appear to have
been successful, but if problems were to develop with our systems or
with those of our suppliers and other vendors, we might be unable to
engage in normal business activities for a period of time or times
after January 1, 2000. Any such disruption could cause our business to
suffer.

International Operations
- ------------------------

Net revenues generated by inTEST's foreign subsidiaries were 23% of
consolidated net revenues in 1999, 34% in 1998 and 34% in 1997. Export
sales from our U.S. manufacturing facilities totaled $8.3 million, or
24% of consolidated net revenues in 1999, $4.4 million, or 23% in 1998
and $2.0 million or 10% in 1997. We anticipate that net revenues
generated by our foreign subsidiaries or from export sales will
continue to account for a significant portion of consolidated net
revenues in the foreseeable future. The net revenues generated by our
foreign subsidiaries will continue to be subject to certain risks,
including changes in regulatory requirements, tariffs and other
barriers, political and economic instability, an outbreak of
hostilities, foreign currency exchange rate fluctuations, potentially
adverse tax consequences and the possibility of difficulty in accounts
receivable collection. We cannot predict whether quotas, duties, taxes
or other charges or restrictions will be implemented by the United
States or any other country upon the importation or exportation of our
products in the future. Any of these factors or the adoption of
restrictive policies could have a material adverse effect on our
business, financial condition or results of operations.

<PAGE>

Net revenues denominated in foreign currencies were 15% in 1999,
24% in 1998 and 27% in 1997. Although we seek to operate our business
such that a significant portion of our product costs are denominated in
the same currency that the associated sales are made in, there can be
no assurance that we will not be adversely affected in the future due
to our exposure to foreign operations. Net revenues denominated in
currencies other than U.S. dollars expose us to currency fluctuations,
which can adversely affect results of operations.

The portion of our consolidated net revenues that were derived from
sales to the Asia-Pacific region were 16% in 1999, 25% in 1998 and 28%
in 1997. Countries in the Asia-Pacific region, including Japan, have
experienced economic instability resulting in weaknesses in their
currency, banking and equity markets. Although the past economic
instability in the Asia-Pacific region has not had a material adverse
effect on our order backlog, balance sheet, or results of operations to
date, there can be no assurance that continued economic instability
will not in the future have a material adverse effect on demand for our
products and our consolidated results of operations.

Cautionary Statement Regarding Forward Looking Statements
- ---------------------------------------------------------

This Report contains certain statements of a forward-looking
nature relating to future events, such as statements regarding our
plans and strategies or future financial performance. Such statements
can be identified by the use of forward-looking terminology such as
"believe", "expect", "may", "will", "should" or "anticipate" or the
negative thereof or other variations thereon or comparable terminology,
or by discussions of strategy that involve risks and uncertainties.
Investors and prospective investors are cautioned that such statements
are only projections and that actual events or results may differ
materially from those expressed in any such forward-looking statements.
In addition to the factors described in this Report, our actual
consolidated quarterly or annual operating results have been affected
in the past, or could be affected in the future, by additional factors,
including, without limitation: changes in business conditions and the
economy, generally; our ability to obtain patent protection, and
enforce our patent rights, for existing and developing proprietary
technologies; our ability to integrate businesses, technologies or
products which we may acquire, successfully; the effect of the loss of,
or reduction in orders from, a major customer; and competition from
other manufacturers of docking hardware, test head manipulators, tester
interfaces and related ATE interface products.

<PAGE>

Item 7A: Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to currency exchange rate risk in the normal course
of its business. The Company employs risk management strategies including the
use of forward exchange rate contracts to manage this exposure. The Company's
objective in managing currency exchange risk is to minimize the impact of
significant currency exchange rate fluctuations primarily in the Japanese Yen.
The Company's Japanese operations expose its earnings to changes in currency
exchange rates because its Japanese subsidiary makes its sales in Japanese Yen
and purchases its sales inventory in U.S. dollars. Forward exchange rate
contracts are used to establish a fixed conversion rate between the Japanese
Yen and the U.S. dollar so that the level of the Company's gross margin from
sales in Japan is not negatively impacted from significant movements in the
Japanese Yen to U.S. dollar exchange rate. The Company purchases forward
exchange rate contracts on a monthly basis in the amounts necessary to pay the
U.S. dollar denominated obligations of its Japanese subsidiary. As of December
31, 1999, there were no forward exchange rate contracts outstanding.

It is inTEST's policy to enter into forward exchange rate contracts only
to the extent necessary to achieve the desired objectives of management in
limiting inTEST's exposure to significant fluctuations in currency exchange
rates. inTEST does not hedge all of its currency exchange rate risk exposures
in a manner that would completely eliminate the impact of changes in currency
exchange rates on its net income. inTEST does not expect that its results of
operations or liquidity will be materially affected by these risk management
activities.

The notional amounts of inTEST's forward exchange rate contracts are used
only to satisfy current payments to material vendors to be exchanged and are
not a measure of inTEST's credit risk or its future cash requirements.
Exchange risk related to forward exchange rate contracts is limited to movement
in the exchange rates that would provide a more favorable exchange rate than
that locked in the forward contract and forward contract amounts purchased in
excess of the amount needed by inTEST to satisfy its obligations. inTEST
manages that rate risk by limiting the size of the forward contracts purchased
to the known amount of obligations due and not purchasing forward contracts
with settlement dates beyond 30 days. We believe that the risk of loss due to
exchange rate fluctuations is remote and that any losses would not be material
to its financial condition or results of operations.

Item 8: Financial Statements and Supplementary Data

Consolidated financial statements are set forth in this report
beginning at page F-1

Item 9: Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure

None

Part III:
- --------

Item 10: Directors and Executive Officers

The information required by this item will be filed not later than
April 29, 2000 by an amendment to this report or incorporation by
reference to the proxy statement for our 2000 Annual Meeting of
Stockholders.

Item 11: Executive Compensation

Item 12: Security Ownership of Certain Beneficial Owners and Management

Item 13: Certain Relationships and Related Transactions

Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) The documents filed as part of this Annual Report on Form 10-K are:

(i) The Company's consolidated financial statements and notes
thereto as well as the applicable report of the independent
certified public accountants are included in Part II, Item 8
of this Annual Report on Form 10-K.

(ii) The following consolidated financial statement schedule should
be read in conjunction with the consolidated financial
statements set forth in Part II, Item 8 of this Annual Report
on Form 10-K:

Schedule II - Valuation and Qualifying Accounts

(iii) The exhibits required by Item 601 of Regulation S-K are
included under Item 14(c) of this Annual Report on Form 10-K.

(b) Reports on Form 8-K

No reports on Form 8-K were filed during the fourth quarter of 1999.

<PAGE>

Exhibit Number Description of Exhibit

3.1 Certificate of Incorporation.

3.2 Bylaws of the Company

10.1 Amended and Restated Loan Agreement, dated June 30,
1996, between inTEST Corporation and PNC Bank,
National Association. (Amended effective June 30,
1999 pursuant to a letter dated July 8, 1999 which
is filed as Exhibit 10.6 to this Report)

10.2 Lease Agreement, dated February 11, 1996, between
First Industrial L.P. (formerly Cherry Hill Industrial
Sites, Inc.) and the Company.

10.3 Lease, dated August 5, 1996, between KIP Properties
and the Company.

10.4 1997 Stock Plan.

10.5 Consulting Agreement, dated April 1, 1997, between
the Company and Stuart F. Daniels, Ph.D.

10.6 Letter dated July 8, 1999, amending the loan agreement
filed as Exhibit 10.1 to this report.

10.7 Lease, dated September 28, 1999, between Earl E. and Mitsue
Jio and inTEST Sunnyvale, a wholly owned subsidiary of
inTEST Corporation, a Delaware Corporation signed October
27, 1999.

21 Subsidiaries of the Company.

23 Consent of KPMG LLP.

24 Financial Data Schedule.

<PAGE>

Signatures:

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.

inTEST Corporation

By: /s/ Robert E. Matthiessen
--------------------------------------
Robert E. Matthiessen
President and Chief Executive Officer

Pursuant to the requirements of Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.

/s/ Robert E. Matthiessen March 30, 2000
- ------------------------------------------- ----------------
Robert E. Matthiessen, President,
Chief Executive Officer and Director
(principal executive officer)

/s/ Hugh T. Regan, Jr. March 30, 2000
- ------------------------------------------- ----------------
Hugh T. Regan, Jr., Treasurer, Chief
Financial Officer and Secretary
(principal financial officer)

/s/ Douglas W. Smith March 30, 2000
- ------------------------------------------- ----------------
Douglas W. Smith, Executive Vice President,
Chief Operating Officer and Director

/s/ Daniel J. Graham March 30, 2000
- ------------------------------------------- ----------------
Daniel J. Graham, Vice Chairman, Senior
Vice President

/s/ Alyn R. Holt March 30, 2000
- ------------------------------------------- ----------------
Alyn R. Holt, Chairman

/s/ Richard O. Endres March 30, 2000
- ------------------------------------------- ----------------
Richard O. Endres, Director

/s/ Stuart F. Daniels March 30, 2000
- ------------------------------------------- ----------------
Stuart F. Daniels, Ph.D., Director

/s/ Gregory W. Slayton March 30, 2000
- ------------------------------------------- ----------------
Gregory W. Slayton, Director

/s/ William M. Stone March 30, 2000
- ------------------------------------------- ----------------
William M. Stone, Director

/s/ James Greed, Jr. March 30, 2000
- ------------------------------------------- ----------------
James Greed, Jr., Director

<PAGE>

Index to Exhibits

3.1 Certificate of Incorporation.*

3.2 Bylaws of the Company.*

10.1 Amended and Restated Loan Agreement, dated June 30, 1996,
between inTEST Corporation and PNC Bank, National
Association.* (Amended effective June 30, 1999 pursuant to
a letter dated July 8, 1999 which is filed as Exhibit
10.6 to this Report)

10.2 Lease, dated February 11, 1996, between First Industrial
L.P. (formerly Cherry Hill Industrial Sites, Inc.) and the
Company.*

10.3 Lease, dated August 5, 1996, between KIP Properties and
the Company.*

10.4 1997 Stock Plan.**

10.5 Consulting Agreement, dated April 1, 1997, between the
Company and Stuart F. Daniels, Ph.D.*

10.6 Letter dated July 8, 1999, amending the loan agreement
filed as Exhibit 10.1 to this Report.

10.7 Lease, dated September 28, 1999, between Earl E. and Mitsue
Jio and inTEST Sunnyvale, a wholly owned subsidiary of inTEST
Corporation, a Delaware Corporation signed October 27, 1999.

21 Subsidiaries of the Company.

23 Consent of KPMG LLP.

27 Financial Data Schedule.

* Previously filed by the Company as an exhibit to the Company's
Registration Statement on Form S-1, Registration Statement No.
333-26457.

** Previously filed by the Company as an exhibit to the Company's
Registration Statement on Form S-8, Registration Statement No.
333-44059.

<PAGE>

inTEST CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE

Page
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:

Independent Auditors' Report F- 1

Consolidated Balance Sheets as of December 31, 1999 and 1998 F- 2

Consolidated Statements of Earnings for the years ended
December 31, 1999, 1998 and 1997 F- 3

Consolidated Statements of Comprehensive Earnings for the
years ended December 31, 1999, 1998 and 1997 F- 4

Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997 F- 5

Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 F- 6

Notes to Consolidated Financial Statements F- 7

CONSOLIDATED FINANCIAL STATEMENT SCHEDULE:

Schedule II - Valuation and Qualifying Accounts F-26

</TABLE>

<PAGE>

Independent Auditors' Report

The Board of Directors and Stockholders
inTEST Corporation

We have audited the accompanying consolidated balance sheets of inTEST
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of earnings, comprehensive earnings, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1999. In connection with our audits of the consolidated financial
statements, we also have audited the consolidated financial statement schedule
of valuation and qualifying accounts as of and for the three years ended
December 31, 1999. These consolidated financial statements and consolidated
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and consolidated financial statement schedule based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of inTEST Corporation
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles. Also in our opinion, the related consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

KPMG LLP

Philadelphia, Pennsylvania
February 23, 2000

F - 1

<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

December 31,
----------------------
1999 1998
-------- --------

<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,018 $ 8,468
Trade accounts and notes receivable, net of allowance for
doubtful accounts of $185 and $168, respectively 6,473 3,275
Inventories 3,826 2,521
Deferred tax asset 359 245
Refundable domestic and foreign income taxes - 658
Other current assets 536 137
-------- --------
Total current assets 23,212 15,304
-------- --------
Machinery and equipment:
Machinery and equipment 2,844 1,690
Leasehold improvements 424 223
-------- --------
3,268 1,913
Less: accumulated depreciation (1,483) (1,078)
-------- --------
Net machinery and equipment 1,785 835
-------- --------
Other assets 218 195
Goodwill, net of accumulated amortization of $780
and $301, respectively 6,405 6,884
-------- --------

Total assets $ 31,620 $ 23,218
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,480 $ 969
Accrued expenses 1,946 1,023
Domestic and foreign income taxes payable 1,808 -
-------- --------
Total current liabilities 6,234 1,992
-------- --------
Commitments

Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized;
no shares issued or outstanding - -
Common stock, $0.01 par value; 20,000,000 shares authorized;
6,536,034 issued and outstanding 65 65
Additional paid-in capital 16,647 16,647
Retained earnings 8,664 4,570
Accumulated other comprehensive earnings (expense) 10 (56)
-------- --------
Total stockholders' equity 25,386 21,226
-------- --------

Total liabilities and stockholders' equity $ 31,620 $ 23,218
======== ========

</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F - 2

<PAGE>

inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)

<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net revenues $34,496 $19,075 $20,746
Cost of revenues 15,605 8,402 7,808
------- ------- -------

Gross margin 18,891 10,673 12,938
------- ------- -------
Operating expenses:
Selling expense 4,869 3,346 2,789
Engineering and product development expense 3,209 1,934 1,737
General and administrative expense 4,491 2,875 2,225
------- ------- -------

Total operating expenses 12,569 8,155 6,751
------- ------- -------

Operating income 6,322 2,518 6,187
------- ------- -------

Other income (expense):
Interest income 348 455 349
Interest expense (17) (3) (15)
Other 76 56 (74)
------- ------- -------

Total other income 407 508 260
------- ------- -------

Earnings before income taxes and minority interest 6,729 3,026 6,447

Income tax expense 2,635 1,099 2,090
------- ------- -------

Earnings before minority interest 4,094 1,927 4,357
Minority interest - - (25)
------- ------- -------

Net earnings $ 4,094 $ 1,927 $ 4,332
======= ======= =======

Pro forma information (unaudited)(Note 3)
Pro forma earnings before income taxes $ 6,407
Pro forma income taxes 2,680
Pro forma net earnings 3,726

Earnings per share (1997 information is pro forma):
Basic $ 0.63 $ 0.31 $ 0.74
Diluted 0.62 0.31 0.73

Weighted average shares outstanding (1997 information
is pro forma):
Basic 6,536,034 6,169,596 5,068,349
Diluted 6,626,118 6,186,460 5,092,490

</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F - 3

<PAGE>
inTEST CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands, except share data)

<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net earnings $ 4,094 $ 1,927 $ 4,332

Foreign currency translation adjustments 66 70 (153)
------- ------- -------

Comprehensive earnings $ 4,160 $ 1,997 $ 4,179
======= ======= =======

</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F - 4

<PAGE>

inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)

Accumulated
Common Stock Additional Other Total
------------------- Paid-In Retained Comprehensive Stockholders'
Shares Amount Capital Earnings Earnings(Expense) Equity
--------- ------- ---------- -------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 3,790,591 $ 38 $ 689 $ 3,833 $ 27 $ 4,587
Dividends-$1.46 per share - - - (5,522) - (5,522)
Net earnings - - - 4,332 - 4,332
Acquisition of minority interest 300,443 3 1,655 - - 1,658
Issuance of common stock in
connection with Offering, net 1,820,000 18 11,637 - - 11,655
Other comprehensive expense - - - - (153) (153)
--------- ------- -------- -------- ------ --------

Balance, December 31, 1997 5,911,034 59 13,981 2,643 (126) 16,557

Net earnings - - - 1,927 - 1,927
Issuance of common stock in
connection with Acquisition 625,000 6 2,666 - - 2,672
Other comprehensive earnings - - - - 70 70
--------- ------- -------- -------- ------ --------

Balance, December 31, 1998 6,536,034 65 16,647 4,570 (56) 21,226

Net earnings - - - 4,094 - 4,094
Other comprehensive earnings - - - - 66 66
--------- ------- -------- -------- ------ --------

Balance, December 31, 1999 6,536,034 $ 65 $ 16,647 $ 8,664 $ 10 $ 25,386
========= ======= ======== ======== ====== ========

</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F - 5

<PAGE>

inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share data)

<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 4,094 $ 1,927 $ 4,332
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation 408 239 168
Amortization of goodwill 479 252 49
Deferred taxes (114) (79) (165)
Foreign exchange (gain) loss (49) (41) 62
Allowance for doubtful accounts, net 16 (32) 49
Minority interest - - 25
Changes in assets and liabilities, net of effects of Acquisition:
Trade accounts and notes receivable (3,162) 1,747 (2,226)
Inventories (1,308) 10 (352)
Refundable domestic and state income taxes 664 (658) -
Other current assets (399) 32 (71)
Accounts payable 1,559 (257) 535
Domestic and foreign income taxes payable 1,808 (1,333) 845
Dividends payable - - (973)
Accrued expenses 920 (244) 331
------- ------- -------
Net cash provided by operating activities 4,916 1,563 2,609
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of business, net of cash acquired - (4,629) -
Purchase of machinery and equipment (1,357) (261) (70)
Other long-term asset (4) (42) (54)
------- ------- -------
Net cash used in investing activities (1,361) (4,932) (124)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid - - (5,541)
Net principal debt repayments - (215) (189)
Net proceeds from offering - - 11,655
------- ------- -------
Net cash provided by (used in) financing activities - (215) 5,925
------- ------- -------
Effects of exchange rates on cash (5) 17 (67)
------- ------- -------
Net cash provided by (used in) all activities 3,550 (3,567) 8,343
Cash and cash equivalents at beginning of period 8,468 12,035 3,692
------- ------- -------
Cash and cash equivalents at end of period $12,018 $ 8,468 $12,035
======= ======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
Details of Acquisition:
Fair value of assets acquired, net of cash acquired $ 2,003
Liabilities assumed (549)
Common stock issued (2,672)
Goodwill resulting from Acquisition 5,847
-------
Net cash paid for Acquisition $ 4,629
=======
Cash payments made for:
Domestic and foreign income taxes $ 297 $ 3,210 $ 1,366
Interest 17 3 14

</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F - 6

<PAGE>

inTEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)

(1) NATURE OF OPERATIONS

inTEST Corporation (the "Company") designs, manufactures and markets
docking hardware, test head manipulators and tester interfaces used by
semiconductor manufacturers during the testing of wafers and packaged
devices. The Company also designs and markets related automatic test
equipment interface products.

The consolidated entity is comprised of inTEST Corporation (parent) and
eight 100% owned subsidiaries: inTEST Limited (Thame, UK), inTEST
Kabushiki Kaisha (Kichijoji, Japan), inTEST PTE, Limited (Singapore),
inTEST Sunnyvale Corp. (Delaware) (acquired in the third quarter of 1998
- see Note 4), Temptronic Corporation (Delaware)(established December
1999 for proposed merger with Temptronic Corporation - see Note 17),
inTEST Investments, Inc. (a Delaware holding company), inTEST IP Corp.
(a Delaware holding company) and inTEST Licensing Corp. (a Delaware
holding company).

The Company manufactures its products in the U.S., the U.K. and
Singapore (where the Company commenced manufacturing during September
1999). Marketing and support activities are conducted worldwide from
the Company's facilities in the U.S., U.K., Japan and Singapore.

On June 20, 1997, the Company completed an initial public offering of
2.275 million common shares through which the Company issued 1.82 million
new shares of common stock (the "Offering"). Simultaneous with the
closing of the Offering, the Company acquired the 21% minority interests
in each of its three foreign subsidiaries in exchange for an aggregate of
300,443 shares of the Company's common stock (the "Exchange"). Prior to
the Offering the Company owned 79% of each of the three foreign
subsidiaries.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
---------------------

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated upon consolidation. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

Reclassification
----------------

Certain prior year amounts have been reclassified to conform with the
current year presentation.

Cash and Cash Equivalents
-------------------------

Short-term investments, which have maturities of three months or less
when purchased, are considered to be cash equivalents and are carried at
cost, which approximates market value.

F - 7

<PAGE>

inTEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Notes Receivable
----------------

Notes receivable are due from trade customers in Japan, and have original
maturities of less than four months. The notes are non-interest bearing.
Notes receivable were $141 and $524 at December 31, 1999 and 1998,
respectively.

Credit Risks
------------

The Company grants credit to customers and generally requires no
collateral. To minimize its risk, the Company performs ongoing credit
evaluations of its customers financial condition. Bad debt expense
(recoveries) were $16, $(5) and $61 for the years ended December 31,
1999, 1998, and 1997, respectively.

Inventories
-----------

Inventories are stated at the lower of cost or market. Cost is
determined under the first-in first-out (FIFO) method.

Machinery and Equipment
-----------------------

Machinery and equipment are stated at cost. Depreciation is based upon
the estimated useful life of the assets using the straight line method.
The estimated useful lives range from three to seven years. Leasehold
improvements are recorded at cost and amortized over the shorter of the
lease term or the estimated useful life of the asset. Total depreciation
expense was $408, $239 and $168 for the years ended December 31, 1999,
1998 and 1997, respectively. Expenditures for maintenance and repairs
are charged to operations as incurred.

Intangibles
-----------

Goodwill resulting from the acquisition of the minority interests in the
Company's three foreign subsidiaries and the acquisition of TestDesign
(as described in Note 4) is amortized on a straight line basis over 15
years. Total amortization expense for the years ended December 31, 1999,
1998 and 1997 was $479, $252 and $49, respectively. When events or
circumstances so indicate, the Company assesses the potential impairment
of its intangible assets and other long-lived assets based on
anticipated undiscounted cash flows from operations. Such events and
circumstances include a sale of all or a significant part of the opera-
tions associated with the long-lived asset, or a significant decline in
the operating performance of the asset. If an impairment is indicated,
the amount of impairment charge would be calculated by comparing the
anticipated discounted future cash flows to the carrying value of the
long-lived asset. At December 31, 1999, no impairment was indicated.

F - 8

<PAGE>

inTEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes
------------

Just prior to the closing of the Offering (as described in Note 1),
the Company terminated its status as an S corporation for Federal tax
purposes and in the state of New Jersey. As an S corporation, any
Federal and certain New Jersey state income tax liabilities were those
of the former S corporation stockholders, not of the Company. All tax
liabilities on income earned subsequent to the revocation of the S
corporation election are liabilities of the Company. The Company is
taxed in foreign countries and for activity in certain states. The
Company accounts for income taxes in accordance with the Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income
Taxes.

Net Earnings Per Common Share
-----------------------------

Net earnings per common share is computed in accordance with SFAS No.
128, Earnings per Share. Basic earnings per share is computed by
dividing net earnings by the weighted average number of common shares
outstanding during each year. Diluted earnings per share is computed by
dividing net earnings by the weighted average number of common shares
and common share equivalents outstanding during each year. Common share
equivalents represent stock options using the treasury stock method.

A reconciliation of weighted average shares outstanding - basic to
weighted average shares outstanding - diluted appears below:

<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Weighted average shares outstanding-basic 6,536,034 6,169,596 5,068,349
Potentially dilutive securities:
Employee stock options 90,084 16,864 24,141
--------- --------- ---------
Weighted average shares outstanding-diluted 6,626,118 6,186,460 5,092,490
========= ========= =========
</TABLE>

As discussed in Note 3, pro forma earnings per share information for the
year ended December 31, 1997 includes certain adjustments to reflect
results as if (i) the Company had been taxed as a C corporation for all
of 1997 and (ii) the acquisition of the minority interests in the
Company's three foreign subsidiaries had occurred on January 1, 1996.

Revenue Recognition
-------------------

Revenue from sales of products are recognized upon shipment to customers.

F - 9

<PAGE>

inTEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Engineering and Product Development
-----------------------------------

Engineering and product developments costs, which consist primarily of
salary and related benefit costs of the Company's technical staff, as
well as product development costs, are expensed as incurred.

Product Warranties
------------------

The Company generally provides product warranties and records estimated
warranty expense at the time of sale based upon historical claims
experience. Warranty expense for the years ended December 31, 1999,
1998 and 1997 was $300, $202 and $147, respectively.

Stock Based Compensation
------------------------

SFAS No. 123, Accounting for Stock-Based Compensation, was adopted by the
Company effective with adoption of its 1997 Stock Plan. As permitted by
SFAS No. 123, the Company has elected to continue to follow Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
("APB 25"), in accounting for its stock option plans. Under APB 25, the
Company does not recognize compensation expense on the issuance of its
stock options because the option terms are fixed and the exercise price
equals the market price of the underlying stock on the grant date.

Foreign Currency
----------------

The accounts of the foreign subsidiaries are translated in accordance
with the SFAS No. 52, Foreign Currency Translation, which requires that
assets and liabilities of international operations be translated using
the exchange rate in effect at the balance sheet date. The results of
operations are translated using an average exchange rate for the period.
The effects of rate fluctuations in translating assets and liabilities of
international operations into U.S. dollars are accumulated and reflected
as other comprehensive earnings or expense in the consolidated statements
of stockholders' equity. Transaction gains or losses are included in net
earnings.

Financial Instruments
---------------------

The Company's financial instruments, principally accounts and notes
receivable and accounts payable, are carried at cost which approximates
fair value, due to the short maturities of the accounts.

F - 10

<PAGE>

inTEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

New Accounting Pronouncements
-----------------------------

In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. This Statement requires
that certain costs related to the development or purchase of internal
software be capitalized and amortized over the estimated useful life of
the software. This Statement also requires that costs related to the
preliminary project stage and the post implementation/operation stage of
an internal use computer software development project be expensed as
incurred. The Company adopted this Statement in the first quarter
of 1999, as required. The adoption of this Statement did not have a
material affect on the results of operations, financial condition
or long-term liquidity of the Company.

In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities,
which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company plans to
adopt this Statement in the first quarter of 2001, as required. The
adoption of this Statement is not expected to have a material effect
on the results of operations, financial condition or long-term
liquidity of the Company.

(3) PRO FORMA STATEMENT OF EARNINGS INFORMATION (Unaudited)

The Company terminated its status as an S corporation just prior to the
closing of the Offering, described in Note 1, and is subject to Federal
and additional state income taxes for periods after such termination.

Accordingly, for informational purposes, the following pro forma
information for the year ended December 31, 1997 is presented to show
pro forma earnings on an after-tax basis, assuming the Company had been
taxed as a C corporation since January 1, 1997. The difference between
the Federal statutory income tax rate and the pro forma income tax rate
is as follows:

1997
----
<S> <C>
Federal statutory tax rate 34%
State income taxes, net of Federal benefit 4
Foreign income taxes 4
Non-deductible goodwill amortization 1
Research credits (1)
--
Pro forma income tax rate 42%
==
</TABLE>

F - 11

<PAGE>

inTEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)

(3) PRO FORMA STATEMENT OF EARNINGS INFORMATION (Unaudited)(Continued)

Set forth below are pro forma results of the Company's operations for the
year ended December 31, 1997. These pro forma results reflect
adjustments for:

(i) the aforementioned change in method of computing taxes; and

(ii) the amortization of goodwill resulting from the acquisition of
minority interests in the Company's three foreign subsidiaries, net
of the elimination of the minority interests charge reflected in
the historical financial statements, as if the Exchange (as
described in Note 1) had occurred on January 1, 1997. The goodwill
resulting from the Exchange, which totaled $1.3 million, is being
amortized over 15 years.

1997
--------
<S> <C>
Pro forma earnings before income taxes $ 6,407
Pro forma income taxes 2,680
Pro forma net earnings 3,726
Pro forma net earnings per common share - basic $ 0.74
Pro forma weighted average common shares outstanding -
basic 5,068,349
Pro forma net earnings per common share - diluted $ 0.73
Pro forma weighted average common and common share
equivalents outstanding - diluted 5,092,490

</TABLE>

Pro forma net earnings per common share - basic was calculated by
dividing pro forma net earnings by the pro forma weighted average number
of common shares outstanding during the period calculated as if the
Exchange had occurred on January 1, 1997.

Pro forma net earnings per common share - diluted was calculated by
dividing pro forma net earnings by the pro forma weighted average number
of common shares and common share equivalents outstanding during the
period calculated as if the Exchange had occurred on January 1, 1997.

(4) ACQUISITION

On August 3, 1998, the Company acquired all of the outstanding capital
stock of TestDesign Corporation ("TestDesign"), a privately held
California corporation (the "Acquisition"). Subsequent to the
Acquisition, the Company changed the name of TestDesign to inTEST
Sunnyvale Corp. TestDesign is engaged in the design and manufacture of
tester interfaces used by the semiconductor industry. The purchase price
was $4.4 million in cash and 625,000 shares of the Company's common stock
(subject to certain adjustments). An escrow (held by a third party
escrow agent) of $1.0 million of the cash portion of the purchase price

F - 12

<PAGE>

inTEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)

(4) ACQUISITION (Continued)

was established at closing. If the Company is entitled to indemnifica-
tion pursuant to the terms of its agreement with the Seller, such claims
will be paid first from any funds held in escrow. The escrowed funds
will remain in escrow until July 31, 2000, unless any indemnity claims
are then pending, in which case an amount equal to the amount of such
pending claims will be retained in escrow until resolution of the claims.
Although the Company's common stock had a market price of $4.75 per share
on the closing date of the transaction, all of the 625,000 shares issued
in connection with the Acquisition are subject to legal restrictions on
transfer and have been valued at a 10% discount to the market price of
the shares. In addition, the Company incurred transaction costs of
approximately $425 in completing the Acquisition. The following is an
allocation of the purchase price:

<TABLE>
<S> <C>
Cash payment $ 4,400
Transaction costs 425
625,000 common shares at $4.28 2,672
-------
7,497
Estimated fair value of identifiable assets
acquired net of liabilities assumed 1,650
-------
Goodwill to be amortized over 15 years $ 5,847
=======

</TABLE>

The Acquisition has been accounted for as a purchase and the results
of operations of the acquired business have been included in the
Company's consolidated financial statements since the date of the
Acquisition. The following unaudited pro forma information presents
a summary of consolidated results of operations for the Company and
TestDesign as if the Acquisition had occurred on January 1, 1997 (the
1997 amounts also reflect the pro forma adjustments described in Note 3):

Years Ended December 31,
-------------------------
1998 1997
-------- --------
<S> <C> <C>
Pro forma net revenues $ 23,335 $ 29,689
Pro forma earnings before income taxes 2,892 6,440
Pro forma income taxes 1,081 2,698
Pro forma net earnings 1,811 3,742

Pro forma net earnings per common share - basic $ 0.28 $ 0.66
Pro forma weighted average common shares
outstanding - basic 6,536,034 5,693,349

Pro forma net earnings per common share - diluted $ 0.28 $ 0.65
Pro forma weighted average common shares and common
share equivalents outstanding - diluted 6,552,898 5,717,490

</TABLE>

F - 13
<PAGE>

inTEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)

(5) SEGMENT INFORMATION

The various products the Company designs, manufactures and markets, which
include docking hardware, test head manipulators and tester interfaces,
are considered by management to be a single product segment. Included in
this segment are products the Company designs and markets that are
manufactured by third parties, which include high performance test
sockets and interface boards. The Company operates its business
worldwide and divides the world into three geographic segments:
North America, Asia-Pacific and Europe. The North America segment
includes the Company's manufacturing, design and service facilities
in New Jersey, and California; the Asia-Pacific segment includes the
Company's manufacturing, design and service facilities in Singapore
and the Company's design and service facilities in Japan; and the
Europe segment includes the Company's manufacturing, design and service
facility in the UK. Each segment sells Company designed and manufactured
products, while products produced by third party manufacturers are
primarily distributed by the Company's Asia-Pacific segment. All three
segments sell to semiconductor manufacturers and automatic test equipment
manufacturers. The North America segment sells through Company account
managers and independent sales representatives; the Asia-Pacific segment
sells through Company account managers and independent sales represen-
tatives; and the Europe segment sells through Company account managers.

Intercompany pricing between segments is either a multiple of cost for
component parts used in manufacturing or a percentage discount from list
price for finished goods sold to non-manufacturing segments.

Years Ended December 31,
-------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net revenues from unaffiliated customers:
North America $26,548 $12,637 $13,608
Asia - Pacific 5,465 4,727 5,743
Europe 2,483 1,711 1,395
------- ------- -------
$34,496 $19,075 $20,746
======= ======= =======

Affiliate sales or transfer from:
North America $ 1,600 $ 943 $ 768
Asia - Pacific - - -
Europe 951 378 500
------- ------- -------
$ 2,551 $ 1,321 $ 1,268
======= ======= =======

Depreciation/amortization:
North America $ 831 $ 414 $ 127
Asia - Pacific 19 53 69
Europe 36 24 28
------- ------- -------
$ 886 $ 491 $ 224
======= ======= =======

</TABLE>

F - 14

<PAGE>

inTEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)

(5) SEGMENT INFORMATION (Continued)

Years Ended December 31,
-------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Operating income:
North America $ 4,746 $ 1,705 $ 5,067
Asia - Pacific 333 299 651
Europe 1,243 514 469
------- ------- -------
$ 6,322 $ 2,518 $ 6,187
======= ======= =======

Earnings before income taxes and
minority interest:
North America $ 5,022 $ 2,100 $ 5,356
Asia - Pacific 442 379 606
Europe 1,265 547 485
------- ------- -------
$ 6,729 $ 3,026 $ 6,447
======= ======= =======

Income tax expense:
North America $ 2,000 $ 747 $ 1,517
Asia - Pacific 339 263 463
Europe 296 89 110
------- ------- -------
$ 2,635 $ 1,099 $ 2,090
======= ======= =======

Net earnings:
North America $ 3,022 $ 1,353 $ 3,839
Asia - Pacific 103 116 131
Europe 969 458 362
------- ------- -------
$ 4,094 $ 1,927 $ 4,332
======= ======= =======

Identifiable assets:
North America $27,036 $20,226 $16,177
Asia - Pacific 2,595 1,706 2,679
Europe 1,989 1,286 1,089
------- ------- -------
$31,620 $23,218 $19,945
======= ======= =======
</TABLE>

Substantially all interest income is generated by the North America
segment. Export sales from the Company's domestic manufacturing
facilities (New Jersey and California) totaled $8.3 million, $4.4
million and $2.0 million during the years ended December 31, 1999,
1998 and 1997, respectively. During the years ended December 31, 1999,
1998 and 1997 the Company had sales to Japan of $2.8 million, $2.9
million and $4.3 million, respectively.

F - 15

<PAGE>

inTEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)

(6) MAJOR CUSTOMERS

The Company's customers are in the semiconductor industry. During 1999,
1998 and 1997 the Company had sales to certain customers which exceeded
10% of the Company's consolidated revenues. Those sales were as follows:

Customer 1999 1998 1997
---------------------------------------------------------------------------------
<S> <C> <C> <C>
A (North America, Asia-Pacific, Europe) 14% 9% 5%
B (North America, Asia-Pacific) 11 16 11
C (North America, Asia-Pacific, Europe) 9 11 7
D (North America, Asia-Pacific) 8 13 5
D (North America, Asia-Pacific, Europe) 3 7 11
-- -- --
Total 45% 56% 39%
== == ==

</TABLE>

Additionally, at December 31, 1999, these five customers accounted for
33% of trade receivables.

(7) INVENTORIES

Inventories held at December 31, were comprised of the following:

<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Raw materials $2,014 $1,097
Work in process 1,789 1,305
Finished goods 377 339
Reserve for obsolete inventory (354) (220)
------ ------
$3,826 $2,521
====== ======
</TABLE>

(8) LINE OF CREDIT

The Company has a $1.5 million line of credit. Borrowings under this
line of credit are principally used for working capital purposes.
Borrowings on the line of credit bear interest at prime rate, which is
payable monthly on any outstanding balance. The Company is required to
maintain a $50 compensating balance at the bank which granted the line of
credit. The credit line expires on June 28, 2000. At December 31, 1999,
there were no borrowings outstanding.

F - 16

<PAGE>

inTEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)

(9) STOCK OPTION PLAN

The 1997 Stock Plan (the "Plan") provides for the granting of either
incentive stock options or non-qualified stock options to purchase shares
of the Company's common stock and for other stock-based awards to key
employees and directors responsible for the direction and management of
the Company and to non-employee consultants. The Plan consists of two
parts: the Non-Qualified Plan (administered by the Board of Directors
of the Company) and the Key Employee Plan (administered by the
Compensation Committee of the Board of Directors of the Company). The
Company has reserved 500,000 shares of common stock for issuance upon
exercise of options or stock awards under the Plan.

No option may be granted with an exercise period in excess of ten years
from date of grant. Generally, incentive stock options will be granted
with an exercise price equal to the fair market value on the date of
grant; the exercise price of non-qualified stock options will be
determined by either the Board of Directors or the Compensation Committee
of the Board of Directors.

Had compensation costs for the Company's stock-based compensation plans
been determined consistent with SFAS No. 123, the Company's net earnings
and net earnings per share for the years ended December 31, 1999, 1998
and 1997, would have been reduced to the unaudited pro forma amounts
indicated below:

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net earnings:
As reported (pro forma for 1997) $ 4,094 $ 1,927 $ 3,726
Pro forma $ 3,960 $ 1,790 $ 3,643

Net earnings per share - basic:
As reported (pro forma for 1997) $ 0.63 $ 0.31 $ 0.74
Pro forma $ 0.61 $ 0.29 $ 0.72

Net earnings per share - diluted:
As reported (pro forma for 1997) $ 0.62 $ 0.31 $ 0.73
Pro forma $ 0.60 $ 0.29 $ 0.72

</TABLE>

The fair value for stock options granted in 1998 and 1997 was estimated
at the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions for 1998 and 1997:

<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Risk-free interest rate 5.65% 5.67%
Dividend yield 0.00% 0.00%
Expected common stock market price
volatility factor 0.82 0.65
Weighted average expected life of
stock options 5 years 5 years

</TABLE>

The per share weighted average fair value of stock options issued by
the Company in 1998 and 1997 was $3.92 and $4.61, respectively. The
Company did not issue stock options during 1999.

F - 17

<PAGE>

inTEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)

(9) STOCK OPTION PLAN (Continued)

The options which have been issued vest 20% one year from date of grant
and 20% in each of the succeeding four years.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. As the Company's stock options have
characteristics significantly different from those of traded options, and
as changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
stock options.

The following table summarizes the stock option activity for the periods
ended December 31, 1997, 1998 and 1999:

Weighted
Average
Number Exercise
of Shares Price
--------- --------
<S> <C> <C>
Options outstanding, January 1, 1997 - -
Granted 160,000 $7.72
Exercised - -
Canceled (9,000) 7.50
------- -----
Options outstanding, December 31, 1997 151,000 $7.73
(none exercisable) ======= =====

Granted 150,000 $4.25
Exercised - -
Canceled (10,000) 6.00
------- -----
Options outstanding, December 31, 1998 291,000 $5.10
(28,200 exercisable) ======= =====

Granted - -
Exercised - -
Canceled (3,000) $6.00
------- -----
Options outstanding, December 31, 1999 288,000 $5.09
(85,200 exercisable) ======= =====

</TABLE>

On June 30, 1998, the Company modified 141,000 options originally
exercisable at $7.50 per share and 10,000 options originally exercisable
at $11.00 per share to reduce the exercise price of such options to $6.00
per share.

F - 18

<PAGE>

inTEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)

(9) STOCK OPTION PLAN (Continued)

The following table summarizes information about stock options
outstanding at December 31, 1999:

<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Weighted Exercise Exercise
Range of Number Average Price of Number Price of
Exercise Outstanding Maximum Remaining Outstanding Exercisable Exercisable
Prices at 12/31/99 Life Life Options at 12/31/99 Options
-------- ----------- -------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 6.00 138,000 10 years 7.5 years $ 6.00 55,200 $ 6.00

$ 4.25 150,000 10 years 8.6 years $ 4.25 30,000 $ 4.25

</TABLE>

(10) COMMITMENTS

The Company leases its offices, warehouse facilities, automobiles and
certain equipment under noncancellable operating leases which expire at
various dates through 2005. Total rental expense for the years ended
December 31, 1999, 1998 and 1997 was $655, $536 and $442, respectively.
The aggregate minimum rental commitments under the noncancellable
operating leases in effect at December 31, 1999, are as follows:

2000 $ 756
2001 717
2002 656
2003 510
2004 375
Thereafter 35

(11) INCOME TAXES

As discussed in Notes 2 and 3, prior to the Offering the Company had
elected S corporation status for Federal and State of New Jersey tax
purposes, and therefore, was not directly subject to Federal and certain
New Jersey income taxes. Immediately prior to the Offering, the Company
terminated its status as an S corporation and is now subject to Federal
and additional state income taxes. In addition, the Company is taxed in
foreign countries and for activity in certain states. The cumulative
amount of undistributed earnings of foreign subsidiaries for which U.S.
income taxes have not been provided was approximately $3.0 million at
December 31, 1999. As of December 31, 1999, the Company had repatriated
a portion of the earnings of its foreign subsidiaries. The estimated
tax effect of distributing such earnings is expected to be offset by
available foreign tax credits.

F - 19

<PAGE>

inTEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)

(11) INCOME TAXES (Continued)

Earnings before income taxes were as follows:

<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Domestic $5,022 $2,100 $5,356
Foreign 1,707 926 1,091
------ ------ ------
$6,729 $3,026 $6,447
====== ====== ======

</TABLE>

Income tax expense was as follows:

<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Current:
Domestic - Federal $1,882 $ 772 $1,379
Domestic - state 215 54 303
Foreign 652 352 573
------ ------ ------
2,749 1,178 2,255
------ ------ ------
Deferred:
Domestic - Federal (100) (54) (147)
Domestic - state (14) (25) (18)
------ ------ ------
(114) (79) (165)
------ ------ ------
Income tax expense $2,635 $1,099 $2,090
====== ====== ======

</TABLE>

Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of December 31, 1999 and 1998:

F - 20

<PAGE>

inTEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)

(11) INCOME TAXES (Continued)

<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Deferred Tax Assets:
Accrued vacation pay $ 104 $ 91
Allowance for doubtful accounts 67 60
Inventories (principally due to obsolescence reserve) 219 107
Accrued warranty 44 17
Accrued bonuses 13 -
Capital loss carryforward 90 90
Other - (5)
----- -----
537 360
Valuation allowance (90) (90)
----- -----
Deferred tax assets 447 270
----- -----
Deferred Tax Liabilities:
Accrued royalty income (65) (25)
Other (23) -
----- -----
Deferred tax liabilities (88) (25)
----- -----
Net deferred tax asset $ 359 $ 245
===== =====

</TABLE>

Based on the Company's history of prior operating earnings, and its
expectation of the future, management believes that taxable income will
more likely than not be sufficient to realize the net deferred tax assets
of $359 at December 31, 1999. A valuation allowance of $90 was
established in 1998 to offset the domestic capital loss carryforward.

An analysis of the effective tax rate on earnings and a reconciliation
from the expected statutory rate are as follows:

<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1999 1998 1997
------ ------ -------
<S> <C> <C> <C>
Expected income tax provision at U.S.
Statutory rate $2,288 $1,029 $2,192
State taxes, net of Federal benefit 133 19 188
Increase (decrease) in tax from:
Non-deductible goodwill 163 86 17
Foreign income tax rate differences 58 12 219
Tax exempt interest (40) (80) -
S corporation earnings not subject to
Federal taxation - - (549)
Other 33 33 23
------ ------ -------
Income tax expense $2,635 $1,099 $2,090
====== ====== =======

</TABLE>

F - 21
<PAGE>

inTEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)

(12) EMPLOYEE BENEFIT PLANS

In 1996, the Company instituted a defined contribution 401(k) plan for
its employees who work in the U.S. All permanent employees of inTEST
Corporation and inTEST Sunnyvale who are at least 18 years of age
and have completed six months of service with the Company are eligible to
participate in the plan. Under the plan, the Company matches employee
contributions dollar for dollar up to 10% of the employee's annual
compensation up to $5. In addition, the Company may match employee
contributions dollar for dollar for amounts exceeding 10% up to 15% of
the employee's annual compensation to a maximum of $5. Employer
contributions vest over a six-year period. The Company contributed $221,
$157 and $129 to the plan for the years ended December 31, 1999, 1998 and
1997, respectively.

inTEST Sunnyvale (formerly TestDesign) adopted a defined contribution
401(k) plan for its employees in July 1994. All permanent employees
who are at least 18 years of age and have completed six months of service
with inTEST Sunnyvale are eligible to participate in the plan. Under
the plan, inTEST Sunnyvale matched employee contributions equal to 25%
of an employee's contributions up to 5% of gross salary. Matching
contributions for the plan were $6 from the date of the Acquisition
through December 31, 1998. In addition, the plan allowed inTEST Sunnyvale
to make discretionary matching contributions up to 6.5% of an employee's
gross salary for the year based upon inTEST Sunnyvale's profitability.
There were no discretionary matching contributions made from the date of
the Acquisition through December 31, 1998. Effective October 1, 1998,
all inTEST Sunnyvale permanent employees who were at least 18 years of
age and had completed six months of service were offered enrollment in
the Company's 401(k) plan, and employee contributions and employer
matching contributions into the inTEST Sunnyvale plan ceased. The
Company is currently in the process of terminating the inTEST Sunnyvale
plan at which time the former participants will have the option of
rolling their assets into the Company's plan.

(13) ACCRUED EXPENSES

Accrued expenses consists of the following:

December 31,
--------------------
1999 1998
------ ------
<S> <C> <C>
Accrued commissions $ 611 $ 206
Accrued vacation 290 236
Accrued bonuses 256 -
Accrued professional fees 179 78
Accrued wages 153 106
Accrued warranty 115 45
Accrued directors fees 105 109
Customer deposits 101 100
Accrued shareholder relations 40 42
Accrued other 96 101
------ ------
$1,946 $1,023
====== ======
</TABLE>

F-22

<PAGE>

inTEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)

(14) RELATED PARTY TRANSACTIONS

The Company paid consulting fees to one individual who is a member of the
Board of Directors of the parent company which totaled $67, $56 and $17
during the years ended December 31, 1999, 1998 and 1997, respectively.

During 1998, in connection with the acquisition of TestDesign, the
Company repaid $215 on a note due to a firm ("PRIM") controlled by
Douglas W. Smith, Executive Vice President and Chief Operating Officer of
the Company. This note, which did not bear interest or have a maturity
date, evidenced borrowings that TestDesign had made from PRIM prior to
the acquisition. In addition, subject to the terms of a consulting
agreement between TestDesign and Gregory W. Slayton, a current board
member of the Company, the Company paid directly to Mr. Slayton, on
behalf of TestDesign, $170 in cash and 31,250 shares of the Company's
common stock. These payments are included in the merger consideration
and are accounted for as described in Note 4.

The Company's foreign subsidiaries paid directors' fees to several
individuals who are members of management of the parent company which
totaled $119, $104 and $177 during the years ended December 31, 1999,
1998 and 1997, respectively.

At December 31, 1999 and 1998 there were $48 and $49 of foreign
directors' fees payable to members of management of the parent company.

(15) LEGAL PROCEEDINGS

On November 18, 1998, the Company and its subsidiary, inTEST IP Corp.
(which holds title to all Company intellectual property), filed suit
against a competitor for infringement of a United States patent held by
the Company (the "815 Patent").

The invention disclosed and claimed in the 815 Patent is directed to a
system for positioning and docking a heavy electronic test head of a test
system with respect to an electronic device handler. The system is used
in the automatic testing of integrated circuits and other electronic
devices. The Company sells products covered by the 815 Patent worldwide.

As alleged in the complaint, the competitor began manufacturing, offering
to sell, and selling products as early as 1991 that, without license,
infringe claims of the 815 Patent. The parties have been discussing
possible settlement of the dispute since the Company first became aware
of the defendants' infringement in 1991. Discussions were abated at the
end of 1995 so that the United States Patent and Trademark Office (the
"PTO") could reexamine the 815 Patent. On April 7, 1998, the PTO
completed the reexamination and affirmed the patentability of the nine
claims in the patent with minor, technical, clarifying changes.
Thereafter, the parties resumed settlement negotiations, however, to date
such negotiations have been unsuccessful.

F - 23

<PAGE>
inTEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)

(15) LEGAL PROCEEDINGS (Continued)

The complaint asks the court to enjoin the competitor from further acts
of infringement, including the acts of manufacturing, using, offering for
sale, selling and importing positioner systems that embody the patented
invention claimed in the 815 Patent. The complaint also asks the court
to award the Company damages against the competitor, including the
Company's lost profits. Alleging that the competitor's infringement is
and has been deliberate, willful, and wanton, with knowledge of the
Company's patent rights, the complaint asks the court to award increased
damages up to three times the amount assessed. The complaint also seeks
an award of interest, costs and reasonable attorney fees.

All legal fees incurred in connection with this matter have been
expensed. In the opinion of management, the ultimate disposition of this
matter will not have a material adverse effect on the Company's financial
position, results of operations or liquidity.

(16) QUARTERLY CONSOLIDATED FINANCIAL DATA (Unaudited)

The following tables present certain unaudited consolidated quarterly
financial information for each of the eight quarters ended December 31,
1999. In the opinion of the Company's management, this quarterly
information has been prepared on the same basis as the Consolidated
Financial Statements and includes all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the information
for the periods presented. The results of operations for any quarter are
not necessarily indicative of results for the full year or for any future
period.

The Company's business is not seasonal; therefore year-over-year
quarterly comparisons of the Company's results of operations may not be
as meaningful as the sequential quarterly comparisons set forth below
which tend to reflect the cyclical activity of the semiconductor industry
as a whole. Quarterly fluctuations in expenses either are related
directly to sales activity and volume, or tend to be a function of
personnel costs and the timing of expenses incurred throughout the year.

<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------
3/31/99 6/30/99 9/30/99 12/31/99 Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues $ 4,810 $ 6,485 $ 10,097 $ 13,104 $ 34,496
Gross margin 2,532 3,506 5,543 7,310 18,891
Earnings before income taxes 297 850 2,242 3,340 6,729
Income tax 125 357 901 1,252 2,635
Net earnings 172 493 1,341 2,088 4,094
Net earnings per common share - basic $ 0.03 $ 0.07 $ 0.21 $ 0.32 $ 0.63
Weighted average common shares
outstanding - basic 6,536,034 6,536,034 6,536,034 6,536,034 6,536,034
Net earnings per common share - diluted $ 0.03 $ 0.07 $ 0.20 $ 0.31 $ 0.62
Weighted average common shares and common
share equivalents outstanding-diluted 6,602,317 6,591,785 6,626,342 6,683,137 6,626,118
Other comprehensive earnings (expense) $ (75) $ (11) $ 168 $ (16) $ 66

</TABLE>

F - 24

<PAGE>

inTEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)

(16) QUARTERLY CONSOLIDATED FINANCIAL DATA (Unaudited)

<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------
3/31/98 6/30/98 9/30/98 12/31/98 Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues $ 5,626 $ 5,163 $ 4,449 $ 3,837 $ 19,075
Gross margin 3,426 3,029 2,331 1,887 10,673
Earnings (loss) before income tax expense 1,822 1,458 360 (614) 3,026
Income taxes 668 550 133 (252) 1,099
Net earnings (loss) 1,154 908 227 (362) 1,927
Net earnings(loss) per common share-basic $ 0.20 $ 0.15 $ 0.04 $(0.06) $ 0.31
Weighted average common shares
outstanding-basic 5,911,034 5,911,034 6,311,849 6,536,034 6,169,596
Net earnings(loss) per common share-diluted $ 0.19 $ 0.15 $ 0.04 $(0.06) $ 0.31
Weighted average common shares and common
share equivalents outstanding-diluted 5,924,949 5,918,809 6,317,578 6,536,034 6,186,460
Other comprehensive earnings (expense) $ (42) $ (19) $ 19 $ 112 $ 70

</TABLE>

(17) SUBSEQUENT EVENT

On December 16, 1999, the Board of Directors of the Company authorized
a merger with Temptronic Corporation, a Massachusetts corporation
("Temptronic"). Each issued and outstanding common share of Temptronic
will be exchanged for 0.925 shares of the Company's common stock. Upon
closing of the proposed merger, which must be ratified by the
shareholders of both the Company and Temptronic, Temptronic will be
merged into a wholly-owned subsidiary of the Company. On January 4,
2000, the Company, Temptronic and the Company's wholly-owned subsidiary
(into which Temptronic will be merged) entered into an Agreement and
Plan of Merger and Reorganization. On February 3, 2000, a joint
proxy statement/prospectus for the proposed merger was filed with the
Securities and Exchange Commission and shortly thereafter mailed to
all shareholders of the Company and Temptronic to vote on the
proposed merger. Should the proposed merger be approved by a majority
of the shareholders of both the Company and Temptronic, the Company
will issue approximately 2.2 million shares of its common stock to
Temptronic shareholders. Special shareholder meetings of both the
Company and Temptronic have been scheduled for March 9, 2000 to vote
on the proposed merger.

F - 25

<PAGE>

inTEST CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

Balance Additions
at Acquisition -------------------- Balance at
Beginning of Other End of
of Period TestDesign Expense Deductions Period
--------- ----------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999
Allowance for doubtful accounts $168 $ - $ 16 $ (1) $185
Inventory obsolescence reserve 220 - 193 59 354
Warranty reserve 45 - 300 230 115

Year Ended December 31, 1998
Allowance for doubtful accounts 144 54 (5) 25 168
Inventory obsolescence reserve 119 38 193 130 220
Warranty reserve 25 20 202 202 45

Year Ended December 31, 1997
Allowance for doubtful accounts 96 - 61 13 144
Inventory obsolescence reserve - - 178 59 119
Warranty reserve 25 - 147 147 25

</TABLE>

F - 26

Exhibit 10.6

PNC BANK LETTERHEAD

July 8, 1999

inTEST Corporation
2 Pin Oak Lane
Cherry Hill, NJ 08003
Attention: Hugh T. Regan, Jr.

Re: Review of Expiration Date for Committed Line of Credit

Dear Mr. Regan:

We are pleased to inform you that your committed line of credit has been
renewed. The Expiration Date, as set forth in that certain Amended and Restated
Loan Agreement dated June 30, 1996, and in the Amended and Restated Committed
Line of Credit Note executed and delivered pursuant to that Amended and
Restated Loan Agreement, has been extended from June 29, 1999 to June 28, 2000,
effective on June 30, 1999. All other terms and conditions of the Amended
and Restated Committed Line of Credit Note and the Amended and Restated Loan
Agreement remain in full force and effect.

It has been a please working with you and I look forward to a continued
successful relationship. Thank you again for your business.

Very truly yours,

PNC BANK, NATIONAL ASSOCIATION

By: /s/Denise Viola Monahan
----------------------------
Denise Viola Monahan
Vice President

<PAGE>
Exhibit 10.7

AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION

STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- NET
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)

1. Basic Provisions ("Basic Provisions).
1.1 Parties: This Lease (Lease), dated for reference purposes
only, September 28 1999, is made by and between Earl S. and Mitsue Jio
("Lessor") and inTEST Sunnyvale Corporation, a wholly owned subsidiary
of inTEST Corporation, a Delaware corporation ("Lessee"),
(collectively the "Parties," or individually a "Party").
1.2 Premises: That certain real property, including all
improvements therein or to be provided by Lessor under the terms of
this Lease, and commonly known as l275-1279 Lawrence Station Road,
Sunnyvale (Exhibit A), located in the County of Santa Clara, State of
California, and generally described as (describe briefly the nature of
the property and, if applicable, the "Project", if the property is
located within a Project) all that certain real property consisting of
approximately 18,255 square feet shown on Exhibit B ("Premises"). (See
also Paragraph 2)
1.3 Term: Five (5) years and Zero (0) months ("Original Term")
commencing January 1. 2000 ("Commencement Date") and ending December
31, 2004 ("Expiration Date"). (See also Paragraph 3)
1.4 Early Possession: Upon full execution of lease document
("Early Possession Date"). (See also Paragraphs 3.2 and 3.3)
1.5 Base Rent: $25. 557.00 per month ("Base Rent"), payable on
the First day of each month commencing January 1, 2000. (See also
Paragraph 4)
[x] if this box is checked, there are provisions in this Lease for the
Base Rent to be adjusted.
1.6 Base Rent Paid Upon Execution: $25,557.00 as Base Rent for
the period.
1.7 Security Deposit: $29.208.00 ("Security Deposit"). (See also
Paragraph 5)
1.8 Agreed Use: The Premises shall be used and occupied for
general office, light assembly, machine shop, warehousing and other
legal related uses.(See also Paragraph 6)
1.9 Insuring Party: Lessor is the "Insuring Party" unless
otherwise stated herein. (See also Paragraph 8)
1.10 Real Estate Brokers: (See also Paragraph 15)
(a) Representation: The following real estate brokers
(collectively, the "Brokers") and brokerage relationships exist in
this transaction (check applicable boxes):
[x] CPS represents Lessor exclusively ("Lessor's Broker");
[x] Grubb & Ellis represents Lessee exclusively ("Lessee's Broker");
(b) Payment to Brokers: Upon execution and delivery of this
Lease by both Parties, Lessor shall pay to the Broker the fee agreed
to in their separate written agreement (or if there is no such
agreement, the sum of _ % of the total Base Rent for the brokerage
services rendered by said Broker).
1.11 Guarantor. The obligations of the Lessee under this Lease
are to be guaranteed by inTEST Corporation, a Delaware corporation
("Guarantor"). (See also Paragraph 37)
1.12 Addenda and Exhibits. Attached hereto is an Addendum or
Addenda consisting of Paragraphs 50 through 56 and Exhibits A. B and
C, all of which constitute a part of this Lease.
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and
upon all of the terms, covenants and conditions set forth in this
Lease. Unless otherwise provided herein, any statement of size set
forth in this Lease, or that may have been used in calculating rental,
is an approximation which the Parties agree is reasonable and the
rental based thereon is not subject to revision whether or not the
actual size is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee broom
clean and free of debris on the Commencement Date or the Early
Possession Date, whichever first occurs ("Start Date"), and, so long
as the required service contracts described in Paragraph 7.1(b) below
are obtained by Lessee within thirty (30) days following the Start
Date, warrants that the existing electrical, plumbing, fire sprinkler,
lighting, heating, ventilating and air conditioning systems ("HVAC"),
loading doors, if any, and all other such elements in the Premises,
other than those constructed by Lessee, shall be in good operating
condition on said date and that the structural elements of the roof,
bearing walls and foundation of any buildings on the Premises (the
"Building") shall be free of material defects. If a non-compliance
with said warranty exists as of the Start Date, Lessor shall, as
Lessor's sole obligation with respect to such matter, except as
otherwise provided in this Lease, promptly after receipt of written
notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If,
after the Start Date, Lessee does not give Lessor written notice of
any non-compliance with this warranty within: (i) one year as to the
surface of the roof and the structural portions of the roof,
foundations and bearing walls, (ii) six (6) months as to the HVAC
systems, (iii) thirty (30) days as to the remaining systems and other
elements of the Building, correction of such non-compliance shall be
the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance. Lessor warrants that the improvements on the
Premises comply with all applicable laws, covenants or restrictions of
record, building codes, regulations and ordinances ("Applicable
Requirements") in effect on the Start Date. Said warranty does not
apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a))
made or to be made by Lessee. NOTE: Lessee is responsible for
determining whether or not the zoning is appropriate for Lessee's
intended use, and acknowledges that past uses of the Premises may no
longer be allowed, If the Premises do not comply with said warranty,
Lessor shall, except as otherwise provided, promptly after receipt of
written notice from Lessee setting forth with specificity the nature
and extent of such non-compliance, rectify the same at Lessor's
expense. If Lessee does not give Lessor written notice of a non-
compliance with this warranty within six (6) months following the
Start Date, correction of that non-compliance shall be the obligation
of Lessee at Lessee's sole cost and expense. If the Applicable
Requirements are hereafter changed (as opposed to being in existence
at the Start Date, which is addressed in Paragraph 6.2(e) below) so as
to require during the term of this Lease the construction of an
addition to or an alteration of the Building, the remediation of any
Hazardous Substance, or the reinforcement or other physical
modification of the Building ("Capital Expenditure"), Lessor and
Lessee shall allocate the cost of such work as follows:
(a) Subject to Paragraph 2.3(c) below, if such Capital
Expenditures are required as a result of the specific and unique use
of the Premises by Lessee as compared with uses by tenants in general,
Lessee shall be fully responsible for the cost thereof, provided,
however that if such Capital Expenditure is required during the last
two (2) years of this Lease and the cost thereof exceeds six (6)
months' Base Lessee may instead terminate this Lease unless Lessor

Page l of 11

<PAGE>

notifies Lessee, in. writing, within ten (10) days after receipt of
Lessee's termination notice that Lessor has elected to pay the
difference between the actual cost thereof and the amount equal to six
(6) months' Base Rent, If Lessee elects termination, Lessee shall
immediately cease the use of the Premises which requires such Capital
Expenditure and deliver to Lessor written notice specifying a
termination date at least ninety (90) days thereafter. Such
termination date shall, however, in no event be earlier than the last
day that Lessee could legally utilize the Premises without commencing
such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the
specific and unique use of the Premises by Lessee (such as,
governmentally mandated seismic modifications), then Lessor and Lessee
shall allocate the obligation to pay for such costs pursuant to the
provisions of Paragraph 7.1(c); provided, however, that if such
Capital Expenditure is required during the last two years of this
Lease or if Lessor reasonably determines that it is not economically
feasible to pay its share thereof, Lessor shall have the option to
terminate this Lease upon ninety (90) days prior written notice to
Lessee unless Lessee notifies Lessor, in writing, within ten (10) days
after receipt of Lessor's termination notice that Lessee will pay for
such Capital Expenditure. If Lessor does not elect to terminate, and
fails to tender its share of any such Capital Expenditure, Lessee may
advance such funds and deduct same, with Interest, from Rent until
Lessor's share of such costs have been fully paid. If Lessee is unable
to finance Lessor's share, or if the balance of the Rent due and
payable for the remainder of this Lease is not sufficient to fully
reimburse Lessee on an offset basis, Lessee shall have the right to
terminate this Lease upon thirty (30) days written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning
Capital Expenditures are intended to apply only to non-voluntary,
unexpected, and new Applicable Requirements. If the Capital
Expenditures are instead triggered by Lessee as a result of an actual
or proposed change in use, change in intensity of use, or modification
to the Premises then, and in that event, Lessee shall be fully
responsible for the cost thereof, and Lessee shall not have any right
to terminate this Lease.
2.4 Acknowledgements. Lessee acknowledges that: (a) it has been
advised by Lessor and/or Brokers to satisfy itself with respect to the
condition of the Premises (including but not limited to the
electrical, HVAC and fire sprinkler systems, security, environmental
aspects, and compliance with Applicable Requirements), and their
suitability for Lessee's intended use; (b) Lessee has made such
investigation as it deems necessary with reference to such matters and
assumes all responsibility therefore as the same relate to its
occupancy of the Premises; and (c) neither Lessor, Lessor's agents,
nor any Broker has made any oral or written representations or
warranties with respect to said matters other than as set forth in
this Lease. In addition, Lessor acknowledges that: (a) Broker has made
no representations, promises or warranties concerning Lessee's ability
to honor the Lease or suitability to occupy the Premises; and (b) it
is Lessor's sole responsibility to investigate the financial
capability and/or suitability of all proposed tenants.
2.5 Lessee as Prior Owner/Occupant. The warranties made by
Lessor in Paragraph 2 shall be of no force or effect if immediately
prior to the Start Date Lessee was the owner or occupant of the
Premises. In such event, Lessee shall be responsible for any necessary
corrective work.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original
Term of this Lease are as specified in Paragraph 1.3.
3.2 Early Possession, If Lessee totally or partially occupies
the Premises prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early possession. All
other terms of this Lease (including, but not limited to, the
obligations to pay Real Property Taxes and insurance premiums and to
maintain the Premises) shall, however, be in effect during such
period. Any such early possession shall not affect the Expiration
Date.
3.3 Delay In Possession. Lessor agrees to use its best
commercially reasonable efforts to deliver possession of the Premises
to Lessee by the Commencement Date. If, despite said efforts, Lessor
is unable to deliver possession as agreed, Lessor shall not be subject
to any liability therefor, nor shall such failure affect the validity
of this Lease. Lessee shall not, however, be obligated to pay Rent or
perform its other obligations until it receives possession of the
Premises, If possession is not delivered within sixty (60) days after
the Commencement Date, Lessee may, at its option, by notice in writing
within ten (10) days after the end of such sixty (60) day period,
cancel this Lease, in which event the Parties shall be discharged from
all obligations hereunder, If such written notice is not received by
Lessor within said ten (10) day period, Lessee's right to cancel shall
terminate. Except as otherwise provided, if possession is not tendered
to Lessee by the Start Date and Lessee does not terminate this Lease,
as aforesaid, any period of rent abatement that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and
continue for a period equal to what Lessee would otherwise have
enjoyed under the terms hereof, but minus any days of delay caused by
the acts or omissions of Lessee. If possession of the Premises is not
delivered within four (4) months after the Commencement Date, this
Lease shall terminate unless other agreements are reached between
Lessor and Lessee, in writing.
3.4 Lessee Compliance. Lessor shall not be required to tender
possession of the Premises to Lessee until Lessee complies with its
obligation to provide evidence of insurance (Paragraph 8.5). Pending
delivery of such evidence, Lessee shall be required to perform all of
its obligations under this Lease from and after the Start Date,
including the payment of Rent, notwithstanding Lessor's election to
withhold possession pending receipt of such evidence of insurance.
Further, if Lessee is required to perform any other conditions prior
to or concurrent with the Start Date, the Start Date shall occur but
Lessor may elect to withhold possession until such conditions are
satisfied.
4. Rent.
4.1 Rent Defined. All monetary obligations of Lessee to Lessor
under the terms of this Lease (except for the Security Deposit) are
deemed to be rent ("Rent").
4.2 Payment. Lessee shall cause payment of Rent to be received
by Lessor in lawful money of the United States, without offset or
deduction (except as specifically permitted in this Lease), on or
before the day on which it is due. Rent for any period during the term
hereof which is for less than one (1) full calendar month shall be
prorated based upon the actual number of days of said month. Payment
of Rent shall be made to Lessor at its address stated herein or to
such other persons or place as Lessor may from time to time designate
in writing. Acceptance of a payment which is less than the amount then
due shall not be a waiver of Lessor's rights to the balance of such
Rent, regardless of Lessor's endorsement of any check so stating.
5. Security Deposit. Lessee shall deposit with Lessor upon execution
hereof the Security Deposit as security for Lessee's faithful
performance of its obligations under this Lease. If Lessee fails to
pay Rent, or otherwise Defaults under this Lease, Lessor may use,
apply or retain all or any portion of said Security Deposit for the
payment of any amount due Lessor or to reimburse or compensate Lessor
for any liability, expense, loss or damage which Lessor may suffer or
incur by reason thereof, If Lessor uses or applies all or any portion
of said Security Deposit, Lessee shall within ten (10) days after
written request therefor deposit monies with Lessor sufficient to
restore said Security Deposit to the full amount required by this
Lease. If the Base Rent increases during the term of this Lease,
Lessee shall, upon written request from Lessor, deposit additional
monies with Lessor so that the total amount of the Security Deposit
shall at all times bear the same proportion to the increased Base Rent
as the initial Security Deposit bore to the initial Base Rent. Should
the Agreed Use be amended to accommodate a material change in the
business of Lessee or to accommodate a sublessee or assignee, Lessor
shall have the right to increase the Security Deposit to the extent
necessary, in Lessor's reasonable judgment, to account for any
increased wear and tear that the Premises may suffer as a result
thereof, If a change in control of Lessee occurs during this Lease and
following such change the financial condition of Lessee is, in
Lessor's reasonable judgment, significantly reduced, Lessee shall
deposit such additional monies with Lessor as shall be sufficient to
cause the Security Deposit to be at a commercially reasonable level
based on said change in financial condition. Lessor shall not be
required to keep the Security Deposit separate from its general
accounts. Within fourteen (14) days after the expiration or
termination of this Lease, if Lessor elects to apply the Security
Deposit only to unpaid Rent, and otherwise within thirty (30) days
after the Premises have been vacated pursuant to Paragraph 7.4(c)
below, Lessor shall return that portion of the Security Deposit not
used or applied by Lessor. No part of the Security Deposit shall be
considered to be held in trust, to bear interest or to be prepayment
for any monies to be paid by Lessee under this Lease.
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the
Agreed Use, or any other legal use which is reasonably comparable
thereto, and for no other purpose. Lessee shall not use or permit the
use of the Premises in a manner that is unlawful, creates damage,
waste or a nuisance, or that disturbs owners and/or occupants of, or
causes damage to neighboring properties. Lessor shall not unreasonably
withhold or delay its consent to any written request for a
modification of the Agreed Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or the
mechanical or electrical systems therein, is not significantly more
burdensome to the Premises, If Lessor elects to withhold consent,
Lessor shall within five (5) business days after such request give
written notification of same, which notice shall include an
explanation of Lessor's objections to the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous
Substance" as used in this Lease shall mean any product, substance, or
waste whose presence, use, manufacture, disposal, transportation, or
release, either by itself or in combination with other materials
expected to be on the Premises, is either: (i) potentially injurious
to the public health, safety or welfare, the environment or the
Premises, (ii) regulated or monitored by any governmental authority,
or (iii) a basis for potential liability of Lessor to any governmental
agency or third party under any applicable statute or common law

Page 2 of 11

<PAGE>

theory. Hazardous Substances shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, and/or crude oil or any products,
by-products or fractions thereof. Lessee shall not engage in any
activity in or on the Premises which constitutes a Reportable Use of
Hazardous Substances without the express prior written consent of
Lessor and timely compliance (at Lessee's expense) with all Applicable
Requirements. "Reportable Use" shall mean (i) the installation or use
of any above or below ground storage tank, (ii) the generation
possession, storage, use, transportation or disposal of a Hazardous
Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed
with, any governmental authority, and/or (iii) the presence at the
Premises of a Hazardous Substance with respect to which any Applicable
Requirements requires that a notice be given to persons entering or
occupying the Premises or neighboring properties. Notwithstanding the
foregoing, Lessee may use any ordinary and customary materials
reasonably required to be used in the normal course of the Agreed Use,
so long as such use is in compliance with all Applicable Requirements,
is not a Reportable Use, and does not expose the Premises or
neighboring property to any meaningful risk of contamination or damage
or expose Lessor to any liability therefor. In addition, Lessor may
condition its consent to any Reportable Use upon receiving such
additional assurances as Lessor reasonably deems necessary to protect
itself, the public, the Premises and/or the environment against
damage, contamination, injury and/or liability, including, but not
limited to, the installation (and removal on or before Lease
expiration or termination) of protective modifications (such as
concrete encasements) and/or increasing the Security Deposit.
(b) Duty to Inform Lessor. If Lessee knows, or has
reasonable cause to believe, that a Hazardous Substance has come to be
located in, on, under or about the Premises, other than as previously
consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor, and provide Lessor with a copy of any report,
notice, claim or other documentation which it has concerning the
presence of such Hazardous Substance.
(c) Lessee Remediation. Lessee shall not cause or permit
any Hazardous Substance to be spilled or released in, on, under, or
about the Premises (including through the plumbing or sanitary sewer
system) and shall promptly, at Lessee's expense, take all
investigatory and/or remedial action reasonably recommended, whether
or not formally ordered or required, for the cleanup of any
contamination of, and for the maintenance, security and/or monitoring
of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any
Hazardous Substance brought onto the Premises during the term of this
Lease, by or for Lessee, or any third party.
(d) Lessee Indemnification. Lessee shall indemnify, defend
and hold Lessor, its agents, employees, lenders and ground lessor, if
any, harmless from and against any and all loss of rents and/or
damages, liabilities, judgments, claims, expenses, penalties, and
attorneys' and consultants' fees arising out of or involving any
Hazardous Substance brought onto the Premises by or for Lessee, or any
third party (provided, however, that Lessee shall have no liability
under this Lease with respect to underground migration of any
Hazardous Substance under the Premises from adjacent properties).
Lessee's obligations shall include, but not be limited to, the effects
of any contamination or injury to person, property or the environment
created or suffered by Lessee. and the cost of investigation, removal,
remediation, restoration and/or abatement, and shall survive the
expiration or termination of this Lease. No termination, cancellation
or release agreement entered into by Lessor and Lessee shall release
Lessee from its obligations under this Lease with respect to Hazardous
Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
(e) Lessor Indemnification. Lessor and its successors and
assigns shall indemnify, defend, reimburse and hold Lessee, its
employees and lenders, harmless from and against any and all
environmental damages, including the cost of remediation, which
existed as a result of Hazardous Substances on the Premises prior to
the Start Date or which are caused by the gross negligence or willful
misconduct of Lessor, its agents or employees. Lessor's obligations,
as and when required by the Applicable Requirements, shall include,
but not be limited to, the cost of investigation, removal, remediation
restoration and/or abatement, and shall survive the expiration or
termination of this Lease.
(f) Investigations and Remediations. Lessor shall retain
the responsibility and pay for any investigations or remediation
measures required by governmental entities having jurisdiction with
respect to the existence of Hazardous Substances on the Premises prior
to the Start Date, unless such remediation measure is required as a
result of Lessee's use (including "Alterations", as defined in
Paragraph 7.3(a) below) of the Premises, in which event Lessee shall
be responsible for such payment. Lessee shall cooperate fully in any
such activities at the request of Lessor, including allowing Lessor
and Lessor's agents to have reasonable access to the Premises at
reasonable times in order to carry out Lessor's investigative and
remedial responsibilities.
(g) Lessor Termination Option. If a Hazardous Substance
Condition occurs during the term of this Lease, unless Lessee is
legally responsible therefor (in which case Lessee shall make the
investigation and remediation thereof required by the Applicable
Requirements and this Lease shall continue in full force and effect,
but subject to Lessor's rights under Paragraph 6.2(d) and Paragraph
13), Lessor may, at Lessor's option, either (I) investigate and
remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease
shall continue in full force and effect, or (ii) if the estimated cost
to remediate such condition exceeds twelve (12) times the then monthly
Base Rent or $100,000, whichever is greater, give written notice to
Lessee, within thirty (30) days after receipt by Lessor of knowledge
of the occurrence of such Hazardous Substance Condition, of Lessor's
desire to terminate this Lease as of the date sixty (60) days
following the date of such notice. In the event Lessor elects to give
a termination notice, Lessee may, within ten (10) days thereafter,
give written notice to Lessor of Lessee's commitment to pay the amount
by which the cost of the remediation of such Hazardous Substance
Condition exceeds an amount equal to twelve (12) times the then
monthly Base Rent or $100,000, whichever is greater. Lessee shall
provide Lessor with said funds or satisfactory assurance thereof
within thirty (30) days following such commitment. In such event, this
Lease shall continue in full force and effect, and Lessor shall
proceed to make such remediation as soon as reasonably possible after
the required funds are available, If Lessee does not give such notice
and provide the required funds or assurance thereof within the time
provided, this Lease shall terminate as of the date specified in
Lessor's notice of termination.
6.3 Lessee's Compliance with Applicable Requirements. Except as
otherwise provided in this Lease, Lessee shall, at Lessee's sole
expense, fully, diligently and in a timely manner, materially comply
with all Applicable Requirements, the requirements of any applicable
fire insurance underwriter or rating bureau, and the recommendations
of Lessor's engineers and/or consultants which relate in any manner to
the Premises, without regard to whether said requirements are now in
effect or become effective after the Start Date. Lessee shall, within
ten (10) days after receipt of Lessor's written request, provide
Lessor with copies of all permits and other documents, and other
information evidencing Lessee's compliance with any Applicable
Requirements specified by Lessor, and shall immediately upon receipt
notify Lessor in writing (with copies of any documents involved) of
any threatened or actual claim, notice, citation, warning, complaint
or report pertaining to or involving the failure of Lessee or the
Premises to comply with any Applicable Requirements.
6.4 Inspection; Compliance. Lessor and Lessor's "Lender" (as
defined in Paragraph 30 below) and consultants shall have the right to
enter into Premises at any time, in the case of an emergency, and
otherwise at reasonable times, for the purpose of inspecting the
condition of the Premises and for verifying compliance by Lessee with
this Lease. The cost of any such inspections shall be paid by Lessor,
unless a violation of Applicable Requirements, or a contamination is
found to exist or be imminent, or the inspection is requested or
ordered by a governmental authority. In such case, Lessee shall upon
request reimburse Lessor for the cost of such inspections, so long as
such inspection is reasonably related to the violation or
contamination.
7. Maintenance; Repairs, Utility Installations; Trade Fixtures and
Alterations.
7.1 Lessee's Obligations.
(a) In General. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with
Applicable Requirements), 7.2 (Lessor's Obligations), 9 (Damage or
Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole
expense, keep the Premises, Utility Installations, and Alterations in
good order, condition and repair (whether or not the portion of the
Premises requiring repairs, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the
need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises),
including, but not limited to, all equipment or facilities, such as
plumbing, heating, ventilating. air-conditioning, electrical, lighting
facilities, boilers, pressure vessels, fire protection system,
fixtures, walls (interior and exterior), foundations, ceilings, roofs,
floors, windows, doors, plate glass, skylights, landscaping,
driveways, parking lots, fences, retaining walls, signs, sidewalks and
parkways located in, on, or adjacent to the Premises. Lessee, in
keeping the Premises in good order, condition and repair, shall
exercise and perform good maintenance practices, specifically
including the procurement and maintenance of the service contracts
required by Paragraph 7.1(b) below. Lessee's obligations shall include
restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order,
condition and state of repair. Lessee shall, during the term of this
Lease, keep the exterior appearance of the Building in a first-class
condition consistent with the exterior appearance of other similar
facilities of comparable age and size in the vicinity, including, when
necessary, the exterior repainting of the Building.
(b) Service Contracts. Lessee shall, at Lessee's sole
expense, procure and maintain contracts, with copies to Lessor, in
customary form and substance for, and with contractors specializing
and experienced in the maintenance of the following equipment and
improvements, if any, if and when installed on the Premises: (i) HVAC
equipment (ii) boiler, and pressure vessels, (iii) fire
extinguishing systems, including fire alarm and/or smoke detection,
(iv) landscaping and irrigation systems, (v) roof covering and drains,
(vi) driveways and parking lots, (vii) clarifiers (viii) basic utility
feed to the perimeter of the Building, and (ix) any other equipment,
if reasonably required by Lessor.
(c) Replacement. Subject to Lessee's indemnification of
Lessor as set forth in Paragraph 8.7 below, and without relieving

Page 3 of 11

<PAGE>

Lessee of liability resulting from Lessee's failure to exercise and
perform good maintenance practices, if the Basic Elements described in
Paragraph 7.1(b) cannot be repaired other than at a cost which is in
excess of 50% of the cost of replacing such Basic Elements, then such
Basic Elements shall be replaced by Lessor, and the cost thereof shall
be prorated between the Parties and Lessee shall only be obligated to
pay, each month during the remainder of the term of this Lease, on the
date on which Base Rent is due an amount equal to the product of
multiplying the cost of such replacement by a fraction, the numerator
of which is one, and the denominator of which is the number of months
of the useful life of such replacement as such useful life is
specified pursuant to Federal income tax regulations or guidelines for
depreciation thereof (including interest on the unamortized balance as
is then commercially reasonable in the judgment of Lessor's
accountants), with Lessee reserving the right to prepay its obligation
at any time.
7.2 Lessor's Obligations. Subject to the provisions of
Paragraphs 2.2 (Condition), 2.3 (Compliance) 9 (Damage or Destruction)
and 14 (Condemnation), it is intended by the Parties hereto that
Lessor have no obligation, in any manner whatsoever, to repair and
maintain the Premises, or the equipment therein, all of which
obligations are intended to be that of the Lessee. It is the intention
of the Parties that the terms of this Lease govern the respective
obligations of the Parties as to maintenance and repair of the
Premises, and they expressly waive the benefit of any statute now or
hereafter in effect to the extent it is inconsistent with the terms of
this Lease.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility
Installations" refers to all floor and window coverings, air lines,
power panels, electrical distribution, security and fire protection
systems, communication systems, lighting fixtures, HVAC equipment,
plumbing, and fencing in or on the Premises. The term "Trade Fixtures"
shall mean Lessee's machinery and equipment that can be removed
without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements, other than Utility
Installations or Trade Fixtures, whether by addition or deletion.
"Lessee Owned Alterations and/or Utility Installations" are defined as
Alterations and/or Utility Installations made by Lessee that are not
yet owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not
make any Alterations or Utility Installations to the Premises without
Lessor's prior written consent. Lessee may, however, make non-
structural Utility Installations to the interior of the Premises
(excluding the roof) without such consent but upon notice Lessor, as
long as they are not visible from the outside, do not involve
puncturing, relocating or removing the roof or any existing walls, and
the cost thereof during this Lease as extended does not exceed $50,000
in the aggregate or $10,000 in any one year.
(b) Consent. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent (which shall
not be unreasonably withheld) of the Lessor shall be presented to
Lessor in written form with detailed plans. Consent shall be deemed
conditioned upon Lessee's: (i) acquiring all applicable governmental
permits, (ii) furnishing Lessor with copies of both the permits and
the plans and specifications prior to commencement of the work, and
(iii) compliance with all conditions of said permits and other
Applicable Requirements in a prompt and expeditious manner. Any
Alterations or Utility Installations shall be performed in a
workmanlike manner with good and sufficient materials. Lessee shall
promptly upon completion furnish Lessor with as-built plans and
specifications. For work which costs an amount equal to the greater of
one month's Base Rent, or $10,000, Lessor may condition its consent
upon Lessee providing a lien and completion bond in an amount equal to
one and one-half times the estimated cost of such Alteration or
Utility Installation and/or upon Lessee's posting an additional
Security Deposit with Lessor.
(c) Indemnification. Lessee shall pay, when due all claims
for labor or materials furnished or alleged to have been furnished to
or for Lessee at or for use on the Premises, which claims are or may
be secured by any mechanic's or materialmen's lien against the
Premises or any interest therein. Lessee shall give Lessor not less
than ten (10) days' notice prior to the commencement of any work in,
on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility. If Lessee shall contest the validity of
any such lien, claim or demand, then Lessee shall, at its sole expense
defend and protect itself, Lessor and the Premises against the same
and shall pay and satisfy any such adverse judgment that may be
rendered thereon before the enforcement thereof, If Lessor shall
require, Lessee shall furnish a surety bond in an amount equal to one
and one-half times the amount of such contested lien, claim or demand,
indemnifying Lessor against liability for the same. If Lessor elects
to participate in any such action, Lessee shall pay Lessor's
attorneys' fees and costs.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require removal
or elect ownership as hereinafter provided, all Alterations and
Utility Installations made by Lessee shall be the property of Lessee,
but considered a part of the Premises. Lessor may, at any time, elect
in writing to be the owner of all or any specified part of the Lessee
Owned Alterations and Utility Installations. Unless otherwise
instructed per Paragraph 7.4(b) hereof, all Lessee Owned Alterations
and Utility Installations shall, at the expiration or termination of
this Lease, become the property of Lessor and be surrendered by Lessee
with the Premises.
(c) Surrender/Restoration. Lessee shall surrender the
Premises by the Expiration Date or any earlier termination date, with
all of the improvements, parts and surfaces thereof broom clean and
free of debris, and in good operating order, condition and state of
repair, ordinary wear and tear excepted. "Ordinary wear and tear"
shall not include any damage or deterioration that would have been
prevented by good maintenance practice. Lessee shall repair any damage
occasioned by the installation, maintenance or removal of Trade
Fixtures, Lessee Owned Alterations and/or Utility Installations,
furnishings, and equipment as well as the removal of any storage tank
installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or groundwater contaminated by
Lessee. Trade Fixtures shall remain the property of Lessee and shall
be removed by Lessee. The failure by Lessee to timely vacate the
Premises pursuant to this Paragraph 7.4(c) without the express written
consent of Lessor shall constitute a holdover under the provisions of
Paragraph 26 below.
8. Insurance; Indemnity.
8.1 Payment For Insurance. Lessee shall pay for all insurance
required under Paragraph 8 except to the extent of the cost
attributable to liability insurance carried by Lessor under Paragraph
8.2(b) in excess of $2,000,000 per occurrence. Premiums for policy
periods commencing prior to or extending beyond the Lease term shall
be prorated to correspond to the Lease term. Payment shall be made by
Lessee to Lessor within ten (10) days following receipt of an invoice.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in
force a Commercial General Liability Policy of Insurance protecting
Lessee and Lessor against claims for bodily injury, personal injury
and property damage based upon or arising out of the ownership, use,
occupancy or maintenance of the Premises and all areas appurtenant
thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $2,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises
Endorsement" and contain the "Amendment of the Pollution Exclusion
Endorsement" for damage caused by heat, smoke or fumes from a hostile
fire. The Policy shall not contain any intra-insured exclusions as
between insured persons or organizations, but shall include coverage
for liability assumed under this Lease as an 'insured contract' for
the performance of Lessee's indemnity obligations under this Lease.
The limits of said insurance shall not, however, limit the liability
of Lessee nor relieve Lessee of any obligation hereunder. All
insurance carried by Lessee shall be primary to and not contributory
with any similar insurance carried by Lessor, whose insurance shall be
considered excess insurance only.
(b) Carried by Lessor. Lessor shall maintain liability
insurance as described in Paragraph 8.2(a), in addition to, and not in
lieu of, the insurance required to be maintained by Lessee. Lessee
shall not be named as an additional insured therein.
8.3 Property Insurance - Building, Improvements and Rental
Value.
(a) Building and Improvements. The Insuring Party shall
obtain and keep in force a policy or policies in the name of Lessor,
with loss payable to Lessor, any groundlessor, and to any Lender(s)
insuring loss or damage to the Premises. The amount of such insurance
shall be equal to the full replacement cost of the Premises, as the
same shall exist from time to time, or the amount required by any
Lenders, but in no event more than the commercially reasonable and
available insurable value thereof. If Lessor is the Insuring Party,
however, Lessee Owned Alterations and Utility Installations, Trade
Fixtures, and Lessee's personal property shall be insured by Lessee
under Paragraph 8.4 rather than by Lessor. If the coverage is
available and commercially appropriate, such policy or policies shall
insure against all risks of direct physical loss or damage (except the
perils of flood and/or earthquake unless required by a Lender),
including coverage for debris removal and the enforcement of any
Applicable Requirements requiring the upgrading, demolition,
reconstruction or replacement of any portion of the Premises as the
result of a covered loss. Said policy or policies shall also contain
an agreed valuation provision in lieu of any coinsurance clause,
waiver of subrogation, and inflation guard protection causing an
increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price
Index for All Urban Consumers for the city nearest to where the

Page 4 of 11

<PAGE>

Premises are located. If such insurance coverage has a deductible
clause, the deductible amount shall not exceed $1,000 per occurrence,
and Lessee shall be liable for such deductible amount in the event of
an Insured Loss.
(b) Rental Value. The insuring Party shall obtain and keep
in force a policy or policies in the name of Lessor with loss payable
to Lessor and any Lender, insuring the loss of the full Rent for one
(1) year. Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for
such coverage shall be extended beyond the date of the completion of
repairs or replacement of the Premises, to provide for one full year's
loss of Rent from the date of any such loss. Said insurance shall
contain an agreed valuation provision in lieu of any coinsurance
clause, and the amount of coverage shall be adjusted annually to
reflect the projected Rent otherwise payable by Lessee, for the next
twelve (12) month period. Lessee shall be liable for any deductible
amount in the event of such loss.
(c) Adjacent Premises. If the Premises are part of a larger
building, or of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the
premiums for the property insurance of such building or buildings if
said increase is caused by Lessee's acts, omissions, use or occupancy
of the Premises.
8.4 Lessee's Property/Business Interruption Insurance.
(a) Property Damage. Lessee shall obtain and maintain
insurance coverage on all of Lessee's personal property, Trade
Fixtures, and Lessee Owned Alterations and Utility Installations. Such
insurance shall be full replacement cost coverage with a deductible of
not to exceed $1,000 per occurrence. The proceeds from any such
insurance shall be used by Lessee for the replacement of personal
property, Trade Fixtures and Lessee Owned Alterations and Utility
Installations. Lessee shall provide Lessor with Written evidence that
such insurance is in force.
(b) Business Interruption. Lessee shall obtain and maintain
loss of income and extra expense insurance in amounts as will
reimburse Lessee for direct or indirect loss of earnings attributable
to all perils commonly insured against by prudent lessees in the
business of Lessee or attributable to prevention of access to the
Premises as a result of such perils.
(c) No Representation of Adequate Coverage. Lessor makes no
representation that the limits or forms of coverage of insurance
specified herein are adequate to cover Lessee's property, business
operations or obligations under this Lease.
8.5 Insurance Policies, Insurance required herein shall be by
companies duly licensed or admitted to transact business in the state
where the Premises are located, and maintaining during the policy term
a "General Policyholders Rating" of at least B+, V. as set forth in
the most current issue of "Best's Insurance Guide", or such other
rating as may be required by a Lender. Lessee shall not do or permit
to be done anything which invalidates the required insurance policies.
Lessee shall, prior to the Start Date, deliver to Lessor certified
copies of policies of such insurance or certificates evidencing the
existence and amounts of the required insurance. No such policy shall
be cancelable or subject to modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30)
days prior to the expiration of such policies, furnish Lessor with
evidence of renewals or "insurance binders" evidencing renewal
thereof, or Lessor may order such insurance and charge the cost
thereof to Lessee, which amount shall be payable by Lessee to Lessor
upon demand. Such policies shall be for a term of at least one year,
or the length of the remaining term of this Lease, whichever is less.
If either Party shall fail to procure and maintain the insurance
required to be carried by it, the other Party may, but shall not be
required to, procure and maintain the same.
8.6 Waiver of Subrogation. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other,
and waive their entire right to recover damages against the other, for
loss of or damage to its property arising out of or incident to the
perils required to be insured against herein. The effect of such
releases and waivers is not limited by the amount of insurance carried
or required, or by any deductibles applicable hereto. The Parties
agree to have their respective property damage insurance carriers
waive any right to subrogation that such companies may have against
Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.
8.7 Indemnity. Except for Lessor's gross negligence or willful
misconduct, Lessee shall indemnify, protect, defend and hold harmless
the Premises, Lessor and its agents, Lessor's master or ground lessor,
partners and Lenders, from and against any and all claims, loss of
rents and/or damages, liens, judgments, penalties, attorneys' and
consultants' fees, expenses and/or liabilities arising out of,
involving, or in connection with, the use and/or occupancy of the
Premises by Lessee, If any action or proceeding is brought against
Lessor by reason of any of the foregoing matters, Lessee shall upon
notice defend the same at Lessee's expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such
defense. Lessor need not have first paid any such claim in order to be
defended or indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be
liable for injury or damage to the person or goods, wares, merchandise
or other property of Lessee, Lessee's employees, contractors,
invitees, customers, or any other person in or about the Premises,
whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, HVAC or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions
arising upon the Premises or upon other portions of the Building of
which the Premises are a part, or from other sources or places. Lessor
shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable
for injury to Lessee's business or for any loss of income or profit
therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or
destruction to the improvements on the Premises, other than Lessee
Owned Alterations and Utility Installations, which can reasonably be
repaired in six (6) months or less from the date of the damage or
destruction. Lessor shall notify Lessee in writing within thirty (30)
days from the date of the damage or destruction as to whether or not
the damage is Partial or Total.
(b) "Premises Total Destruction" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and
Utility Installations and Trade Fixtures, which cannot reasonably be
repaired in six (6) months or less from the date of the damage or
destruction. Lessor shall notify Lessee in writing within thirty (30)
days from the date of the damage or destruction as to whether or not
the damage is Partial or Total.
(c) "Insured Loss" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations and Trade Fixtures, which was caused by an event
required to be covered by the insurance described in Paragraph 8.3(a),
irrespective of any deductible amounts or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or
rebuild the improvements owned by Lessor at the time of the occurrence
to their condition existing immediately prior thereto, including
demolition, debris removal and upgrading required by the operation of
Applicable Requirements, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the
occurrence or discovery of a condition involving the presence of, or a
contamination by, a Hazardous Substance as defined in Paragraph
6.2(a), in, on, or under the Premises.
9.2 Partial Damage - Insured Loss. If a Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's
expense, repair such damage (but not Lessee's Trade Fixtures or Lessee
Owned Alterations and Utility Installations) as soon as reasonably
possible and this Lease shall continue in full force and effect;
provided, however, that Lessee shall, at Lessor's election, make the
repair of any damage or destruction the total cost to repair of which
is $10,000 or less, and, in such event, Lessor shall make any
applicable insurance proceeds available to Lessee on a reasonable
basis for that purpose. Notwithstanding the foregoing, if the required
insurance was not in force or the insurance proceeds are not
sufficient to effect such repair, the Insuring Party shall promptly
contribute the shortage in proceeds (except as to the deductible which
is Lessee's responsibility) as and when required to complete said
repairs. In the event, however, such shortage was due to the fact
that, by reason of the unique nature of the improvements, full
replacement cost insurance coverage was not commercially reasonable
and available, Lessor shall have no obligation to pay for the shortage
in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same,
or adequate assurance thereof, within ten (10) days following receipt
of written notice of such shortage and request therefor. If Lessor
receives said funds or adequate assurance thereof within said ten (10)
day period, the party responsible for making the repairs shall
complete them as soon as reasonably possible and this Lease shall
remain in full force and effect. If such funds or assurance are not
received, Lessor may nevertheless elect by written notice to Lessee
within ten (10) days thereafter to: (i) make such restoration and
repair as is commercially reasonable with Lessor paying any shortage
in proceeds, in which case this Lease shall remain in full force and
effect, or have this Lease terminate thirty (30) days thereafter.
Lessee shall not be entitled to reimbursement of any funds contributed
by Lessee to repair any such damage or destruction. Premises Partial
Damage due to flood or earthquake shall be subject to Paragraph 9.3,
notwithstanding that there may be some insurance coverage, but the net
proceeds of any such insurance shall be made available for the repairs
if made by either Party.
9.3 Partial Damage - Uninsured Loss. If a Premises Partial
Damage that is not an Insured Loss occurs, unless caused by a
negligent or willful act of Lessee (in which event Lessee shall make
the repairs at Lessee's expense), Lessor may either: (i) repair such
damage as soon as reasonably possible at Lessor's expense, in which
event this Lease shall continue in full force and effect, or (ii)
terminate this Lease by giving written notice to Lessee within thirty
(30) days after receipt by Lessor of knowledge of the occurrence of
such damage. Such termination shall be effective sixty (60) days
following the date of such notice. In the event Lessor elects to
terminate this Lease, Lessee shall have the right within ten (10) days
after receipt of the termination notice to give written notice to

Page 5 of 11

<PAGE>

Lessor of Lessee's commitment to pay for the repair of such damage
without reimbursement from Lessor. Lessee shall provide Lessor with
said funds or satisfactory assurance thereof within thirty (30) days
after making such commitment. In such event this Lease shall continue
in lull force and effect, and Lessor shall proceed to make such
repairs as soon as reasonably possible alter the required funds are
available. If Lessee does not make the required commitment this Lease
shall terminate as of the date specified in the termination notice.
9.4 Total Destruction. Notwithstanding any other provision
hereof, if a Premises Total Destruction occurs, this Lease shall
terminate sixty (60) days following such Destruction, If the damage or
destruction was caused by the gross negligence or willful misconduct
of Lessee, Lessor shall have the right to recover Lessor's damages
from Lessee, except as provided in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six
(6) months of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss,
Lessor may terminate this Lease effective sixty (60) days following
the date of occurrence of such damage by giving a written termination
notice to Lessee within thirty (30) days after the date of occurrence
of such damage. Notwithstanding the foregoing, if Lessee at that time
has an exercisable option to extend this Lease or to purchase the
Premises, then Lessee may preserve this Lease by, (a) exercising such
option and (b) providing Lessor with any shortage in insurance
proceeds (or adequate assurance thereof) needed to make the repairs on
or before the earlier of (i) the date which is ten days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease,
or (ii) the day prior to the date upon which such option expires. If
Lessee duly exercises such option during such period and provides
Lessor with funds (or adequate assurance thereof) to cover any
shortage in insurance proceeds, Lessor shall, at Lessor's commercially
reasonable expense, repair such damage as soon as reasonably possible
and this Lease shall continue in full force and effect, If Lessee
fails to exercise such option and provide such funds or assurance
during such period. then this Lease shall terminate on the date
specified in the termination notice and Lessee's option shall be
extinguished.
9.6 Abatement of Rent; Lessee's Remedies.
(a) Abatement. In the event of Premises Partial Damage or
Premises Total Destruction or a Hazardous Substance Condition for
which Lessee is not responsible under this Lease, the Rent payable by
Lessee for the period required for the repair, remediation or
restoration of such damage shall be abated in proportion to the degree
to which Lessee's use of the Premises is impaired, but not to exceed
the proceeds received from the Rental Value insurance. All other
obligations of Lessee hereunder shall be performed by Lessee, and
Lessor shall have no liability for any such damage, destruction,
remediation, repair or restoration except as provided herein.
(b) Remedies. If Lessor shall be obligated to repair or
restore the Premises and does not commence, in a substantial and
meaningful way, such repair or restoration within ninety (90) days
after such obligation shall accrue, Lessee may, at any time prior to
the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice, of
Lessee's election to terminate this Lease on a date not less than
sixty (60) days following the giving of such notice. If Lessee gives
such notice and such repair or restoration is not commenced within
thirty (30) days thereafter, this Lease shall terminate as of the date
specified in said notice. If the repair or restoration is commenced
within said thirty (30) days, this Lease shall continue in full force
and effect. "Commence" shall mean either the unconditional
authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 Termination - Advance Payments. Upon termination of this
Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable
adjustment shall be made concerning advance Base Rent and any other
advance payments made by Lessee to Lessor. Lessor shall, in addition,
return to Lessee so much of Lessee's Security Deposit as has not been,
or is not then required to be, used by Lessor.
9.8 Waive Statutes. Lessor and Lessee agree that the terms of
this Lease shall govern the effect of any damage to or destruction of
the Premises with respect to the termination of this Lease and hereby
waive the provisions of any present or future statute to the extent
inconsistent herewith.
10. Real Property Taxes.
10.1 Definition of "Real Property Taxes." As used herein, the
term "Real Property Taxes" shall include any form of assessment; real
estate, general, special, ordinary or extraordinary, or rental levy or
tax (other than inheritance, personal income or estate taxes);
improvement bond; and/or license fee imposed upon or levied against
any legal or equitable interest of Lessor in the Premises, Lessor's
right to other income therefrom, and/or Lessor's business of leasing,
by any authority having the direct or indirect power to tax and where
the funds are generated with reference to the Building address and
where the proceeds so generated are to be applied by the city, county
or other local taxing authority of a jurisdiction within which the
Premises are located. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase
therein, imposed by reason of events occurring during the term of this
Lease, including but not limited to. a change in the ownership of the
Premises.
10.2
(a) Payment of Taxes. Lessee shall pay the Real Property
Taxes applicable to the Premises during the term of this Lease.
Subject to Paragraph 10.2(b), all such payments shall be made at least
ten (10) days prior to any delinquency date. Lessee shall promptly
furnish Lessor with satisfactory evidence that such taxes have been
paid. If any such taxes shall cover any period of time prior to or
after the expiration or termination of this Lease, Lessee's share of
such taxes shall be prorated to cover only that portion of the tax
bill applicable to the period that this Lease is in effect, and Lessor
shall reimburse Lessee for any overpayment. If Lessee shall fail to
pay any required Real Property Taxes, Lessor shall have the right to
pay the same, and Lessee shall reimburse Lessor therefor upon demand.
(b) Advance Payment. In the event Lessee incurs a late
charge on any Rent payment, Lessor may. at Lessor's option, estimate
the current Real Property Taxes, and require that such taxes be paid
in advance to Lessor by Lessee, either: (i) in a lump sum amount equal
to the installment due, at least twenty (20) days prior to the
applicable delinquency date, or (ii) monthly in advance with the
payment of the Base Rent, If Lessor elects to require payment monthly
in advance, the monthly payment shall be an amount equal to the amount
of the estimated installment of taxes divided by the number of months
remaining before the month in which said installment becomes
delinquent. When the actual amount of the applicable tax bill is
known, the amount of such equal monthly advance payments shall be
adjusted as required to provide the funds needed to pay the applicable
taxes, If the amount collected by Lessor is insufficient to pay such
Real Property Taxes when due, Lessee shall pay Lessor, upon demand,
such additional sums as are necessary to pay such obligations. All
monies paid to Lessor under this Paragraph may be intermingled with
other monies of Lessor and shall not bear interest. In the event of a
Breach by Lessee in the performance of its obligations under this
Lease, then any balance of funds paid to Lessor under the provisions
of this Paragraph may, at the option of Lessor, be treated as an
additional Security Deposit.
10.3 Joint Assessment. If the Premises are not separately
assessed, Lessee's liability shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included
within the tax parcel assessed, such proportion to be conclusively
determined by Lessor from the respective valuations assigned in the
assessor's work sheets or such other information as may be reasonably
available.
10.4 Personal Property Taxes. Lessee shall pay, prior to
delinquency, all taxes assessed against and levied upon Lessee Owned
Alterations, Utility Installations, Trade Fixtures, furnishings,
equipment and all personal property of Lessee. When possible, Lessee
shall cause such property to be assessed and billed separately from
the real property of Lessor. If any of Lessee's said personal property
shall be assessed with Lessor's real property, Lessee shall pay Lessor
the taxes attributable to Lessee's property within ten (10) days after
receipt of a written statement.
11. Utilities. Lessee shall pay for all water, gas, heat, light,
power, telephone, trash disposal and other utilities and services
supplied to the Premises, together with any taxes thereon, If any such
services are not separately metered to Lessee, Lessee shall pay a
reasonable proportion, to be determined by Lessor, of all charges
jointly metered.
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or encumber (collectively, "assign or
assignment") or sublet all or any part of Lessee's interest in this
Lease or in the Premises without Lessor's prior written consent.
(b) A change in the control of Lessee shall constitute an
assignment requiring consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee
shall constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any
transaction, or series of transactions (by way of merger, sale,
acquisition, financing, transfer, leveraged buy-out or otherwise),
whether or not a formal assignment or hypothecation of this Lease or
Lessee's assets occurs, which results or will result in a reduction of
the Net Worth of Lessee by an amount greater than twenty-five percent
(25%) of such Net Worth as it was represented at the time of the
execution of this Lease or at the time of the most recent assignment
to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction,
whichever was or is greater, shall be considered an assignment of this
Lease to which Lessor may withhold its consent. "Net Worth of Lessee"
shall mean the net worth of Lessee (excluding any guarantors)
established under generally accepted accounting principles.
(d) An assignment or subletting without consent shall, at
Lessor's option, be a Default curable after notice per Paragraph
13.1(c), or a noncurable Breach without the necessity of any notice
and grace period, If Lessor elects to treat such unapproved assignment
or subletting as a noncurable Breach, Lessor may either: (i) terminate
this Lease, or (ii) upon thirty (30) days written notice, increase the
monthly Base Rent to one hundred ten percent (110%) of the Base Rent

Page 6 of 11

<PAGE>

then in effect. Further in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the
Premises held by Lessee shall be subject to similar adjustment to one
hundred ten percent (110%) of the price previously in effect, and (ii)
all fixed and non-fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased to One Hundred Ten
Percent (110%) of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive
relief.
12.2 Terms and Conditions Applicable to Assignment and
Subletting.
(a) Regardless of Lessor's consent, any assignment or
subletting shall not: (i) be effective without the express written
assumption by such assignee or sublessee of the obligations of Lessee
under this Lease; (ii) release Lessee of any obligations hereunder; or
(iii) alter the primary liability of Lessee for the payment of Rent or
for the performance of any other obligations to be performed by
Lessee.
(b) Lessor may accept Rent or performance of Lessee's
obligations from any person other than Lessee pending approval or
disapproval of an assignment. Neither a delay in the approval or
disapproval of such assignment nor the acceptance of Rent or
performance shall constitute a waiver or estoppel of Lessor's right to
exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor
may proceed directly against Lessee, any Guarantors or anyone else
responsible for the performance of Lessee's obligations under this
Lease, including any assignee or sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible
therefore to Lessor, or ~ny security held by Lessor.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but
not limited to the intended use and/or required modification of the
Premises, if any, together with a fee of $1,000 or ten percent (10%)
of the current monthly Base Rent applicable to the portion of the
Premises which is the subject of the proposed assignment or sublease,
whichever is greater, as consideration for Lessor's considering and
processing said request. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be
reasonably requested.
(f) Any assignee of, or sublessee under, this Lease shall,
by reason of accepting such assignment or entering into such sublease
be deemed to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be
observed or performed by Lessee during the term of said assignment or
sublease, other than such obligations as are contrary to or
inconsistent with provisions of an assignment or sublease to which
Lessor has specifically consented to in writing.
12.3 Additional Terms and Conditions Applicable to Subletting.
The following terms and conditions shall apply to any subletting by
Lessee of all or any part of the Premises and shall be deemed included
in all subleases under this Lease whether or not expressly
incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all Rent payable on any sublease, and Lessor may
collect such Rent and apply same toward Lessee's obligations under
this Lease; provided, however, that until a Breach shall occur in the
performance of Lessee's obligations, Lessee may collect said Rent.
Lessor shall not, by reason of the foregoing or any assignment of such
sublease, nor by reason of the collection of Rent, be deemed liable to
the sublessee for any failure of Lessee to perform and comply with any
of Lessee's obligations to such sublessee. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written
notice from Lessor stating that a Breach exists in the performance of
Lessee's obligations under this Lease, to pay to Lessor all Rent due
and to become due under the sublease. Sublessee shall rely upon any
such notice from Lessor and shall pay all Rents to Lessor without any
obligation or right to inquire as to whether such Breach exists,
notwithstanding any claim from Lessee to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its
option, require sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease
from the time of the exercise of said option to the expiration of such
sublease; provided, however, Lessor shall not be liable for any
prepaid rents or security deposit paid by such sublessee to such
sublessor or for any prior Defaults or Breaches of such sublessor.
(c) Any matter requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any
part of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure
the Default of Lessee within the grace period, if any, specified in
such notice. The sublessee shall have a right of reimbursement and
offset from and against Lessee for any such Defaults cured by the
sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. A "Default" is defined as a failure by the
Lessee to comply with or perform any of the terms, covenants,
conditions or rules under this Lease. A "Breach" is defined as the
occurrence of one or more of the following Defaults, and the failure
of Lessee to cure such Default within any applicable grace period:
(a) The abandonment of the Premises; or the vacating of the
Premises without providing a commercially reasonable level of
security, or where the coverage of the property insurance described in
Paragraph 8.3 is jeopardized as a result thereof, or without providing
reasonable assurances to minimize potential vandalism.
(b) The failure of Lessee to make any payment of Rent or
any Security Deposit required to be made by Lessee hereunder, whether
to Lessor or to a third party, when due, to provide reasonable
evidence of insurance or surety bond, or to fulfill any obligation
under this Lease which endangers or threatens life or property, where
such failure continues for a period of three (3) business days
following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written
evidence of compliance with Applicable Requirements, (ii) the service
contracts, (iii) the rescission of an unauthorized assignment or
subletting, (iv) a Tenancy Statement, (v) a requested subordination,
(vi) evidence concerning any guaranty and/or Guarantor, (vii) any
document requested under Paragraph 42 (easements), or (viii) any other
documentation or information which Lessor may reasonably require of
Lessee under the terms of this Lease, where any such failure continues
for a period of ten (10) days following written notice to Lessee.
(d) A Default by Lessee as to the terms, covenants,
conditions or provisions of this Lease, or of the rules adopted under
Paragraph 40 hereof, other than those described in subparagraphs
13.1(a), (b) or (c), above, where such Default continues for a period
of thirty (30) days after written notice; provided, however, that if
the nature of Lessee's Default is such that more than thirty (30) days
are reasonably required for its cure, then it shall not be deemed to
be a Breach if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the
making of any general arrangement or assignment for the benefit of
creditors; (ii) becoming a "debtor" as defined in 11 U.S.C. 101 or any
successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii)
the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of
Lessee's interest in this Lease, where possession is not restored to
Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located
at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however,
in the event that any provision of this subparagraph 13.1 (a) is
contrary to any applicable law, such provision shall be of no force or
effect, and not affect the validity of the remaining provisions.
(f) The discovery that any financial statement of Lessee or
of any Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this
Lease is guaranteed: (i) the death of a Guarantor; (ii) the
termination of a Guarantor's liability with respect to this Lease
other than in accordance with the terms of such guaranty; (iii) a
Guarantor's becoming insolvent or the subject of a bankruptcy filing;
(iv) a Guarantor's refusal to honor the guaranty; or (v) a Guarantor's
breach of its guaranty obligation on an anticipatory basis, and
Lessee's failure, within sixty (60) days following written notice of
any such event, to provide written alternative assurance or security,
which, when coupled with the then existing resources of Lessee, equals
or exceeds the combined financial resources of Lessee and the
Guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any of its affirmative
duties or obligations, within ten (10) days after written notice (or
in case of an emergency, without notice), Lessor may, at its option,
perform such duty or obligation on Lessee's behalf, including but not
limited to the obtaining of reasonably required bonds, insurance
policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and
payable by Lessee upon receipt of invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is
drawn, Lessor, at its option, may require all future payments to be
made by Lessee to be by cashier's check. In the event of a Breach,
Lessor may, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises
by any lawful means, in which case this Lease shall terminate and
Lessee shall immediately surrender possession to Lessor. In such event
Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent

Page 7 of 11

<PAGE>

which had been earned at the time of termination; (ii) the worth at
the time of award of the amount by which the unpaid rent which would
have been earned after termination until the time of award exceeds the
amount of such rental loss that the Lessee proves could have been
reasonably avoided; (iii) the worth at the time of award of the amount
by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves
could be reasonably avoided; and (iv) any other amount necessary to
compensate Lessor for all the detriment proximately caused by the
Lessee's failure to perform its obligations under this Lease or which
in the ordinary course of things would be likely to result therefrom,
including but not limited to the cost of recovering possession of the
Premises, expenses of reletting, including necessary renovation and
alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with
this Lease applicable to the unexpired term of this Lease. The worth
at the time of award of the amount referred to in provision (iii) of
the immediately preceding sentence shall be computed by discounting
such amount at the discount rate of the Federal Reserve Bank of the
District within which the Premises are located at the time of award
plus one percent (1%). Efforts by Lessor to mitigate damages caused by
Lessee's Breach of this Lease shall not waive Lessor's right to
recover damages under Paragraph 12. If termination of this Lease is
obtained through the provisional remedy of unlawful defamer, Lessor
shall have the right to recover in such proceeding any unpaid Rent and
damages as are recoverable therein, or Lessor may reserve the right to
recover all or any part thereof in a separate suit. If a notice and
grace period required under Paragraph 13.1 was not previously given, a
notice to pay rent or quit, or to perform or quit given to Lessee
under the unlawful detainer statute shall also constitute the notice
required by Paragraph 13.1. In such case, the applicable grace period
required by Paragraph 13.1 and the unlawful detainer statute shall run
concurrently, and the failure of Lessee to cure the Default within the
greater of the two such grace periods shall constitute both an
unlawful detainer and a Breach of this Lease entitling Lessor to the
remedies provided for in this Lease and/or by s~id statute.
(b) Continue the Lease and Lessee's right to possession and
recover the Rent as it becomes due, in which event Lessee may sublet
or assign, subject only to reasonable limitations. Acts of
maintenance, efforts to relet, and/or the appointment of a receiver to
protect the Lessor's interests, shall not constitute a termination of
the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available
under the laws or judicial decisions of the state wherein the Premises
are located. The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee
from liability under any indemnity provisions of this Lease as to
matters occurring or accruing during the term hereof or by reason of
Lessee's occupancy of the Premises.
13.3 Inducement Recapture. Any agreement for free or abated rent
or other charges, or for the giving or paying by Lessor to or for
Lessee of any cash or other bonus, inducement or consideration for
Lessee's entering into this Lease, all of which concessions are
hereinafter referred to as "Inducement Provisions," shall be deemed
conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease. Upon Breach of this
Lease by Lessee, any such Inducement Provision shall automatically be
deemed deleted from this Lease and of no further force or effect, and
any rent, other charge, bonus, inducement or consideration theretofore
abated, given or paid by Lessor under such an Inducement Provision
shall be immediately due and payable by Lessee to Lessor,
notwithstanding any subsequent cure of said Breach by Lessee. The
acceptance by Lessor of Rent or the cure of the Breach which initiated
the operation of this paragraph shall not be deemed a waiver by Lessor
of the provisions of this paragraph unless specifically so stated in
writing by Lessor at the time of such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment
by Lessee of Rent will cause Lessor to incur costs not contemplated by
this Lease, the exact amount of which will be extremely difficult to
ascertain. Such costs include, but are not limited to, processing and
accounting charges, and late charges which may be imposed upon Lessor
by any Lender. Accordingly, if any Rent shall not be received by
Lessor within five (5) days after such amount shall be due, then,
without any requirement for notice to Lessee, Lessee shall pay to
Lessor a one-time late charge equal to ten percent (10%) of each such
overdue amount. The Parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will
incur by reason of such late payment. Acceptance of such late charge
by Lessor shall in no event constitute a waiver of Lessee's Default or
Breach with respect to such overdue amount, nor prevent the exercise
of any of the other rights and remedies granted hereunder. In the
event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding any provision of this Lease to the contrary, Base Rent
shall, at Lessor's option, become due and payable quarterly in
advance.
13.5 Interest. Any monetary payment due Lessor hereunder other
than late charges, not received by Lessor, when due as to scheduled
payments (such as Base Rent) or within thirty (30) days following the
date on which it was due for non-scheduled payment, shall bear
interest from the date when due, as to scheduled payments, or the
thirty-first (31st) day after it was due as to non-scheduled payments.
The interest ("Interest") charged shall be equal to the prime rate
reported in the Wall Street Journal as published closest prior to the
date when due plus four percent (4%), but shall not exceed the maximum
rate allowed bylaw. Interest is payable in addition to the potential
late charge provided for in Paragraph 13.4.
13.6 Breach by Lessor.
(a) Notice of Breach. Lessor shall not be deemed in breach
of this Lease unless Lessor fails within a reasonable time to perform
an obligation required to be performed by Lessor. For purposes of this
Paragraph, a reasonable time shall in no event be less than thirty
(30) days after receipt by Lessor, and any Lender whose name and
address shall have been furnished Lessee in writing for such purpose,
of written notice specifying wherein such obligation of Lessor has not
been performed; provided, however, that if the nature of Lessor's
obligation is such that more than thirty (30) days are reasonably
required for its performance, then Lessor shall not be in breach if
performance is commenced within such thirty (30) day period and
thereafter diligently pursued to completion.
(b) Performance by Lessee on Behalf of Lessor. In the event
that neither Lessor nor Lender cures said breach within thirty (30)
days after receipt of said notice, or if having commenced said cure
they do not diligently pursue it to completion, then Lessee may elect
to cure said breach at Lessee's expense and offset from Rent an amount
equal to the greater of one month's Base Rent or the Security Deposit,
and to pay an excess of such expense under protest, reserving Lessee's
right to reimbursement from Lessor. Lessee shall document the cost of
said cure and supply said documentation to Lessor.
14. Condemnation. If the Premises or any portion thereof are taken
under the power of eminent domain or sold under the threat of the
exercise of said power (collectively "Condemnation"), this Lease shall
terminate as to the part taken as of the date the condemning authority
takes title or possession, whichever first occurs. If more than ten
percent (10%) of any building portion of the Premises, or more than
twenty-five percent (25%) of the land area portion of the Premises not
occupied by any building, is taken by Condemnation, Lessee may, at
Lessee's option, to be exercised in writing within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in
the absence of such notice, within ten (10) days after the condemning
authority shall have taken possession) terminate this Lease as of the
date the condemning authority takes such possession, If Lessee does
not terminate this Lease in accordance with the foregoing, this Lease
shall remain in full force and effect as to the portion of the
Premises remaining, except that the Base Rent shall be reduced in
proportion to the reduction in utility of the Premises caused by such
Condemnation. Condemnation awards and/or payments shall be the
property of Lessor, whether such award shall be made as compensation
for diminution in value of the leasehold the value of the part taken,
or for severance damages; provided, however, that Lessee shall be
entitled to any compensation for Lessee's relocation expenses, loss of
business goodwill and/or Trade Fixtures, without regard to whether or
not this Lease is terminated pursuant to the provisions of this
Paragraph. All Alterations and Utility Installations made to the
Premises by Lessee, for purposes of Condemnation only, shall be
considered the property of the Lessee and Lessee shall be entitled to
any and all compensation which is payable therefor. In the event that
this Lease is not terminated by reason of the Condemnation Lessor
shall repair any damage to the Premises caused by such Condemnation.
15. Brokers' Fee.
15.1 Additional Commission. In addition to the payments owed
pursuant to Paragraph 1.10 above, and unless Lessor and the Brokers
otherwise agree in writing, Lessor agrees that: (a) if Lessee
exercises any Option, (b) if Lessee acquires any rights to the
Premises or other premises owned by Lessor and located within the same
project, if any, within which the Premises is located, (c) if Lessee
remains in possession of the Premises with the consent of Lessor,
after the expiration of this Lease, or (d) if Base Rent is increased,
whether by agreement or operation of an escalation clause herein then,
Lessor shall pay Brokers a fee in accordance with the schedule of said
Brokers in effect at the time of the execution of this Lease.
15.2 Assumption of Obligations. Any buyer or transferee of
Lessor's interest in this Lease shall be deemed to have assumed
Lessor's obligation hereunder. Each Broker shall be a third party
beneficiary of the provisions of Paragraphs 1.10, 15,22 and 31. If
Lessor fails to a to a Broker any amounts due as and for commissions
pertaining to this Lease when due, then such amounts shall accrue
Interest. In addition, if Lessor fails to pay any amounts to Lessee's
Broker when due, Lessee's Broker may send written notice to Lessor and
Lessee of such failure and if Lessor fails to pay such amounts within
ten (10) days after said notice, Lessee shall pay said monies to its
Broker and offset such amounts against Rent. In addition, Lessee's
Broker shall be deemed to be a third party beneficiary of any
commission agreement entered into by and/or between Lessor and
Lessor's Broker.
15.3 Representations and Indemnities of Broker Relationships.
Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than
the Brokers, if any) in connection with this Lease, and that no one
other than said named Brokers is entitled to any commission or
finder's fee in connection herewith. Lessee and Lessor do each hereby
agree to indemnify, protect, defend and hold the other harmless from

Page 8 of 11

<PAGE>

and against liability for compensation or charges which may be claimed
by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any
costs, expenses, and/or attorneys' fees reasonably incurred with
respect thereto.
16. Estoppel Certificates.
(a) Each Party (as "Responding Party") shall within ten
(10) days after written notice from the other Party (the "Requesting
Party") execute, acknowledge and deliver to the Requesting Party a
statement in writing in form similar to the then most current
"Estoppel Certificate" form published by the American Industrial Real
Estate Association, plus such additional information, confirmation
and/or statements as may be reasonably requested by the Requesting
Party.
(b) If the Responding Party shall fail to execute or
deliver the Estoppel Certificate within such ten day period, the
Requesting Party may execute an Estoppel Certificate stating that: (i)
the Lease is in full force and effect without modification except as
may be represented by the Requesting Party, (ii) there are no uncured
defaults in the Requesting Party's performance, and (iii) if Lessor is
the Requesting Party, not more than one month's Rent has been paid in
advance. Prospective purchasers and encumbrancers may rely upon the
Requesting Party's Estoppel Certificate, and the Responding Party
shall be estopped from denying the truth of the facts contained in
said Certificate.
(c) If Lessor desires to finance, refinance, or sell the
Premises, or any part thereof, Lessee and all Guarantors shall deliver
to any potential lender or purchaser designated by Lessor such
financial statements as may be reasonably required by such lender or
purchaser, including, but not limited to, Lessee's financial
statements for the past three (3) years. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence
and shall be used only for the purposes herein set forth.
17. Definition of Lessor. The term "Lessor" as used herein shall mean
the owner or owners at the time in question of the fee title to the
Premises, or, if this is a sublease, of the Lessee's interest in the
prior lease. In the event of a transfer of Lessor's title or interest
in the Premises or this Lease, Lessor shall deliver to the transferee
or assignee (in cash or by credit) any unused Security Deposit held by
Lessor. Except as provided in Paragraph 15, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the
prior Lessor shall be relieved of all liability with respect to the
obligations and/or covenants under this Lease thereafter to be
performed by the Lessor. Subject to the foregoing, the obligations
and/or covenants in this Lease to be performed by the Lessor shall be
binding only upon the Lessor as hereinabove defined. Notwithstanding
the above, and subject to the provisions of Paragraph 20 below, the
original Lessor under this Lease, and all subsequent holders of the
Lessor's interest in this Lease shall remain liable and responsible
with regard to the potential duties and liabilities of Lessor
pertaining to Hazardous Substances as outlined in Paragraph 6 above.
18. Severability. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way
affect the validity of any other provision hereof.
19. Days. Unless otherwise specifically indicated to the contrary,
the word "days" as used in this Lease shall mean and refer to calendar
days.
20. Limitation on Liability. Subject to the provisions of Paragraph
17 above, the obligations of Lessor under this Lease shall not
constitute personal obligations of Lessor, the individual partners of
Lessor or its or their individual partners, directors, officers or
shareholders, and Lessee shall look to the Premises, and to no other
assets of Lessor, for the satisfaction of any liability of Lessor with
respect to this Lease, and shall not seek recourse against the
individual partners of Lessor, or its or their individual partners,
directors, officers or shareholders, or any of their personal assets
for such satisfaction.
21. Time of Essence. Time is of the essence with respect to the
performance of all obligations to be performed or observed by the
Parties under this Lease.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease
contains all agreements between the Parties with respect to any matter
mentioned herein, and no other prior or contemporaneous agreement or
understanding shall be effective. Lessor and Lessee each represents
and warrants to the Brokers that it has made, and is relying solely
upon, its own investigation as to the nature, quality, character and
financial responsibility of the other Party to this Lease and as to
the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or
breach hereof by either Party. The liability (including court costs
and Attorneys' fees), of any Broker with respect to negotiation,
execution, delivery or performance by either Lessor or Lessee under
this Lease or any amendment or modification hereto shall be limited to
an amount up to the fee received by such Broker pursuant to this
Lease; provided, however, that the foregoing limitation on each
Broker's liability shall not be applicable to any gross negligence or
willful misconduct of such Broker.
23. Notices.
23.1 Notice Requirements. All notices required or permitted by
this Lease shall be in writing and may be delivered in person (by hand
or by courier) or may be sent by regular, certified or registered mail
or U.S. Postal Service Express Mail, with postage prepaid. or by
facsimile transmission, and shall be deemed sufficiently given if
served in a manner specified in this Paragraph 23. The addresses noted
adjacent to a Party's signature on this Lease shall be that Party's
address for delivery or mailing of notices. Either Party may by
written notice to the other specify a different address for notice,
except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for notice. A copy of all
notices to Lessor shall be concurrently transmitted to such party or
parties at such addresses as Lessor may from time to time hereafter
designate in writing.
23.2 Date of Notice. Any notice sent by registered or certified
mail, return receipt requested, shall be deemed given on the date of
delivery shown on the receipt card, or if no delivery date is shown,
the postmark thereon, If sent by regular mail the notice shall be
deemed given forty-eight (48) hours after the same is addressed as
required herein and mailed with postage prepaid. Notices delivered by
United States Express Mail or overnight courier that guarantee next
day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the Postal Service or courier. Notices
transmitted by facsimile transmission or similar means shall be deemed
delivered upon telephone confirmation of receipt, provided a copy is
also delivered via delivery or mail. If notice is received on a
Saturday, Sunday or legal holiday, it shall be deemed received on the
next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any
term, covenant or condition hereof by Lessee, shall be deemed a waiver
of any other term, covenant or condition hereof, or of any subsequent
Default or Breach by Lessee of the same or of any other term, covenant
or condition hereof. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's
consent to, or approval of, any subsequent or similar act by Lessee,
or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. The acceptance of
Rent by Lessor shall not be a waiver of any Default or Breach by
Lessee. Any payment by Lessee may be accepted by Lessor on account of
monies or damages due Lessor, notwithstanding any qualifying
statements or conditions made by Lessee in connection therewith, which
such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or
before the time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the
other, execute, acknowledge and deliver to the other a short form
memorandum of this Lease for recording purposes. The Party requesting
recordation shall be responsible for payment of any fees applicable
thereto.
26. No Right To Holdover. Lessee has no right to retain possession of
the Premises or any part thereof beyond the expiration or termination
of this Lease. In the event that Lessee holds over, then the Base Rent
shall be increased to one hundred fifty percent (150%) of the Base
Rent applicable during the month immediately preceding the expiration
or termination. Nothing contained herein shall be construed as consent
by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all
other remedies at law or in equity.
28. Covenants and Conditions; Construction of Agreement. All
provisions of this Lease to be observed or performed by Lessee are
both covenants and conditions. In construing this Lease, all headings
and titles are for the convenience of the Parties only and shall not
be considered a part of this Lease. Whenever required by the context,
the singular shall include the plural and vice versa. This Lease shall
not be construed as if prepared by one of the Parties, but rather
according to its fair meaning as a whole, as if both Parties had
prepared it.
29. Binding Effect; Choice of Law. This Lease shall be binding upon
the parties, their personal representatives, successors and assigns
and be governed by the laws of the State in which the Premises are
located. Any litigation between the Parties hereto concerning this
Lease shall be initiated in the county in which the Premises are
located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby
shall be subject and subordinate to any ground lease, mortgage, deed
of trust, or other hypothecation or security device (collectively.
"Security Device"), now or hereafter placed upon the Premises, to any
and all advances made on the security thereof, and to all renewals,
modifications, and extensions thereof. Lessee agrees that the holders
of any such Security Devices (in this Lease together referred to as
"Lessor's Lender") shall have no liability or obligation to perform
any of the obligations of Lessor under this Lease. Any Lender may
elect to have this Lease and/or any Option granted hereby superior to
the lien of its Security Device by giving written notice thereof to
Lessee, whereupon this Lease and such Options shall be deemed prior to
such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party
who acquires ownership of the Premises by reason of a foreclosure of a
Security Device, and that in the event of such foreclosure, such new
owner shall not: (i) be liable for any act or omission of any prior
lessor or with respect to events occurring prior to acquisition of
ownership; (ii) be subject to any offsets or defenses which Lessee

Page 9 of 11

<PAGE>

might have against any prior lessor; or (iii) be bound by prepayment
of more than one (1) month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered
into by Lessor after the execution of this Lease. Lessee's
subordination of this Lease shall be subject to receiving a
commercially reasonable non-disturbance agreement (a "Non-Disturbance
Agreement") from the Lender which Non-Disturbance Agreement provides
that Lessee's possession of the Premises, and this Lease, including
any options to extend the term hereof, will not be disturbed so long
as Lessee is not in Breach hereof and attorns to the record owner of
the Premises. Further, within sixty (60) days after the execution of
this Lease, Lessor shall use its commercially reasonable efforts to
obtain a Non-Disturbance Agreement from the holder of any pre-existing
Security Device which is secured by the Premises. In the event that
Lessor is unable to provide the Non-Disturbance Agreement within said
sixty (60) days, then Lessee may, at Lessee's option, directly contact
Lessor's lender and attempt to negotiate for the execution and
delivery of a Non-Disturbance Agreement.
30.4 Self-Executing. The agreements contained in this Paragraph
30 shall be effective without the execution of any further documents;
provided, however, that, upon written request from Lessor or a Lender
in connection with a sale, financing or refinancing of the Premises,
Lessee and Lessor shall execute such further writings as may be
reasonably required to separately document any subordination,
attornment and/or Non-Disturbance Agreement provided for herein.
31. Attorneys' Fees. If any Party or Broker brings an action or
proceeding involving the Premises to enforce the terms hereof or to
declare rights hereunder, the Prevailing Party (as hereafter defined)
in any such proceeding, action, or appeal thereon, shall be entitled
to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "Prevailing
Party" shall include, without limitation, a Party or Broker who
substantially obtains or defeats the relief sought, as the case may
be, whether by compromise, settlement, judgment, or the abandonment by
the other Party or Broker of its claim or defense. The attorneys' fees
award shall not be computed in accordance with any court fee schedule,
but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. In addition, Lessor shall be entitled to attorneys' fees,
costs and expenses incurred in the preparation and service of notices
of Default and consultations in connection therewith, whether or not a
legal action is subsequently commenced in connection with such Default
or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's
agents shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times for the
purpose of showing the same to prospective purchasers, lenders, or
lessees, and making such alterations, repairs, improvements or
additions to the Premises as Lessor may deem necessary. All such
activities shall be without abatement of rent or liability to Lessee.
Lessor may at any time place on the Premises any ordinary "For Sale"
signs and Lessor may during the last six (6) months of the term hereof
place on the Premises any ordinary "For Lease" signs. Lessee may at
any time place on or about the Premises any ordinary "For Sublease"
sign.
33. Auctions. Lessee shall not conduct, nor permit to be conducted,
any auction upon the Premises without Lessor's prior written consent.
Lessor shall not be obligated to exercise any standard of
reasonableness in determining whether to permit an auction.
34. Signs. Except for ordinary "For Sublease" signs, Lessee shall not
place any sign upon the Premises without Lessor's prior written
consent. All signs must comply with all Applicable Requirements.
35. Termination; Merger. Unless specifically stated otherwise in
writing by Lessor, the voluntary or other surrender of this Lease by
Lessee, the mutual termination or cancellation hereof, or a
termination hereof by Lessor for Breach by Lessee, shall automatically
terminate any sublease or lesser estate in the Premises; provided,
however, that Lessor may elect to continue any one or all existing
subtenancies. Lessor's failure within ten (10) days following any such
event to elect to the contrary by written notice to the holder of any
such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents. Except as otherwise provided herein, wherever in this
Lease the consent of a Party is required to an act by or for the other
Party, such consent shall not be unreasonably withheld or delayed.
Lessor's actual reasonable costs and expenses (including, but not
limited to. architects', attorneys', engineers' and other consultants'
fees) incurred in the consideration of, or response to, a request by
Lessee for any Lessor consent, including, but not limited to, consents
to an assignment, a subletting or the presence or use of a Hazardous
Substance, shall be paid by Lessee upon receipt of an invoice and
supporting documentation therefor. Lessor's consent to any act,
assignment or subletting shall not constitute an acknowledgment that
no Default or Breach by Lessee of this Lease exists, nor shall such
consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at
the time of such consent. The failure to specify herein any particular
condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as
are then reasonable with reference to the particular matter for which
consent is being given. In the event that either Party disagrees with
any determination made by the other hereunder and reasonably requests
the reasons for such determination, the determining party shall
furnish its reasons in writing and in reasonable detail within ten
(10) business days following such request.
37. Guarantor.
37.1 Execution. The Guarantors, if any, shall each execute a
guaranty in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have
the same obligations as Lessee under this Lease.
37.2 Default. It shall constitute a Default of the Lessee if any
Guarantor fails or refuses, upon request to provide: (a) evidence of
the execution of the guaranty, including the authority of the party
signing on Guarantor's behalf to obligate Guarantor, and in the case
of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, (b)
current financial statements, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. Quiet Possession. Subject to payment by Lessee of the Rent and
performance of all of the covenants, conditions and provisions on
Lessee's part to be observed and performed under this Lease, Lessee
shall have quiet possession and quiet enjoyment of the Premises during
the term hereof.
39. Options.
39.1 Definition. "Option" shall mean: (a) the right to extend the
term of or renew this Lease or to extend or renew any lease that
Lessee has on other property of Lessor; (b) the right of first refusal
or first offer to lease either the Premises or other property of
Lessor; (c) the right to purchase or the right of first refusal to
purchase the Premises or other property of Lessor.
39.2 Options Personal To Original Lessee. Each Option granted to
Lessee in this Lease is personal to the original Lessee, and cannot be
assigned or exercised by anyone other than said original Lessee and
only while the original Lessee is in full possession of the Premises
and, if requested by Lessor, with Lessee certifying that Lessee has no
intention of thereafter assigning or subletting.
39.3 Multiple Options. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later Option cannot be
exercised unless the prior Options have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option: (i)
during the period commencing with the giving of any notice of Default
and continuing until said Default is cured, (ii) during the period of
time any Rent is unpaid (without regard to whether notice thereof is
given Lessee), (iii) during the time Lessee is in Breach of this
Lease, or (iv) in the event that Lessee has been given three (3) or
more notices of separate Default, whether or not the Defaults are
cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be
exercised shall not be extended or enlarged by reason of Lessee's
inability to exercise an Option because of the provisions of Paragraph
39.4(a).
(c) An Option shall terminate and be of no further force or
effect, notwithstanding Lessee's due and timely exercise of the
Option, if, after such exercise and prior to the commencement of the
extended term, (i) Lessee fails to pay Rent for a period of thirty
(30) days after such Rent becomes due (without any necessity of Lessor
to give notice thereof), (ii) Lessor gives to Lessee three (3) or more
notices of separate Default during any twelve (12) month period,
whether or not the Defaults are cured, or (iii) if Lessee commits a
Breach of this Lease.
40. Multiple Buildings. If the Premises are a part of a group of
buildings controlled by Lessor. Lessee agrees that it will observe all
reasonable rules and regulations which Lessor may make from time to
time for the management, safety, and care of said properties,
including the care and cleanliness of the grounds and including the
parking, loading and unloading of vehicles, and that Lessee will pay
its fair share of common expenses incurred in connection therewith.
41. Security Measures. Lessee hereby acknowledges that the rental
payable to Lessor hereunder does not include the cost of guard service
or other security measures, and that Lessor shall have no obligation
whatsoever to provide same. Lessee assumes all responsibility for the
protection of the Premises, Lessee, its agents and invitees and their
property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to
time, to grant, without the consent or joinder of Lessee, such
easements, rights and dedications that Lessor deems necessary, and to
cause the recordation of parcel maps and restrictions, so long as such
easements, rights, dedications, maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee
agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise
as to any amount or sum of money to be paid by one Party to the other

Page 10 of 11

<PAGE>

under the provisions hereof, the Party against whom the obligation to
pay the money is asserted shall have the right to make payment "under
protest" and such payment shall not be regarded as a voluntary payment
and there shall survive the right on the part 01 said Party to
institute suit for recovery of such sum, If it shall be adjudged that
there was no legal obligation on the part of said Party to pay such
sum or any part thereof, said Party shall be entitled to recover such
sum or so much thereof as it was not legally required to pay.
44. Authority. If either Party hereto is a corporation, trust,
limited liability company, partnership, or similar entity, each
individual executing this Lease on behalf of such entity represents
and warrants that he or she is duly authorized to execute and deliver
this Lease on its behalf. Each Party shall, within thirty (30) days
after request, deliver to the other Party satisfactory evidence of
such authority.
45. Conflict. Any conflict between the printed provisions of this
Lease and the typewritten or handwritten provisions shall be
controlled by the typewritten or handwritten provisions.
46. Offer. Preparation of this Lease by either Party or their agent
and submission of same to the other Party shall not be deemed an offer
to lease to the other Party. This Lease is not intended to be binding
until executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by
the Parties in interest at the time of the modification. As long as
they do not materially change Lessee's obligations hereunder, Lessee
agrees to make such reasonable non-monetary modifications to this
Lease as may be reasonably required by a Lender in connection with the
obtaining of normal financing or refinancing of the Premises.
48. Multiple Parties. If more than one person or entity is named
herein as either Lessor or Lessee, such multiple Parties shall have
joint and several responsibility to comply with the terms of this
Lease.
49. Mediation and Arbitration of Disputes. An Addendum requiring the
Mediation and/or the Arbitration of all disputes between the Parties
and/or Brokers arising out of this Lease is not attached to this
Lease.

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH
TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS
LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES
HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF
THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND
PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

See Paragraph 50, "Option to Extend", which is attached hereto and
incorporated herein as part of this Lease. See Addendum 1 which is
attached hereto and Incorporated herein as part of this Lease and sets
forth Paragraphs 52 through 56.

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR
THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:

1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE
CONDITION OF THE PREMISES, SAID INVESTIGATION SHOULD INCLUDE BUT NOT
BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE
ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE
ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR
LESSEE'S INTENDED USE.

WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA,
CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH
THE LAWS OF THE STATE IN WHICH THE PREMISES IS LOCATED.

The parties hereto have executed this Lease at the place and on the
dates specified above their respective signatures.

By LESSOR: By LESSEE:

Earl E. and Mitsue Jio inTEST Sunnyvale Corporation, a
wholly-owned subsidiary of inTEST
Corporation, a Delaware
Corporation

By: /s/Earl E. Jio By: /s/Douglas W. Smith
----------------------- --------------------------------
Earl E. Jio Douglas W. Smith
Exec. VP, COO

By: /s/Mitsue Jio
-----------------------
Mitsue Jio

NOTE: These forms are often modified to meet the changing requirements
of law and industry needs. Always write or call to make sure you
are utilizing the most current form: AMERICAN INDUSTRIAL REAL
ESTATE ASSOCIATION, 700 So. Flower Street, Suite 600, Los
Angeles, California 90017. (213)687-8777. Fax No. (213)687-8616

Page 11 of 11

<PAGE>

OPTION(S) TO EXTEND
STANDARD LEASE ADDENDUM

Dated: September 28, 1999

By and Between (Lessor) Earl E. and Mitsue Jio
(Lessee) inTEST Corporation
Address of Premises: 1275-1279 Lawrence Station Road, Sunnyvale, CA

Paragraph 50

A. OPTION(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of this
Lease for One (1) additional Sixty (60) month period(s) commencing
when the prior term expires upon each and all of the following terms
and conditions:

(i) In order to exercise an option to extend, Lessee must give
written notice of such election to Lessor and Lessor must receive the
same at least 3 but not more than 4 months prior to the date that the
option period would commence, time being of the essence. If proper notification
of the exercise of an option is not given and/or received, such option shall
automatically expire. Options (if there are more than one) may only be
exercised consecutively.

(ii) The provisions of paragraph 39, including those relating to
Lessee's Default set forth in paragraph 39.4 of this Lease, are
conditions of this Option.

(iii) Except for the provisions of this Lease granting an option or
options to extend the term, all of the terms and conditions of this
Lease except where specifically modified by this option shall apply.

(iv) This Option is personal to the original Lessee and cannot be
assigned or exercised by anyone other than said original Lessee and
only while the original Lessee is in full possession of the Premises
and without the intention of thereafter assigning or subletting.

(v) The monthly rent for each month of the option period shall be
calculated as follows, using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)

I. Cost of Living Adjustment(s) (COLA)

N/A

II. Market Rental Value Adjustment(s) (MRV)
a. On (Fill in MRV Adjustment Date(s))December 1, 2004 the Base
Rent shall be adjusted to the "Market Rental Value" of the property as
follows:

1) Four months prior to each Market Rental Value Adjustment Date
described above, the Parties shall attempt to agree upon what the new
MRV will be on the adjustment date, If agreement cannot be reached,
within thirty days, then:

(a) Lessor and Lessee shall immediately appoint a mutually
acceptable appraiser or broker to establish the new MRV within the
next thirty days. Any associated costs will be split equally between
the Parties, or

(b) Both Lessor and Lessee shall each immediately make a
reasonable determination of the MRV and submit such determination, in
writing, to arbitration in accordance with the following provisions:

Initials: EJ Initial: DWS
MJ

Page 1 of 2

<PAGE>

(i) Within fifteen days thereafter, Lessor and Lessee
shall each select an El appraiser or El broker ("Consultant" - check
one) of their choice to act as an arbitrator. The two arbitrators so
appointed shall immediately select a third mutually acceptable
Consultant to act as a third arbitrator.

(ii) The three arbitrators shall within thirty days of
the appointment of the third arbitrator reach a decision as to what
the actual MRV for the Premises is, and whether Lessor's or Lessee's
submitted MRV is the closest thereto. The decision of a majority of
the arbitrators shall be binding on the Parties. The submitted MRV
which is determined to be the closest to the actual MRV shall
thereafter be used by the Parties.

(iii) If either of the Parties fails to appoint an
arbitrator within the specified fifteen days, the arbitrator timely
appointed by one of them shall reach a decision on his or her own, and
said decision shall be binding on the Parties.

(iv) The entire cost of such arbitration shall be paid by
the party whose submitted MRV is not selected, ie. the one that is NOT
the closest to the actual MRV.

2) Notwithstanding the foregoing, the new MRV shall not be less
than the rent payable for the month immediately preceding the rent
adjustment.

b. Upon the establishment of each New Market Rental Value:

1) the new MRV will become the new "Base Rent" for the purpose
of calculating any further Adjustments, and

2) the first month of each Market Rental Value term shall become
the new "Base Month" for the purpose of calculating any further
Adjustments.

III. Fixed Rental Adjustment(s) (FRA)

N/A

B. NOTICE:
Unless specified otherwise herein, notice of any rental
adjustments, other than Fixed Rental Adjustments, shall be made as
specified in paragraph 23 of the Lease.

C. BROKER'S FEE:
The Brokers specified in paragraph 1.10 shall be paid a Brokerage
Fee for each adjustment specified above in accordance with paragraph
15 of the Lease.

Initials: EJ Initial: DWS
MJ

Page 2 of 2

<PAGE>

ADDENDUM 1

THIS ADDENDUM IS AITACHED TO AND MADE A PART OF THAT CERTAIN LEASE
AGREEMENT BY AND BETWEEN EARL E. AND MITSUE JIO ("LESSOR") AND INTEST
SUNNYVALE CORPORATION ("LESSEE") FOR THE PREMISES LOCATED AT 1275-1279
LAWRENCE STATION ROAD, SUNNYVALE, CALIFORNIA AND DATED SEPTEMBER 28, 1999 FOR
REFERENCE PURPOSES ONLY.

51. Tenant Improvements: Lessor shall provide a $15.00 per square
foot tenant improvement allowance. All tenant improvements shall be
performed in accordance with the terms and provisions of the Lease.
Lessee shall invoice Lessor for the cost of such tenant improvements
with such backup information as is reasonably requested by Lessor.
Lessor shall make payment of such Invoices within the amount of the
allowance within 30 day's of receipt of the invoice and statutory
lien releases from all contractors and subcontractors performing
improvements to the property. The allowance shall be used for the
following items:

a. all ADA upgrades;
b. interior paint and patching;
c. interior floor covering (cat-pet and VCT); and
d. specific changes for Lessee's intended use, which will be
mutually agreed upon with Lessor.

52. Rent:

Months Rent/SF/Mo/NNN
12/01/99-11/30/00 $25,557.00
12/01/00-11/30/01 $26,469.75
12/01/01-11/30/02 $27,382.50
12/01/02-11/30/03 $28,295.25
12/01/03-11/30/04 $29,208.00

53. Alterations: Lessee, at Lessee's sole cost and expense may
install vents in the roof for the machine shop. Therefore, Lessor
shall not be responsible for any roof leaks associated with said
vents.

54. Purchase Option: Lessee shall have an option to purchase the
building at Fair Market Value if the Lessor, at its sole option,
elects to sell the building. In the event Lessor makes a decision to
offer the property for sale, Lessor shall provide written notice to
Lessee. Lessee shall have an option, exercisable within 15 days of the
date of the notice, to purchase the building at Fair Market Value to
be determined by independent appraisal as follows: Lessor and Lessee
shall each choose an MAI appraiser to separately determine a value of
the property. If the Fair Market Value as determined by the two
appraisers varies by less than $50,000, the amounts of the appraisals
shall be averaged and that average shall be the purchase price. If the
Fair Market Value as determined by the appraisers varies by $50,000 or
more, the two appraisers shall select a third MAI appraiser. That
third appraiser shall appraise the property and the three appraisers
shall meet and mutually agree on a Fair Market Value for the property.
If the three appraisers are unable to so agree, the Fair Market Value
shall be determined by a court of competent jurisdiction.

55. Lessor shall repair or replace asphalt, at Lessor's option, and
completely resurface the paved parking areas surrounding the building
within 36 months of the Commencement Date.

56. Lessor at its cost shall paint the exterior of the building.

<PAGE>

AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
GUARANTY OF LEASE

WHEREAS Earl E. and Mitsue Jio, hereinafter "Lessor", and inTEST
Sunnyrvale Corporation, a wholly owned subsidiary of inTEST
Corporation, hereinafter "Lessee", are about to execute a document
entitled "Lease" dated September 28, 1999 concerning the premises
commonly known as 1275-1279 Lawrence Station Road, Sunnyvale wherein
Lessor will lease the premises to Lessee, and
WHEREAS, inTEST Corporation, a Delaware corporation hereinafter
"Guarantors" have a financial interest in Lessee, and
WHEREAS, Lessor would not execute the Lease if Guarantors did not
execute and deliver to Lessor this Guarantee of Lease.

NOW THEREFORE, in consideration of the execution of the foregoing
Lease by Lessor and as a material inducement to Lessor to execute said
Lease, Guarantors hereby jointly, severally, unconditionally and
irrevocably guarantee the prompt payment by Lessee of all rents and
all other sums payable by Lessee under said Lease and the faithful and
prompt performance by Lessee of each and every one of the terms,
conditions and covenants of said Lease to be kept and performed by
Lessee.

It is specifically agreed that the terms of the foregoing Lease
may be modified by agreement between Lessor and Lessee, or by a course
of conduct, and said Lease may be assigned by Lessor or any assignee
of Lessor without consent or notice to Guarantors and that this
Guaranty shall guarantee the performance of said Lease as so modified.

This Guaranty shall not be released, modified or affected by the
failure or delay on the part of Lessor to enforce any of the rights or
remedies of the Lessor under said Lease, whether pursuant to the terms
thereof or at law or in equity.

No notice of default need be given to Guarantors, it being
specifically agreed that the guarantee of the undersigned is a
continuing guarantee under which Lessor may proceed immediately
against Lessee and/or against Guarantors following any breach or
default by Lessee or for the enforcement of any rights which Lessor
may have as against Lessee under the terms of the Lease or at law or
in equity.

Lessor shall have the right to proceed against Guarantors
hereunder following any breach or default by Lessee without first
proceeding against Lessee and without previous notice to or demand
upon either Lessee or Guarantors.

Guarantors hereby waive (a) notice of acceptance of this
Guaranty. (b) demand of payment, presentation and protest, (c) all
right to assert or plead any statute of limitations relating to this
Guaranty or the Lease, (d) any right to require the Lessor to proceed
against the Lessee or any other Guarantor or any other person or
entity liable to Lessor, (e) any right to require Lessor to apply to
any default any security deposit or other security it may hold under
the Lease, (f) any right to require Lessor to proceed under any other
remedy Lessor may have before proceeding against Guarantors, (g) any
right of subrogation.

Guarantors do hereby subrogate all existing or future
indebtedness of Lessee to Guarantors to the obligations owed to Lessor
under the Lease and this Guaranty.

If a Guarantor is married, such Guarantor expressly agrees that
recourse may be had against his or her separate property for all of
the obligations hereunder.

The obligations of Lessee under the Lease to execute and deliver
estoppel statements and financial statements, as therein provided,
shall be deemed to also require the Guarantors hereunder to do and
provide the same.

The term "Lessor" refers to and means the Lessor named in the
Lease and also Lessor's successors and assigns. So long as Lessor's
interest in the Lease, the leased premises or the rents, issues and
profits therefrom, are subject to any mortgage or deed of trust or
assignment for security, no acquisition by Guarantors of the Lessor's
interest shall affect the continuing obligation of Guarantors under
this Guaranty which shall nevertheless continue in full force and
effect for the benefit of the mortgagee, beneficiary, trustee or
assignee under such mortgage, deed of trust or assignment and their
successors and assigns.

The term "Lessee" refers to and means the Lessee named in the
Lease and also Lessee's successors and assigns.

In the event any action be brought by said Lessor against
Guarantors hereunder to enforce the obligation of Guarantors
hereunder, the unsuccessful party in such action shall pay to the
prevailing party therein a reasonable attorney's fee which shall be
fixed by the court.

If this Form has been filled in, it has been prepared for submission
to your attorney for his approval. No representation or recommendation
is made by the American Industrial Real Estate Association, the real
estate broker or its agents or employees as to the legal sufficiency,
legal effect, or tax consequences of this Form or the transaction
relating thereto.

Executed at: Sunnyvale, CA /s/Douglas W. Smith
On 10/27/99 -------------------------
Address 542 Lakeside Drive Exec. VP, COO

"GUARANTORS"

<PAGE>
Exhibit 21

Subsidiaries of the Registrant

Name of Subsidiaries and Names
Under Which Subsidiaries Do Business Jurisdiction of Incorporation
- ------------------------------------ -----------------------------

inTEST Limited England
inTEST Kabushiki Kaisha Japan
inTEST PTE, Ltd. Singapore
inTEST Investments, Inc. Delaware
inTEST IP Corp. Delaware
inTEST Licensing Corp. Delaware
inTEST Sunnyvale Corp. Delaware
Temptronic Corporation* Delaware

* Incorporated on December 14, 1999, for the purpose of acquiring
Temptronic.

<PAGE>

EXHIBIT 23

Consent of Independent Auditors

The Board of Directors and Stockholders
inTEST Corporation

We consent to the incorporation by reference in the registration statement
(No. 333-44059) on Form S-8 of inTEST Corporation of our report dated
February 23, 2000, relating to the consolidated balance sheets of inTEST
Corporation and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of earnings, comprehensive earnings,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1999, and the related consolidated financial
statement schedule, which report appears in the December 31, 1999 annual
report on Form 10-K of inTEST Corporation.

KPMG LLP
Philadelphia, Pennsylvania
March 29, 2000

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE 1999 ANNUAL
REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0001036262
<NAME> INTEST CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> USD

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 12,018
<SECURITIES> 0
<RECEIVABLES> 6,473
<ALLOWANCES> 185
<INVENTORY> 3,826
<CURRENT-ASSETS> 23,212
<PP&E> 3,268
<DEPRECIATION> 1,483
<TOTAL-ASSETS> 31,620
<CURRENT-LIABILITIES> 6,234
<BONDS> 0
0
0
<COMMON> 65
<OTHER-SE> 25,321
<TOTAL-LIABILITY-AND-EQUITY> 31,620
<SALES> 34,496
<TOTAL-REVENUES> 34,496
<CGS> 15,604
<TOTAL-COSTS> 12,569
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 6,729
<INCOME-TAX> 2,635
<INCOME-CONTINUING> 4,094
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,094
<EPS-BASIC> .63
<EPS-DILUTED> .62

</TABLE>