<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1997.
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AEHR TEST SYSTEMS
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 3825 94-2424084
(State of incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification Number)
</TABLE>
1667 PLYMOUTH STREET
MOUNTAIN VIEW, CALIFORNIA 94043
(415) 691-9400
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------------
GARY L. LARSON
VICE PRESIDENT OF FINANCE AND CHIEF FINANCIAL OFFICER
AEHR TEST SYSTEMS
1667 PLYMOUTH STREET
MOUNTAIN VIEW, CALIFORNIA 94043
(415) 691-9400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MARIO M. ROSATI DENNIS C. SULLIVAN
MICHAEL J. DANAHER DAVID A. HUBB
WILSON SONSINI GOODRICH & ROSATI GRAY CARY WARE & FREIDENRICH
Professional Corporation A Professional Corporation
650 Page Mill Road 400 Hamilton Avenue
Palo Alto, California 94304-1050 Palo Alto, California 94301-1825
(415) 493-9300 (415) 328-6561
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE
AND THE UNDERWRITING AGREEMENT IS EXECUTED.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per share................ 3,795,000 $11.00 $41,745,000 $12,650
</TABLE>
(1) Includes 495,000 shares issuable upon exercise of an option granted by the
Selling Shareholders to the Underwriters to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 11, 1997
3,300,000 SHARES
[LOGO]
COMMON STOCK
--------------
Of the 3,300,000 shares of Common Stock offered hereby, 2,200,000 shares are
being sold by Aehr Test Systems ("Aehr Test" or the "Company") and 1,100,000
shares are being sold by the Selling Shareholders. The Company will not receive
any of the proceeds from the sale of shares by the Selling Shareholders. See
"Principal and Selling Shareholders."
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $9.00 and $11.00 per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. Application has been made to have the Common Stock approved for quotation
on the Nasdaq National Market under the symbol "AEHR".
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING AT PAGE 5.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) SHAREHOLDERS
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Per Share..................... $ $ $ $
Total (3)..................... $ $ $ $
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</TABLE>
(1) See "Underwriting," for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses of the offering payable by the Company estimated
at $900,000.
(3) Certain of the Selling Shareholders have granted the Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to 495,000
additional shares of Common Stock for the purpose of covering
over-allotments, if any. If the Underwriters exercise such option in full,
the total Price to Public, Underwriting Discounts and Proceeds to Selling
Shareholders will be $ , $ and $ , respectively. See
"Underwriting."
-------------------
The shares of Common Stock are offered severally by the Underwriters when,
as and if delivered to and accepted by them, subject to their right to withdraw,
cancel or reject orders in whole or in part and subject to certain other
conditions. It is expected that delivery of the certificates representing the
shares will be made against payment on or about , 1997 at the office
of Oppenheimer & Co., Inc., Oppenheimer Tower, World Financial Center, New York,
New York 10281.
-------------------
OPPENHEIMER & CO., INC. NEEDHAM & COMPANY, INC.
The date of this Prospectus is , 1997
<PAGE>
FRONT INSIDE COVER
[PICTURE OF MTX SYSTEM] The MTX massively parallel test
systems is designed to reduce the cost
of memory testing by performing both
test and burn-in on thousands of
devices, including DRAMs, SDRAMs and
SRAMs.
[PICTURE OF DIEPAK CARRIER] The DiePak carrier is a reusable
temporary package that enables IC
manufacturers to perform
cost-effective final test and burn-in
of bare die.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SHARES, INCLUDING
SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION, OF A PENALTY BID. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE SHARES
ON NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
DiePak-Registered Trademark-, Aehr Test and the Aehr Test Systems logo are
trademarks of the Company. This Prospectus also includes trademarks of companies
other than the Company.
2
<PAGE>
FRONT COVER FOLD-OUT
The MTX system performs many of the time-consuming tests traditionally performed
by lower-throughput, higher-cost memory testers.
[FLOW DIAGRAM COMPARING TRADITIONAL PROCESS FLOW WITH PARALLEL PROCESS FLOW
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE NOTED HEREIN, ALL
INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED.
DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE
MATERIAL SET FORTH UNDER "THE COMPANY," "RISK FACTORS," "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," AND "BUSINESS,"
AS WELL AS IN THE PROSPECTUS GENERALLY. ACTUAL EVENTS OR RESULTS MAY DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
VARIOUS FACTORS, INCLUDING WITHOUT LIMITATION THE RISK FACTORS SET FORTH BELOW
AND THE MATTERS SET FORTH IN THE PROSPECTUS GENERALLY.
THE COMPANY
Aehr Test develops, manufactures and sells systems which are designed to
reduce the cost of testing DRAMs and other memory devices, and products which
are designed to enable IC manufacturers to perform test and burn-in of bare die.
Leveraging its expertise as a long-time leading provider of burn-in equipment,
with over 2,000 systems installed world-wide, the Company has developed and
introduced two innovative product families, the MTX system and the DiePak
carrier. The MTX is a massively parallel test system capable of processing
thousands of memory devices simultaneously. The DiePak carrier is a reusable
temporary package that enables IC manufacturers to perform cost-effective final
test and burn-in of bare die. The Company also offers systems that perform
reliability screening (burn-in) for complex logic and memory devices.
The semiconductor industry is intensely competitive. IC manufacturers
compete on the basis of price, performance and increasingly, for applications
such as notebook PCs and portable phones, "form factor" or size. Price
competition is especially severe for high volume products such as DRAMs. In
1996, for example, prices for 16Mb DRAMs fell from more than $50 to less than $8
per device. The continuing price competition motivates IC manufacturers to
reduce production costs, including test costs, wherever possible. According to
Dataquest, as of 1997 final test costs represent approximately 8.5% of total
manufacturing costs for 64Mb DRAMs. The competitive factors affecting the
semiconductor industry also have encouraged the emergence of new IC packaging
and interconnect technologies, including the use of unpackaged or "bare" die
mounted directly on a multi-chip module or printed circuit board. Using bare die
dramatically reduces the form factor of a system's IC components. For example, a
packaged microprocessor is typically four to five times the size of the bare
die, and a packaged memory device is typically twice the size of the bare die.
Using bare die also can improve product performance by increasing system
operating speed and reducing power consumption and potentially could save costs
associated with packaging ICs. The widespread use of bare die has been
restricted by the absence of a cost-effective means of performing final test and
burn-in.
The MTX massively parallel test system is designed to reduce the cost of
memory testing by performing both test and burn-in on thousands of devices
simultaneously, including DRAMs, SDRAMs and SRAMs. IC manufacturers can optimize
the final test process by transferring many time-consuming tests to the MTX
system and using lower-throughput, higher-cost memory testers to perform only
the high accuracy test functions for which they are most effective. The Company
believes that this "mix and match" strategy can enable IC manufacturers to
reduce the required number of conventional memory testers and, as a result,
substantially reduce capital and operating costs. Siemens has purchased
production quantities of MTX systems from the Company, and other leading
manufacturers have purchased units for evaluation.
The DiePak product line includes the DiePak bare die carriers, temporary
reusable packages in which the bare die are placed, as well as sockets which are
used to connect the carriers to test boards for test and burn-in. Using the
DiePak carrier, IC manufacturers can perform final test and burn-in of bare die
using many of the same systems they use for packaged ICs. The DiePak carrier
thus can enable IC manufacturers to supply to their customers "known good die"
that meet the same reliability specifications as packaged die. Motorola, Inc. is
using the DiePak carrier in volume production, and other leading manufacturers
have purchased DiePak carriers for evaluation.
The Company's current burn-in products consist of the MAX and ATX product
families. The Company believes that its burn-in systems provide accurate and
reliable burn-in for complex logic and memory ICs. The
3
<PAGE>
Company also manufactures and sells test fixtures, including performance test
boards for use with the MTX system and burn-in boards for use with burn-in
systems. The test fixtures hold and provide the electrical interface between the
devices undergoing burn-in or test.
The Company assembles its products from components and parts manufactured by
others. Final assembly and test are performed at the Company's principal
facility, located in Mountain View, California, and at a Tokyo facility operated
by its Japanese subsidiary. The Company's strategy is to use in-house
manufacturing only when necessary to protect a proprietary process or if a
significant improvement in quality, cost or lead time can be achieved.
The Company markets and sells its products in the United States through a
combination of a direct sales force and independent sales representatives. The
Company markets and sells its products in Japan, Germany, Austria, Switzerland
and the Benelux countries through its subsidiaries' direct sales forces, and in
other countries through a network of independent distributors and sales
representatives.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company........................................... 2,200,000 shares
Selling Shareholders.................................. 1,100,000 shares
Common Stock to be outstanding after the Offering....... 6,495,522 shares(1)
Use of proceeds ........................................ Repayment of debt, capital
expenditures, and general corporate
purposes, including working capital and
potential acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol.................. AEHR
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MAY 31, ----------------------
------------------------------------------ FEB. 29, FEB. 28,
1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales............................................ $ 24,529 $ 23,204 $ 23,257 $ 33,234 $ 24,067 $ 30,302
Income (loss) from operations........................ (2,387) (4,198) (2,080) 2,536 1,655 2,486
Net income (loss).................................... (2,809) (4,250) (1,987) 1,400 946 1,380
Net income (loss) per share(2)....................... $ (0.69) $ (1.02) $ (0.45) $ 0.31 $ 0.21 $ 0.31
Shares used in per share calculations(2)............. 4,091 4,147 4,427 4,473 4,482 4,502
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
----------------------
AS
ACTUAL ADJUSTED(3)
--------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Cash and cash equivalents...................................................................... $ 521 $ 15,520
Working capital................................................................................ 5,963 25,523
Total assets................................................................................... 23,895 38,894
Long-term obligations, less current portion.................................................... 394 394
Total shareholders' equity..................................................................... 8,137 27,697
</TABLE>
- ------------------------------
(1) Excludes (i) 1,357,350 shares reserved for issuance under the Company's
stock option plans, of which 741,850 shares were subject to outstanding
options as of February 28, 1997, at a weighted average exercise price of
$3.95 per share and (ii) 300,000 shares reserved for issuance under the
Company's 1997 Employee Stock Purchase Plan. See "Management--Stock Plans"
and Note 8 of Notes to Consolidated Financial Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements for a description
of the computation of the number of shares used in per share calculations
and net income (loss) per share.
(3) Adjusted to reflect the sale of the 2,200,000 shares of Common Stock offered
by the Company hereby (at an assumed initial public offering price of $10.00
per share and after deducting the underwriting discount and estimated
offering expenses payable by the Company) and the application of the
estimated net proceeds therefrom, less approximately $4.6 million of
short-term borrowings to be repaid by the Company with the proceeds of this
offering ("Offering"). See "Use of Proceeds" and "Capitalization."
4
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW AND ELSEWHERE IN
THIS PROSPECTUS.
FLUCTUATIONS IN OPERATING RESULTS
The Company has experienced and expects to continue to experience
significant fluctuations in its quarterly and annual operating results. The
Company's future operating results will depend upon a variety of factors,
including the timing of significant orders, the mix of products sold, changes in
pricing by the Company, its competitors, customers or suppliers, the length of
sales cycles for the Company's systems, timing of new product announcements and
releases by the Company and its competitors, market acceptance of new products
and enhanced versions of the Company's products, capital spending patterns by
customers, timing of completion of DARPA development milestones, manufacturing
inefficiencies associated with new product introductions by the Company, the
Company's ability to produce systems and products in volume and meet customer
requirements, product returns and customer acceptance of product shipments,
volatility in the Company's targeted markets, political and economic
instability, natural disasters, regulatory changes, possible disruptions caused
by expanding existing facilities or moving into new facilities, expenses
associated with acquisitions and alliances, and various competitive factors,
including price-based competition and competition from vendors employing other
technologies. The Company's gross margins have varied and will continue to vary
based on a variety of factors, including the mix of products sold, sales volume,
and the amount of products sold under volume purchase arrangements, which tend
to have lower selling prices. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Accordingly, past performance
may not be indicative of future performance.
During the Company's last two fiscal years, net sales in the first fiscal
quarter, ended August 31, have declined compared with the fourth fiscal quarter,
ended May 31, of the preceding fiscal year, primarily due to additional emphasis
being placed on shipping products prior to the end of the fiscal year. The
Company expects that fluctuations of this type may occur in the future. The
Company derives a substantial portion of its revenues from the sale of a
relatively small number of systems which typically range in purchase price from
approximately $100,000 to over $1.5 million. As a result, the loss or deferral
of a limited number of system sales could have a material adverse effect on the
Company's net sales and operating results in a particular period. All customer
purchase orders are subject to cancellation or rescheduling by the customer with
limited penalties, and, therefore, backlog at any particular date is not
necessarily indicative of actual sales for any succeeding period. From time to
time, delays by the Company's suppliers in providing components or subassemblies
to the Company have caused delays in the Company's shipments of its own
products. A substantial portion of net sales typically are realized near the end
of each quarter. A delay or reduction in shipments near the end of a particular
quarter, due, for example, to unanticipated shipment reschedulings,
cancellations or deferrals by customers, customer credit issues, unexpected
manufacturing difficulties experienced by the Company, or delays in deliveries
by suppliers, could cause net sales in a particular quarter to fall
significantly below the Company's expectations. As the Company is continuing to
increase its operating expenses in anticipation of increasing sales levels, the
Company's results of operations will be adversely affected if such sales levels
are not achieved.
RECENT OPERATING LOSSES
The Company incurred operating losses of $2.4, $4.2 and $2.1 million in
fiscal 1993, fiscal 1994 and fiscal 1995, respectively. As of February 28, 1997,
the Company had an accumulated deficit of $2.1 million. Although the Company has
operated profitably during fiscal 1996 and 1997, increased revenues in those
years were substantially the result of sales of new products, particularly the
MTX system, which was sold
5
<PAGE>
primarily to a single purchaser. There can be no assurance that the MTX system
will receive broad market acceptance or that the Company will be able to sustain
revenue growth or profitability.
DEPENDENCE ON DEVELOPMENT OF MARKET FOR MTX SYSTEMS
A principal element of the Company's strategy is to capture an increasing
share of the memory test equipment market through sales of the MTX massively
parallel test system. The MTX is a new system designed to perform both burn-in
and many of the final test functions currently performed by high-cost memory
testers and the market for MTX systems is in the early stage of development. The
Company's strategy depends, in part, upon its ability to persuade potential
customers that the MTX system can successfully perform a significant portion of
such final test functions and that transferring such tests to MTX systems will
reduce their overall capital and test costs. There can be no assurance that the
Company's strategy will be successful. The failure of the MTX system to achieve
market acceptance would have a material adverse effect on the Company's
business, financial condition and operating results.
Market acceptance of the MTX system is subject to a number of risks. The
Company believes the MTX system has not yet been used in volume production to
perform a significant portion of the test functions performed by memory testers.
To date, several companies have purchased evaluation units of the MTX system;
however, only Siemens has purchased production quantities. Although Siemens has
taken delivery of production quantities of MTX systems, has been conducting
extensive evaluations and has placed orders for additional systems, Siemens has
not yet completed the evaluations necessary for it to transfer significant test
functions from standard testers to MTX systems. Consequently, there can be no
assurance that the MTX system will be accepted by the market for performing
memory test functions in volume production. Future sales to Siemens and other
customers could be adversely affected if for any reason Siemens does not satisfy
itself that a significant number of test functions can successfully be
transferred to the MTX system.
Since most potential customers have successfully relied on memory testers
for many years, and their personnel understand the use and maintenance of such
systems, they may be reluctant to change their procedures in order to transfer
test functions to the MTX system. Furthermore, MTX system sales are expected to
be primarily limited to new production facilities and to existing test lines
being upgraded to accommodate new product generations, such as a transition from
16 megabit ("Mb") to 64Mb DRAMs. Market acceptance of the MTX system also may be
affected by a reluctance of IC manufacturers to rely on relatively small
suppliers such as the Company.
As is common with new complex and software-intensive products, the Company
encountered reliability, design and manufacturing issues as it began volume
production and initial installations of MTX systems at customer sites. The
Company places a high priority on addressing these issues as they arise. Since
the Company is still in the early stages of the MTX systems' life cycle, there
can be no assurance that other reliability, design and manufacturing issues will
not be discovered in the future or that such issues, if they arise, can be
resolved to the customers' satisfaction or that the resolution of such problems
will not cause the Company to incur significant development costs or warranty
expenses or to lose significant sales opportunities.
The Company's future sales and operating results are also partially
dependent on its sales of performance test boards ("PTBs") for use with the MTX
system. Sales of PTBs by the Company and its licensees will depend upon the
number of MTX systems installed by customers.
DEPENDENCE ON DEVELOPMENT OF BARE DIE MARKET
Another principal element of the Company's strategy is to capture an
increasing share of the bare die burn-in and test product market through sales
of its DiePak carrier products. The Company developed the DiePak carrier to
enable burn-in and test of bare die in order to supply known good die ("KGD")
for use in applications such as multi-chip modules. The Company's strategy
depends upon increased industry
6
<PAGE>
acceptance of bare die as an alternative to packaged die as well as acceptance
of the Company's DiePak products. There can be no assurance that the Company's
strategy will be successful. The failure of the bare die market to expand or of
the DiePak carrier to achieve broad market acceptance would have a material
adverse effect on the Company's business, financial condition and operating
results.
The emergence of the bare die market and broad acceptance of the DiePak
carrier are subject to a number of risks. The Company believes that the growth
of the bare die market depends largely on the relative cost and benefits to the
manufacturers of PCs and other electronics products of using bare die rather
than alternative IC packaging methods. The Company believes that the cost of
producing KGD using DiePak products is currently higher than the cost of
producing most packaged die. There can be no assurance that electronics
manufacturers will perceive that the benefits of KGD justify its potentially
higher cost, and acceptance of KGD for many applications may therefore be
limited. In addition, electronics manufacturers must change their manufacturing
processes in order to use KGD, but electronics manufacturers typically have
substantial investments in existing manufacturing technology and have
historically been slow in transitioning to new technologies.
The adoption of the DiePak products by IC manufacturers and test companies
typically will involve a lengthy qualification. Such qualification processes
could delay high volume sales of DiePak products by the Company. Motorola is the
only customer currently ordering DiePak products in production quantities.
Motorola accounted for approximately 42% of the Company's net sales of DiePak
products in the nine months ended February 28, 1997. There can be no assurance
that the bare die market will emerge and grow as the Company anticipates, that
the DiePak carrier will achieve commercial acceptance, or that the Company will
not experience difficulties in ramping up production to meet any increased
demand for DiePak products that may develop.
LIMITED MARKET FOR BURN-IN SYSTEMS
Prior to fiscal 1995, a substantial portion of the Company's net sales were
derived from the sale of burn-in systems. The market for burn-in systems is
mature and estimated to be less than $100 million per year. In general, process
control improvements in the semiconductor industry have tended to reduce burn-in
times. In addition, as a given IC product generation matures and yields
increase, the required burn-in time may be reduced or eliminated. Some burn-in
system suppliers primarily provide "monitored" burn-in systems optimized for
DRAMs. The sale of monitored burn-in products has reduced the size of the market
segment addressed by the Company's dynamic burn-in systems. IC manufacturers,
the Company's primary potential and historical customer base, increasingly
outsource test and burn-in to independent test labs, who often build their own
systems. There can be no assurance that the market for burn-in systems will
grow, and sales of the Company's burn-in products could decline further.
CUSTOMER CONCENTRATION
The semiconductor manufacturing industry is highly concentrated, with a
relatively small number of large semiconductor manufacturers and contract
assemblers accounting for a substantial portion of the purchases of
semiconductor equipment. Sales to the Company's five largest customers accounted
for approximately 45.1%, 55.8% and 73.8% of its net sales in fiscal 1995, 1996
and the nine months ended February 28, 1997, respectively. During fiscal 1996
and the nine months ended February 28, 1997, Siemens accounted for 29.1% and
57.3% of the Company's net sales, respectively. During fiscal 1995, Sony
Corporation ("Sony") accounted for 18.2% of net sales. No other customers
represented more than 10% of the Company's net sales for any of such periods.
The Company expects that sales of its products to a limited number of customers
will continue to account for a high percentage of net sales for the foreseeable
future. In addition, sales to particular customers may fluctuate significantly
from quarter to quarter. The loss of or reduction or delay in orders from a
significant customer, or a delay in collecting or failure to collect accounts
receivable from a significant customer could adversely affect the Company's
business, financial condition and operating results. See "Business--Customers."
7
<PAGE>
LENGTHY SALES CYCLE
Sales of the Company's systems depend, in significant part, upon the
decision of a prospective customer to increase manufacturing capacity or to
restructure current manufacturing facilities, either of which typically involve
a significant commitment of capital. In view of the significant investment or
strategic issues that may be involved in a decision to purchase MTX systems or
DiePak carriers, the Company may experience delays following initial
qualification of the Company's systems as a result of delays in a customer's
approval process. For this and other reasons, the Company's systems typically
have a lengthy sales cycle during which the Company may expend substantial funds
and management effort in securing a sale. Lengthy sales cycles subject the
Company to a number of significant risks, including inventory obsolescence and
fluctuations in operating results, over which the Company has little or no
control. The loss of individual orders due to the lengthy sales and evaluation
cycle, or delays in the sale of even a limited number of systems could have a
material adverse effect on the Company's business, operating results and
financial condition and, in particular, could contribute to significant
fluctuations in operating results on a quarterly basis.
DEPENDENCE ON INTERNATIONAL SALES AND OPERATIONS
Approximately 81.5%, 90.4% and 93.7% of the Company's net sales for fiscal
1995, 1996 and the nine months ended February 28, 1997, respectively, were
attributable to sales to customers for delivery outside of the United States.
The Company maintains a sales, service, product engineering and assembly
operation in Japan and a sales and service organization in Germany. The Company
expects sales of products for delivery outside of the United States will
continue to represent a substantial portion of its future revenues. The future
performance of the Company will depend, in significant part, upon its ability to
continue to compete in foreign markets which in turn will depend, in part, upon
a continuation of current trade relations between the United States and foreign
countries in which semiconductor manufacturers or assemblers have operations. A
change toward more protectionist trade legislation in either the United States
or such foreign countries, such as a change in the current tariff structures,
export compliance or other trade policies, could adversely affect the Company's
ability to sell its products in foreign markets. In addition, the Company is
subject to other risks associated with doing business internationally, including
longer receivables collection periods and greater difficulty in accounts
receivable collection, the burden of complying with a variety of foreign laws,
difficulty in staffing and managing global operations, risks of civil
disturbance or other events which may limit or disrupt markets, international
exchange restrictions, changing political conditions and monetary policies of
foreign governments. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Because a substantial portion of the Company's net sales is from sales of
products for delivery outside the United States, including particularly Germany
and Japan, an increase in the value of the U.S. Dollar relative to foreign
currencies would increase the cost of the Company's products compared to
products sold by local companies in such markets. Although most sales to German
customers are denominated in dollars, substantially all sales to Japanese
customers are denominated in Japanese Yen. Since the price is determined at the
time a purchase order is accepted, the Company is exposed to the risks of
fluctuations in the yen-dollar exchange rate during the lengthy period from
purchase order to ultimate payment. This exchange rate risk is partially offset
to the extent the Company's Japanese subsidiary incurs yen-denominated expenses.
To date, the Company has not invested in instruments designed to hedge currency
risks. In fiscal 1996, the Company experienced a foreign currency loss of
$573,000. In addition, the Company's Japanese subsidiary typically carries debt
owed to the Company and denominated in dollars. Since the subsidiary's financial
statements are based in yen, it recognizes an income gain or loss in any period
in which the value of the yen rises or falls in relation to the dollar.
A substantial portion of the world's manufacturers of memory devices are in
Korea and Japan and growth in the Company's net sales depends in large part upon
its ability to penetrate the Korean and Japanese markets. Both the Korean and
Japanese markets are difficult for foreign companies to penetrate.
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<PAGE>
The Company has served the Japanese market through its Japanese subsidiary,
which has experienced limited success in recent years. The Company formerly
served the Korean market through a direct support operation, which was closed in
1996, and now relies on a local distributor, but its sales into Korea have not
been significant in recent years. The lack of local manufacturing may impede the
Company's efforts to develop the Korean market. There can be no assurances that
the Company's efforts in Japan or Korea will be successful or that the Company
will be able to achieve and sustain significant sales to, or be able to
successfully compete in, the Japanese or Korean test and burn-in markets.
RAPID TECHNOLOGICAL CHANGE; IMPORTANCE OF TIMELY PRODUCT INTRODUCTION
The semiconductor equipment industry is subject to rapid technological
change and new product introductions and enhancements. The Company's ability to
remain competitive will depend in part upon its ability to develop new products
and to introduce these products at competitive prices and on a timely and
cost-effective basis. The Company's success in developing new and enhanced
products depends upon a variety of factors, including product selection, timely
and efficient completion of product design, timely and efficient implementation
of manufacturing and assembly processes, product performance in the field and
effective sales and marketing. Because new product development commitments must
be made well in advance of sales, new product decisions must anticipate both
future demand and the technology that will be available to supply that demand.
There can be no assurance that the Company will be successful in selecting,
developing, manufacturing and marketing new products that satisfy market demand.
Any such failure would materially adversely affect the Company's business,
financial condition and results of operations.
Because of the complexity of the Company's products, significant delays can
occur between a product's introduction and the commencement of volume production
of such product. The Company has experienced significant delays from time to
time in the introduction of, and technical and manufacturing difficulties with,
certain of its products and may experience delays and technical and
manufacturing difficulties in future introductions or volume production of new
products, and there can be no assurance that the Company will not encounter such
difficulties in the future. The Company's inability to complete product
development, products or to manufacture and ship products in volume and in time
to meet customer requirements would materially adversely affect the Company's
business, financial condition and results of operations.
In 1994, the Company entered into a cost-sharing agreement with DARPA, a
U.S. government agency, under which DARPA is providing co-funding for the
development of wafer-level burn-in and test equipment. The contract provides for
potential payments by DARPA totaling up to $6.5 million. The Company has
received $2.4 million through February 28, 1997, and the remaining payments are
scheduled to be made through January 1999. Payments by DARPA depend on
satisfaction of development milestones, and DARPA has the right to terminate
project funding at any time. The level of payments may vary significantly from
quarter to quarter. There can be no assurance that the Company will meet the
development milestones or that DARPA will continue funding the project. If DARPA
funding were discontinued and the Company continued the project, the Company's
operating results would be adversely affected. There also can be no assurance
that the development project will result in any marketable products.
Future improvements in semiconductor design and manufacturing technology may
reduce or eliminate the need for the Company's products. For example, the
introduction of viable wafer-level burn-in and test systems, improvements in
built-in self test ("BIST") technology, and improvements in conventional test
systems, such as reduced cost or increased throughput, may significantly reduce
or eliminate the market for one or more of the Company's products.
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<PAGE>
INTENSE COMPETITION
In each of the markets it serves, the Company faces competition from
established competitors and potential new entrants, many of which have greater
financial, engineering, manufacturing and marketing resources than the Company.
The Company expects its competitors to continue to improve the performance of
their current products and to introduce new products with improved price and
performance characteristics. In addition, continuing consolidation in the
semiconductor equipment industry, and potential future consolidation, could
adversely affect the ability of smaller companies such as the Company to compete
with larger, integrated competitors. New product introductions by the Company's
competitors or by new market entrants could cause a decline in sales or loss of
market acceptance of the Company's existing products. Increased competitive
pressure could also lead to intensified price-based competition, resulting in
lower prices which could adversely affect the Company's business, financial
condition and operating results. The Company believes that to remain competitive
it must invest significant financial resources in new product development and
expand its customer service and support worldwide. There can be no assurance
that the Company will be able to compete successfully in the future. See
"Business-- Competition."
The semiconductor equipment industry is intensely competitive. Significant
competitive factors in the semiconductor equipment market include price,
technical capabilities, quality, flexibility, automation, cost of ownership,
reliability, throughput, product availability and customer service. In each of
the markets it serves, the Company faces competition from established
competitors and potential new entrants, many of which have greater financial,
engineering, manufacturing and marketing resources than the Company.
Because the Company's MTX system performs burn-in and many of the functional
tests performed by memory testers, the Company expects that the MTX System will
face intense competition from burn-in system suppliers and traditional memory
tester suppliers. The market for burn-in systems is highly fragmented, with many
domestic and international suppliers. Some users, such as independent test labs,
build their own burn-in systems, and some other users, particularly large
Japanese IC manufacturers, acquire burn-in systems from captive or affiliated
suppliers. Competing suppliers of burn-in systems, which typically cost less
than the MTX system, include Ando Corporation, Japan Engineering Company,
Reliability Incorporated and Tabai Espec Corp. Some of the burn-in systems
offered by competing suppliers perform some test functions. In addition,
suppliers of memory test equipment including Advantest Corporation and Teradyne,
Inc. may seek to offer parallel test systems in the future.
The Company's DiePak products face significant competition. Texas
Instruments Incorporated sells a temporary, reusable bare die carrier which is
intended to enable burn-in and test of bare die, and the Company believes that
several other companies have developed or are developing other such products. As
the bare die market develops, the Company expects that other competitors will
emerge. The Company expects that the primary competitive factors in this market
will be performance, reliability, cost and assured supply.
The Company's MAX dynamic and ATX monitored and dynamic burn-in systems
increasingly have faced and are expected to continue to face severe competition,
especially from local, low cost manufacturers. Also, the MAX dynamic burn-in
system faces severe competition from manufacturers of monitored burn-in systems
that perform limited functional tests not performed by the Company's dynamic
burn-in systems, including tests designed to ensure the devices receive the
specified voltages and signals.
The Company's test fixture products face numerous competitors. There are
limited barriers to entry into the burn-in board ("BIB") market, and as a
result, many small companies design and manufacture BIBs, including BIBs for use
with the Company's MAX and ATX systems. The Company's strategy is to provide
higher performance BIBs, and the Company generally does not compete to supply
lower cost, low performance BIBs. The Company has granted a royalty-bearing
license to one company to make PTBs for use with its MTX systems, in order to
assure customers of a second source of supply, and the Company
10
<PAGE>
may license others as well. Sales of PTBs by licensees would result in royalties
to the Company but would potentially reduce the Company's own sales of PTBs.
The Company expects its competitors to continue to improve the performance
of their current products and to introduce new products with improved price and
performance characteristics. New product introductions by the Company's
competitors or by new market entrants could cause a decline in sales or loss of
market acceptance of the Company's products. Increased competitive pressure
could also lead to intensified price-based competition, resulting in lower
prices which could adversely affect the Company's business, financial condition
and operating results. The Company believes that to remain competitive it must
invest significant financial resources in new product development and expand its
customer service and support worldwide. There can be no assurance that the
Company will be able to compete successfully in the future.
CYCLICALITY OF SEMICONDUCTOR INDUSTRY AND CUSTOMER PURCHASES
The Company's operating results depend primarily upon the capital
expenditures of semiconductor manufacturers and contract assemblers worldwide,
which in turn depend on the current and anticipated market demand for integrated
circuits and products utilizing integrated circuits. The semiconductor and
semiconductor equipment industries in general, and the market for DRAMs and
other memories in particular, historically have been highly volatile and have
experienced periodic downturns and slowdowns, which have had a severe negative
effect on the semiconductor industry's demand for semiconductor capital
equipment, including test and burn-in systems manufactured and marketed by the
Company. These downturns and slowdowns have also adversely affected the
Company's operating results in the past. In addition, the purchasing patterns of
the Company's customers are also highly cyclical because most customers purchase
the Company's products for use in new production facilities or for upgrading
existing test lines for the introduction of next generation products. A large
portion of the Company's net sales are attributable to a few customers and
therefore a reduction in purchases by one or more customers could materially
adversely affect the Company's financial results. There can be no assurance that
the semiconductor industry will grow in the future at the same rates it has
grown historically. Any future downturn or slowdown in the semiconductor
industry would have a material adverse effect on the Company's business,
financial condition and operating results. In addition, the need to maintain
investment in research and development and to maintain customer service and
support will limit the Company's ability to reduce its expenses in response to
any such downturn or slowdown period.
DEPENDENCE ON SUBCONTRACTORS; SOLE OR LIMITED SOURCES OF SUPPLY
The Company relies on subcontractors to manufacture many of the components
or subassemblies used in its products. The Company's MTX, MAX and ATX systems
contain several components, including environmental chambers, power supplies and
certain ICs, which are currently supplied by only one or a limited number of
suppliers. The DiePak products include an interconnect substrate which is
supplied only by Nitto Denko Corporation, and certain mechanical parts and
sockets which are currently supplied only by Enplas Corporation. The Company's
reliance on subcontractors and single source suppliers involves a number of
significant risks, including the loss of control over the manufacturing process,
the potential absence of adequate capacity and reduced control over delivery
schedules, manufacturing yields, quality and costs. In the event that any
significant subcontractor or single source supplier were to become unable or
unwilling to continue to manufacture subassemblies, components or parts in
required volumes, the Company would have to identify and qualify acceptable
replacements. The process of qualifying subcontractors and suppliers could be
lengthy, and no assurance can be given that any additional sources would be
available to the Company on a timely basis. Any delay, interruption or
termination of a supplier relationship could have a material adverse effect on
the Company's business, financial condition and operating results. See
"Business--Manufacturing."
11
<PAGE>
MANAGEMENT OF CHANGING BUSINESS
If the Company is to be successful, it must expand its operations. Such
expansion will place a significant strain on the Company's administrative,
operational and financial resources. Such expansion will result in a continuing
increase in the responsibility placed upon management personnel and will require
development or enhancement of operational, managerial and financial systems and
controls. If the Company is unable to manage the expansion of its operations
effectively, the Company's business, financial condition and operating results
will be materially and adversely affected.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the continued
service of its executive officers and other key employees. The Company does not
maintain key person life insurance for its benefit on any of its personnel, and
none of the Company's employees is subject to a noncompetition agreement with
the Company. The loss of the services of any of its executive officers or other
key employees could have a material adverse effect on the Company's business,
financial condition and operating results. The Company's future success will
depend in significant part upon its ability to attract and retain highly skilled
technical, management, sales and marketing personnel. There is a limited number
of personnel with the requisite skills to serve in these positions, and it has
become increasingly difficult for the Company to hire such personnel.
Competition for such personnel in the semiconductor equipment industry is
intense, and there can be no assurance that the Company will be successful in
attracting or retaining such personnel. The Company's inability to attract and
retain the executive management and other key personnel it requires could have a
material adverse effect on the Company's business, financial condition and
operating results. See "Business--Employees" and "Management."
INTELLECTUAL PROPERTY PROTECTION AND INFRINGEMENT
The Company's ability to compete successfully is dependent in part upon its
ability to protect its proprietary technology and information. Although the
Company attempts to protect its proprietary technology through patents,
copyrights, trade secrets and other measures, there can be no assurance that
these measures will be adequate or that competitors will not be able to develop
similar technology independently. Further, there can be no assurance that claims
allowed on any patent issued to the Company will be sufficiently broad to
protect the Company's technology, that any patent will issue from any pending
application or that foreign intellectual property laws will protect the
Company's intellectual property. Litigation may be necessary to enforce or
determine the validity and scope of the Company's proprietary rights, and there
can be no assurance that the Company's intellectual property rights, if
challenged, will be upheld as valid. Such litigation could result in substantial
costs and diversion of resources and could have a material adverse effect on the
Company's business, financial condition and operating results, regardless of the
outcome of the litigation. In addition, there can be no assurance that any of
the patents issued to the Company will not be challenged, invalidated or
circumvented or that the rights granted thereunder will provide competitive
advantages to the Company.
There are no pending claims against the Company regarding infringement of
any patents or other intellectual property rights of others. However, the
Company may receive, in the future, communications from third parties asserting
intellectual property claims against the Company. Such claims could include
assertions that the Company's products infringe, or may infringe, the
proprietary rights of third parties, requests for indemnification against such
infringement or suggestions that the Company may be interested in acquiring a
license from such third parties. There can be no assurance that any such claim
made in the future will not result in litigation, which could involve
significant expense to the Company, and, if the Company is required or deems it
appropriate to obtain a license relating to one or more products or
technologies, there can be no assurance that the Company would be able to do so
on commercially reasonable terms, or at all. See "Business--Proprietary Rights."
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<PAGE>
ENVIRONMENTAL REGULATIONS
Federal, state and local regulations impose various controls on the use,
storage, discharge, handling, emission, generation, manufacture and disposal of
toxic or other hazardous substances used in the Company's operations. The
Company believes that its activities conform in all material respects to current
environmental and land use regulations applicable to its operations and its
current facilities and that it has obtained environmental permits necessary to
conduct its business. Nevertheless, the failure to comply with current or future
regulations could result in substantial fines being imposed on the Company,
suspension of production, alteration of its manufacturing processes or cessation
of operations. Such regulations could require the Company to acquire expensive
remediation equipment or to incur substantial expenses to comply with
environmental regulations. Any failure by the Company to control the use,
disposal or storage of, or adequately restrict the discharge of, hazardous or
toxic substances could subject the Company to significant liabilities.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Company's Common Stock in the public
market after the Offering could adversely affect the market price of the Common
Stock. Upon completion of the Offering, the Company will have 6,495,522 shares
of Common Stock outstanding, assuming no exercise of the Underwriters'
over-allotment option. Of such outstanding shares, the 3,300,000 shares offered
hereby (assuming no exercise of the Underwriters' over-allotment option) and
approximately additional shares of Common Stock will be eligible for
immediate sale in the public market without restriction or under Rule 144 of the
Securities Act of 1933, as amended (the "Securities Act"), and the remaining
shares will be subject to lock-up agreements restricting their transfer
until 180 days after the date of the Offering, except with the consent of
Oppenheimer & Co., Inc. After the termination of the 180-day lock-up,
shares will be eligible for sale in the public market pursuant to Rules 144 and
701 under the Securities Act. The holders of 609,245 shares of Common Stock are
entitled to certain registration rights. In addition, as of May 31, 1997,
options to purchase an aggregate of 777,850 shares of Common Stock were
outstanding under the Company's stock plans, all of which are subject to the
180-day lock-up described above. As of 180 days after the effective date of the
Offering, upon expiration of contractual lock-up arrangements with the Company,
an aggregate of approximately 540,643 shares will be eligible for sale upon the
exercise of outstanding and vested stock options. Following the Offering, the
Company intends to file a registration statement covering the shares reserved
for issuance under the Company's stock plans, thus permitting the resale of such
shares in the public market without restriction. See "Description of Capital
Stock--Registration Rights" and "Shares Eligible for Future Sale."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for the
Common Stock will develop or be sustained after the Offering contemplated
hereby. The initial public offering price will be determined by negotiations
among the Company, the Selling Shareholders and the representatives of the
Underwriters, and may not be indicative of prices that may prevail in the public
market after the Offering. The trading price for the Company's Common Stock is
likely to be highly volatile and could be subject to wide fluctuations in
response to factors such as announcements of developments related to the
Company's business or its competitors' or customers' businesses, fluctuations in
the Company's operating results, general conditions or developments in the
semiconductor and semiconductor equipment industries and the worldwide economy,
sales of the Company's Common Stock into the marketplace, the number of market
makers for the Company's Common Stock, announcements of technological
innovations or new or enhanced products by the Company or its competitors or
customers, a shortfall in revenue, gross profit, earnings or other operating
results from, or changes in, analysts' expectations and developments in the
Company's relationships with its customers and suppliers, or a variety of other
factors, many of which are beyond the
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<PAGE>
Company's control. There can be no assurance that the market price of the
Company's Common Stock will not experience significant fluctuations, including
fluctuations that are material, adverse and unrelated to the Company's
performance. See "Underwriting."
FUTURE ACQUISITIONS
The Company may in the future pursue acquisitions of complementary product
lines, technologies or businesses. Future acquisitions by the Company may result
in potentially dilutive issuances of equity securities, the incurrence of debt
and contingent liabilities and amortization expenses related to goodwill and
other intangible assets, which could materially adversely affect any Company
profitability. In addition, acquisitions involve numerous risks, including
difficulties in the assimilation of the operations, technologies and products of
the acquired companies, the diversion of management's attention from other
business concerns, risks of entering markets in which the Company has no or
limited direct prior experience, and the potential loss of key employees of the
acquired company. There are currently no negotiations, understandings or
agreements with respect to any acquisition. In the event that such an
acquisition does occur, however, there can be no assurance as to the effect
thereof on the Company's business or operating results.
FUTURE CAPITAL NEEDS
In order to remain competitive, the Company must continue to make
significant investments in capital equipment, facilities, computer systems,
sales, service, training and support capabilities, procedures, controls and
research and development, among other items. The Company's capital requirements
will depend on many factors, including, but not limited to, acceptance of and
demand for the Company's products and the extent to which the Company invests in
research and development. The Company believes that the proceeds from this
offering, together with its cash, short-term investments and anticipated cash
flow from operations and credit facilities will satisfy its anticipated
financing requirements for at least the next 12 months. To the extent that such
financial resources are insufficient to fund the Company's activities,
additional funds will be required. There can be no assurance that additional
financing will be available on reasonable terms, or at all. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
CONTROL BY PRINCIPAL SHAREHOLDERS, OFFICERS AND DIRECTORS
After the Offering, the Company's officers and directors and their
affiliates will beneficially own approximately 33% of the Company's Common
Stock. As a result, such persons will have the ability to substantially
influence the Company and direct its affairs and business. Such concentration of
ownership may also have the effect of delaying, deferring or preventing a change
in control of the Company. See "Principal and Selling Shareholders."
POTENTIAL ISSUANCE OF UNDESIGNATED PREFERRED STOCK; ANTI-TAKEOVER EFFECTS
The Company's Board of Directors can, without obtaining shareholder
approval, issue shares of Preferred Stock having rights, preferences, privileges
and restrictions, including voting rights, that could adversely affect the
voting power and other rights of holders of the Company's Common Stock. The
issuance of the Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a person to acquire a majority of the
outstanding voting stock of the Company, thereby delaying, deferring or
preventing a change in control of the Company. Furthermore, such Preferred Stock
may have other rights, including economic rights, senior to the Common Stock,
and, as a result, the issuance of such stock could have a material adverse
effect on the market value of the Common Stock. The Company has no current plans
to issue shares of Preferred Stock. The Company may in the future adopt other
measures that may have the effect of delaying, deferring or preventing a change
in control of the Company, even though at a
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premium price or favored by a majority of unaffiliated shareholders. Certain of
such measures may be adopted without any further vote or action by the
shareholders. The Company has no current plans to adopt any such measures. See
"Description of Capital Stock."
BROAD DISCRETION IN ALLOCATION OF NET PROCEEDS
Although the Company expects to use the majority of the net proceeds of the
Offering for general corporate purposes, with the exception of the repayment of
certain short-term debt and limited capital expenditures, the Company has not
identified the specific amount of the net proceeds to be used for specific
purposes. The Company will retain broad discretion to allocate the net proceeds
of the Offering, and there can be no assurance that the proceeds can or will be
invested to yield a significant return. See "Use of Proceeds."
DILUTION TO NEW INVESTORS; ABSENCE OF DIVIDENDS
Purchasers of the Common Stock offered hereby will incur immediate and
substantial net tangible book value dilution of $5.82 per share, and, to the
extent outstanding options to purchase the Company's Common Stock are exercised,
there will be further dilution. See "Dilution." The Company has never declared
or paid cash dividends on its capital stock. The Company intends to retain any
future earnings to finance the growth and development of its business. See
"Dividend Policy."
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THE COMPANY
The Company was incorporated in California in May 1977. The Company's
principal executive offices are located at 1667 Plymouth Street, Mountain View,
California 94043, and its telephone number at that location is (415) 691-9400.
The Company also maintains offices in Irvine, California, Tokyo and Osaka, Japan
and Utting, Germany. Unless the context other requires, "Aehr Test" and the
"Company," as used in this Prospectus, refer to Aehr Test Systems and its
subsidiaries.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,200,000 shares of
Common Stock offered by the Company hereby are estimated to be $19,560,000 (at
an assumed initial public offering price of $10 per share and after deducting
the underwriting discount and estimated offering expenses payable by the
Company). The Company will apply approximately $4.6 million of the net proceeds
to the repayment of outstanding indebtedness under the Company's U.S. working
capital lines of credit which bear interest at 0.75% to 1.00% over the prime
rate (the prime rate was 8.25% as of February 28, 1997) and expire in December
1997. See Note 4 of Notes to Consolidated Financial Statements. The Company
currently estimates that it will use approximately $1.5 million of the net
proceeds for planned capital expenditures in fiscal 1998. The remaining net
proceeds will be used to finance inventories and accounts receivable, to fund
engineering and product development expenditures, and for other general
corporate purposes.
The Company may also use a portion of the net proceeds for the acquisition
of complementary businesses or products or to obtain the right to use
complementary technologies. From time to time, in the ordinary course of
business, the Company evaluates potential acquisitions of such businesses,
products and technologies. However, the Company has no present understandings,
commitments or agreements with respect to any material acquisition of
businesses, products or technologies. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources." Pending use of the net proceeds for the above purposes, the Company
intends to invest such funds in short-term, high quality, interest-bearing
investments.
The Company will not receive any proceeds from the sale of shares of Common
Stock offered by the Selling Shareholders. See "Principal and Selling
Shareholders."
DIVIDEND POLICY
To date, the Company has not paid any cash dividends on shares of its Common
Stock. The Company presently intends to retain future earnings for its business
and does not anticipate paying cash dividends on its Common Stock in the
foreseeable future. In addition, the Company's current bank credit facilities
currently prohibit the Company from paying cash dividends without prior bank
approval. See Note 4 of Notes to Consolidated Financial Statements.
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CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company as of February 28, 1997 and as adjusted to reflect the sale of 2,200,000
shares of Common Stock offered by the Company hereby (at an assumed initial
public offering price of $10.00 per share and after deducting the underwriting
discount and estimated offering expenses payable by the Company) and the receipt
and application of the estimated net proceeds therefrom:
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
Notes payable and current portion of long-term debt(1)................ $ 6,789 $ 2,228
--------- -----------
--------- -----------
Long-term debt net of current portion................................. 107 107
--------- -----------
Shareholders' equity:
Preferred Stock, $0.01 par value; 10,000,000 shares authorized; no
shares outstanding................................................ $ -- $ --
Common Stock, $0.01 par value; 75,000,000 shares authorized,
4,295,522 shares outstanding actual; and 6,495,522 shares
outstanding as adjusted(2)........................................ 43 65
Additional paid-in capital.......................................... 8,085 27,623
Accumulated deficit................................................. (2,065) (2,065)
Cumulative translation adjustment................................... 2,074 2,074
--------- -----------
Total shareholders' equity.......................................... 8,137 27,697
--------- -----------
Total capitalization.............................................. $ 8,244 $ 27,804
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) See Note 4 of Notes to Consolidated Financial Statements.
(2) Excludes (i) 1,357,350 shares reserved for issuance under the Company's
stock option plans, of which 741,850 shares were subject to outstanding
options as of February 28, 1997, at a weighted average exercise price of
$3.95 per share and (ii) 300,000 shares reserved for issuance under the
Company's 1997 Employee Stock Purchase Plan. See "Management--Stock Plans"
and Note 8 of Notes to Consolidated Financial Statements.
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DILUTION
As of February 28, 1997, the net tangible book value of the Company was
$7,595,000, or approximately $1.77 per share of Common Stock. Net tangible book
value per share represents the total tangible assets of the Company reduced by
its total liabilities and divided by the total number of shares of Common Stock
outstanding. After giving effect to the sale of the 2,200,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering price
of $10.00 (after deducting the estimated underwriting discount and offering
expenses payable by the Company) and the application of the estimated net
proceeds therefrom, the pro forma net tangible book value of the Company as of
February 28, 1997 would have been approximately $27,155,000, or $4.18 per share.
This represents an immediate increase in net tangible book value of $2.41 per
share to existing shareholders and an immediate dilution of $5.82 per share to
the new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $ 10.00
Net tangible book value per share as of February 28,
1997..................................................... $ 1.77
Increase in net tangible book value attributable to new
investors................................................ 2.41
---------
Pro forma net tangible book value per share after the
offering................................................... 4.18
---------
Dilution per share to new investors.......................... $ 5.82
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of February 28,
1997, the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by the
existing shareholders and by the new investors purchasing shares of Common Stock
in this offering based upon an assumed initial public offering price of $10.00
per share (before the deduction of the estimated underwriting discount and
offering expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)........ 4,295,522 66.1% $ 8,128,000 27.0% $ 1.89
New investors(1)................ 2,200,000 33.9 22,000,000 73.0 10.00
---------- ----- ------------- -----
Total....................... 6,495,522 100.0% $ 30,128,000 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
- ------------------------
(1) Sales by the Selling Shareholders in this offering will reduce the number of
shares held by existing shareholders to 3,195,522, or 49.2% of the total
number of shares of Common Stock outstanding, and will increase the number
of shares held by new investors to 3,300,000, or 50.8% of the total number
of shares of Common Stock outstanding after the offering. See "Principal and
Selling Shareholders."
The foregoing tables assume no exercise of stock options after February 28,
1997. As of February 28, 1997, there were outstanding options to purchase an
aggregate of 741,850 shares of Common Stock, at a weighted average exercise
price of $3.95 per share, under the Company's stock option plans. Subsequent to
February 28, 1997, options to purchase an additional 36,000 shares were granted
and are outstanding at an exercise price of $6.00 per share. To the extent these
options are exercised, there will be further dilution to the new investors. See
"Capitalization," "Management--Stock Plans," and Note 8 of Notes to Consolidated
Financial Statements.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus. The
consolidated statements of operations data set forth below with respect to the
fiscal years ended May 31, 1994, 1995 and 1996 and the consolidated balance
sheets data as of May 31, 1995 and 1996 are derived from, and are qualified by
reference to, the audited consolidated financial statements of the Company
included elsewhere in this Prospectus. The consolidated statements of operations
data with respect to the fiscal year ended May 31, 1993 and the consolidated
balance sheets data as of May 31, 1993 and 1994 are derived from audited
financial statements not included herein. The consolidated statements of
operations data set forth below with respect to the nine months period ended
February 29, 1996 and February 28, 1997, and balance sheet data as of February
28, 1997, are derived from, and are qualified by reference to, the unaudited
consolidated financial statements of the Company included elsewhere in this
Prospectus. The unaudited consolidated financial statements include all normal
recurring adjustments that the Company considers necessary for a fair
presentation of its financial position and results of operations. The results of
operations for the nine months ended February 28, 1997 are not necessarily
indicative of the results that may be expected for the full year ending May 31,
1997, or any other future period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MAY 31, ----------------------------
------------------------------------------ FEBRUARY 29, FEBRUARY 28,
1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales............................................. $ 24,529 $ 23,204 $ 23,257 $ 33,234 $ 24,067 $ 30,302
Cost of sales......................................... 15,527 15,761 16,192 19,942 14,598 18,603
--------- --------- --------- --------- ------------- -------------
Gross profit.......................................... 9,002 7,443 7,065 13,292 9,469 11,699
--------- --------- --------- --------- ------------- -------------
Operating expenses:
Selling, general and administrative................. 7,864 8,077 6,316 7,534 5,328 6,159
Research and development............................ 3,525 3,825 3,783 4,113 3,138 3,347
Research and development cost reimbursement--
DARPA(1).......................................... -- (261) (954) (891) (652) (293)
--------- --------- --------- --------- ------------- -------------
Total operating expenses.......................... 11,389 11,641 9,145 10,756 7,814 9,213
--------- --------- --------- --------- ------------- -------------
Income (loss) from operations......................... (2,387) (4,198) (2,080) 2,536 1,655 2,486
Interest expense...................................... (295) (347) (341) (446) (334) (471)
Other income (expense), net........................... (117) 27 255 (559) (180) (350)
--------- --------- --------- --------- ------------- -------------
Income (loss) before income taxes and minority
interest in subsidiary.............................. (2,799) (4,518) (2,166) 1,531 1,141 1,665
Income tax expense.................................... 185 17 10 130 195 288
Minority interest in subsidiary....................... 175 285 189 (1) -- 3
--------- --------- --------- --------- ------------- -------------
Net income (loss)..................................... $ (2,809) $ (4,250) $ (1,987) $ 1,400 $ 946 $ 1,380
--------- --------- --------- --------- ------------- -------------
--------- --------- --------- --------- ------------- -------------
Net income (loss) per share(2)........................ $ (0.69) $ (1.02) $ (0.45) $ 0.31 $ 0.21 $ 0.31
--------- --------- --------- --------- ------------- -------------
--------- --------- --------- --------- ------------- -------------
Shares used in per share calculations(2).............. 4,091 4,147 4,427 4,473 4,482 4,502
</TABLE>
<TABLE>
<CAPTION>
MAY 31,
------------------------------------------ FEBRUARY 28,
1993 1994 1995 1996 1997
--------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEETS DATA:
Cash and cash equivalents............................................... $ 3,931 $ 2,430 $ 598 $ 535 $ 521
Working capital......................................................... 8,425 5,685 3,564 4,799 5,963
Total assets............................................................ 24,529 20,640 19,890 23,749 23,895
Long-term obligations, less current portion(3).......................... 1,507 1,325 1,004 533 394
Total shareholders' equity.............................................. 10,185 7,439 5,544 6,789 8,137
</TABLE>
- ------------------------------
(1) Consists of reimbursements from DARPA for certain research and development
expenses incurred by the Company in connection with its joint research
project with DARPA. See Note 1 of Notes to Consolidated Financial
Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements for a description
of the computation of the numbers of shares used in per share calculations
and net income (loss) per share.
(3) Includes long term debt and deferred lease commitments, deferred income
taxes, and minority interest in subsidiary.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED. DISCUSSIONS CONTAINING
SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE MATERIAL SET FORTH UNDER
"THE COMPANY," "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "BUSINESS --GENERAL," "INDUSTRY
BACKGROUND," "PRODUCTS," " CUSTOMERS," "MANUFACTURING," "COMPETITION," AND
"PROPRIETARY RIGHTS," AS WELL AS IN THE PROSPECTUS GENERALLY. ACTUAL EVENTS OR
RESULTS MAY DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING WITHOUT LIMITATION THE RISK
FACTORS SET FORTH IN THE SECTION ENTITLED "RISK FACTORS" AND THE MATTERS SET
FORTH IN THE PROSPECTUS GENERALLY.
OVERVIEW
The Company was founded in 1977 to develop and manufacture burn-in and test
equipment for the semiconductor industry. Since its inception, the Company has
sold more than 2,000 systems to semiconductor manufacturers, electronics
manufacturers who purchase ICs, contract assemblers and independent test labs
worldwide. The Company's principal products currently are the MTX massively
parallel test system, the DiePak carrier, the MAX and ATX burn-in systems and
test fixtures.
Prior to fiscal 1995, the Company primarily sold burn-in systems and related
products for the reliability testing market. The Company experienced significant
operating losses in fiscal 1993 through fiscal 1995 due to a decline in net
sales of burn-in systems and significant investment in the development of new
products. In fiscal 1993, the Company initiated development of the MTX massively
parallel test system and the DiePak carrier. The Company began shipping the MTX
in March 1995. Revenues and earnings increased in fiscal 1996 and 1997,
primarily as a result of increases in sales of MTX systems and associated
performance test boards ("PTBs"). The Company began shipping DiePak carriers in
volume in fiscal 1997. The Company has been profitable in each of the last eight
quarters.
In 1994, the Company entered into a cost-sharing agreement with DARPA, a
U.S. government agency, under which DARPA is providing co-funding for the
development of wafer-level burn-in and test equipment. The contract provides for
potential payments by DARPA totaling up to $6.5 million. The Company has
received $2.4 million through February 28, 1997, and the remaining payments are
scheduled to be made through January 1999. Payments by DARPA depend on
satisfaction of development milestones, and DARPA has the right to terminate
project funding at any time. The level of payments may vary significantly from
quarter to quarter. There can be no assurance that the Company will meet the
development milestones or that DARPA will continue funding the project. DARPA
payments are reflected as credits to research and development expenses. There
also can be no assurance that the development project will result in any
marketable products.
The Company has a wholly-owned subsidiary in Germany which performs sales
and service and an 86.7% owned subsidiary in Japan, which performs sales,
service, and limited product engineering and manufacturing. The Company's
consolidated financial statements combine the subsidiaries' financial results
with those of the Company but, in order to account for the minority
shareholders' interest in the Japanese subsidiary, the financial statements
include a line item which excludes 13.3% of the total profits or losses of the
Japanese subsidiary, except for periods in which the subsidiary has cumulative
losses when no such exclusions are made.
The Company's net sales consist primarily of sales of systems, die carriers,
test fixtures, upgrades and spare parts and revenues from service contracts. The
Company recognizes revenue upon shipment of product and records a provision for
estimated future warranty costs.
A substantial portion of the Company's net sales are derived from the sale
of products for overseas markets, particularly Germany and Japan. Consequently,
an increase in the value of the U.S. Dollar
20
<PAGE>
relative to foreign currencies would increase the cost of the Company's products
compared to products sold by local companies in such markets. Although most
sales to German customers are denominated in dollars, substantially all sales to
Japanese customers are denominated in yen. Since the price is determined at the
time a purchase order is accepted, the Company is exposed to the risks of
fluctuations in the yen-dollar exchange rate during the lengthy period from
purchase order to ultimate payment. The exchange rate risk is partially offset
to the extent the Company's Japanese subsidiary incurs yen-denominated expenses.
To date, the Company has not invested in instruments designed to hedge currency
risks, but it may do so in the future. The Company's Japanese subsidiary
typically carries debt owed to the Company and denominated in dollars. Since the
subsidiary's financial statements are based in yen, it recognizes an income or
loss in any period in which the value of the yen rises or falls in relation to
the dollar.
In accordance with SFAS 86, the Company capitalizes its systems software
development costs incurred after a system achieves technological feasibility and
before first commercial shipment. Such costs typically represent a small portion
of total research and development costs. Capitalized costs, net of accumulated
amortization, of approximately $323,000, $213,000 and $105,000 were included as
of May 31, 1995, May 31, 1996 and February 28, 1997, respectively.
RESULTS OF OPERATIONS
The following table sets forth items in the Company's consolidated
statements of operations as a percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MAY 31, ----------------------------
------------------------------- FEBRUARY 29, FEBRUARY 28,
1994 1995 1996 1996 1997
--------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................................. 67.9 69.6 60.0 60.7 61.4
--------- --------- --------- ----- -----
Gross profit.............................................. 32.1 30.4 40.0 39.3 38.6
--------- --------- --------- ----- -----
Operating expenses:
Sales, general and administrative....................... 34.8 27.1 22.7 22.2 20.3
Research and development................................ 16.5 16.3 12.4 13.0 11.1
Research and development cost
reimbursement--DARPA.................................. (1.1) (4.1) (2.7) (2.7) (1.0)
--------- --------- --------- ----- -----
Total operating expenses.............................. 50.2 39.3 32.4 32.5 30.4
--------- --------- --------- ----- -----
Income (loss) from operations............................. (18.1) (8.9) 7.6 6.8 8.2
Interest expense.......................................... (1.5) (1.5) (1.3) (1.4) (1.5)
Other income (expense), net............................... 0.1 1.1 (1.7) (0.7) (1.2)
--------- --------- --------- ----- -----
Income (loss) before income taxes and minority interest in
subsidiary.............................................. (19.5) (9.3) 4.6 4.7 5.5
Income tax expense........................................ 0.1 -- 0.4 0.8 0.9
Minority interest in subsidiary........................... 1.3 0.8 -- -- --
--------- --------- --------- ----- -----
Net income (loss)......................................... (18.3)% (8.5)% 4.2% 3.9% 4.6%
--------- --------- --------- ----- -----
--------- --------- --------- ----- -----
</TABLE>
NINE MONTHS ENDED FEBRUARY 28, 1997 COMPARED TO NINE MONTHS ENDED FEBRUARY 29,
1996
NET SALES. Net sales increased to $30.3 million in the nine months ended
February 28, 1997 from $24.1 million in the nine months ended February 29, 1996,
an increase of 25.9%. The growth in net sales was caused primarily by increased
shipments of MTX products, primarily to Siemens, and to a lesser extent by
increased shipments of DiePak carriers. These increases were partially offset by
a decline in unit sales of
21
<PAGE>
burn-in systems, particularly in the Japanese market. Siemens accounted for
57.3% and 25.7% of net sales for the nine months ended February 28, 1997 and
February 29, 1996, respectively.
GROSS PROFIT. Gross profit consists of net sales less cost of sales. Cost
of sales consists primarily of the cost of materials, assembly and test costs,
and overhead from operations. Gross profit increased to $11.7 million in the
nine months ended February 28, 1997 from $9.5 million in the nine months ended
February 29, 1996, an increase of 23.6%. Gross profit margin decreased to 38.6%
in the nine months ended February 28, 1997 from 39.3% in the nine months ended
February 29, 1996. The decrease in gross profit margin resulted primarily from a
change in the product mix toward products with somewhat higher material costs
and an increase in inventory reserves, scrap, and provision for warranty,
partially offset by improvement in production efficiencies due to higher levels
of production.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
("SG&A") expenses consist primarily of salaries and related costs of employees,
customer support costs, commission expenses to independent sales
representatives, product promotion and other professional services. SG&A
expenses increased to $6.2 million in the nine months ended February 28, 1997
from $5.3 million in the nine months ended February 29, 1996, an increase of
15.6%. As a percentage of net sales, SG&A expenses decreased to 20.3% for the
nine months ended February 28, 1997 from 22.2% for the nine months ended
February 29, 1996. The increase in SG&A expenses for the nine months ended
February 28, 1997 was due primarily to increased commission expenses to
independent sales representatives related to higher levels of shipments. The
decrease in SG&A expenses as a percentage of net sales was primarily due to the
increase in net sales. The Company anticipates that SG&A expenses will generally
continue to increase throughout fiscal 1997 and fiscal 1998, but may vary as a
percentage of net sales.
RESEARCH AND DEVELOPMENT. Research and development ("R&D") expenses consist
primarily of salaries and related costs of employees engaged in ongoing
research, design and development activities, costs of engineering materials and
supplies, and professional consulting expenses. R&D expenses increased to $3.3
million in the nine months ended February 28, 1997 from $3.1 million in the nine
months ended February 29, 1996, an increase of 6.7%. The increase in R&D
expenses was primarily due to an increase in employment costs and professional
consulting contracts. As a percentage of net sales, R&D expenses decreased to
11.1% for the nine months ended February 28, 1997 from 13.0% for the nine months
ended February 29, 1996, reflecting higher net sales. The Company anticipates
that R&D expenses will increase for fiscal 1998 compared with fiscal 1997, while
such expenses may fluctuate as a percentage of net sales.
RESEARCH AND DEVELOPMENT COST REIMBURSEMENT--DARPA. Research and
development cost reimbursement--DARPA ("R&D--DARPA") is a credit representing
reimbursements by DARPA of costs incurred in the Company's wafer-level burn-in
development project. R&D--DARPA credit decreased to $293,000 in the nine months
ended February 28, 1997 from $652,000 in the nine months ended February 29,
1996, a decrease of 55.1%. The decrease was due to delays in the completion of
development milestones.
INTEREST EXPENSE. Interest expense increased to $471,000 in the nine months
ended February 28, 1997 from $334,000 in the nine months ended February 29,
1996, an increase of 41.0%, primarily because of increased borrowings to support
the Company's increased volume of shipments.
OTHER INCOME (EXPENSE), NET. Other expense, net increased to $350,000 in
the nine months ended February 28, 1997 from $180,000 in the nine months ended
February 29, 1996, an increase of 94.4%, primarily due to foreign currency
losses incurred by the Company's Japanese subsidiary.
INCOME TAX EXPENSE. Income tax expense consisted primarily of taxes on
earnings of the Company's German subsidiary and the minimum federal and state
taxes in the United States, as operating loss carryforwards offset other taxable
income. Income tax expense increased to $288,000 in the nine months
22
<PAGE>
ended February 28, 1997 from $195,000 in the nine months ended February 29,
1996, an increase of 47.7%. This was primarily due to higher earnings of the
Company's German subsidiary and an increase in federal and state earnings
subject to alternative minimum taxes. The Company recognizes deferred tax assets
and liabilities for the expected future consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities. The
Company experienced significant losses from fiscal 1993 through fiscal 1995, and
thus generated certain net operating losses available to offset future taxes
payable. As a result of the Company's cumulative operating losses, a valuation
allowance has been established for full amount of the net deferred tax assets.
The Company expects that its effective tax rate for fiscal 1998 will more
closely approximate the statutory tax rates of the jurisdictions in which the
Company operates.
MINORITY INTEREST IN SUBSIDIARY. Minority interest in subsidiary increased
to a gain of $3,000 in the nine months ended February 28, 1997 from a negligible
amount in the nine months ended February 29, 1996. This increase was due to
losses incurred by the Company's majority-owned Japanese subsidiary.
FISCAL YEARS ENDED MAY 31, 1996, 1995 AND 1994
NET SALES. Net sales increased to $33.2 million in fiscal 1996 from $23.3
million in fiscal 1995, an increase of 42.9%, and were relatively constant from
fiscal 1994 to fiscal 1995. The increase in net sales in fiscal 1996 was
primarily due to increased shipments of MTX products, primarily to Siemens.
GROSS PROFIT. Gross profit increased to $13.3 million in fiscal 1996 from
$7.1 million in fiscal 1995, an increase of 88.1%, while gross profit in fiscal
1995 was down from $7.4 million in fiscal 1994, a decrease of 5.1%. Gross profit
margin increased to 40.0% in fiscal 1996 from 30.4% in fiscal 1995, which was
down from 32.1% in fiscal 1994. The higher gross profit and higher gross profit
margin in fiscal 1996 as compared with fiscal 1995 were due to improved
production efficiencies associated with increased net sales. The decrease in
gross margin in fiscal 1995 resulted primarily from a transition to newer
products and costs associated with starting production of new products.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses increased to $7.5
million in fiscal 1996 from $6.3 million in fiscal 1995, an increase of 19.3%,
while SG&A expenses in fiscal 1995 were down from $8.1 million in fiscal 1994, a
decrease of 21.8%. As a percentage of net sales, SG&A expenses decreased to
22.7% in fiscal 1996 from 27.1% in fiscal 1995, which in turn was down from
34.8% in fiscal 1994. The increase in fiscal 1996 compared with fiscal 1995 was
due primarily to increased commission expenses related to independent sales
representatives related to higher levels of shipments in the fiscal year. The
decrease in fiscal 1995 compared with fiscal 1994 resulted primarily from a
program of cost controls in the United States. The decrease in SG&A expenses as
a percentage of net sales in fiscal 1996 compared with fiscal 1995 was primarily
due to the increase in net sales.
RESEARCH AND DEVELOPMENT. R&D expenses increased to $4.1 million in fiscal
1996 from $3.8 million in both fiscal 1995 and fiscal 1994, an increase of 8.7%.
The increase in fiscal 1996 compared with fiscal 1995 was primarily due to an
increase in employment costs and professional consulting contracts in the United
States, partially offset by a decrease in Japan. As a percentage of net sales,
R&D expenses decreased to 12.4% in fiscal 1996 from 16.3% and 16.5% in fiscal
1995 and fiscal 1994 respectively, reflecting the increase in net sales.
RESEARCH AND DEVELOPMENT COST REIMBURSEMENT--DARPA. R&D--DARPA decreased to
$891,000 in fiscal 1996 from $954,000 in fiscal 1995, a decrease of 6.6%, while
R&D--DARPA in fiscal 1995 increased from $261,000 in fiscal 1994, an increase of
265.5%. The decrease in fiscal 1996 from fiscal 1995 was due to delays in
completing project milestones.
INTEREST EXPENSE. Interest expense increased to $446,000 in fiscal 1996
from $341,000 in fiscal 1995, an increase of 30.8%, primarily because of
increased borrowings to support the Company's increased volume of shipments.
Interest expense was relatively constant from fiscal 1994 to fiscal 1995.
23
<PAGE>
OTHER INCOME (EXPENSE), NET. Other expense, net was $559,000 in fiscal
1996, compared with other income, net of $255,000 and $27,000 in fiscal 1995 and
fiscal 1994, respectively. These fluctuations were primarily due to foreign
currency losses incurred by the Company's Japanese subsidiary in fiscal 1996 as
opposed to foreign currency gains incurred in both fiscal 1995 and fiscal 1994.
INCOME TAX EXPENSE. Income tax expense increased to $130,000 in fiscal 1996
from $10,000 and $17,000 in fiscal 1995 and fiscal 1994, respectively. Income
tax expense in fiscal 1996 primarily consisted of foreign taxes, most of which
related to the operations of the Company's subsidiary in Germany, and United
States federal and state alternative minimum income taxes. Income tax expense in
both fiscal 1994 and fiscal 1995 primarily consisted of foreign taxes.
MINORITY INTEREST IN SUBSIDIARY. Minority interest in subsidiary decreased
to a loss of $1,000 in fiscal 1996 from a gain of $189,000 in fiscal 1995 and a
gain of $285,000 in fiscal 1994. These decreases reflected decreasing net losses
incurred by the Company's majority-owned Japanese subsidiary.
24
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited statements of operations
data for each of the past seven quarters as well as the percentage of the
Company's net sales represented by each item. The unaudited financial statements
have been prepared on the same basis as the audited financial statements
contained herein and include all adjustments (consisting only of normal
recurring adjustments) that the Company considers necessary for a fair
presentation of such information when read in conjunction with the Company's
financial statements and notes thereto appearing elsewhere in this Prospectus.
The operating results for any quarter are not necessarily indicative of results
for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------
AUG. 31, NOV. 30, FEB. 29, MAY 31, AUG. 31, NOV. 30, FEB. 28,
1995 1995 1996 1996 1996 1996 1997
----------- --------- --------- ----------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $ 7,601 $ 7,783 $ 8,683 $ 9,167 $ 9,071 $ 10,486 $ 10,745
Cost of sales...................... 4,589 4,654 5,355 5,344 5,745 6,494 6,364
----------- --------- --------- ----------- ----------- --------- ---------
Gross profit....................... 3,012 3,129 3,328 3,823 3,326 3,992 4,381
----------- --------- --------- ----------- ----------- --------- ---------
Operating expenses:
Selling, general and
administrative................. 1,886 1,609 1,833 2,206 1,849 2,088 2,222
Research and development......... 1,054 1,023 1,061 975 1,016 1,174 1,157
Research and development cost
reimbursement--DARPA........... (236) (219) (197) (239) (176) (117) --
----------- --------- --------- ----------- ----------- --------- ---------
Total operating expenses....... 2,704 2,413 2,697 2,942 2,689 3,145 3,379
----------- --------- --------- ----------- ----------- --------- ---------
Income from operations............. 308 716 631 881 637 847 1,002
Interest expense................... (132) (96) (106) (112) (152) (134) (185)
Other income (expense), net........ (1) (131) (48) (379) 9 (113) (246)
----------- --------- --------- ----------- ----------- --------- ---------
Income before income taxes and
minority interest in
subsidiary....................... 175 489 477 390 494 600 571
Income tax expense (benefit)....... 13 107 75 (65) 130 177 (19)
Minority interest in subsidiary.... 9 3 (12) (1) 3 -- --
----------- --------- --------- ----------- ----------- --------- ---------
Net income......................... $ 171 $ 385 $ 390 $ 454 $ 367 $ 423 $ 590
----------- --------- --------- ----------- ----------- --------- ---------
----------- --------- --------- ----------- ----------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AUG. 31, NOV. 30, FEB. 29, MAY 31, AUG. 31, NOV. 30, FEB. 28,
1995 1995 1996 1996 1996 1996 1997
----------- --------- --------- ----------- ----------- --------- ---------
Net sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................... 60.4 59.8 61.7 58.3 63.3 61.9 59.2
----------- --------- --------- ----------- ----------- --------- ---------
Gross profit....................... 39.6 40.2 38.3 41.7 36.7 38.1 40.8
----------- --------- --------- ----------- ----------- --------- ---------
Operating expenses:
Selling, general and
administrative................. 24.8 20.7 21.1 24.1 20.4 19.9 20.7
Research and development......... 13.8 13.1 12.2 10.6 11.2 11.2 10.8
Research and development cost
reimbursement--DARPA........... (3.1) (2.8) (2.3) (2.6) (1.9) (1.1) --
----------- --------- --------- ----------- ----------- --------- ---------
Total operating expenses....... 35.5 31.0 31.0 32.1 29.7 30.0 31.5
----------- --------- --------- ----------- ----------- --------- ---------
Income from operations............. 4.1 9.2 7.3 9.6 7.0 8.1 9.3
Interest expense................... (1.8) (1.2) (1.2) (1.2) (1.7) (1.3) (1.7)
Other income (expense), net........ -- (1.7) (0.6) (4.1) 0.1 (1.1) (2.3)
----------- --------- --------- ----------- ----------- --------- ---------
Income before income taxes and
minority interest in
subsidiary....................... 2.3 6.3 5.5 4.3 5.4 5.7 5.3
Income tax expense (benefit)....... 0.2 1.4 0.9 (0.7) 1.4 1.7 (0.2)
Minority interest in subsidiary.... 0.1 -- (0.1) -- -- -- --
----------- --------- --------- ----------- ----------- --------- ---------
Net income......................... 2.2% 4.9% 4.5% 5.0% 4.0% 4.0% 5.5%
----------- --------- --------- ----------- ----------- --------- ---------
----------- --------- --------- ----------- ----------- --------- ---------
</TABLE>
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<PAGE>
The Company has experienced and expects to continue to experience
significant fluctuations in its quarterly and annual operating results. The
Company's future operating results will depend upon a variety of factors,
including the timing of significant orders, the mix of products sold, changes in
pricing by the Company, its competitors, customers or suppliers, the length of
sales cycles for the Company's systems, timing of new product announcements and
releases by the Company and its competitors, market acceptance of new products
and enhanced versions of the Company's products, capital spending patterns by
customers, timing of completion of DARPA development milestones, manufacturing
inefficiencies associated with new product introductions by the Company, the
Company's ability to produce systems and products in volume and meet customer
requirements, product returns and customer acceptance of product shipments,
volatility in the Company's targeted markets, political and economic
instability, natural disasters, regulatory changes, possible disruptions caused
by expanding existing facilities or moving into new facilities, expenses
associated with acquisitions and alliances, and various competitive factors,
including price-based competition and competition from vendors employing other
technologies. The Company's gross margins have varied and will continue to vary
based on a variety of factors, including the mix of products sold, sales volume,
and the amount of products sold under volume purchase arrangements, which tend
to have lower selling prices. Due to the uncertainties enumerated above and
other factors, the Company could experience material fluctuations in future
operating results on a quarterly or annual basis.
The Company's net sales have generally trended upward in the last seven
fiscal quarters. The sales growth has been due primarily to increases in MTX
shipments, partially offset by declines in sales of burn-in systems and sales in
Japan. During the Company's last two fiscal years, net sales in the first fiscal
quarter, ended August 31, have declined compared with the fourth fiscal quarter,
ending May 31, of the preceding fiscal year, primarily due to additional
emphasis being placed on shipping products prior to the end of the fiscal year.
The Company expects that fluctuations of this type may occur in the future. With
the exception of the quarter ended August 31, 1996, gross profit has generally
trended upward in the last seven fiscal quarters, although gross profit margin
has fluctuated. The lower gross profit in the quarter ended August 31, 1996 was
primarily caused by a change in product mix toward the sale of products with
somewhat higher material costs and an increase in other costs of sales, such as
scrap, packaging costs, inventory reserves, and provision for warranty. The
Company's gross profit has been, and will continue to be, affected by a variety
of factors, including the mix and average selling prices of the products sold,
and the costs to manufacture, service and support new and enhanced products.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through private sales of
equity securities totaling approximately $7.2 million, bank debt and lease
financing for capital equipment. As of February 28, 1997, the Company's
principal sources of liquidity included cash and short term investments of $2.1
million, two U.S. bank lines of credit totaling $7.0 million collateralized by
substantially all of the Company's U.S. assets, of which $4.6 million was
outstanding, and various borrowings in Japan which totaled $2.1 million. Most of
the borrowings in Japan mature within a year and carry interest rates ranging
from 0.5% to 8.0%. The amounts outstanding under the U.S. lines of credit, which
carry interest rates ranging from prime plus 0.75% to prime plus 1.00% (as of
May 31, 1997, the prime rate was 8.5%) and expire December 4, 1997, will be
repaid from the net proceeds of this offering.
Net cash provided by operations was $636,000 in the nine months ended
February 28, 1997, and was primarily the result of the Company's net income and
reductions in accounts receivable, partially offset by an increase in inventory.
Net cash used for operations was $649,000 in fiscal 1996, primarily the result
of increases in accounts receivable and inventory, partially offset by the
Company's net income and increases in accounts payable and accrued expenses.
Financing activities used cash of $48,000 in the nine months ended February 28,
1997. Financing activities provided cash of $1.1 million in fiscal 1996, due
primarily to increased borrowing from banks.
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<PAGE>
Property and equipment purchases were $734,000 and $581,000 in the nine
months ended February 28, 1997 and fiscal 1996, respectively. The Company
anticipates that its capital expenditures in fiscal 1998 will be greater than
amounts spent in fiscal 1997 and will be directed primarily to support product
development, as well as requirements for manufacturing, customer support, and
demonstration equipment.
As of February 28, 1997, the Company had working capital of $6.0 million,
compared with $4.8 million as of May 31, 1996. Working capital consists of cash
and cash equivalents, accounts receivable, inventory and other current assets,
less current liabilities. Accounts receivable decreased from $10.6 million as of
May 31, 1996 to $7.5 million as of February 28, 1997 as a result of policies
instituted to encourage earlier payment of outstanding balances. Inventory
increased to $10.8 million as of February 28, 1997 from $7.9 million as of May
31, 1996. The inventory increase in fiscal 1997 related to increasing levels of
shipments. The Company expects future inventory levels to fluctuate with
anticipated sales levels, and believes that, because of the relatively long
manufacturing cycle for its systems, its investment in inventory will continue
to represent a significant portion of its working capital. As a result of
increases in inventory, the Company may be subject to an increasing risk of
inventory obsolescence, which could materially and adversely affect the
Company's results of operations.
From time to time, the Company evaluates potential acquisitions of
businesses, products or technologies that complement the Company's business. Any
such transactions, if consummated, may use a portion of the Company's working
capital or require the issuance of equity. The Company has no present
understandings, commitments or agreements with respect to any material
acquisitions.
The Company believes that the proceeds from the sale by the Company of the
Common Stock offered hereby, together with existing sources of liquidity and
anticipated funds from operations, will satisfy the Company's anticipated
working capital and capital equipment requirements through fiscal 1998. See "Use
of Proceeds." After fiscal 1998, depending on its rate of growth and
profitability, the Company may require additional equity or debt financing to
meet its working capital requirements or capital equipment needs. There can be
no assurance that additional financing will be available when required, or, if
available, that such financing can be obtained on terms satisfactory to the
Company.
27
<PAGE>
BUSINESS
GENERAL
Aehr Test develops, manufactures and sells systems which are designed to
reduce the cost of testing DRAMs and other memory devices, and products which
are designed to enable IC manufacturers to perform test and burn-in of bare die.
Leveraging its expertise as a long-time leading provider of burn-in equipment,
with over 2,000 systems installed world-wide, the Company has developed and
introduced two innovative product families, the MTX system and the DiePak
carrier. The MTX is a massively parallel test system capable of processing
thousands of memory devices simultaneously. The MTX system performs not only
burn-in but also many of the tests traditionally performed in final test by
lower-throughput, higher memory testers. Siemens has purchased production
quantities of MTX systems from the Company, and other leading manufacturers have
purchased units for evaluation. The DiePak carrier is a reusable temporary
package that enables IC manufacturers to perform cost-effective final test and
burn-in of bare die. Motorola is using the DiePak carrier in volume production,
and other leading manufacturers have purchased DiePak carriers for evaluation.
The Company offers systems that perform reliability screening (burn-in) of
complex logic and memory devices.
INDUSTRY BACKGROUND
THE INTEGRATED CIRCUIT MARKET
The semiconductor industry has grown significantly over the last five years
due to the continued growth of the personal computer market, the expansion of
the telecommunications industry and the emergence of new market areas such as
consumer electronics products, wireless communication devices, notebook and
handheld computers, and automotive and other applications. Dataquest estimates
that integrated circuit manufacturers produced more than 49 billion ICs in 1996,
resulting in sales of $121.8 billion, and that unit shipments are likely to
increase to more than 83 billion by 2000. While the volume of ICs produced and
sold has increased over the past several years, the industry remains intensely
competitive. IC manufacturers typically compete on the basis of price,
performance and, increasingly for certain applications, size or form factor.
Severe price competition characterizes many sectors of the IC industry.
Average selling prices typically decline substantially as products mature,
volumes increase and new competitors enter the market. In 1996, for example,
prices for 16 megabit ("Mb") DRAMs fell from more than $50 to less than $8 per
device. As a result, IC manufacturers face increased pressure to reduce
production costs wherever possible.
Market demand for higher performance has led IC manufacturers to develop
denser, more complex ICs, capable of holding more data or performing more
functions faster. Since 1989, for example, advanced process technologies have
migrated from 0.8 micron to 0.25 micron geometries, and leading edge memory
devices have increased in density from 4Mb to 64Mb. The smaller geometries and
more complex designs have generally increased the need for sophisticated IC
testing and reliability screening, which increases test times and test costs.
Minimizing the amount of space on a printed circuit board assembly (the
"form factor") used by an IC or chip set has become increasingly important for
many applications, including notebook and handheld computers, portable phones
and other portable consumer products. By using IC components with smaller form
factors, system manufacturers can build smaller, lighter products or enhance the
performance or features of existing products without increasing size. The demand
for smaller form factors is driving the adoption of new IC packaging and
interconnect technologies, including the use of unpackaged or "bare" die. Bare
die may be mounted directly on a printed circuit board or used in multi-chip
modules, such as the module for Intel's Pentium Pro, which contain multiple bare
die.
28
<PAGE>
THE IC TEST PROCESS
Semiconductor manufacturing is a complex, multi-step process and defects or
weaknesses that may result in the failure of an IC may be introduced at any
process step. Failures may occur immediately or at any time during the operating
life of an IC, sometimes after several months of normal use. Semiconductor
manufacturers rely on testing and reliability screening to detect failures that
occur during the manufacturing process.
Testing and reliability screening involves multiple steps. The first set of
tests is typically performed before the processed semiconductor wafer is cut
into individual die, in order to avoid the cost of packaging defective die into
their plastic or ceramic packages. After the die are packaged and before they
undergo reliability screening, a short test is typically performed in order to
detect packaging defects. Most leading-edge microprocessors, microcontrollers
and memory ICs then undergo an extensive reliability screening and stress
testing procedure known as "burn-in." The burn-in process screens for early
failures by operating the IC at elevated voltages and temperatures, usually at
125 DEG.C (257 DEG.F), for periods typically ranging from 12 to 48 hours.
Burn-in systems can process thousands of ICs simultaneously. After burn-in, the
ICs undergo a final test process using automatic test equipment ("testers").
Testers can test up to 64 ICs simultaneously and perform a variety of tests at
multiple temperatures.
Final test can be time-consuming and costly, particularly for memory ICs.
Final testing of the current generation of 16Mb DRAMs often takes five to ten
minutes per device. A memory tester with a 64 site automated handler can cost
between $2 million and $3 million. A test facility adequate to process the
output of a typical leading-edge memory may require 30 or more such systems.
Prime Research Group, a market research firm, estimates that the market for
memory testers exceeded $1.5 billion in 1996. According to Dataquest, final test
costs range from $0.38 per 16Mb DRAM to $4.00 per 64Mb DRAM. The continuing
price competition motivates IC manufacturers to reduce production costs,
including test costs, wherever possible.
TRENDS IN IC PACKAGING AND THE NEED FOR KNOWN GOOD DIE
Consumer market demand for smaller and lighter products has spurred the
emergence of new IC packaging and interconnect technologies. Die have
traditionally been packaged in plastic or ceramic packages which substantially
increase the size of the device. A packaged microprocessor is typically four to
five times the size of the die, and a packaged memory device is typically twice
the size of the die. By using bare die, electronics manufacturers can
substantially reduce size and weight in such products as wireless phones, pagers
and portable PCs. Eliminating packaging also can improve final product
performance because reducing the lengths of the connections between ICs enhances
system operating speeds and reduces power consumption. Moreover, since packaging
can represent a significant cost, particularly for high pin-count
microprocessors, using bare die potentially could save costs associated with
packaging ICs. For these reasons, electronics manufacturers are increasingly
interested in using bare die as well as "chip scale" packages (bare die
partially covered with a thin plastic layer). Electronics manufacturers already
have begun placing multiple bare die in multi-chip modules ("MCMs") and on
printed circuit board assemblies using "flip-chip," "wire bond" and other
connection technologies.
Dataquest estimates that bare die could account for 12% of worldwide IC
production by 2000. The emergence of a bare die market, however, has been
constrained by the absence of a cost-effective approach to burn-in and final
test of bare die. Until recently, electronics manufacturers using bare die have
been forced to perform burn-in and final test after the die have been mounted on
MCMs or printed circuit boards. If defective die are discovered at this stage,
the MCMs or printed circuit board assemblies must be discarded or reworked
manually, either of which is costly. Using unburned-in die can be prohibitively
expensive because even low defect rates in individual bare die are compounded
and can result in relatively high defect rates in products that contain multiple
bare die. Consequently, IC manufacturers need the
29
<PAGE>
ability to supply "known good die" ("KGD") that have passed burn-in and final
test prior to shipment and that offer their customers the assurance that they
meet the same specifications as packaged ICs.
THE AEHR TEST SOLUTION
Aehr Test provides innovative systems designed to reduce the cost of testing
DRAMs and other memory devices and products designed to enable IC manufacturers
to perform test and burn-in of bare die. The Company has recently introduced two
new product families, the MTX system and the DiePak carrier.
Leveraging its expertise as a long-time leading provider of burn-in
equipment, Aehr Test has developed and introduced the MTX, a massively parallel
test system capable of processing thousands of memory devices simultaneously.
The MTX system performs not only burn-in but also many of the time-consuming
tests traditionally performed in final test by lower-throughput, higher-cost
memory testers. Using the MTX system, IC manufacturers can optimize the final
test process by transferring many time-consuming tests to the MTX system and
using memory testers to perform only the high-accuracy, short-duration test
functions for which they are most effective. The Company believes IC
manufacturers using this "mix and match" strategy can substantially reduce the
required number of conventional memory testers and, as a result, substantially
reduce capital and operating costs.
Aehr Test also has developed and introduced the DiePak carrier product line.
The DiePak carrier is a reusable temporary package that enables semiconductor
manufacturers to perform cost-effective final test and burn-in of bare die using
existing burn-in and test equipment with only minimum modifications. The Company
believes that the availability of known good die will help enable bare die to
become a practical alternative to packaged die and will accelerate the expansion
of the bare die market.
STRATEGY
Aehr Test's objective is to strengthen its position as a leading provider of
high-quality, cost-effective systems and products for testing and reliability
screening of both packaged ICs and bare die. The principal elements of the
Company's strategy include:
- REDUCE TEST COSTS FOR MEMORY MANUFACTURERS. The Company seeks to capture
an increasing share of the memory test equipment market by marketing the
MTX massively parallel test system. The Company believes that high volume
manufacturers of memory devices can substantially reduce their test costs
by mixing and matching high-throughput MTX systems with lower-throughput,
higher-cost testers. Siemens has purchased production quantities of the
MTX system, and other leading manufacturers have purchased units for
evaluation.
- PROVIDE ENABLING PRODUCTS FOR THE EMERGING BARE DIE MARKET. The Company
seeks to facilitate the expansion of the bare die market by offering
solutions to enable cost-effective test and burn-in of bare die. The
Company has developed and begun shipping the DiePak carrier, which enables
test and burn-in of bare die using the same burn-in and test systems
currently used for packaged ICs. Motorola has begun using the DiePak
carrier in volume production of known good die and other leading
manufacturers have purchased DiePak carriers for qualification. In
addition, the Company believes that periodic replacement of DiePak
carriers by its customers will generate recurring revenues because new
designs require new carriers and DiePak carriers have a limited life.
- BUILD ON LONG-STANDING CUSTOMER RELATIONSHIPS. The Company has shipped
over 2,000 systems since its inception in 1977 and believes it is one of
the leading suppliers of burn-in systems. The Company's customers include
many of the largest semiconductor manufacturers and contract assemblers
worldwide. The Company believes its reputation and customer relationships
with leading semiconductor manufacturers have assisted and will continue
to assist it in selling new products to its existing as well as new
customers.
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<PAGE>
- LEVERAGE TECHNOLOGY LEADERSHIP. Aehr Test has nearly 20 years of
experience as a leader in the development and marketing of burn-in and
parallel test systems and has developed and introduced innovative new
products for the industry, including the MTX massively parallel test
system and the DiePak carrier. Building upon the expertise gained in the
development of those products, the Company has embarked upon a long-term
project to develop a system for performing burn-in and test of entire
processed wafers, rather than individual die or packaged parts. This
wafer-level burn-in and test project is being financed by the Company and
by DARPA under a cost-sharing agreement. There is no assurance that the
wafer-level burn-in and test project will be successful.
- CONTINUE TO EXPAND WORLDWIDE PRESENCE. As major semiconductor
manufacturers establish multiple locations worldwide, market factors
increasingly require semiconductor equipment vendors to provide global
support and service to customers in each major region. Aehr Test has sales
and service operations in the United States, Germany and Japan and has
established a network of distributors and sales representatives in other
key parts of the world. The Company believes that this worldwide network
of sales and service operations improves its ability to sell to and
support the world's major IC manufacturers and contract assemblers. The
Company intends to continue to invest in building its international
network of distributors, sales representatives and direct sales and
service operations.
PRODUCTS
The Company manufactures and markets massively parallel test systems, die
carriers, burn-in systems, test fixtures and related accessories.
All of the Company's systems are modular, allowing them to be configured
with optional features to meet customer requirements. Systems can be configured
for use in production applications, where capacity, throughput and price are
most important, or for reliability engineering and quality assurance
applications, where performance and flexibility, such as extended temperature
ranges, are essential.
MASSIVELY PARALLEL TEST SYSTEM
The MTX massively parallel test system is designed to reduce the cost of
memory test by processing thousands of memory devices simultaneously, including
DRAMs, SDRAMs, SRAMs and most application-specific memories. The MTX system can
perform a significant number of tests usually performed by memory testers,
including pattern sensitivity tests, functional tests, data retention tests and
refresh tests. The Company estimates that transferring these tests from memory
testers to the MTX system can reduce the time that a memory device must be
tested by a memory tester by up to 75%, thereby reducing the required number of
memory testers and, as a result, reducing capital and operating costs.
[DIAGRAM OF MTX SYSTEM]
The MTX system consists of several subsystems: pattern generation and test
electronics, control software, network interface, environmental chamber and
automation. The MTX system has an algorithmic test pattern generator which
allows it to duplicate many of the tests performed by a memory tester. Pin
electronics at each performance test board ("PTB") position are designed to
provide accurate signals to the memories being tested and detect whether a
device is failing the test. An optional enhanced fault collection capability
allows the MTX to identify which cells in a memory IC are failing, resulting in
information which can be used to sort partially good devices.
The MTX system software is executed on PCs running a UNIX operating system.
The system uses a relational database to store test plans and test results. The
simple point-and-click graphical user interface supports multiple users and the
multiple simultaneous tasks required to run a network of systems efficiently.
The MTX system is also equipped with a widely-used GEM/SECS network interface
which allows easy integration with customers' factory automation and information
systems.
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<PAGE>
Devices being tested are placed on PTBs and loaded into environmental
chambers which typically operate at temperatures from 25 DEG.C (77 DEG.F) up to
150 DEG.C (302 DEG.F) (optional chambers can produce temperatures as low as
- -55 DEG.C (-67 DEG.F)). A single PTB can hold up to 256 16Mb DRAMs, and a
production chamber holds 30 PTBs, resulting in up to 7,680 devices being tested
in parallel in a single system. For production environments, the systems include
an automatic PTB insertion/ejection mechanism and a docking cart for more
efficient handling of large quantities of PTBs.
List prices for production model MTX systems range from $900,000 to
$1,100,000 depending on configuration and features.
DIEPAK CARRIERS
The Company's DiePak product line includes a family of reusable die carriers
and associated sockets which enable the test and burn-in of bare die using the
same test and burn-in systems used for packaged ICs. DiePak carriers offer
cost-effective solutions for providing known good die for most types of ICs,
including memory, microcontroller and microprocessor devices. The DiePak carrier
was introduced in fiscal 1995 following a development effort that included the
Company, Nitto Denko, which manufactured the interconnect substrate, and
Motorola which, as the first customer, assisted in defining requirements and
testing the product. In April 1997, Motorola announced that it qualified the
DiePak carrier for use in production test and burn-in of bare die.
[DIAGRAM OF DIEPAK CARRIER]
The DiePak carrier consists of an interconnect substrate, which provides
electrical connection between the die pads and the socket contacts, and a
mechanical support system. The substrate is customized for each IC product. The
DiePak carrier comes in 108, 172 and 320 pin versions to handle ICs ranging from
low pin-count memories to high pin-count microprocessors. The DiePak carrier and
socket feature a small footprint which reduces test and burn-in cost because
more devices may be processed simultaneously. The Company believes that the
DiePak carrier's competitive advantages include its small footprint, its
one-piece design, which facilitates the automated loading of die into carriers,
and its low contact resistance, which enables more accurate, high speed testing.
The Company believes that periodic replacement of DiePak carriers by its
customers will generate recurring revenues because new IC designs require new
carriers and DiePak carriers have a limited life. The Company anticipates that
for most applications the DiePak carrier can be reused approximately 100 times
for test and burn-in, which would typically occur during the course of one year
of normal operation. The list price of DiePak carriers varies from $70 to $300
in production quantities, depending on the number of pins and the volume
purchased.
BURN-IN SYSTEMS
The Company's current burn-in products consist of the MAX and ATX product
families. The Company believes that its burn-in systems provide accurate and
reliable burn-in for complex memory and logic ICs. The current list prices for
the MAX and ATX systems typically range in purchase price from $150,000 to
$500,000 depending on system and configuration.
The MAX system, which was introduced in fiscal 1993, is designed for dynamic
burn-in of memory and low pin-count logic devices. The system is modular in
design and has a subsystem structure similar to that of the MTX system. The
production version holds 64 burn-in boards ("BIBs"), each of which may hold 350
or more devices, resulting in a system capacity of 22,400 or more devices. The
pattern generator is designed to dynamically burn-in memory devices as large as
4 gigabits, which is likely to be sufficient to cover future generations of
memory devices. The MAX system's 48-channel pin electronics and ability to run
stored test patterns also allow it to be used for application-specific memory
devices and many logic devices. The pin electronics are designed to provide
precisely-controlled voltages and signals to the devices
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<PAGE>
on the BIBs and to protect them from damage during the burn-in process. The
system's multi-tasking PC-based software includes lot tracking and reporting
software that are needed for production and military applications.
The ATX system, introduced in fiscal 1989, is designed for dynamic and
monitored burn-in of high pin-count VLSI devices, including microprocessors,
microcontrollers, applications-specific ICs ("ASICs"), and certain memory
devices. The ATX system uses much of the same software as the MAX system and
contains additional features such as an interface to CAE systems for program
development and output monitoring to ensure that the devices receive the
specified voltages and signals. Its 256-channel pin electronics configuration
allows it to handle complex logic devices, and its ability to burn in different
device types in each of the system's 32 BIB positions is useful for quality
assurance applications.
TEST FIXTURES
The Company manufactures and sells test fixtures including performance test
boards for use with the MTX massively parallel test system and burn-in boards
for its burn-in systems. PTBs and BIBs hold the devices undergoing test or
burn-in and electrically connect the devices under test to the system
electronics. The capacity of each PTB or BIB depends on the type of device being
tested or burned-in, ranging from several hundred in memory production to as few
as eight for high pin-count complex ASIC devices. PTBs and BIBs are sold both
with new Aehr Test systems and for use with the Company's installed base of
systems. Due to the advanced test requirements of the MTX system, PTBs are
substantially more complex than BIBs. The Company has patented certain features
of the PTB and to date has licensed one other company to supply PTBs. See
"--Proprietary Rights." The Company primarily sells BIBs in the higher
performance segments of the market where the Company believes its knowledge of
its systems represents a competitive advantage.
The demand for PTBs and BIBs depends upon the volume of devices manufactured
and the number of new device types. Customers typically need new versions of
PTBs and BIBs for each new device type. The list price per board typically
ranges from $1,000 to $5,000 depending on quantity, socket type and number of
sockets per board. A full set of test fixtures for a system typically ranges in
price from approximately $50,000 to $150,000.
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<PAGE>
CUSTOMERS
The Company markets and sells its products throughout the world to
semiconductor manufacturers, contract assemblers, electronics manufacturers and
independent test labs. The following is a representative list of significant
customers who have purchased products and services from the Company since the
beginning of fiscal 1995:
<TABLE>
<S> <C>
Asahi Chemical Industry Co. Nippon Telegraph and Telephone Company
Carsem Semiconductor Sdn. Bhd. Opti Inc.
El-Mos Elektronik in MOS-technologie GmbH Philips Electronics N.V.
Fuji Photo Film Co., Ltd. Rood Technology Deutschland GmbH
Fujitsu Ltd. Samsung Group
High-Reliability Components Corporation Sanyo Electric Co., Ltd.
Hitachi Ltd. SGS Thomson Microelectronics N.V.
Honeywell Inc. Sharp Corporation
Hyundai Electronics Industries Co., Inc. Siemens AG
International Business Machines Corporation Sony Corporation
Israeli Test House, Ltd. Statsym Sdn. Bhd.
KESM Industries Sdn. Bhd. Symbios Logic, Inc.
Lucent Technologies, Inc. Texas Instruments Incorporated
Matsushita Electric Industrial Co., Ltd. Tokyo IC Co. Ltd.
Microchip Technology Incorporated Toshiba Corporation
Mitsubishi Corporation Yamaha Corporation
Motorola, Inc. Yoshikawa Co. Ltd.
NEC Corporation Zentrum Mikroelektronik Dresden GmbH
</TABLE>
Sales to the Company's five largest customers accounted for approximately
45.1%, 55.8% and 73.8% of its net sales in fiscal 1995, fiscal 1996 and the nine
months ended February 28, 1997, respectively. During fiscal 1996 and the nine
months ended February 28, 1997, Siemens accounted for 29.1% and 57.3% of the
Company's net sales, respectively. During fiscal 1995, Sony accounted for 18.2%
of the Company's net sales. No other customers represented more than 10% of the
Company's net sales for any of such periods. The Company expects that sales of
its products to a limited number of customers will continue to account for a
high percentage of net sales for the foreseeable future. In addition, sales to
particular customers may fluctuate significantly from quarter to quarter. The
loss of or reduction or delay in orders from a significant customer, or a delay
in collecting or failure to collect accounts receivable from a significant
customer could adversely affect the Company's business, financial condition and
operating results. See "Risk Factors-- Customer Concentration."
MARKETING, SALES AND CUSTOMER SUPPORT
The Company focuses its marketing effort on its existing customer base of
large, established semiconductor manufacturers and contract assemblers. The
Company has sales and service operations in the United States, Japan and Germany
and has established a network of distributors and sales representatives in other
key parts of the world. As of May 31, 1997, there were 16 in-house personnel in
the United States, Japan and Germany, collectively, and 19 independent sales
representative organizations marketing the Company's products.
The Company's customer service and support program includes system
installation, system repair, applications engineering support, spare parts
inventories, customer training, and documentation. As of May 31, 1997, the
Company had 18 full-time employees providing customer service and support. The
customer support organization has both applications engineering and field
service personnel located at the corporate headquarters in Mountain View,
California and at the Company's subsidiaries in Germany and
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Japan. The Company's distributors provide applications and field service support
in other parts of the world. The Company customarily provides a warranty on its
products. The Company offers service contracts on its systems directly and
through its subsidiaries, distributors, and representatives.
BACKLOG
As of May 31, 1997, the Company's backlog was approximately $20 million. The
Company's backlog consists of product orders for which confirmed purchase orders
have been received and which are scheduled for shipment within 12 months. Most
orders are subject to rescheduling or cancellation by the customer. Because of
the possibility of customer changes in delivery schedules or cancellations and
potential delays in product shipments, the Company's backlog as of a particular
date may not be indicative of net sales for any succeeding period.
RESEARCH AND PRODUCT DEVELOPMENT
The Company historically has devoted a significant portion of its financial
resources to research and development programs and expects to continue to
allocate significant resources to these efforts. As of May 31, 1997, the Company
had approximately 36 full-time employees engaged in research and development.
The Company's research and development expenses during fiscal 1995, 1996 and the
nine months ended February 28, 1997 were approximately $3.8 million, $4.1
million and $3.3 million, respectively.
The Company conducts ongoing research and development to develop new
products and to support and enhance existing product lines. The Company
currently is developing capability and performance enhancements to the MTX, MAX
and ATX systems for future generation ICs. The Company also is developing DiePak
carriers to accommodate additional types of devices.
Building upon the expertise gained in the development of its existing
products, the Company has embarked upon a long-term project to develop a system
for performing test and burn-in of entire processed wafers, rather than
individual die or packaged parts. This wafer-level burn-in and test project is
being financed by the Company and DARPA, under a cost-sharing agreement entered
into in 1994. The agreement provides for potential payments by DARPA totaling up
to $6.5 million. The Company has received $2.4 million through February 28,
1997, and the remaining payments are scheduled to be made through January 1999.
However, payments by DARPA depend on satisfaction of development milestones, and
DARPA has the right to terminate project funding at any time. The level of
payments may vary significantly from quarter to quarter. There is no assurance
that the Company will meet the development milestones or that DARPA will
continue funding the project. DARPA payments are reflected as a credit to
research and development expenses.
The DiePak carrier was introduced in fiscal 1995, following a development
effort that included the Company, Nitto Denko Corporation, which manufactures
the interconnect substrate, and Motorola which, as the first customer, assisted
in defining requirements and testing the product. Enplas Corporation, a Japanese
manufacturer of advanced plastic products, cooperated with the Company in
developing the DiePak socket. Enplas became a shareholder of the Company in
fiscal 1994, and as of May 31, 1997, owned 320,000 shares of Common Stock.
MANUFACTURING
The Company assembles its products from components and parts manufactured by
others, including environmental chambers, power supplies, metal fabrications,
printed circuit assemblies, integrated circuits, burn-in sockets and
interconnect substrates. Final assembly and test are performed within the
Company's facilities. The Company's strategy is to use in-house manufacturing
only when necessary to protect a proprietary process or if a significant
improvement in quality, cost or lead time can be achieved. The Company's
principal manufacturing facility is located in Mountain View, California. The
Company's Tokyo, Japan facility provides final assembly and test and product
customization.
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<PAGE>
The Company relies on subcontractors to manufacture many of the components
or subassemblies used in its products. The Company's MTX, MAX and ATX systems
contain several components, including environmental chambers, power supplies and
certain ICs, which are currently supplied by only one or a limited number of
suppliers. The DiePak products include an interconnect substrate which is
supplied only by Nitto Denko, and certain mechanical parts and sockets which are
currently supplied only by Enplas. The Company's reliance on subcontractors and
single source suppliers involves a number of significant risks, including the
loss of control over the manufacturing process, the potential absence of
adequate capacity and reduced control over delivery schedules, manufacturing
yields, quality and costs. In the event that any significant subcontractor or
single source supplier were to become unable or unwilling to continue to
manufacture subassemblies, components or parts in required volumes, the Company
would have to identify and qualify acceptable replacements. The process of
qualifying subcontractors and suppliers could be lengthy, and no assurance can
be given that any additional sources would be available to the Company on a
timely basis. Any delay, interruption or termination of a supplier relationship
could have a material adverse effect on the Company's business, financial
condition and operating results.
The Company is also pursuing a strategy of designing PTBs in locations near
its customers to more effectively respond to their custom design needs.
Currently the Company designs and manufactures PTBs in the United States and
Japan and intends to establish a design capability in Germany.
COMPETITION
The semiconductor equipment industry is intensely competitive. Significant
competitive factors in the semiconductor equipment market include price,
technical capabilities, quality, flexibility, automation, cost of ownership,
reliability, throughput, product availability and customer service. In each of
the markets it serves, the Company faces competition from established
competitors and potential new entrants, many of which have greater financial,
engineering, manufacturing and marketing resources than the Company.
Because the Company's MTX system performs burn-in and many of the functional
tests performed by memory testers, the Company expects that the MTX system will
face intense competition from burn-in system suppliers and traditional memory
tester suppliers. The market for burn-in systems is highly fragmented, with many
domestic and international suppliers. Some users, such as independent test labs,
build their own burn-in systems, and some other users, particularly large
Japanese IC manufacturers, acquire burn-in systems from captive or affiliated
suppliers. Competing suppliers of burn-in systems, which typically cost less
than the MTX system, include Ando Corporation, Japan Engineering Company,
Reliability Incorporated and Tabai Espec Corp. Some of the burn-in systems
offered by competing suppliers perform some test functions. In addition,
suppliers of memory test equipment including Advantest Corporation and Teradyne,
Inc. may seek to offer parallel test systems in the future.
The Company's DiePak products face significant competition. Texas
Instruments Incorporated sells a temporary, reusable bare die carrier which is
intended to enable burn-in and test of bare die, and the Company believes that
several other companies have developed or are developing other such products. As
the bare die market develops, the Company expects that other competitors will
emerge. The Company expects that the primary competitive factors in this market
will be performance, reliability, cost and assured supply.
The Company's MAX dynamic and ATX monitored and dynamic burn-in systems
increasingly have faced and are expected to continue to face severe competition,
especially from local, low cost manufacturers. Also, the MAX dynamic burn-in
system faces severe competition from manufacturers of monitored burn-in systems
that perform limited functional tests, including tests designed to ensure the
devices receive the specified voltages and signals.
The Company's test fixture products face numerous competitors. There are
limited barriers to entry into the BIB market, and as a result, many small
companies design and manufacture BIBs, including BIBs for use with the Company's
MAX and ATX systems. The Company's strategy is to provide higher
36
<PAGE>
performance BIBs, and the Company generally does not compete to supply lower
cost, low performance BIBs. The Company has granted a royalty-bearing license to
one company to make PTBs for use with its MTX systems, in order to assure
customers of a second source of supply, and the Company may license others as
well. Sales of PTBs by licensees would result in royalties to the Company but
would potentially reduce the Company's own sales of PTBs.
The Company expects its competitors to continue to improve the performance
of their current products and to introduce new products with improved price and
performance characteristics. New product introductions by the Company's
competitors or by new market entrants could cause a decline in sales or loss of
market acceptance of the Company's products. Increased competitive pressure
could also lead to intensified price-based competition, resulting in lower
prices which could adversely affect the Company's business, financial condition
and operating results. The Company believes that to remain competitive it must
invest significant financial resources in new product development and expand its
customer service and support worldwide. There can be no assurance that the
Company will be able to compete successfully in the future.
PROPRIETARY RIGHTS
The Company relies primarily on the technical and creative ability of its
personnel, its proprietary software, and trade secret and copyright protection,
rather than on patents, to maintain its competitive position. The Company's
proprietary software is copyrighted and licensed to the Company's customers. The
Company currently holds three United States patents and has two additional
United States patent applications and several foreign patent applications
pending. The Company has one United States trademark registration.
The Company's ability to compete successfully is dependent in part upon its
ability to protect its proprietary technology and information. Although the
Company attempts to protect its proprietary technology through patents,
copyrights, trade secrets and other measures, there can be no assurance that
these measures will be adequate or that competitors will not be able to develop
similar technology independently. Further, there can be no assurance that claims
allowed on any patent issued to the Company will be sufficiently broad to
protect the Company's technology, that any patent will issue from any pending
application or that foreign intellectual property laws will protect the
Company's intellectual property. Litigation may be necessary to enforce or
determine the validity and scope of the Company's proprietary rights, and there
can be no assurance that the Company's intellectual property rights, if
challenged, will be upheld as valid. Such litigation could result in substantial
costs and diversion of resources and could have a material adverse effect on the
Company's business, financial condition and operating results, regardless of the
outcome of the litigation. In addition, there can be no assurance that any of
the patents issued to the Company will not be challenged, invalidated or
circumvented or that the rights granted thereunder will provide competitive
advantages to the Company.
There are no pending claims against the Company regarding infringement of
any patents or other intellectual property rights of others. However, the
Company may receive, in the future, communications from third parties asserting
intellectual property claims against the Company. Such claims could include
assertions that the Company's products infringe, or may infringe, the
proprietary rights of third parties, requests for indemnification against such
infringement or suggestions that the Company may be interested in acquiring a
license from such third parties. There can be no assurance that any such claim
made in the future will not result in litigation, which could involve
significant expense to the Company, and, if the Company is required or deems it
appropriate to obtain a license relating to one or more products or
technologies, there can be no assurance that the Company would be able to do so
on commercially reasonable terms, or at all.
37
<PAGE>
EMPLOYEES
As of May 31, 1997, the Company and its two foreign subsidiaries employed
159 persons full-time, of whom 36 were engaged in research, development, and
related engineering, 72 in manufacturing, 34 in marketing, sales, and customer
support, and 17 in general administration and finance. 35 persons are employed
by the Company's subsidiary in Japan. In addition, the Company from time to time
employs a number of part-time employees and contractors, particularly in
manufacturing. The Company's success is in part dependent on its ability to
attract and retain highly skilled workers, who are in high demand. None of the
Company's employees is represented by a union and the Company has never
experienced a work stoppage. Management considers its relations with its
employees to be good. See "Risk Factors-- Dependence on Key Personnel."
FACILITIES
The Company's principal administrative and production facilities are located
in Mountain View, California, in a 61,364 square foot building. The lease on
this building expires in September 1999; the Company has an option to extend the
lease of its headquarters building for an additional five year period at rates
to be negotiated. The Company also leases a sales office in Irvine, California
and sales and support office in Osaka, Japan. The Company's Japan facility is
located in Tokyo in a 15,607 square foot building under a lease which expires in
June 1998. The Company leases a sales and support office in Utting, Germany. The
Company's and its subsidiaries' annual rental payments currently aggregate
approximately $1.4 million. The Company believes that alternate facilities would
be available if needed.
38
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---------------------------------------------- --- ----------------------------------------
<S> <C> <C>
Rhea J. Posedel............................... 55 President and Chairman of the Board of
Directors
Gary L. Larson................................ 46 Vice President of Finance and Chief
Financial Officer
Michael P. Evon............................... 50 Vice President of Sales
Carl N. Buck.................................. 44 Vice President of Research and
Development Engineering
William D. Barraclough........................ 53 Vice President of Test Systems
Engineering
Richard F. Sette.............................. 59 Vice President of Operations
Takahiro Hatakenaka........................... 62 President, Aehr Test Systems Japan
William W. R. Elder (1)....................... 57 Director
Mario M. Rosati (1)........................... 50 Director and Secretary
David Torresdal (2)........................... 58 Director
Katsuji Tsutsumi.............................. 46 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
RHEA POSEDEL is a founder of the Company and has served as President and
Chairman of the Board of Directors since its inception in 1977. He received a
B.S. in Electrical Engineering from the University of California, Berkeley, an
M.S. in Electrical Engineering from San Jose State University and an M.B.A. from
Golden Gate University.
GARY LARSON joined the Company in April 1991 as Chief Financial Officer and
was elected Vice President of Finance in February 1992. From 1986 to 1990, he
served as Chief Financial Officer, and from 1988 to 1990 also as President and
Chief Operating Officer, of Nanometrics Incorporated, a manufacturer of
measurement and inspection equipment for the semiconductor industry. Mr. Larson
received a B.S. in Mathematics/Finance from Harvey Mudd College.
MICHAEL EVON joined the Company as Vice President of Sales in March 1995. He
was employed at GenRad, Inc., a world market leader in PC board test systems,
from 1968 to 1995, during which time he held various positions, including
serving as Director of Sales for Asia, Pacific and Latin America, Director of
Sales/North America for the Design Automation Division, and Western Regional
Sales Manager. Mr. Evon received a B.S. in Electrical Engineering from Tufts
University.
CARL BUCK joined the Company as a Product Marketing Manager in 1983 and held
various positions until he was elected Vice President of Engineering in November
1992, and Vice President of Research and Development Engineering in November
1996. From 1978 to 1983, Mr. Buck served as Product Marketing Manager at Intel
Corporation, an integrated circuit and microprocessor company. Mr. Buck received
a B.S.E.E. from Princeton University, an M.S. in Electrical Engineering from the
University of Maryland and an M.B.A. from Stanford University.
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<PAGE>
WILLIAM BARRACLOUGH joined the Company as an Account Manager in February
1989 and held various positions until he was elected Vice President of Test
Systems Engineering in August 1996. Mr. Barraclough received a B.S.E.E. from the
University of Southern California.
RICHARD SETTE rejoined the Company as Vice President of Operations in
January 1996, after serving in that same position from 1984 to 1987. He served
as Vice President of Operations of Symtek, Inc., which manufactures handling
equipment for the semiconductor industry, from 1993 to 1994, as Senior Director
of Operations of Northrop Grumman Corp., a manufacturer of aircraft and aircraft
subsystems, from 1987 to 1993 and as Director of Engineering at SatCom
Technologies Corp., a subsidiary of ComSat Corp., a telecommunications and
entertainment company, from 1994 to 1995. Mr. Sette received a B.S.E.E. and an
M.S.E.E. from Northeastern University.
TAKAHIRO HATAKENAKA is a founder of Aehr Test Systems Japan K.K. ("Aehr Test
Japan"), and has been President and Chairman of the Board of Directors of Aehr
Test Japan, the Company's Japanese subsidiary, since its inception in October
1981. Mr. Hatakenaka attended Waseda University in Tokyo, Japan, where he
majored in Economics.
WILLIAM ELDER, has been a director of the Company since 1989. Dr. Elder was
the Chief Executive Officer of Genus, Inc. ("Genus"), a semiconductor company,
from his founding of Genus in 1981 to September 1996. Dr. Elder has been a
director of Genus since its inception, and was elected as Chairman of the Board
of Genus in September 1996. Dr. Elder holds a B.S.I.E. and an honorary Doctorate
Degree from the University of Paisley in Scotland.
MARIO ROSATI has served as Secretary and a director of the Company since
1977. He is a member of the law firm of Wilson Sonsini Goodrich & Rosati, which
he joined in 1971. Mr. Rosati is a graduate of Boalt Hall, University of
California at Berkeley. Mr. Rosati is a director of C*ATS Software Inc., Genus,
Inc., Meridian Data, Inc., Ross Systems, and Sanmina Corporation, as well as
several private companies.
DAVID TORRESDAL has been a director of the Company since 1977. He has been
President of Davtron, Inc., a manufacturer of aircraft electronic equipment,
since 1970. Mr. Torresdal received an A.A.S. in Engineering from Oregon
Technical Institute.
KATSUJI TSUTSUMI has been a director of the Company since 1994. He has
served as a Vice President of Enplas Tech (U.S.A.), Inc., a subsidiary of Enplas
Corporation, since October, 1993. From 1989 to 1993, Mr. Tsutsumi served as
Overseas Sales Division General Manager for Enplas Corporation in Japan. Mr.
Tsutsumi received a degree in Economics from the University of Aoyama Gakuin in
Japan.
All directors hold office until the next annual meeting of shareholders and
until their successors have been duly elected and qualified. The Company's
executive officers are approved by and serve at the discretion of the Board of
Directors. There are no family relationships among the directors or executive
officers of the Company.
DIRECTORS' COMPENSATION AND OTHER ARRANGEMENTS
Directors of the Company do not receive any cash compensation for their
services as members of the Board of Directors, although they are reimbursed for
certain expenses incurred in attending Board and committee meetings. Directors
are eligible to participate in the Company's option plans. In fiscal 1996, the
Company granted options to purchase 55,000 shares to William Elder at $4.00 per
share, 20,000 shares to Mario Rosati at $4.00 per share, and 20,000 shares to
David Torresdal at $4.00 per share. Directors were granted no options in fiscal
1997.
BOARD COMMITTEES
The Board of Directors has a Compensation Committee and an Audit Committee.
The Compensation Committee, which is comprised of William Elder and Mario
Rosati, makes recommendations to the Board
40
<PAGE>
of Directors regarding executive compensation matters, including decisions
relating to salary and bonus and grants of stock options. The Audit Committee,
which is comprised of David Torresdal, approves the Company's independent
auditors, reviews the results and scope of annual audits and other accounting
related services, and reviews and evaluates the Company's internal audit and
control functions.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION
The following table sets forth all compensation received for services
rendered to the Company in all capacities for the fiscal year ended May 31, 1996
by the Company's Chief Executive Officer and for each of the other executive
officers with annual compensation in excess of $100,000 (collectively, the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(1)
- -------------------------------------------------------- ---------- --------- ------------- -------------------
<S> <C> <C> <C> <C>
Rhea J. Posedel......................................... $ 173,246 $ -- 70,000 $ 7,097
President and Chairman of the Board of Directors
Gary L. Larson.......................................... $ 133,540 $ 6,450 53,000 $ 5,203
Vice President of Finance and Chief Financial Officer
Michael P. Evon......................................... $ 105,352 $ 40,462 10,000 $ 3,720
Vice President of Sales
Carl N. Buck............................................ $ 121,060 $ 7,600 27,000 $ 3,508
Vice President of Research and Development Engineering
Takahiro Hatakenaka (2)................................. $ 204,973 $ -- 2,000 $ 3,998
President, Aehr Test Systems Japan
</TABLE>
- ------------------------
(1) Includes life and health insurance premiums.
(2) Mr. Hatakenaka's salary was converted to U.S. Dollars at a calculated fiscal
1996 average rate of 114.576 yen to the dollar.
41
<PAGE>
OPTION GRANTS
The following table sets forth information concerning grants of options to
purchase the Company's Common Stock made to each of the Named Executive Officers
during fiscal 1996.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS(1) ANNUAL
------------------------------------------------------------------ RATES OF STOCK PRICE
% OF TOTAL OPTIONS APPRECIATION FOR
NUMBER OF GRANTED TO EXERCISE OPTION TERM(3)
SHARES UNDERLYING EMPLOYEES IN FISCAL PRICE PER EXPIRATION --------------------
NAME OPTIONS GRANTED 1996 SHARE(2) DATE 5% 10%
- --------------------------- ----------------- ------------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Rhea J. Posedel............ 25,000(4) 4.51% $ 4.40 07/20/00 $ 30,391 $ 67,156
25,000(5) 4.51% $ 4.40 10/26/00 $ 30,391 $ 67,156
20,000(6) 3.61% $ 4.40 05/03/01 $ 24,313 $ 53,725
Gary L. Larson............. 5,000(4) 0.90% $ 4.00 07/20/00 $ 5,526 $ 12,210
40,000(5) 7.32% $ 4.00 10/26/00 $ 44,205 $ 97,682
8,000(6) 1.45% $ 4.00 05/03/01 $ 8,841 $ 19,536
Michael P. Evon............ 10,000(6) 1.80% $ 4.00 05/03/01 $ 11,051 $ 24,420
Carl N. Buck............... 10,000(4) 1.80% $ 4.00 07/20/00 $ 11,051 $ 24,420
22,000(5) 3.97% $ 4.00 10/26/00 $ 24,313 $ 53,725
5,000(5) 0.90% $ 4.00 10/26/00 $ 5,526 $ 12,210
8,000(6) 1.45% $ 4.00 05/03/01 $ 8,841 $ 19,536
Takahiro Hatakenaka........ 2,000(5) 0.36% $ 4.00 10/26/00 $ 2,210 $ 4,884
</TABLE>
- ------------------------
(1) All options granted during the fiscal year were granted under the Company's
1986 Incentive Stock Plan. Each option becomes exercisable according to a
vesting schedule, subject to the employee's continued employment with the
Company. See "Management--Stock Plans."
(2) The exercise price per share of options granted represented the fair market
value of the underlying shares of Common Stock on the dates the respective
options were granted as determined by the Board. The Company's Common Stock
was not traded publicly at the time of the option grants to the Named
Executive Officers.
(3) Potential realizable values are net of the exercise price but before taxes
associated with the exercise. Amounts represent hypothetical gains that
could be achieved for the respective options if exercised at the end of the
option term. The assumed 5% and 10% rates of stock price appreciation are
provided in accordance with the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of the
future Common Stock price. Actual gains, if any, on stock option exercises
are dependent on the future financial performance of the Company, overall
market conditions and the option holders' continued employment through the
vesting period. This table does not take into account any appreciation in
the price of the Common Stock from the date of grant to the date of this
Prospectus.
(4) This option was granted by the Board of Directors on July 20, 1995, with
vesting to commence on July 20, 1995. This option will vest ratably on a
monthly basis over a period of 48 months.
(5) This option was granted by the Board of Directors on October 26, 1995, with
vesting to commence on October 26, 1995. This option will vest ratably on a
monthly basis over a period of 24 months.
(6) This option was granted by the Board of Directors on May 3, 1996, with
vesting to commence on May 3, 1996. This option will vest ratably on a
monthly basis over a period of 48 months.
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<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning stock options held as
of May 31, 1996 by the Named Executive Officers. There were no option exercises
by any Named Executive Officer during the fiscal year ended May 31, 1996.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR AND YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT MAY 31, 1996(1) AT MAY 31, 1996(2)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Rhea J. Posedel........................................... 12,499 57,501 $ 1,302 $ 4,948
Gary L. Larson............................................ 24,063 43,937 $ 10,859 $ 13,641
Michael P. Evon........................................... 10,833 39,167 $ 10,833 $ 31,667
Carl N. Buck.............................................. 21,624 38,376 $ 11,942 $ 15,558
Takahiro Hatakenaka....................................... 583 1,417 146 354
</TABLE>
- ------------------------
(1) All options were granted under the Company's 1986 Incentive Stock Plan. Each
option becomes exercisable according to a vesting schedule, subject to the
applicable Named Executive Officer's continued employment with the Company.
(2) Calculated on the basis of the fair market value of the Common Stock as of
May 31, 1996. The fair market value of the Common Stock as of such date was
$4.25 per share. Assuming the fair market value of the Common Stock as of
May 31, 1996 was the assumed initial public offering price of $10.00 per
share, the total aggregate value of the exercisable and unexercisable
options would be $402,000 in the case of Mr. Posedel, $415,500 in the case
of Mr. Larson, $330,000 in the case of Mr. Evon, $372,500 in the case of Mr.
Buck, and $12,000 in the case of Mr. Hatakenaka.
STOCK PLANS
1986 INCENTIVE STOCK PLAN
The Company's 1986 Incentive Stock Plan (the "1986 Plan") provides for the
grant of incentive stock options and nonstatutory stock options. As of May 31,
1997, options to purchase an aggregate of 707,350 shares of Common Stock were
outstanding under the 1986 Plan. Options granted under the Plan will remain
outstanding in accordance with their terms, but the Board of Directors has
determined that no further options will be granted under the 1986 Plan.
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (as Amended and Restated) (the "1996
Plan") was approved by the Board of Directors and the shareholders on October
23, 1996. The 1996 Plan provides for the grant to employees of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Internal Revenue Code"), and for the grant to employees,
directors and consultants of nonstatutory stock options and stock purchase
rights ("SPRs"). In June 1997 the Board of Directors amended and restated the
terms of the 1996 Plan to take effect upon the Company's initial public offering
of Common Stock. Unless terminated sooner, the 1996 Plan will terminate
automatically in 2006. The Board has the authority to amend, suspend or
terminate the 1996 Plan, provided that no such action may affect any share of
Common Stock previously issued and sold or any option previously granted under
the 1996 Plan.
43
<PAGE>
As of May 31, 1997, options to purchase an aggregate of 70,500 shares of
Common Stock were outstanding under the 1996 Plan, and options to purchase an
aggregate of 579,500 shares of Common Stock were available for future issuance.
The 1996 Plan may be administered by the Board of Directors or a committee
of the Board (the "Committee"), which Committee is required to be constituted to
comply with Section 16(b) of the Securities Exchange Act of 1934, as amended,
and applicable laws. The Committee has the power to determine the terms of the
options or SPRs granted, including the exercise price, the number of shares
subject to each option or SPR and the exercisability thereof, and the form of
consideration payable upon exercise. Options and SPRs granted under the 1996
Plan are not generally transferable by the optionee, and each option and SPR is
exercisable during the lifetime of the optionee only by such optionee. In
general, options granted under the 1996 Plan must be exercised within thirty
days of the end of optionee's status as an employee, director or consultant of
the Company or a parent or subsidiary corporation of the Company, or within
twelve months after such optionee's termination by death or disability, but in
no event later than the expiration of the option's expiration date. In the case
of SPRs, unless the Committee determines otherwise, the Restricted Stock
Purchase Agreement shall grant the Company a repurchase option exercisable upon
the voluntary or involuntary termination of the purchaser's employment or
service with the Company or a parent or subsidiary corporation of the Company
for any reason (including death or disability). The purchase price for shares
repurchased pursuant to the Restricted Stock Purchase Agreement shall be the
original price paid by the purchaser. The repurchase option shall lapse at a
rate determined by the Committee. The exercise price of all incentive stock
options granted under the 1996 Plan must be at least equal to the fair market
value of the Common Stock on the date of grant. The exercise price of
nonstatutory stock options and SPRs granted under the Plan is determined by the
Committee. With respect to any participant who owns stock possessing more than
10% of the voting power of all classes of the outstanding capital stock of the
Company or a parent or subsidiary corporation of the Company, the exercise price
of any incentive stock option granted must equal at least 110% of the fair
market value on the grant date and the term of such incentive stock option must
not exceed five years. The term of all other incentive stock options granted
under the 1996 Plan may not exceed ten years.
The 1996 Plan provides that in the event of a merger of the Company with or
into another corporation, a sale of substantially all of the Company's assets or
a like transaction involving the Company, each option and SPR shall be assumed
or an equivalent option or right substituted for by the successor corporation.
If the outstanding options and SPRs are not assumed or substituted as described
in the preceding sentence, an optionee will fully vest in and have the right to
exercise the option or SPR as to all or a portion of the optioned stock,
including shares as to which it would not otherwise be exercisable. If the
Administrator makes an option or SPR becomes exercisable in full in the event of
a merger or sale of assets, the Administrator shall notify the optionee that the
option or SPR shall be fully exercisable for a period of fifteen (15) days from
the date of such notice, and the option or SPR will terminate upon the
expiration of such period.
1997 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1997 Employee Stock Purchase Plan (the "1997 Purchase Plan")
was adopted by the Board of Directors and by the shareholders in June 1997. A
total of 300,000 shares of Common Stock has been reserved for issuance under the
1997 Purchase Plan. The 1997 Purchase Plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, has consecutive, overlapping,
twenty-four month offering periods. Each twenty-four month offering period
includes four six month purchase periods. The offering periods generally begin
on the first trading day on or after April 1 and October 1 each year, except the
first such offering period commences with the effectiveness of the Company's
initial public offering of Common Stock and ends on the last trading day on or
before March 31, 1999.
The 1997 Purchase Plan is administered by the Board of Directors or by a
committee appointed by the Board. Employees are eligible to participate if they
are customarily employed by the Company or any
44
<PAGE>
participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, any employee who (i) immediately after
grant owns stock possessing 5% or more of the total combined voting power or
value of all classes of the capital stock of the Company or any subsidiary of
the Company, or (ii) whose rights to purchase stock under all employee stock
purchase plans of the Company accrues at a rate which exceeds $25,000 worth of
stock for each calendar year may not be granted an option to purchase stock
under the 1997 Purchase Plan. The 1997 Purchase Plan permits eligible employees
to purchase Common Stock through payroll deductions of up to 10% of an
employee's compensation (compensation is defined as the participant's base
straight time gross earnings and commissions, but excludes payments for
overtime, shift premium, incentive compensation, incentive payments, bonuses and
other compensation). The price of stock purchased under the 1997 Purchase Plan
will be 85% of the lower of the fair market value of the Common Stock on the
first day of the offering period or the last day of the purchase period. The
maximum number of shares a participant may purchase during a single purchase
period is determined by dividing $12,500 by the fair market value of a share of
the Company's Common Stock on the first day of the then-current offering period.
Employees may end their participation in the offering at any time during an
offering period, and they will be paid their payroll deductions to date.
Participation ends automatically on termination of employment with the Company.
Rights granted under the 1997 Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the 1997 Purchase Plan. The 1997 Purchase Plan provides
that, in the event of a merger of the Company with or into another corporation
or a sale of substantially all of the Company's assets, each option shall be
assumed or an equivalent option substituted by the successor corporation. If the
outstanding options are not assumed or substituted, the Board of Directors shall
shorten the offering period (so that employees' rights to purchase stock under
the 1997 Purchase Plan are exercised prior to the merger or sale of assets). The
1997 Purchase Plan will terminate in 2007. The Board of Directors has the
authority to amend or terminate the 1997 Purchase Plan, except that no such
action may adversely affect any outstanding rights to purchase stock under the
1997 Purchase Plan.
EMPLOYEE STOCK BONUS PLAN
Under Aehr Test Systems Employee Stock Bonus Plan (the "Bonus Plan"), the
Company may, but is not required to, make contributions up to a maximum of 15%
of the Company's payroll (less amounts contributed to the Company's Savings and
Retirement Plan). This contribution is determined annually by the Company and is
allocated among all participants in proportion to their eligible compensation
for the year. Eligible participants are full-time employees who have completed
three consecutive months of service and part time employees who have completed
one year of service and have attained an age of 21. The Company can contribute
either shares of the Company's stock or cash to the plan. Individuals' account
balances vest at a rate of 25% per year commencing upon completion of three
years of service. Nonvested balances, which are forfeited, are allocated to the
remaining employees in the plan. Each participant's share in the Bonus Plan is
credited to the participant's account and held in trust until retirement, death,
disability or termination of service. The Bonus Plan is a discretionary defined
contribution plan under the Employee Retirement Income Security Act. All
employees of Aehr Test Systems are eligible to participate in the Bonus Plan as
of the entry date each year. The Company made a Bonus Plan contribution of
$50,000 in fiscal 1996, and made no contributions to the Bonus Plan in fiscal
1994 and fiscal 1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee currently consists of Mario Rosati and
William Elder. No executive officer of the Company serves on the compensation
committee of another entity or on any other committee of the board of directors
of another entity that has one or more executive officers serving as a member of
the Company's Board of Directors or Compensation Committee.
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<PAGE>
LIMITATION ON LIABILITIES AND INDEMNIFICATION
The Company's Restated Articles of Incorporation limit the liability of its
directors for monetary damages arising from a breach of their fiduciary duty as
directors, except to the extent otherwise required by the California
Corporations Code. Such limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or recision.
The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by California law, including
circumstances in which indemnification is otherwise discretionary under
California law. The Company has also entered into indemnification agreements
with its officers and directors containing provisions which are in some respects
broader than the specific indemnification provisions contained in the California
Corporations Code. The indemnification agreements may require the Company, among
other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to obtain directors' and
officers' insurance if available on reasonable terms.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent or the Company in which indemnification by
the Company will be required or permitted. The Company is not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification.
CERTAIN TRANSACTIONS
On August 1, 1994, the Company entered into a strategic consulting
arrangement with William Elder, a director of the Company, whereby the Company
granted Mr. Elder a nonstatutory stock option to purchase 40,000 shares in
exchange for his consulting services. The agreement terminated on January 31,
1995.
Katsuji Tsutsumi represents Enplas Corporation on the Board of Directors.
Enplas Corporation supplies die carrier components and sockets to the Company
for use in the Company's DiePak carrier products. Enplas Corporation purchased
320,000 shares of the Company's Common Stock for a price of $4.50 per share and
a total aggregate price of $1,440,000 in April 1994.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of May 31, 1997, and as adjusted to
reflect the sale of the shares of Common Stock offered hereby, by (i) each
person known by the Company to own more than 5% of the Company's Common Stock,
(ii) each Named Executive Officer, (iii) each of the Company's directors, (iv)
all directors and executive officers as a group, and (v) each Selling
Shareholder holding 1% or more of the Common Stock:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) OFFERING(1)(2)
----------------------- SHARES -----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT TO BE SOLD NUMBER PERCENT
- -------------------------------------------------------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
5% HOLDERS:
Enplas Corporation (3).................................. 320,000 7.4%
Summit Ventures, L.P. (4)............................... 300,625 7.0%
Japan Associated Finance Co., Ltd. (5).................. 285,715 6.7%
Mayfield III (6)........................................ 283,824 6.6%
NAMED EXECUTIVE OFFICERS AND DIRECTORS:
Rhea J. Posedel (7)..................................... 977,208 22.5%
Katsuji Tsutsumi (8).................................... 320,000 7.4%
David Torresdal (9)..................................... 313,633 7.3%
Mario M. Rosati (10).................................... 211,349 4.9%
Takahiro Hatakenaka (11)................................ 75,201 1.7%
William W. R. Elder (12)................................ 64,583 1.5%
Gary L. Larson (13)..................................... 54,208 1.2%
Carl N. Buck (14)....................................... 46,645 1.1%
Michael P. Evon (15).................................... 25,417 *
All directors and executive officers as a group (eleven
persons) (11) (16).................................... 2,138,406 46.7%
OTHER SELLING SHAREHOLDERS:
Other Selling Shareholders, each holding less than 1% of
the Common Stock prior to the offering................
</TABLE>
- ------------------------
* Represents less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable, or will become exercisable within 60 days after May
31, 1997, are deemed outstanding. Such shares, however, are not deemed
outstanding for purposes of computing the percentage ownership of any other
person. Unless otherwise indicated in the footnotes to this table, the
persons and entities named in the table have represented to the Company that
they have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Unless otherwise indicated, the address of each of the individuals listed in
the table is c/o Aehr Test Systems, 1667 Plymouth Street, Mountain View,
California 94043.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) The address of this beneficial owner is as follows: Enplas Corporation,
2-30-1, Namiki, Kawaguchi City, Saitama, Pref. 332, Japan.
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<PAGE>
(4) Includes 1,238 shares held by Summit Investors, L.P., 180,457 shares held by
Summit Ventures, L.P. and 118,930 shares held by SV Eurofund C.V. The
address of this beneficial owner is as follows: Summit Ventures, L.P., One
Boston Place, Boston, MA 02108.
(5) Includes 29,000 shares held by JAFCO G-2(A) Investment Enterprise
Partnership, 29,000 shares held by JAFCO G-2(B) Investment Enterprise
Partnership, 84,000 shares held by JAFCO G-3 Investment Enterprise
Partnership, 43,000 shares held by JAFCO No. 5 Investment Enterprise
Partnership, 43,000 shares held by JAFCO No. 6 Investment Enterprise
Partnership and 57,715 shares held by Japan Associated Finance Co., Ltd. The
address of this beneficial owner is as follows: Japan Associated Finance
Co., Ltd., Toshiba Bldg., 10th Floor, 1-1-1 Shibaura, Minato-Ku, Tokyo, 105,
Japan.
(6) The address of this beneficial owner is as follows: Mayfield III, 2800 Sand
Hill Road, Suite 250, Menlo Park, CA 94025.
(7) Includes 40,000 shares held by Vivian Owen, Mr. Posedel's wife, and 40,208
shares issuable upon the exercise of stock options exercisable within 60
days of May 31, 1997.
(8) Includes 320,000 shares held by Enplas Corporation, a Japanese corporation.
Mr. Tsutsumi, a director of the Company, is a vice president of Enplas Tech
(U.S.A.), Inc., a California corporation and wholly owned subsidiary of
Enplas Corporation. Mr. Tsutsumi disclaims beneficial ownership of the
shares held by Enplas Corporation.
(9) Includes 273,800 shares held jointly with Betty Torresdal, 6,800 shares held
by Barbara Long, trustee for the benefit of Brock Frank Torresdal, 6,800
shares held by Barbara Long, trustee for the benefit of Candice Ann
Torresdal, 6,800 shares held by Barbara Long, trustee for the benefit of
Eric Nels Torresdal, 6,800 shares held by Barbara Long, trustee for the
benefit of Kyler David Torresdal, 6,800 shares held by Barbara Long, trustee
for the benefit of Kevin Allen Torresdal; and 5,833 shares issuable upon the
exercise of stock options exercisable within 60 days of May 31, 1997.
(10) Includes 27,000 shares held by Mario Rosati and Douglas Laurice, trustees
for the benefit of Mario M. Rosati, 158,516 shares held by Mario M. Rosati,
Trustee of the Mario M. Rosati Trust,
U/D/T dated 1/9/90, 20,000 shares held by Douglas Laurice and Mario Rosati,
trustees for the benefit of Sally Rosati Banks and 5,833 shares issuable
upon the exercise of stock options exercisable within 60 days of May 31,
1997.
(11) Includes 1,750 shares issuable upon the exercise of stock option
exercisable within 60 days of May 31, 1997.
(12) Includes 62,083 shares issuable upon the exercise of stock options
exercisable within 60 days of May 31, 1997 and 2,500 shares held by William
Elder, Trustee of the William W. R. Elder Separate Property Trust, U/D/T
dated April 18, 1983.
(13) Consists of shares issuable upon the exercise of stock options exercisable
within 60 days of May 31, 1997.
(14) Includes 45,645 shares issuable upon the exercise of stock options
exercisable within 60 days of May 31, 1997.
(15) Includes 25,417 shares issuable upon the exercise of stock options
exercisable within 60 days of May 31, 1997.
(16) Includes 4,996 shares held by Richard Sette, and 286,143 shares issuable
upon the exercise of stock options exercisable within 60 days of May 31,
1997.
48
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of the Offering, the authorized capital stock of the
Company will consist of 75,000,000 shares of Common Stock, $0.01 par value, and
10,000,000 shares of Preferred Stock, $0.01 par value.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Restated Articles of
Incorporation, which are included as an exhibit to the Registration Statement of
which this Prospectus is a part.
COMMON STOCK
On May 31, 1997, there were 4,295,522 shares of Common Stock outstanding,
held of record by approximately 165 shareholders. The holders of Common Stock
are entitled to one vote for each share held of record on all matters submitted
to a vote of shareholders. Accordingly, holders of a majority of the shares of
Common Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Subject to preferences that may be applicable
to any outstanding Preferred Stock, holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of the Company's liabilities and the liquidation
preference, if any, of any outstanding Preferred Stock. Holders of Common Stock
have no preemptive rights and no rights to convert their Common Stock into any
other securities, and there are no redemption provisions with respect to such
shares. All of the outstanding shares of Common Stock are, and the shares to be
sold in the Offering when issued and paid for will be, fully paid and
non-assessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.
PREFERRED STOCK
Effective upon the closing of the Offering, the Board of Directors will have
the authority, without further action by the shareholders, to provide for the
issuance of up to 10,000,000 shares of Preferred Stock from time to time in one
or more series, to establish the number of shares to be included in each such
series, to fix the designations, powers, preferences, privileges and relative
participating, optional or special rights and the qualifications, limitations or
restrictions of the shares of each series, including dividend rights, conversion
rights, voting rights, terms of redemption and liquidation preferences of each
such series, any or all of which may be greater than the rights of the Common
Stock. The Board of Directors, without shareholder approval, can issue Preferred
Stock with voting, conversion or other rights that could adversely affect the
voting power and other rights of the holders of Common Stock. Preferred Stock
could thus be issued quickly with terms calculated to delay or prevent a change
in control of the Company or make removal of management more difficult. The
issuance of Preferred Stock could also decrease the amount of earnings and
assets available for distribution to holders of Common Stock. The Company has no
current plans to issue any of the Preferred Stock.
REGISTRATION RIGHTS
As of the date hereof, the holders of approximately 609,245 shares of Common
Stock are entitled to certain rights with respect to the registration of such
shares under the Securities Act. Under the terms of the registration rights
agreements between the Company and each of such holders, if the Company proposes
to register any of its securities under the Securities Act, either for its own
account or the account of other security holders, the holders are entitled to
notice of such registration and are entitled to include
49
<PAGE>
shares of such Common Stock therein; provided, among other conditions, that the
underwriters of any offering have the right to limit the number of such shares
included in such registration. In addition, certain of the holders benefitting
from these rights may require the Company, beginning 120 days after the
effective date of the registration statement for the Offering, on not more than
one occasion, to file a registration statement under the Securities Act at the
Company's expense with respect to such shares, and the Company is required to
use its best efforts to effect such registration, subject to certain conditions
and limitations. Further, holders may require the Company to register, subject
to certain conditions and limitations, all or a portion of their shares with
registration rights on Form S-3, when the Company qualifies to use such form.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is U.S.
Stock Transfer, whose telephone number is (818) 502-1404.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect prevailing market prices from time to time.
Furthermore, since only a limited number of shares will be available for sale
shortly after the Offering because of certain contractual and legal restrictions
on resale (as described below), sales of substantial amounts of Common Stock of
the Company in the public market after the restrictions lapse could adversely
affect the prevailing market price and the ability of the Company to raise
equity capital in the future.
Upon completion of the Offering, based on the outstanding shares of Common
Stock at May 31, 1997, the Company will have 6,495,522 shares of Common Stock
outstanding, assuming no exercise of the Underwriters' over-allotment option and
no exercise of outstanding and vested options to purchase 449,910 shares of
Common Stock. Of the 6,495,522 shares of Common Stock, the 3,300,000 shares of
Common Stock offered hereby will be freely transferable without restriction or
further registration under the Securities Act. The remaining 3,195,522 shares of
Common Stock held by existing shareholders are "restricted shares" as defined in
Rule 144 ("Restricted Shares"). Restricted Shares may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144, 144(k) or 701 promulgated under the Securities Act, which rules
are summarized below. As a result of the contractual restrictions described
below and the provisions of Rules 144, 144(k) and 701, additional shares will be
available for sale in the public market as follows: (i) shares will be
available for immediate sale in the public market on the date of this
Prospectus, and (ii) shares will be eligible for sale upon expiration of
the lock-up agreements 180 days after the date of this Prospectus.
Upon completion of the Offering, the holders of shares of Common
Stock, or their transferees, will be entitled to certain rights with respect to
the registration of such shares under the Securities Act. Registration of such
shares under the Securities Act would result in such shares becoming freely
tradeable without restriction under the Securities Act (except for shares
purchased by "Affiliates" of the Company, as that term is defined in Rule 144
under the Securities Act) immediately upon the effectiveness of such
registration. See "Description of Capital Stock--Registration Rights."
The Company, its officers and directors, the Selling Shareholders and other
current shareholders have agreed not to offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, or enter into
any swap or similar agreement that transfers, in whole or in part, the economic
risk of ownership of the Common Stock, for a period of 180 days after the date
of this Prospectus, except (i) the shares of Common Stock offered hereby, (ii)
with the prior written consent of
50
<PAGE>
Oppenheimer & Co., Inc. and (iii) in the case of the Company, for the issuance
of Common Stock upon the exercise of options, or the grant of options to
purchase Common Stock under outstanding stock option plans or the 1997 Purchase
Plan.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year is entitled
to sell within any three-month period a number of shares that does not exceed
the greater of 1% of the then outstanding shares of the Company's Common Stock
(approximately 64,956 shares immediately after the Offering) or the average
weekly trading volume of the Company's Common Stock on the Nasdaq National
Market during the four calendar weeks preceding the date on which notice of the
sale is filed with the Securities and Exchange Commission (the "Commission").
Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and the availability of current public information about the
Company. Any person (or persons whose shares are aggregated) who is not deemed
to have been an Affiliate of the Company at any time during the three months
preceding a sale, and who owns Restricted Shares that were purchased from the
Company (or any Affiliate) at least two years previously, would be entitled to
sell such shares under Rules 144(k) without regard to the volume limitations,
manner of sale provisions, public information requirements or notice
requirements.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisors prior to the date the issuer
becomes subject to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), pursuant to written compensatory benefit
plans or written contracts relating the compensation of such persons. In
addition, the Commission had indicated that Rule 701 will apply to typical stock
options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, along with the share acquired upon exercise of
such options (including exercises after the date of this Prospectus). Securities
issued in reliance on Rule 701 are restricted securities and, subject to the
contractual restrictions described above, beginning 90 days after the date of
this Prospectus, may be sold by persons other than Affiliates subject only to
the manner of sale provisions of Rule 144 and by Affiliates under Rule 144
without compliance with its one-year minimum holding period requirements.
The Company intends to file a registration statement on Form S-8 under the
Securities Act covering the 1,657,350 shares subject to outstanding options or
reserved for issuance under the Company's 1986 Plan, the 1996 Plan or the 1997
Purchase Plan. Accordingly, shares registered under such registration statement
will, subject to Rule 144 volume limitations applicable to Affiliates, be
available for sale in the open market, except to the extent that such shares are
subject to vesting restrictions with the Company or the contractual restrictions
described above. All of the shares issuable upon exercise of outstanding options
are subject to 180-day lock-up agreements with the Company and/or
representatives of the Underwriters. An aggregate of 540,153 shares will be
issuable upon the exercise of the currently outstanding options vested and
exercisable 180 days following the date of this Prospectus. Such shares will be
freely tradeable in the public market upon exercise, pursuant to such
registration statement on Form S-8. See "Management--Stock Plans."
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company and the Selling Shareholders have agreed to sell to each of the
underwriters named below (the "Underwriters"), and each of the Underwriters, for
whom Oppenheimer & Co., Inc. and Needham & Company, Inc. are acting as
Representatives (the "Representatives"), have severally agreed to purchase from
the Company and the Selling Shareholders the respective number of shares of
Common Stock set forth opposite the name of each such Underwriter:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Oppenheimer & Co., Inc.....................................................
Needham & Company, Inc.....................................................
-----------------
Total.................................................................. 3,300,000
-----------------
-----------------
</TABLE>
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus and in part to certain securities dealers at such price less a
concession of $ per share. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per share to certain
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the offering price and other selling terms may from time to time be
varied by the Representatives. The Underwriters are obligated to take and pay
for all of the shares of Common Stock offered pursuant to this Prospectus (other
than those covered by the over-allotment option described below) if any are
taken.
The Selling Shareholders have granted the Underwriters an option,
exercisable for up to 30 days after the date of this Prospectus, to purchase up
to an aggregate of additional shares of Common Stock to cover
over-allotments, if any, at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. If the
Underwriters exercise such option to purchase any of the additional 495,000
shares of Common Stock, the Underwriters have severally agreed, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of shares to be purchased by each of them represents with respect to
the 3,300,000 shares of Common Stock offered pursuant to this Prospectus. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the shares of Common Stock offered pursuant to this
Prospectus. The Selling Shareholders will be obligated, pursuant to the
over-allotment option, to sell shares of Common Stock to the Underwriters to the
extent such over-allotment is exercised.
In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the shares of Common
Stock. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M under the Exchange Act pursuant to
which such persons may bid for or purchase shares of Common Stock for the
purpose of stabilizing the market price for shares of Common Stock. The
Underwriters also may create a short position for the account of the
Underwriters by selling more shares of Common Stock in connection with the
Offering than they are committed to purchase from the Company and the Selling
Shareholders, and in such case may purchase shares of Common Stock in the open
market following completion of the Offering to cover all or a portion of the
shares of Common Stock or by exercising the Underwriters' over-allotment options
referred to above. In addition, Oppenheimer & Co. Inc., on behalf of the
Underwriters, may impose "penalty bids" under contractual arrangements with the
other Underwriters whereby it may reclaim from an Underwriter (or dealer
participating in the Offering) for the account of the other Underwriters, the
selling concession with respect to shares of Common Stock that are distributed
in the Offering but subsequently purchased for the account of the Underwriters
in the open market. Any of the transactions described in this paragraph may
result in the maintenance of the price of the shares of Common Stock at a level
above that which might otherwise
52
<PAGE>
prevail in the open market. None of the transactions described in this paragraph
is required, and, if they are undertaken, they may be discontinued at any time.
The Company and the Selling Shareholders have agreed to indemnify the
Representatives of the Underwriters and the several Underwriters against certain
liabilities, including, without limitation, liabilities under the Securities
Act, and to contribute to certain payments that the Underwriters may be required
to make in respect thereof.
The Representatives of the Underwriters do not intend to confirm sales of
shares of Common Stock in the Offering to any account over which any of the
Representatives exercise discretionary control.
The Company and all of its officers, directors and Selling Shareholders have
agreed not to offer, sell, contract to sell, pledge or grant any option to
purchase or otherwise transfer or dispose of shares of Common Stock of the
Company or any security convertible into or exchangeable or exercisable for, or
warrants, options or rights to acquire any shares of Common Stock (other than
shares issuable upon exercise of outstanding options) for 180 days after the
date of this Prospectus without the prior written consent of Oppenheimer & Co.,
Inc., subject to certain limited exceptions. See "Shares Eligible for Future
Sale."
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price will be determined by
negotiations among the Company, the Selling Shareholders and the
Representatives. Among the factors considered in such negotiations will be
prevailing market conditions, the results of operations of the Company in recent
periods, the market capitalizations and stages of development of other companies
which the Company, the Selling Shareholders and the Representative believe to be
comparable to the Company, estimates of the business potential of the Company,
the history of and prospects for the industry in which the Company competes, the
present state of the Company's development and other factors deemed relevant.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Mario Rosati, a director of the Company, is a member of Wilson
Sonsini Goodrich & Rosati and beneficially owned 211,349 shares of Common Stock
of the Company as of the date of this Prospectus. See "Principal and Selling
Shareholders." As of the date of this Prospectus, an investment partnership of
which certain members of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, are partners beneficially owned 43,707 shares of the Company's
Common Stock. Certain legal matters in connection with the Offering will be
passed upon for the Underwriters by Gray Cary Ware & Freidenrich, A Professional
Corporation, Palo Alto, California.
EXPERTS
The consolidated balance sheets of Aehr Test Systems as of May 31, 1995 and
1996 and the consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended May 31, 1996 included
in this Prospectus and the financial statement schedule for the aforementioned
periods included in the registration statement for the Offering have been
included in reliance on the reports of Coopers & Lybrand L.L.P., independent
accountants, given the authority of said firm as experts in accounting and
auditing.
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<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form S-1 under the
Securities Act of 1933, as amended, with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules filed
thereto. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedules filed as a part thereof. Statements contained in this
Prospectus as to the contents of any contract or any other document referred to
are not necessarily complete, and in each instance, if such contract or document
is filed as an exhibit, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by reference to such exhibit. A copy of the
Registration Statement may be inspected without charge and may be obtained at
prescribed rates at the Commission's principal office, Public Reference Room of
the Securities and Exchange Commission, 450 Fifth Street, Washington, D.C.
20549, and at the Commission's regional offices at 7 World Trade Center, Suite
1300, New York, New York 10048 and 500 West Madison Street, Chicago, Illinois
60661. Copies of all or any part of the Registration Statement may be obtained
from the Public Reference Section of the Commission, Washington, D.C. 20549 upon
the payment of the fees prescribed by the Commission. Such reports and other
information may also be inspected without charge at a web site maintained by the
Commission. The address of such site is
"http://www.sec.gov."
The Company intends to furnish to its shareholders annual reports containing
financial statements audited by an independent public accounting firm and
quarterly reports for the first three quarters of each fiscal year containing
unaudited interim financial information.
54
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets................................................................................ F-3
Consolidated Statements of Operations...................................................................... F-4
Consolidated Statements of Shareholders' Equity............................................................ F-5
Consolidated Statements of Cash Flows...................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Aehr Test Systems:
We have audited the accompanying consolidated balance sheets of Aehr Test
Systems and Subsidiaries as of May 31, 1995 and 1996 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended May 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Aehr Test
Systems and Subsidiaries as of May 31, 1995 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended May 31, 1996, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
San Jose, California
August 1, 1996
F-2
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MAY 31,
--------------------
1995 1996
--------- --------- FEBRUARY 28,
1997
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 598 $ 535 $ 521
Short-term cash deposits..................................................... 2,548 1,946 1,560
Accounts receivable (less allowance for doubtful accounts of $170, $241 and
$258 at May 31, 1995 and 1996, and February 28, 1997 (unaudited),
respectively............................................................... 7,665 10,565 7,474
Inventories.................................................................. 5,670 7,921 10,821
Other........................................................................ 425 259 951
--------- --------- ------------
Total current assets..................................................... 16,906 21,226 21,327
Property and equipment, net.................................................... 1,702 1,382 1,646
Other assets, net.............................................................. 1,282 1,141 922
--------- --------- ------------
Total assets............................................................. $ 19,890 $ 23,749 $ 23,895
--------- --------- ------------
--------- --------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable--banks......................................................... $ 5,758 $ 6,688 $ 6,673
Current portion of long-term debt............................................ 1,262 500 116
Accounts payable............................................................. 4,612 5,590 4,049
Accrued expenses............................................................. 1,640 3,474 4,270
Deferred revenue............................................................. 70 175 256
--------- --------- ------------
Total current liabilities................................................ 13,342 16,427 15,364
Long-term debt, net of current portion......................................... 474 146 107
Deferred lease commitment...................................................... 530 387 287
--------- --------- ------------
Total liabilities........................................................ 14,346 16,960 15,758
--------- --------- ------------
Commitments (Note 7).
Shareholders' equity:
Preferred stock, $.01 par value:
Authorized: 10,000 shares;
Issued and outstanding: none -- -- --
Common stock, $.01 par value:
Authorized: 75,000 shares;
Issued and outstanding: 4,308 shares and 4,298 shares at May 31, 1995 and
1996, respectively, and 4,296 shares (unaudited) at February 28, 1997.... 43 43 43
Additional paid-in capital..................................................... 8,138 8,094 8,085
Accumulated deficit............................................................ (4,845) (3,445) (2,065)
Cumulative translation adjustment.............................................. 2,208 2,097 2,074
--------- --------- ------------
Total shareholders' equity............................................... 5,544 6,789 8,137
--------- --------- ------------
Total liabilities and shareholders' equity............................... $ 19,890 $ 23,749 $ 23,895
--------- --------- ------------
--------- --------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------
YEAR ENDED MAY 31,
------------------------------- FEB. 29, FEB. 28,
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................................................. $ 23,204 $ 23,257 $ 33,234 $ 24,067 $ 30,302
Cost of sales.............................................. 15,761 16,192 19,942 14,598 18,603
--------- --------- --------- --------- ---------
Gross profit............................................... 7,443 7,065 13,292 9,469 11,699
--------- --------- --------- --------- ---------
Operating expenses:
Selling, general and administrative...................... 8,077 6,316 7,534 5,328 6,159
Research and development................................. 3,825 3,783 4,113 3,138 3,347
Research and development cost reimbursement-- DARPA...... (261) (954) (891) (652) (293)
--------- --------- --------- --------- ---------
Total operating expenses............................... 11,641 9,145 10,756 7,814 9,213
--------- --------- --------- --------- ---------
Income (loss) from operations.......................... (4,198) (2,080) 2,536 1,655 2,486
Interest expense........................................... (347) (341) (446) (334) (471)
Other income (expense), net................................ 27 255 (559) (180) (350)
--------- --------- --------- --------- ---------
Income (loss) before income taxes and minority interest
in subsidiary.......................................... (4,518) (2,166) 1,531 1,141 1,665
Income tax expense......................................... 17 10 130 195 288
--------- --------- --------- --------- ---------
Income (loss) before minority interest in subsidiary..... (4,535) (2,176) 1,401 946 1,377
Minority interest in subsidiary............................ 285 189 (1) -- 3
--------- --------- --------- --------- ---------
Net income (loss)...................................... $ (4,250) $ (1,987) $ 1,400 $ 946 $ 1,380
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share................................ $ (1.02) $ (0.45) $ 0.31 $ 0.21 $ 0.31
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in per share calculations...................... 4,147 4,427 4,473 4,482 4,502
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED CUMULATIVE
------------------------ PAID-IN EARNINGS TRANSLATION
SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT TOTAL
----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances, May 31, 1993........................... 4,000 $ 40 $ 6,743 $ 1,392 $ 2,010 $ 10,185
Issuance of common stock....................... 320 3 1,432 -- -- 1,435
Net loss....................................... -- -- -- (4,250) -- (4,250)
Translation adjustment......................... -- -- -- -- 69 69
----- --- ----------- ----------- ----------- ---------
Balances, May 31, 1994........................... 4,320 43 8,175 (2,858) 2,079 7,439
Repurchase of common stock..................... (12) -- (37) -- -- (37)
Net loss....................................... -- -- -- (1,987) -- (1,987)
Translation adjustment......................... -- -- -- -- 129 129
----- --- ----------- ----------- ----------- ---------
Balances, May 31, 1995........................... 4,308 43 8,138 (4,845) 2,208 5,544
Issuance of common stock....................... 1 -- 3 -- -- 3
Repurchase of common stock..................... (11) -- (47) -- -- (47)
Net income..................................... -- -- -- 1,400 -- 1,400
Translation adjustment......................... -- -- -- -- (111) (111)
----- --- ----------- ----------- ----------- ---------
Balances, May 31, 1996........................... 4,298 43 8,094 (3,445) 2,097 6,789
Repurchase of common stock..................... (2) -- (9) -- -- (9)
Net income..................................... -- -- -- 1,380 -- 1,380
Translation adjustment......................... -- -- -- -- (23) (23)
----- --- ----------- ----------- ----------- ---------
Balances, February 28, 1997 (unaudited).......... 4,296 $ 43 $ 8,085 $ (2,065) $ 2,074 $ 8,137
----- --- ----------- ----------- ----------- ---------
----- --- ----------- ----------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MAY 31, --------------------
------------------------------- FEB. 29, FEB. 28,
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $ (4,250) $ (1,987) $ 1,400 $ 946 $ 1,380
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Minority interest in subsidiary........................... (285) (189) 1 -- (3)
Provision for doubtful accounts........................... (24) 34 71 67 26
Loss on disposition of fixed assets....................... -- 156 34 34 --
Depreciation and amortization............................. 739 622 622 510 472
Deferred income taxes..................................... (170) -- -- -- --
Changes in operating assets and liabilities:
Accounts receivable..................................... 1,029 1,068 (4,367) (4,444) 2,610
Inventories............................................. 1,340 156 (2,631) (1,483) (3,078)
Refundable income taxes................................. 108 -- -- -- --
Accounts payable........................................ (820) 250 2,092 2,217 (1,061)
Accrued expenses and deferred revenue................... 99 (648) 2,043 2,470 1,065
Deferred lease commitment............................... (91) (91) (143) (71) (100)
Other assets and liabilities............................ 104 (148) 229 (181) (675)
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities... (2,221) (777) (649) 65 636
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Increase (decrease) in short-term cash deposits........... (102) (86) 16 106 156
Additions to property and equipment....................... (520) (396) (581) (311) (734)
--------- --------- --------- --------- ---------
Net cash used in investing activities................. (622) (482) (565) (205) (578)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Increase (decrease) in notes payable--banks............... (644) (475) 1,914 872 332
Borrowings under long-term debt........................... 764 947 327 307 97
Long-term debt and capital lease principal payments....... (254) (904) (1,069) (809) (468)
Proceeds from issuance of common stock and exercise of
stock options........................................... 1,435 -- 3 3 --
Repurchase of common stock................................ -- (37) (47) (47) (9)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities... 1,301 (469) 1,128 326 (48)
--------- --------- --------- --------- ---------
Effect of exchange rates on cash.............................. 41 (104) 23 4 (24)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents......................................... (1,501) (1,832) (63) 190 (14)
Cash and cash equivalents, beginning of period................ 3,931 2,430 598 598 535
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period...................... $ 2,430 $ 598 $ 535 $ 788 $ 521
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental cash flow information:
Cash paid during the year for:
Interest................................................ $ 405 $ 420 $ 473 $ 393 $ 442
Income taxes, net....................................... $ 9 $ 10 $ 30 $ 30 $ 126
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS:
Aehr Test Systems ("Company") was incorporated in California in June 1977
and primarily designs, engineers and manufactures test and burn-in equipment
used in the semiconductor industry. The Company's principal products are the MTX
massively parallel test system, the DiePak carrier and the MAX and ATX burn-in
systems and test fixtures.
CONSOLIDATION:
The financial statements include the accounts of the Company, its wholly
owned foreign sales corporation ("FSC") and both its wholly owned and majority
owned foreign subsidiaries. Intercompany accounts and transactions have been
eliminated.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS:
Assets and liabilities of the Company's foreign subsidiaries are translated
into U.S. dollars using the exchange rate in effect at the balance sheet date.
Additionally, their revenues and expenses are translated using exchange rates
approximating average rates prevailing during the fiscal year. Translation
adjustments that arise from translating their financial statements from their
local currencies to U.S. dollars are accumulated and reflected as a separate
component of shareholders' equity.
Transaction gains and losses that arise from exchange rate changes
denominated in currencies other than the local currency are included in the
statements of operations as incurred.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS AND SHORT-TERM CASH DEPOSITS:
All highly liquid instruments purchased with a maturity of three months or
less are considered to be cash equivalents.
Short-term cash deposits represent interest-bearing time deposits with an
original maturity greater than three months.
CONCENTRATION OF CREDIT RISK:
The Company sells its products primarily to semiconductor manufacturers in
North America, the Far East, and Europe. As of May 31, 1996, approximately 24%,
9% and 67% of accounts receivable are from customers located in the United
States, Europe and the Far East, respectively. One customer accounted for 35% of
1995 accounts receivable, two customers accounted for 24% and 17%, respectively,
of 1996 accounts receivable and one customer accounted for 64% of accounts
receivable for the nine months ended February 28, 1997. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral. The Company also maintains allowances for potential credit losses
and such
F-7
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
losses have been within management's expectations. The Company uses letter of
credit terms for some of its international customers.
Substantially all of the Company's cash, cash equivalents and short-term
cash deposits are deposited with major banks in the United States and Japan. The
Company invests its excess cash in money market funds and short-term cash
deposits. The money market funds and short-term cash deposits bear the risk
associated with each fund. The money market funds have variable interest rates,
and the short-term cash deposits have fixed rates. The Company has not
experienced any losses on its money market funds or short-term cash deposits.
INVENTORIES:
Inventories are stated at the lower of standard cost (which approximates
cost on a first-in, first-out basis) or market.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Leasehold improvements are
amortized over the lesser of their estimated useful lives or the term of the
related lease. Furniture, fixtures, machinery and equipment are depreciated on a
straight-line basis over their estimated useful lives. The ranges of estimated
useful lives for furniture, fixtures, machinery and equipment are as follows:
<TABLE>
<S> <C>
2 to 15
Furniture and fixtures........................................ years
4 to 11
Machinery and equipment....................................... years
</TABLE>
GOODWILL:
Cost in excess of the fair value of net assets of acquired companies of
$882,000 is being amortized on a straight-line basis over 24.5 years and is
included in other assets, net of accumulated amortization of $382,000 and
$418,000 at May 31, 1995 and 1996, respectively.
REVENUE RECOGNITION:
Revenue is recognized upon shipment of product and a provision for the
estimated future cost of warranty is recorded.
PRODUCT DEVELOPMENT COSTS AND CAPITALIZED SOFTWARE:
Costs incurred in the research and development of new products or systems
are charged to operations as incurred.
Costs incurred in the development of software programs for the Company's
products are charged to operations as incurred until technological feasibility
of the software has been established. After technological feasibility is
established, any additional costs are capitalized. Capitalized costs are
amortized over the estimated life of the related software product using the
greater of the units of sales or straight-line methods over ten years.
Capitalized costs, net of accumulated amortization, of approximately $323,000
and $213,000 are included in other assets at May 31, 1995 and 1996,
respectively.
F-8
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
In 1994, the Company entered into a cost-sharing research agreement with the
Defense Advanced Research Projects Agency ("DARPA"), a U.S. government agency,
under which DARPA is providing co-funding for the development of wafer-level
burn-in and test equipment. The contract provides for potential payments by
DARPA totaling up to $6.5 million through January 1999. Payments by DARPA depend
on satisfaction of development milestones, and DARPA has the right to terminate
project funding at any time. DARPA payments are reflected as credits to research
and development expenses. Costs in excess of payments were $114,000 and $153,000
at May 31, 1995 and 1996, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Carrying amounts of certain of the Company's financial instruments including
cash and cash equivalents, short-term cash deposits, accounts receivable,
accounts payable and accrued expenses approximate fair value due to their short
maturities. Based on borrowing rates currently available to the Company for
loans with similar terms, the carrying value of notes payable approximates fair
value.
CARRYING VALUE OF LONG-TERM ASSETS:
The Company writes off the carrying value of long-term assets to the extent
that projected net operating income are not sufficient to recover the carrying
value of these assets over their remaining useful life.
INCOME TAXES:
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to amounts expected to be realized.
COMPUTATION OF NET INCOME (LOSS) PER SHARE:
Net income (loss) per share is computed using the weighted average number of
common stock and dilutive common equivalent shares outstanding during the
period. Dilutive common equivalent shares consist of stock options (using the
treasury stock method for all periods presented).
The Company has computed the number of common and dilutive common equivalent
shares for all periods presented pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin ("SAB") No. 83. SAB No. 83 requires the
Company to include in its calculation on net income (loss) per share, all common
equivalent shares, whether or not dilutive, issued during the twelve months
preceding the filing date of an initial public offering, as if the shares had
been outstanding for all periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS:
During March 1995, the Financial Accounting Standards Board issued Statement
No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," which requires the Company to
review for impairment of long-lived assets whenever events or changes in
circumstances indicate that the carrying amount of an asset might not be
recoverable. In certain situations, an impairment loss would be recognized. SFAS
No. 121 will become effective for the Company's year ending May 31, 1997. The
Company has studied the implications of SFAS No. 121 and,
F-9
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
based on its initial evaluation, does not expect it to have a material impact on
the Company's financial condition or results of operations.
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation,"
which establishes a fair-value based method of accounting for stock-based
compensation plans and requires additional disclosures for those companies who
elect not to adopt the new method of accounting. The disclosure provisions of
SFAS No. 123 will be effective for fiscal years beginning after December 15,
1995. The Company plans to adopt SFAS No. 123 during fiscal 1997, utilizing the
disclosure alternative.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per
Share," which specifies the computation, presentation and disclosure
requirements for earning per share. SFAS No. 128 supersedes Accounting
Principles Board Opinion No. 15 and is effective for financial statements issued
for periods ending after December 15, 1997. SFAS No. 128 requires restatement of
all prior-period earnings per share data presented after the effective date.
SFAS No. 128 will not have a material impact on the Company's financial
position, results of operations or cash flows.
INTERIM FINANCIAL DATA (UNAUDITED):
The unaudited financial statements for the nine months ended February 28,
1996 and 1997 have been prepared on the same basis as the audited financial
statements and, in the opinion of management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
the Company's financial position and results of operations in accordance with
generally accepted accounting principles.
2. INVENTORIES:
Inventories are comprised of the following (in thousands):
<TABLE>
<CAPTION>
MAY 31,
--------------------
1995 1996
--------- --------- FEBRUARY 28,
1997
------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials and subassemblies.............................. $ 2,851 $ 3,153 $ 3,948
Work in process.............................................. 2,424 4,162 6,569
Finished product............................................. 395 606 304
--------- --------- ------------
$ 5,670 $ 7,921 $ 10,821
--------- --------- ------------
--------- --------- ------------
</TABLE>
F-10
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment comprise (in thousands):
<TABLE>
<CAPTION>
MAY 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Leasehold improvements................................................... $ 459 $ 389
Furniture and fixtures................................................... 4,488 3,686
Machinery and equipment.................................................. 3,639 3,107
Test equipment........................................................... 2,362 2,267
--------- ---------
10,948 9,449
Accumulated depreciation................................................. (9,246) (8,067)
--------- ---------
$ 1,702 $ 1,382
--------- ---------
--------- ---------
</TABLE>
4. NOTES PAYABLE--BANKS:
At May 31, 1995 and 1996 short-term bank borrowings totaled $5,758,000 and
$6,688,000, respectively. These outstanding borrowings at May 31, 1995 and 1996
were primarily comprised of short-term bank loans of the Company's majority
owned Japanese subsidiary for $4,213,000 and $3,415,000 at an interest rate of
5.05%, and 4.8%, respectively. These borrowings are partially collateralized by
certain time deposits and accounts receivable.
As of May 31, 1996, the Company's revolving line of credit with a bank
provides for maximum borrowings of up to the lesser of $2,000,000 or 80% of
eligible accounts receivable. This revolving credit line had a stated interest
rate of prime (8.25% at May 31, 1996) plus 1.5%. Under this agreement, which
expired in August 1996 and was subsequently extended to December 1997, the
Company's U.S. operation is required to maintain certain financial ratios on a
monthly basis including tangible net worth of $6,000,000 and a ratio of debt to
tangible net worth of not more than 2.0 to 1. There was no outstanding balance
under this line of credit at May 31, 1996 or at February 28, 1997.
The Company has a second line of credit agreement with a bank which provides
for a maximum borrowing of up to the lesser of $1,150,000 or 90% of eligible
foreign accounts receivable. The credit line has a stated interest rate of prime
(8.25% at May 31, 1996) plus 1.25%. Under this agreement, which expired on
August 30, 1996 and has been guaranteed by The California Export Finance Office,
the Company's U.S. operation is required to maintain certain financial ratios on
a monthly basis including tangible net worth of $3,250,000 and a ratio of debt
to tangible net worth of not more than 1.9 to 1. Borrowings outstanding under
this line of credit amounted to $1,110,000 at May 31, 1996, and none at February
28, 1997.
In 1996, the Company entered into a third line of credit agreement with a
bank which provides for maximum borrowings of $5,000,000 or 90% of eligible
foreign accounts receivable and certain inventories. This revolving credit line
has a stated interest rate of prime (8.25% at May 31, 1996) plus 1.0%. Under
this agreement, which expires on December 4, 1997 and has been guaranteed by The
Export Import Bank, the Company's U.S. operations are required to maintain
certain financial ratios on a monthly basis including tangible net worth of
$6,000,000 and a ratio of debt to tangible net worth of not more than 2.0 to 1.
Borrowings outstanding under this line of credit amounted to $2,163,000 at May
31, 1996 and $4,561,000 at February 28, 1997 (unaudited).
F-11
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE--BANKS: (CONTINUED)
The Company's majority owned Japanese subsidiary has overdraft facilities
with a bank up to a limit of $1,203,000 against which certain time deposits and
accounts receivable are pledged as collateral for the facilities.
5. LONG-TERM DEBT:
Long-term debt as of May 31, comprise (in thousands):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Various notes payable to Japanese banks, denominated in Japanese Yen,
bearing interest at 0.5% to 4.9% per annum. These notes are payable in
monthly principal installments of $1,000 to $37,000 plus accrued
interest, mature during the period from October 1996 to October 1999 and
are collateralized by certain time deposits and accounts receivable...... $ 1,736 $ 646
Less current portion....................................................... (1,262) (500)
--------- ---------
$ 474 $ 146
--------- ---------
--------- ---------
</TABLE>
The long-term debt agreements contain certain cross-default covenants under
which outstanding borrowings would become payable on demand if the Company were
to be in default of any other debt agreement and any lender were to accelerate
the other debt.
Principal payments under long-term debt obligations for each of the next
five fiscal years as of May 31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997................................................................. $ 500
1998................................................................. 67
1999................................................................. 56
2000................................................................. 23
---------
$ 646
---------
---------
</TABLE>
6. ACCRUED EXPENSES:
Accrued expenses as of May 31, comprise (in thousands):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Advances from customer..................................................... -- $ 1,036
Payroll related............................................................ $ 685 733
Commissions and bonuses.................................................... 177 788
Warranty................................................................... 192 119
Deferred rent, current..................................................... 92 141
Other...................................................................... 494 657
--------- ---------
$ 1,640 $ 3,474
--------- ---------
--------- ---------
</TABLE>
F-12
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS:
The Company leases most of its manufacturing and office space under
operating leases. The Company has entered into a noncancelable operating lease
agreement for its United States manufacturing and office facilities, which
commenced in October 1991 and expires in September 1999. Under the lease
agreement, the Company is responsible for payments of utilities, taxes and
insurance.
Minimum annual rentals payable under operating leases in each of the next
five fiscal years and thereafter are as follows (in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 1,077
1998................................................................ 1,084
1999................................................................ 1,080
2000................................................................ 393
2001................................................................ 13
</TABLE>
Rent expense for the years ended May 31, 1994, 1995 and 1996 was
approximately $1,400,000, $1,419,000 and $1,425,000, respectively.
As of May 31, 1996, the Company has a $67,000 certificate of deposit held by
a financial institution representing a security deposit for its United States
manufacturing office and facilities lease.
8. CAPITAL STOCK:
PREFERRED STOCK:
The Board of Directors is authorized to determine the rights of the
preferred shareholders.
STOCK OPTIONS:
The Company has reserved 1,357,350 shares of common stock for issuance to
employees and consultants under its stock option plans. All plans provide that
qualified options be granted at an exercise price equal to the fair market value
at the date of grant, as determined by the Board of Directors (85% of fair
market value in the case of nonstatutory options and purchase rights and 110% of
fair market value in certain circumstances). Qualified options expire five years
from date of grant and nonqualified options expire ten years from date of grant.
Most options become exercisable in increments over a four-year period from the
date of grant. Options to purchase approximately 157,000 shares were exercisable
at May 31, 1996.
F-13
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL STOCK (CONTINUED)
Activity under the Company's stock option plans was as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------------------
AVAILABLE NUMBER OF
SHARES SHARES PRICE PER SHARE TOTAL
----------- ----------- ---------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Balances, May 31, 1994....................... 103 361 $3.00--$6.00 $ 1,186
Options granted............................ (112) 112 $3.25 365
Options terminated......................... 66 (66) $3.00--$4.00 (210)
----- ----- ---------
Balances, May 31, 1995....................... 57 407 $3.00--$6.00 1,341
Options granted............................ (548) 548 $4.00 2,193
Options exercised.......................... -- (1) $3.00 (3)
Options terminated......................... 222 (222) $3.00--$6.00 (712)
Additional shares reserved................. 335 -- -- --
1978 Plan expiration....................... (27) -- -- --
1983 Plan expiration....................... (37) -- -- --
----- ----- ---------
Balances, May 31, 1996....................... 2 732 $3.00--$6.00 2,819
Additional shares reserved................. 650 -- -- --
Options granted............................ (32) 33 $4.25--$6.00 172
Options terminated......................... 25 (24) $3.25--$6.00 (96)
1986 Plan expiration....................... (28) -- -- --
----- ----- ---------
Balances, February 28, 1997 (unaudited)...... 617 741 $3.00--$6.00 $ 2,895
----- ----- ---------
----- ----- ---------
</TABLE>
9. EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK BONUS PLAN:
The Company has a noncontributory, trusteed employee stock bonus plan for
full-time employees who have completed three consecutive months of service and
for part time employees who have completed one year of service and have attained
an age of 21. The Company can contribute either shares of the Company's stock or
cash to the plan. The contribution is determined annually by the Company and
cannot exceed 15% of the annual aggregate salaries of those employees eligible
for participation in the plan. Individuals' account balances vest at a rate of
25% per year commencing upon completion of three years of service. Nonvested
balances, which are forfeited, are allocated to the remaining employees in the
plan. No contributions were made to the plan during fiscal 1994 and 1995. A
contribution of $50,000 was made in fiscal 1996.
401(K) PLAN:
The Company maintains a 401(k) profit-sharing plan for its full-time
employees who have completed three consecutive months of service and for
part-time employees who have completed one year of service and have attained an
age of 21. Each participant in the plan may elect to contribute from 1% to 20%
of their annual salary to the plan, subject to certain limitations. The Company,
at its discretion, may make an annual contribution to the plan. No contributions
were made by the Company to the plan during fiscal 1994, 1995 and 1996.
F-14
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES:
Domestic and foreign components of pretax income (loss) are as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Domestic....................................................... $ (2,425) $ (725) $ 1,283
Foreign........................................................ (2,093) (1,441) 248
--------- --------- ---------
$ (4,518) $ (2,166) $ 1,531
--------- --------- ---------
--------- --------- ---------
</TABLE>
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Federal income taxes:
Current...................................................... -- -- $ 40
Deferred..................................................... -- -- --
State income taxes:
Current...................................................... -- -- 5
Deferred..................................................... -- -- --
Foreign income taxes:
Current...................................................... $ 189 $ 10 85
Deferred..................................................... (172) -- --
--------- --------- ---------
$ 17 $ 10 $ 130
--------- --------- ---------
--------- --------- ---------
</TABLE>
The components of the net deferred tax asset (liability) at May 31 are as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax asset (liability):
Credits................................................................ -- $ 95
Inventory and other reserves........................................... $ 1,001 542
Accrued liabilities.................................................... 1,080 1,497
Net operating loss carryforward........................................ 4,197 2,996
Depreciation and amortization.......................................... (313) (184)
--------- ---------
5,965 4,946
Valuation allowance.................................................... (5,965) (4,946)
--------- ---------
Net deferred tax asset............................................. $ -- $ --
--------- ---------
--------- ---------
</TABLE>
The Company's effective tax rate differs from the U.S. federal statutory tax
rate, as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ---------
<S> <C> <C> <C>
Maximum statutory (benefit) rate............................. (34.0)% (34.0)% 34.0%
Net operating losses without current year income tax
benefit carried forward.................................... 34.0 34.0 --
Net operating loss utilized.................................. -- -- (34.0)
Foreign taxes................................................ 0.5 0.5 5.4
State taxes, net of federal tax effect....................... -- -- 0.3
Other........................................................ -- -- 2.5
---------- ---------- ---------
Effective tax rate........................................... 0.5% 0.5 % 8.2%
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
F-15
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES: (CONTINUED)
Federal, state and foreign net operating loss carryforwards expire through
2010 if not utilized.
The future utilization of the Company's domestic net operating loss
carryforward may be subject to certain limitations should a change in ownership,
as defined, result.
11. OTHER INCOME (EXPENSE), NET:
Other Income (Expense), Net, comprises the following:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Foreign exchange gain (loss)................................... $ 11 $ 258 $ (573)
Other, net..................................................... 16 (3) 14
--------- --------- ---------
$ 27 $ 255 $ (559)
--------- --------- ---------
--------- --------- ---------
</TABLE>
12. SEGMENT INFORMATION:
FOREIGN OPERATIONS:
The following presents information about the Company's operations in
different geographic areas (in thousands):
<TABLE>
<CAPTION>
UNITED
STATES ASIA EUROPE ADJUSTMENTS TOTAL
--------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1994:
Net sales............................................ $ 10,298 $ 13,894 $ 1,822 $ (2,810) $ 23,204
Portion of U.S. revenues from export sales........... 4,503 -- -- -- 4,503
Income (loss) from operations........................ (3,129) (1,877) (16) 824 (4,198)
Identifiable assets.................................. 11,456 12,432 1,088 (4,336) 20,640
1995:
Net sales............................................ $ 12,270 $ 12,447 $ 1,917 $ (3,377) $ 23,257
Portion of U.S. revenues from export sales........... 4,931 -- -- -- 4,931
Income (loss) from operations........................ (1,589) (1,003) (93) 605 (2,080)
Identifiable assets.................................. 12,368 11,912 612 (5,002) 19,890
1996:
Net sales............................................ $ 21,486 $ 14,204 $ 3,497 $ (5,953) $ 33,234
Portion of U.S. revenues from export sales........... 13,150 -- -- -- 13,150
Income (loss) from operations........................ 1,330 707 199 300 2,536
Identifiable assets.................................. 18,515 9,453 1,103 (5,322) 23,749
</TABLE>
The Company's foreign operations are primarily those of its Japanese
subsidiary.
Substantially all of their sales are made to unaffiliated Japanese
customers. Net sales and income (loss) from operations from outside the United
States include the operating results of Aehr Test Systems Japan K.K., and Aehr
Test Systems GmbH. Adjustments consist of intercompany eliminations.
Identifiable assets are all assets identified with operations in each geographic
area.
F-16
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SEGMENT INFORMATION: (CONTINUED)
MAJOR CUSTOMERS:
Two customers accounted for 20% and 12%, respectively, of 1994 sales. One
customer accounted for 18% of 1995 sales, and another customer accounted for 29%
of 1996 sales, and 26% and 57% of sales for the nine months ended February 29,
1996 and February 28, 1997, respectively.
13. SUBSEQUENT EVENTS: (UNAUDITED)
In June 1997 the Board of Directors approved the 1997 Employee Stock
Purchase Plan and reserved 300,000 shares of common stock for future issuance.
Additionally, the Board of Directors authorized management of the Company to
file a Registration Statement with the Securities and Exchange Commission
permitting the Company to sell shares of its common stock to the public.
F-17
<PAGE>
BACK COVER
The DiePak carrier enables IC manufacturers to supply to their customers "known
good die" that meet the same reliability specifications as packaged die.
[EXPLODED DIEPAK CARRIER AND SOCKET DIAGRAM]
<TABLE>
<S> <C> <C>
[PICTURE OF BARE DIE] [PICTURE OF PACKAGED IC] [PICTURE OF MULTI-CHIP MODULE]
</TABLE>
Using bare die allows manufacturers to shrink the size of their IC
solutions.
<PAGE>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK REFERRED TO BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION TO SUCH PERSON IN ANY JURISDICTION TO ANY PERSON TO WHOM SUCH
OFFER OR SOLICITATION MAY NOT BE LAWFULLY MADE. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................ 3
Risk Factors.................................. 5
The Company................................... 16
Use of Proceeds............................... 16
Dividend Policy............................... 16
Capitalization................................ 17
Dilution...................................... 18
Selected Consolidated Financial Data.......... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 20
Business...................................... 28
Management.................................... 39
Certain Transactions.......................... 46
Principal and Selling Shareholders............ 47
Description of Capital Stock.................. 49
Shares Eligible for Future Sale............... 50
Underwriting.................................. 52
Legal Matters................................. 53
Experts....................................... 53
Additional Information........................ 54
Index to Consolidated Financial Statements.... F-1
</TABLE>
-------------------
UNTIL , 1997 (25 DAYS AFTER THE
DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3,300,000 SHARES
[LOGO]
COMMON STOCK
-----------------
P R O S P E C T U S
-----------------
OPPENHEIMER & CO., INC.
NEEDHAM & COMPANY, INC.
, 1997
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts, payable by the Registrant in connection with the sale of
Common Stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
-----------
<S> <C>
SEC registration fee.............................................................. $ 12,650
NASD filing fee................................................................... 4,675
Nasdaq National Market listing fee................................................ 33,739
Director and officer liability insurance.......................................... 250,000
Printing and engraving expenses................................................... 125,000
Legal fees and expenses........................................................... 300,000
Accounting fees and expenses...................................................... 140,000
Blue Sky fees and expenses........................................................ 15,000
Transfer agent and registrar fees................................................. 10,000
Miscellaneous expenses............................................................ 8,936
-----------
Total......................................................................... $ 900,000
-----------
-----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California Corporations Code allows for indemnification
of officers, directors, and other corporate agents in terms sufficiently broad
to indemnify such persons under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act"). Article IV of the Registrant's Restated Articles of
Incorporation (Exhibit 3.1 hereto) and Article VI of the Registrant's Bylaws
(Exhibit 3.2 hereto) provide for indemnification of the Registrant's directors,
officers, employees and other agents to the extent and under the circumstances
permitted by the California Corporations Code. The Registrant has also entered
into agreements with its directors and executive officers that will require the
Registrant, among other things, to indemnify them against certain liabilities
that may arise by reason of their status or service as directors and executive
officers to the fullest extent not prohibited by law.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the
Underwriters of the Registrant, its directors and officers, and by the
Registrant of the Underwriters, for certain liabilities, including liabilities
arising under the Act, and affords certain rights of contribution with respect
thereto.
See also the undertakings set out in response to Item 17 herein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since May 31, 1994, Registrant has sold and issued the following securities
which were not registered under the Act:
(a) Since May 31, 1994, Registrant has granted stock options to
employees and directors under its 1986 Stock Option Plan and 1996 Stock
Option Plan covering an aggregate of 732,500 shares of Registrant's Common
Stock, at exercise prices ranging from $3.00 to $6.00 per share.
The sales and issuances of securities in the transactions described in
paragraph (a) above were deemed to be exempt from registration under the Act by
virtue of Rule 701 promulgated thereunder in
II-1
<PAGE>
that they were offered and sold either pursuant to written compensatory benefit
plans or pursuant to a written contract relating to compensation, as provided by
Rule 701.
In all such transactions which relied upon the exemption set forth in
Section 4(2) of the Act, the recipients of securities represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the securities issued in such transactions.
ITEM 16. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation of Registrant.
3.2 Bylaws of Registrant.
4.1* Form of Common Stock certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Amended 1986 Incentive Stock Plan and form of agreement thereunder.
10.2* 1996 Stock Option Plan (as amended and restated) and forms of Incentive
Stock Option Agreement and Nonstatutory Stock Option Agreement
thereunder.
10.3* 1997 Employee Stock Purchase Plan and form of subscription agreement
thereunder.
10.4* Form of Indemnification Agreement entered into between Registrant and its
directors and executive officers.
10.5 Capital Stock Purchase Agreement dated September 11, 1979 between
Registrant and certain holders of Common Stock.
10.6 Capital Stock Investment Agreement dated April 12, 1984 between Registrant
and certain holders of Common Stock.
10.7 Amendment dated September 17, 1985 to Capital Stock Purchase Agreement
dated April 12, 1984 between Registrant and certain holders of Common
Stock.
10.8 Amendment dated February 26, 1990 to Capital Stock Purchase Agreement
dated April 12, 1984 between Registrant and certain holders of Common
Stock.
10.9 Stock Purchase Agreement dated September 18, 1985 between Registrant and
certain holders of Common Stock.
10.10 Common Stock Purchase Agreement dated February 26, 1990 between Registrant
and certain holders of Common Stock.
10.11 Lease dated May 14, 1991 for facilities located at 1667 Plymouth Street,
Mountain View, California.
11.1 Computations of Net Income (Loss) Per Share.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Accountants.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
II-2
<PAGE>
(B) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements of the Registrant or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions referenced in Item 14 of this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing, as specified in the Underwriting Agreement, certificates in such
denomination and registered in such names as required by the Underwriters to
permit prompt delivery to each Purchaser.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Mountain
View, State of California, on this 9th day of June, 1997.
AEHR TEST SYSTEMS
By: /s/ RHEA J. POSEDEL
-----------------------------------------
Rhea J. Posedel
PRESIDENT AND CHAIRMAN
OF THE BOARD OF DIRECTORS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Rhea J. Posedel and Gary L. Larson and
each of them acting individually, as his true and lawful attorneys-in-fact, each
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign the Registration Statement
filed herewith and any and all amendments to said Registration Statement
(including post-effective amendments or other registration statements filed
pursuant to Rule 462(b) or otherwise), and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the foregoing, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Witness our hands on the date set forth below.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ RHEA J. POSEDEL President and Chairman of June 9, 1997
- ------------------------------ the Board of Directors
Rhea J. Posedel (Principal Executive
Officer)
/s/ GARY L. LARSON Vice President of Finance June 9, 1997
- ------------------------------ and Chief Financial Officer
Gary L. Larson (Principal Financial and
Accounting Officer)
/s/ WILLIAM W. R. ELDER Director June 9, 1997
- ------------------------------
William W. R. Elder
/s/ MARIO M. ROSATI Director June 9, 1997
- ------------------------------
Mario M. Rosati
/s/ DAVID TORRESDAL Director June 9, 1997
- ------------------------------
David Torresdal
/s/ KATSUJI TSUTSUMI Director June 9, 1997
- ------------------------------
Katsuji Tsutsumi
II-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
In connection with our audits of the consolidated financial statements of
Aehr Test Systems as of May 31, 1995 and 1996, and for each of the three years
in the period ended May 31, 1996, which financial statements are included in the
Registration Statement, we have also audited the financial statement schedule
listed in Item 16(b) herein.
In our opinion, the financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
San Jose, California
August 1, 1996
S-1
<PAGE>
SCHEDULE II
AEHR TEST SYSTEMS AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF THE
DESCRIPTION THE PERIOD EXPENSES DEDUCTIONS PERIOD
- -------------------------------------------------------------- --------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance for the year ended May 31, 1994:
Allowance for doubtful accounts receivable.................. $ 160 -- $ 24 $ 136
Balance for the year ended May 31, 1995:
Allowance for doubtful accounts receivable.................. $ 136 $ 34 -- $ 170
Balance for the year ended May 31, 1996:
Allowance for doubtful accounts receivable.................. $ 170 $ 71 -- $ 241
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation of Registrant.
3.2 Bylaws of Registrant.
4.1* Form of Common Stock certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Amended 1986 Incentive Stock Plan and form of agreement thereunder.
10.2* 1996 Stock Option Plan (as amended and restated) and forms of Incentive
Stock Option Agreement and Nonstatutory Stock Option Agreement
thereunder.
10.3* 1997 Employee Stock Purchase Plan and form of subscription agreement
thereunder.
10.4* Form of Indemnification Agreement entered into between Registrant and its
directors and executive officers.
10.5 Capital Stock Purchase Agreement dated September 11, 1979 between
Registrant and certain holders of Common Stock.
10.6 Capital Stock Investment Agreement dated April 12, 1984 between Registrant
and certain holders of Common Stock.
10.7 Amendment dated September 17, 1985 to Capital Stock Purchase Agreement
dated April 12, 1984 between Registrant and certain holders of Common
Stock.
10.8 Amendment dated February 26, 1990 to Capital Stock Purchase Agreement
dated April 12, 1984 between Registrant and certain holders of Common
Stock.
10.9 Stock Purchase Agreement dated September 18, 1985 between Registrant and
certain holders of Common Stock.
10.10 Common Stock Purchase Agreement dated February 26, 1990 between Registrant
and certain holders of Common Stock.
10.11 Lease dated May 14, 1991 for facilities located at 1667 Plymouth Street,
Mountain View, California.
11.1 Computations of Net Income (Loss) Per Share.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Accountants.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF AEHR TEST SYSTEMS
Rhea J. Posedel and Mario M. Rosati certify that:
1. They are the President and Secretary, respectively, of Aehr Test
Systems, a California corporation.
2. The Articles of Incorporation of this corporation are amended and
restated to read as follows:
"I
The name of this corporation is Aehr Test Systems.
II
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III
This corporation is authorized to issue two classes of shares of stock to
be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares that this corporation is authorized to issue is eighty-five
million (85,000,000) shares. The number of shares of Common Stock authorized is
seventy-five million (75,000,000) shares. The par value of each share of Common
Stock is one cent ($0.01). The number of shares of Preferred Stock authorized is
ten million (10,000,000) shares. The par value of each share of Preferred Stock
is one cent ($0.01). Upon filing of these amended and restated articles of
incorporation, each outstanding share of Capital Stock shall be reconstituted as
a share of Common Stock.
The shares of Preferred Stock authorized by these Articles of Incorporation
may be issued from time to time in one or more series. For any wholly unissued
series of Preferred Stock, the Board of Directors is hereby authorized to fix
and alter the dividend rights, dividend rates, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), redemption
prices, and liquidation preferences, the number of shares constituting any such
series and the designation thereof, or any of them.
<PAGE>
For any series of preferred stock having issued and outstanding shares, the
Board of Directors is hereby authorized to increase or decrease the number of
shares of such series when the number of shares of such series was originally
fixed by the board, but such increase or decrease shall be subject to the
limitations and restrictions stated in the resolution of the Board of Directors
originally fixing the number of shares of such series. If the number of shares
of any series is so decreased, then the shares constituting such decrease shall
resume the status that they had prior to the adoption of the resolution
originally fixing the number of shares of such series. The Board of Directors
may not decrease the number of authorized shares of any outstanding series below
the number of shares of each series then outstanding.
IV
The liability of the directors of this corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
The corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with agents, vote of shareholders or disinterested
directors or otherwise, in excess of the indemnification otherwise permitted by
Section 317 of the California Corporation Code, subject only to the applicable
limits set forth in Section 204 of the California Corporations Code with respect
to actions for breach of duty to the corporation and its shareholders.
Any repeal or modification of the foregoing provisions of this Article IV
shall not adversely affect any right of indemnification or limitation of
liability of an agent of this corporation relating to acts or omissions
occurring prior to such repeal or modification."
3. The foregoing amendment and restatement of the Articles of
Incorporation have been duly approved by the Board of Directors.
4. The foregoing amendment and restatement of the Articles of
Incorporation have been duly approved by the required vote of shareholders in
accordance with Section 902 of the California Corporations Code. The number of
shares voting in favor of the amendment and restatement of the Articles of
Incorporation equaled or exceeded the vote required. The percentage vote
required was more than 50% of the outstanding shares of Capital Stock. The
Total number of outstanding shares of the corporation is 3,513,493 shares of
Capital Stock.
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<PAGE>
The foregoing declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate are true and correct
of their own knowledge.
Date: September 29, 1988 /s/ RHEA J. POSEDEL
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Rhea J. Posedel, President
/s/ MARIO M. ROSATI
---------------------------------------
Mario M. Rosati, Secretary
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<PAGE>
BY-LAWS
OF
AEHR TEST SYSTEMS
ARTICLE I
CORPORATE OFFICES
1.1 PRINCIPAL OFFICE.
The board of directors shall fix the location of the principal executive
office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside such state,
and the corporation has one or more business offices in such state, the board of
directors shall fix and designate a principal business office in the State of
California.
1.2 OTHER OFFICES.
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.1 PLACE OF MEETINGS.
Meetings of shareholders shall be held at any place within or outside the
State of California designated by the board of directors. In the absence of any
such designation, shareholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING.
The annual meeting of shareholders shall be held each year on a date and at
a time designated by the board of directors. In the absence of such
designation, the annual meeting of shareholders shall be held on the first
Wednesday of October in each year at 4:00 p.m. However, if such day falls on a
legal holiday, then the meeting shall be held at the same time and place on the
next succeeding full business day. At the meeting, directors shall be elected,
and any other proper business may be transacted.
<PAGE>
2.3 SPECIAL MEETING.
A special meeting of the shareholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more shareholders holding shares in the aggregate entitled to cast not
less than ten percent (10%) of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president, any
vice president or the secretary of the corporation. The officer receiving the
request shall cause notice to be promptly given to the shareholders entitled to
vote, in accordance with the provisions of Sections 2.4 and 2.5 of these
by-laws, that a meeting will be held at the time requested by the person or
persons calling the meeting, not less than thirty-five (35) nor more than sixty
(60) days after the receipt of the request. If the notice is not given within
twenty (20) days after receipt of the request, the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS.
All notices of meetings of shareholders shall be sent or otherwise given in
accordance with Section 2.5 of these by-laws not less than ten (10) nor more
than sixty (60) days before the date of the meeting. The notice shall specify
the place, date and hour of the meeting and (i) in the case of a special
meeting, the general nature of the business to be transacted (no business other
than that specified in the notice may be transacted) or (ii) in the case of the
annual meeting, those matters which the board of directors, at the time of
giving the notice, intends to present for action by the shareholders. The
notice of any meeting at which directors are to be elected shall include the
name of any nominee or nominees whom, at the time of the notice, management
intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California (the
"Code"), (ii) an amendment of the articles of incorporation, pursuant to
Section 902 of the Code, (iii) a reorganization of the corporation, pursuant to
Section 1201 of the Code, (iv) a voluntary dissolution of the corporation,
pursuant to Section 1900 of the Code, or (v) a distribution in dissolution other
than in accordance with the rights of outstanding preferred shares, pursuant to
Section 2007 of the Code, the notice shall also state the general nature of that
proposal.
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2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.
Notice of any meeting of shareholders shall be given either personally or
by first-class mail or telegraphic or other written communication, charges
prepaid, addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by first-class mail or telegraphic or other written
communication to the corporation's principal executive office, or if published
at least once in a newspaper of general circulation in the county where that
office is located. Notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by telegram or other means
of written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, all
future notices or reports shall be deemed to have been duly given without
further mailing if the same shall be available to the shareholder on written
demand of the shareholder at the principal executive office of the corporation
for a period of one (1) year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM.
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum. for the transaction of
business at all meetings of shareholders. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE.
Any shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
shares represented at that meeting, either in person or by proxy, but in the
absence of a quorum, no other business may be transacted at that meeting, except
as provided in Section 2.6 of these by-laws.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at the meeting at which the adjournment is taken,
unless a new record date for the adjourned meeting is
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<PAGE>
fixed, or unless the adjournment is for more than forty-five (45) days from the
date set for the original meeting, in which case notice of the adjourned meeting
shall be given. Notice of any such adjourned meeting shall be given to each
shareholder of record entitled to vote at the adjourned meeting in accordance
with the provisions of Sections 2.4 and 2.5 of these by-laws. At any adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting.
2.8 VOTING.
The shareholders entitled to vote at any meeting of shareholders shall be
determined in accordance with the provisions of Section 2.11 of these by-laws,
subject to the provisions of Sections 702 to 704, inclusive, of the Code
(relating to voting shares held by a fiduciary, in the name of a corporation or
in joint ownership).
The shareholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by ballot if demanded by any
shareholder before the voting has begun.
On any matter other than the election of directors, any shareholder may
vote part of the shares in favor of the proposal and refrain from voting the
remaining shares or vote them against the proposal, but, if the shareholder
fails to specify the number of shares which the shareholder is voting
affirmatively, it will be conclusively presumed that the shareholder's approving
vote is with respect to all shares which the shareholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on any matter (other than the
election of directors) shall be the act of the shareholders, unless the vote of
a greater number, or voting by classes, is required by the Code or by the
articles of incorporation.
At a shareholders' meeting at which directors are to be elected, no
shareholder shall be entitled to cumulate votes (i.e. cast for any one or more
candidates a number of votes greater than the number of the shareholder's
shares) unless the candidates' names have been placed in nomination prior to
commencement of the voting and a shareholder has given notice prior to
commencement of the voting of the shareholder's intention to cumulate votes. if
any shareholder has given such a notice, then every shareholder entitled to vote
may cumulate votes for candidates placed in nomination and give one candidate a
number of votes equal to the number of directors to be elected multiplied by the
number of votes to which that shareholder's shares are entitled, or distribute
the shareholder's votes on the same principle among any or all of the
candidates, as the shareholder thinks fit. The candidates receiving the highest
number of votes, up to the number of directors to be elected, shall be elected.
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<PAGE>
2.9 VALIDATION OF MEETINGS: WAIVER OF NOTICE; CONSENT.
The transactions of any meeting of shareholders, either annual or special,
however called and noticed, and wherever held, shall be as valid as though had
at a meeting duly held after regular call and notice, if a quorum be present
either in person or by proxy, and if, either before or after the meeting, each
person entitled to vote, who was not present in person or by proxy, signs a
written waiver of notice or a consent to the holding of the meeting or an
approval of the minutes thereof. The waiver of notice or consent need not
specify either the business to be transacted or the purpose of any annual or
special meeting of shareholders, except that if action is taken or proposed to
be taken for approval of any of those matters specified in the second paragraph
of Section 2.4 of these by-laws, the waiver of notice or consent shall state the
general nature of the proposal. All such waivers, consents and approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of a matter not included in the notice
of the meeting, if that objection is expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which all
shares entitled to vote on that action were present and voted.
In the case of election of directors, such a consent shall be effective
only if signed by the holders of all outstanding shares entitled to vote for the
election of directors; provided, however, that a director may be elected at any
time to fill a vacancy on the board of directors that has not been filled by the
directors, by the written consent of the holders of a majority of the
outstanding shares entitled to vote for the election of directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the secretary shall give prompt
notice of the corporate action approved by the shareholders without a meeting.
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<PAGE>
Such notice shall be given in the manner specified in Section 2.5 of these
by-laws. In the case of approval of (i) a contract or transaction in which a
director has a direct or indirect financial interest, pursuant to Section 310 of
the Code, (ii) indemnification of a corporate "agent", pursuant to Section 317
of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201
of the Code, and (iv) a distribution in dissolution other than in accordance
with the rights of outstanding preferred shares, pursuant to Section 2007 of the
Code, the notice shall be given at least ten (10) days before the consummation
of any action authorized by that approval.
2.11 RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND GIVING CONSENTS.
For purposes of determining the shareholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only shareholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the Code.
If the board of directors does not so fix a record date:
(a) the record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the day on which notice is given or, if notice
is waived, at the close of business on the business day next preceding the day
on which the meeting is held; and
(b) the record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given or (ii) when prior action by the board has been taken, shall be
the day on which the board adopts the resolution relating to that action, or the
sixtieth (60th) day before the date of such other action, whichever is later.
The record date for any other purpose shall be as provided in Article VIII
of these by-laws.
2.12 PROXIES.
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the secretary of the
corporation. A proxy shall be deemed signed if the shareholder's name is placed
on the proxy (whether by manual signature, typewriting, telegraphic transmission
or otherwise) by the shareholder or the shareholder's attorney-in-fact. A
validly executed proxy which does not state that it is irrevocable shall
continue in full force and effect unless (i) revoked by the person executing it,
before the vote pursuant to that proxy, by a writing delivered to the
corporation
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<PAGE>
stating that the proxy is revoked, or by a subsequent proxy executed by, or
attendance at the meeting and voting in person by, the person executing the
proxy or (ii) written notice of the death or incapacity of the maker of that
proxy is received by the corporation before the vote pursuant to that proxy is
counted; provided, however, that no proxy shall be valid after the expiration of
eleven (11) months from the date of the proxy, unless otherwise provided in the
proxy. The revocability of a proxy that states on its face that it is
irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of
the Code.
2.13 INSPECTORS OF ELECTION.
Before any meeting of shareholders, the board of directors may appoint an
inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, the chairman of the meeting may,
and on the request of any shareholder or a shareholder's proxy shall, appoint an
inspector or inspectors of election to act at the meeting. The number of
inspectors shall be either one (1) or three (3). If inspectors are appointed at
a meeting pursuant to the request of one (1) or more shareholders or proxies,
the holders of a majority of shares or their proxies present at the meeting
shall determine whether one (1) or three (3) inspectors are to be appointed. If
any person appointed as inspector fails to appear or fails or refuses to act,
the chairman of the meeting may, and upon the request of any shareholder or a
shareholder's proxy shall, appoint a person to fill that vacancy.
Such inspectors shall:
(a) Determine the number of shares outstanding and the voting power
of each, the number of shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
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<PAGE>
ARTICLE III
DIRECTORS
3.1 POWERS.
Subject to the provisions of the Code and any limitations in the articles
of incorporation and these by-laws relating to action required to be approved by
the shareholders or by the outstanding shares, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the board of directors.
3.2 NUMBER AND QUALIFICATION OF DIRECTORS.*
The number of directors of the corporation shall be not less than four (4)
nor more than seven (7). The exact number of directors shall be five (5) until
changed, within the limits specified above, by a by-law amending this
Section 3.2, duly adopted by the board of directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number fixed
without provision for an indefinite number, by a duly adopted amendment to this
by-law duly adopted by the vote or written consent of holders of a majority of
the outstanding shares entitled to vote; provided, however, that an amendment
reducing the number of the minimum number of directors to a number less than
five (5) cannot be adopted if the votes cast against its adoption at a meeting
of the shareholders, or the shares not consenting in the case of action by
written consent, are equal to more than sixteen and two-thirds percent (16 2/3%)
of the outstanding shares entitled to vote thereon. No amendment may change the
stated maximum number of authorized directors to a number greater than two
(2)times the stated minimum number of directors minus one (1).
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS.
Directors shall be elected at each annual meeting of shareholders to hold
office until the next such annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
3.4 VACANCIES.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, though less than a quorum, or by a sole remaining director,
except that a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by the
vote of a majority of the shares entitled to vote thereon represented at a duly
held meeting at which a quorum is present, or by the written consent of holders
of a majority of the
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*Amended by Board 9/28/89
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outstanding shares entitled to vote thereon. Each director so elected shall
hold office until the next annual meeting of the shareholders and until a
successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to exist
in the event of the death, resignation or removal of any director, or if the
board of directors by resolution declares vacant the office of a director who
has been declared of unsound mind by an order of court or convicted of a felony,
or if the authorized number of directors is increased, or if the shareholders
fail, at any meeting of shareholders at which any director or directors are
elected, to elect the number of directors to be elected at that meeting.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors, but any such election, if by
written consent, shall require the consent of the holders of a majority of the
outstanding shares entitled to vote thereon.
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.
Regular meetings of the board of directors may be held at any place within
or outside the State of California that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
California that has been designated in the notice of the meeting or, if not
stated in the notice or if there is no notice, at the principal executive office
of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6 REGULAR MEETINGS.
Regular meetings of the board of directors may be held without notice if
the times of such meetings are fixed by the board of directors.
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3.7 SPECIAL MEETINGS.
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally, or
by telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.8 QUORUM.
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.10
of these by-laws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a direct or indirect material financial interest), Section 311 of
the Code (as to appointment of committees) and Section 317(e) of the Code (as to
indemnification of directors).
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.9 WAIVER OF NOTICE.
The transactions of any meeting of the board of directors, however called
and noticed or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice if a quorum is present and if, either before
or after the meeting, each of the directors not present signs a written waiver
of notice, a consent to holding the meeting or an approval of the minutes
thereof. The waiver of notice or consent need not specify the purpose of the
meeting. All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting. Notice of a
meeting shall also be deemed given to any director who attends the meeting
without protesting, before or at its commencement, the lack of notice to that
director.
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3.10 ADJOURNMENT.
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT.
Notice of the time and place of holding an adjourned meeting need not be
given, unless the meeting is adjourned for more than twenty-four (24) hours, in
which case notice of the time and place shall be given before the time of the
adjourned meeting, in the manner specified in Section 3.7 of these by-laws, to
the directors who were not present at the time of the adjournment.
3.12 ACTION WITHOUT MEETING.
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, if all members of the board shall individually or
collectively consent in writing to that action. Such action by written consent
shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed
with the minutes of the proceedings of the board.
3.13 FEES AND COMPENSATION OF DIRECTORS.
Directors and members of committees may receive such compensation, if any,
for their services, and such reimbursement of expenses, as may be fixed or
determined by resolution of the board of directors. This Section 3.13 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise, and receiving compensation
for those services.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS.
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
Any committee, to the extent provided in the resolution of the board, shall have
all the authority of the board, except with respect to:
(a) the approval of any action which, under the Code, also requires
shareholders' approval or approval of the outstanding shares;
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(b) the filling of vacancies in the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the
board or any committee;
(d) the amendment or repeal of these by-laws or the adoption of new
by-laws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at
a rate or in a periodic amount or within a price range determined by the board
of directors; or
(g) the appointment of any other committees of the board of directors
or the members of such committees.
4.2 MEETINGS AND ACTION OF COMMITTEES.
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these by-laws, Section 3.5
(place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum.), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment) and
Section 3.12 (action without meeting), with such changes in the context of those
by-laws as are necessary to substitute the committee and its members for the
board of directors and its members, except that the time of regular meetings of
committees may be determined either by resolution of the board of directors or
by resolution of the committee; special meetings of committees may also be
called by resolution of the board of directors; and notice of special meetings
of committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The board of directors may adopt
rules for the government of any committee not inconsistent with the provisions
of these by-laws.
ARTICLE V
OFFICERS
5.1 OFFICERS.
The officers of the corporation shall be a president, a secretary, and a
chief financial officer. The corporation may also have, at the discretion of
the board of directors, a chairman of the board, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and such
other officers as may be appointed in accordance with the provisions of
Section 5.3 of these by-laws. Any number of offices may be held by the same
person.
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5.2 ELECTION OF OFFICERS.
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Section 5.3 or Section 5.5 of these
by-laws, shall be chosen by the board, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS.
The board of directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority and perform
such duties as are provided in these by-laws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS.
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except in
case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES.
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these by-laws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD.
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may be from time to time assigned to him by the
board of directors or prescribed by these by-laws. If there is no president,
the chairman of the board shall also be the chief executive officer of the
corporation and shall have the powers and duties prescribed in Section 5.7 of
these by-laws.
5.7 PRESIDENT.
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of
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the corporation and shall, subject to the control of the board of directors,
have general supervision, direction and control of the business and the officers
of the corporation. He shall preside at all meetings of the shareholders and,
in the absence of the chairman of the board, or if there be none, at all
meetings of the board of directors. He shall have the general powers and duties
of management usually vested in the office of president of a corporation, and
shall have such other powers and duties as may be prescribed by the board of
directors or these bylaws.
5.8 VICE PRESIDENTS.
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from. time to time may
be prescribed for them respectively by the board of directors, these by-laws,
the president or the chairman of the board.
5.9 SECRETARY.
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation, or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and shareholders, with the time and place of holding, whether
regular or special (and, if special, how authorized and the notice given), the
names of those present at directors' meetings or committee meetings, the number
of shares present or represented at shareholders' meetings, and the proceedings
thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required by these by-laws or by
law to be given, and he shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these by-laws.
5.10 CHIEF FINANCIAL OFFICER.
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
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retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these by-laws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, AND OFFICERS, EMPLOYEES
AND OTHER AGENTS
The corporation shall, to the maximum extent and in the manner permitted by
the Code, indemnify each of its agents against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with any proceeding arising by reason of the fact any such person is or was an
agent of the corporation. For purposes of this Article VI, an "agent" of the
corporation includes any person who is or was a director, officer, employee or
other agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or was a director,
officer, employee or agent of a corporation which was a predecessor corporation
of the corporation or of another enterprise at the request of such predecessor
corporation.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER.
The corporation shall keep at its principal executive office, or at the
office of its transfer agent or registrar, if either be appointed and as
determined by resolution of the board of directors, a record of its
shareholders, giving the names and addresses of all shareholders and the number
and class of shares held by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who holds at least one percent (1%) of such voting shares and has
filed a Schedule 14B with the Securities and Exchange Commission relating to the
election of directors, may (i) inspect and copy the records of shareholders'
names and addresses and shareholdings during usual business hours on five (5)
days' prior written demand on the corporation, (ii) obtain from the transfer
agent of the corporation, on written demand and on the tender of such transfer
agent's usual charges for such list, a list of the names and addresses of the
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shareholders who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of demand.
Such list shall be made available to any such shareholder by the transfer agent
on or before the later of five (5) days after the demand is received or five (5)
days after the date specified in the demand as the date as of which the list is
to be compiled.
The record of shareholders shall also be open to inspection on the written
demand of any shareholder or holder of a voting trust certificate, at any time
during usual business hours, for a purpose reasonably related to the holder's
interests as a shareholder or as the holder of a voting trust certificate.
Any inspection and copying under this Section 7.1 may be made in person or
by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BY-LAWS.
The corporation shall keep at its principal executive office, or if its
principal executive office is not in the State of California, at its principal
business office in such state, the original or a copy of these by-laws as
amended to date, which bylaws shall be open to inspection by the shareholders at
all reasonable times during office hours. If the principal executive office of
the corporation is outside the State of California and the corporation has no
principal business office in such state, the secretary shall, upon the written
request of any shareholder, furnish to that shareholder a copy of these by-laws
as amended to date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS.
The accounting books and records, and the minutes of proceedings of the
shareholders and the board of directors and any committee or committees of the
board of directors, shall be kept at such place or places designated by the
board of directors or, in absence of such designation, at the principal
executive office of the corporation. The minutes shall be kept in written form
and the accounting books and records shall be kept either in written form or in
any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to inspection
upon the written demand of any shareholder or holder of a voting trust
certificate, at any reasonable time during usual business hours, for a purpose
reasonably related to the holder's interests as a shareholder or as the holder
of a voting trust certificate. The inspection may be made in person or by an
agent or attorney, and shall include the right to copy and make extracts. Such
rights of inspection shall extend to the records of each subsidiary corporation
of the corporation.
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7.4 INSPECTION BY DIRECTORS.
Every director shall have the absolute right at any reasonable time to
inspect all books, records and documents of every kind and the physical
properties of the corporation and each of its subsidiary corporations. Such
inspection by a director may be made in person or by an agent or attorney, and
the right of inspection includes the right to copy and make extracts of
documents.
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER.
The board of directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent at least
fifteen (15) days before the annual meeting of shareholders to be held during
the next fiscal year and in the manner specified in Section 2.5 of these by-laws
for giving notice to shareholders of the corporation.
The annual report shall contain a balance sheet as of the end of the fiscal
year and an income statement and statement of changes in financial position for
the fiscal year, accompanied by any report of independent accountants or, if
there is no such report, the certificate of an authorized officer of the
corporation that the statements were prepared without audit from the books and
records of the corporation.
The foregoing requirement of an annual report may be waived by the board so
long as the shares of the corporation are held by less than one hundred (100)
holders of record.
7.6 FINANCIAL STATEMENTS.
A copy of any annual financial statement and any income statement of the
corporation for each quarterly period of each fiscal year, and any accompanying
balance sheet of the corporation as of the end of each such period, that has
been prepared by the corporation shall be kept on file in the principal
executive office of the corporation for twelve (12) months; and each such
statement shall be exhibited at all reasonable times to any shareholder
demanding an examination of any such statement or a copy shall be mailed to any
such shareholder.
If a shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and for a
balance sheet of the corporation as of the end of that period, the chief
financial officer shall cause that statement to be prepared, if not already
prepared, and shall deliver personally or mail that statement or statements to
the person making the request within thirty (30) days after the receipt of the
request. If the corporation has not sent to the shareholders its annual report
for the last fiscal year, such report shall likewise be delivered or mailed to
the shareholder or shareholders within thirty (30) days after the request.
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The corporation shall also, on the written request of any shareholder, mail
to the shareholder a copy of the last annual, semi-annual or quarterly income
statement which it has prepared, and a balance sheet as of the end of that
period.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.
For purposes of determining the shareholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than action by
shareholders by written consent without a meeting), the board of directors may
fix, in advance, a record date, which shall not be more than sixty (60) days
before any such action, and in that case only shareholders of record on the date
so fixed are entitled to receive the dividend, distribution or allotment of
rights, or to exercise such rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date so
fixed, except as otherwise provided in the Code.
If the board of directors does not so fix a record date, the record date
for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS.
All checks, drafts, or other orders for payment of money, notes, or other
evidences of indebtedness, issued in the name of or payable to the corporation,
shall be signed or endorsed by such person or persons and in such manner as,
from time to time, shall be determined by resolution of the board of directors.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED.
The board of directors, except as otherwise provided in these by-laws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation, and such authority may be general or confined to specific
instances; and, unless so authorized or ratified by the board of directors or
within the agency power of an officer, no officer, agent or employee shall have
any power or authority to bind the corporation
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by any contract or engagement or to pledge its credit or to render it liable for
any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES.
A certificate or certificates for shares of the corporation shall be issued
to each shareholder when any of such shares are fully paid, and the board of
directors may authorize the issuance of certificates or shares as partly paid
provided that these certificates shall state the amount of the consideration to
be paid for them and the amount paid. All certificates shall be signed in the
name of the corporation by the chairman of the board or vice chairman of the
board or the president or a vice president and by the chief financial officer or
an assistant treasurer or the secretary or an assistant secretary, certifying
the number of shares and the class or series of shares owned by the shareholder.
Any or all of the signatures on the certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on a certificate shall have ceased to be
that officer, transfer agent or registrar before that certificate is issued, it
may be issued by the corporation with the same effect as if that person were an
officer, transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES.
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require, including
provision for indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.6 CONSTRUCTION AND DEFINITIONS.
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the Code shall govern the construction of these
by-laws. without limiting the generality of this provision, the singular number
includes the plural, the Plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
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ARTICLE IX
AMENDMENTS
9.1 AMENDMENT BY SHAREHOLDERS.
New by-laws may be adopted or these by-laws may be amended or repealed by
the vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that if the articles of incorporation of
the corporation set forth the number of authorized directors of the corporation,
the authorized number of directors may be changed only by an amendment of the
articles of incorporation.
9.2 AMENDMENT BY DIRECTORS.
Subject to the rights of the shareholders as provided in Section 9.1 of
these by-laws, by-laws, other than a by-law or an amendment of a by-law changing
the authorized number of directors (except to fix the authorized number of
directors pursuant to a by-law providing for a variable number of directors),
may be adopted, amended, or repealed by the board of directors.
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CERTIFICATE OF ADOPTION OF BY-LAWS
CERTIFICATE BY SECRETARY
The undersigned hereby certifies that he is the duly elected, qualified and
acting Secretary of Aehr Test Systems and that the foregoing By-Laws, comprising
twenty-one (20) pages, were adopted as the By-Laws of said corporation at the
first meeting of the Board of Directors duly held on June 27, 1977.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this 27th day of June, 1977.
/S/ MARIO M. ROSATI
---------------------------------------
Mario M. Rosati
Secretary
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CERTIFICATE OF AMENDMENT
OF BYLAWS OF
AEHR TEST SYSTEMS
The undersigned, being the Secretary of Aehr Test Systems, hereby certifies
that Article VI of the Bylaws of this corporation was amended, effective
August 16, 1988, by the Board of Directors to provide in its entirety as
follows:
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted by
the Code, indemnify each of its directors and officers against expenses (as
defined in Section 317(a) of the Code), judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with any proceeding (as
defined in Section 317(a) of the Code), arising by reason of the fact that such
person is or was an agent of the corporation. For purposes of this Article VI,
a "director" or "officer" of the corporation includes any person (i) who is or
was a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees and agents (other than
directors and officers) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Article VI, an "employee" or "agent" of the
corporation (other than a director or officer) includes any person (i) who is or
was an employee or agent of the corporation, (ii) who is or was serving at the
request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a
<PAGE>
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending any civil or criminal action or proceeding
for which indemnification is required pursuant to Section 6.1 or for which
indemnification is permitted pursuant to Section 6.2 following authorization
thereof by the Board of Directors shall be paid by the corporation in advance of
the final disposition of such action or proceeding upon receipt of an
undertaking by or on behalf of the indemnified party to repay such amount if it
shall ultimately be determined that the indemnified party is not entitled to be
indemnified as authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Articles of
Incorporation.
6.5 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation against any liability asserted against or incurred by such person in
such capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article VI.
6.6 CONFLICTS
No indemnification or advance shall be made under this Article VI, except
where such indemnification or advance is mandated by law or the order, judgment
or decree of any court of competent jurisdiction, in any circumstance where it
appears:
(1) That it would be inconsistent with a provision of the Articles of
Incorporation, these bylaws, a resolution of the shareholders or an agreement in
effect at the time of the accrual of the alleged cause of the action asserted in
the proceeding in which the expenses were incurred or other amounts were paid,
which prohibits or otherwise limits indemnification; or
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(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Dated: September 21, 1988
/S/ MARIO M. ROSATI
---------------------------------------
Mario M. Rosati, Secretary
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AEHR TEST SYSTEMS
AMENDED 1986 INCENTIVE STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this Incentive Stock Plan are
to attract and retain the best available personnel, to provide additional
incentive to the Employees of Aehr Test Systems (the "Company") and to promote
the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected in
the terms of the written option agreement. The Board also has the discretion to
grant Stock Purchase Rights.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" shall mean the Committee, if one has been appointed, or
the Board of Directors of the Company, if no Committee is appointed.
(b) "CAPITAL STOCK" shall mean the Capital Stock of the Company.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "COMPANY" shall mean Aehr Test Systems, a California corporation.
(e) "COMMITTEE" shall mean the Committee appointed by the Board of
Directors in accordance with Section 4(a) of the Plan, if one is appointed.
(f) "CONSULTANT" shall mean any person who is engaged by the Company
or any subsidiary to render consulting services and is compensated for such
consulting services, and any director of the Company whether compensated for
such services or not; provided that if and in the event the Company registers
any class of any equity security pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the term Consultant shall
thereafter not include directors who are not compensated for their services or
are paid only a director's fee by the Company.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" shall mean the
absence of any interruption or termination of service as an Employee or
Consultant, as applicable. Continuous Status as an Employee or Consultant shall
not be considered interrupted in the case of sick leave, military leave, or any
other leave of absence approved by the Board; provided that such leave is for a
period of not more than 90 days or reemployment upon the expiration of such
leave is guaranteed by contract or statute.
<PAGE>
(h) "EMPLOYEE" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(i) "INCENTIVE STOCK OPTION" shall mean an Option intended to qualify
as an incentive stock option within the meaning of Section 422A of the Code.
(j) "NONSTATUTORY STOCK OPTION" shall mean an Option not intended to
qualify as an Incentive Stock Option.
(k) "OPTION" shall mean a stock option granted pursuant to the Plan.
(l) "OPTIONED STOCK" shall mean the Capital Stock subject to an
Option.
(m) "OPTIONEE" shall mean an Employee or Consultant who receives an
Option
.
(n) "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 425(e) of the Code.
(o) "PLAN" shall mean this Amended 1986 Incentive Stock Plan.
(p) "PURCHASER" shall mean an Employee or Consultant who exercises a
Stock Purchase Right.
(q) "SHARE" shall mean a share of the Capital Stock, as adjusted in
accordance with Section 11 of the Plan.
(r) "STOCK PURCHASE RIGHT" shall mean a right to purchase Capital
Stock pursuant to the Plan or the right to receive a bonus of Capital Stock for
past services.
(s) "SUBSIDIARY" shall mean a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 425(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of shares under the Plan is 400,000
shares of Capital Stock. The Shares may be authorized, but unissued, or
reacquired Capital Stock.
If an Option or Stock Purchase Right should expire or become
unexercisable for any reason without having been exercised in full, then the
unpurchased Shares which were subject thereto shall, unless the Plan shall have
been terminated, become available for future grant or sale under the Plan.
Notwithstanding any other provision of the Plan, shares issued under the Plan
and later repurchased by the Company shall not become available for future grant
or sale under the Plan.
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4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board of
Directors of the Company.
(i) Subject to subparagraph (ii), the Board of Directors may
appoint a Committee consisting of not less than two members of the Board of
Directors to administer the Plan on behalf of the Board of Directors, subject to
such terms and conditions as the Board of Directors may prescribe. Once
appointed, the Committee shall continue to serve until otherwise directed by the
Board of Directors. Members of the Board who are either eligible for Options
and/or Stock Purchase Rights or have been granted Options and/or Stock Purchase
Rights may vote on any matters affecting the administration of the Plan or the
grant of any Options and/or Stock Purchase Rights pursuant to the Plan, except
that no such member shall act upon the granting of an Option and/or Stock
Purchase Right to himself, but any such member may be counted in determining the
existence of a quorum at any meeting of the Board during which action is taken
with respect to the granting of Options and/or Stock Purchase Rights to him.
(ii) Notwithstanding the foregoing subparagraph (i), if and in
any event the Company registers any class of any equity security pursuant to
Section 12 of the Exchange Act, from the effective date of such registration
until six months after the termination of such registration, any grants of
Options and/or Stock Purchase Rights to officers or directors shall only be made
by the Board of Directors; provided, however, that if a majority of the Board of
Directors is eligible to participate in this Plan or any other stock option or
other stock plan of the Company or any of its affiliates, or has been eligible
at any time within the preceding year, any grants of Options and/or Stock
Purchase Rights to directors must be made by, or only in accordance with the
recommendation of, a Committee consisting of three or more persons, who may but
need not be directors or employees of the Company, appointed by the Board of
Directors and having full authority to act in the matter, none of whom is
eligible to participate in this Plan or any other stock option or other stock
plan of the Company or any of its affiliates, or has been eligible at any time
within the preceding year. Any Committee administering the Plan with respect to
grants to officers who are not also directors shall conform to the requirements
of the preceding sentence. Once appointed, the Committee shall continue to
serve until otherwise directed by the Board of Directors.
(iii) Subject to the foregoing subparagraphs (i) and (ii), from
time to time the Board of Directors may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies however caused, or
remove all members of the Committee and thereafter directly administer the Plan.
(b) POWERS OF THE BOARD. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion: (i) to grant Incentive Stock
Options, Nonstatutory Stock Options or Stock Purchase Rights; (ii) to determine,
upon review of relevant information and in accordance with Section 7 of the
Plan, the fair market value of the Capital Stock; (iii) to determine the
exercise price per share of Options or Stock Purchase Rights, to be granted,
which exercise price shall be
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determined in accordance with Section 7 of the Plan; (iv) to determine the
Employees or Consultants to whom, and the time or times at which, Options or
Stock Purchase Rights shall be granted and the number of shares to be
represented by each Option or Stock Purchase Right; (v) to interpret the Plan;
(vi) to prescribe, amend and rescind rules and regulations relating to the Plan;
(vii) to determine the terms and provisions of each Option and Stock Purchase
Right granted (which need not be identical) and, with the consent of the holder
thereof, modify or amend each Option or Stock Purchase Right; (viii) to
authorize any person to execute on behalf of the Company any instrument required
to effectuate the grant of an Option or Stock Purchase Right previously granted
by the Board; and (ix) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(c) EFFECT OF BOARD'S DECISION. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees,
Purchasers and any other holders of any Options or Stock Purchase Rights granted
under the Plan.
5. ELIGIBILITY.
(a) Options and Stock Purchase Rights may be granted to Employees and
Consultants, provided that Incentive Stock Options may only be granted to
Employees. An Employee or Consultant who has been granted an Option or Stock
Purchase Right may, if he is otherwise eligible, be granted additional Option(s)
or Stock Purchase Right(s).
(b) No Incentive Stock Option may be granted to an Employee which,
when aggregated with all other incentive stock options granted to such Employee
by the Company or any Parent or Subsidiary, would result in Shares having an
aggregate fair market value (determined for each Share as of the date of grant
of the Option covering such Share) in excess of $100,000 becoming first
available for purchase upon exercise of one or more incentive stock options
during any calendar year.
(c) Section 5(b) of the Plan shall apply only to an Incentive Stock
Option evidenced by an "Incentive Stock Option Agreement" which sets forth the
intention of the Company and the Optionee that such Option shall qualify as an
incentive stock option. Section 5(b) of the Plan shall not apply to any Option
evidenced by a "Nonstatutory Stock Option Agreement" which sets forth the
intention of the Company and the Optionee that such Option shall be a
Nonstatutory Stock Option.
(d) The Plan shall not confer upon any Optionee or holder of a Stock
Purchase Right any right with respect to continuation of employment by or the
rendition of consulting services to the Company, nor shall it interfere in any
way with his right or the Company's right to terminate his employment or
services at any time.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by vote of the
holders of a majority of the
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<PAGE>
outstanding shares of the Company entitled to vote on the adoption of the Plan.
It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 14 of the Plan.
7. EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued pursuant
to exercise of an Option or Stock Purchase Right shall be such price as is
determined by the Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the fair
market value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise price
shall be no less than 100% of the fair market value per Share on the date of
grant.
(ii) In the case of a nonstatutory stock option
(A) granted to a person who at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the fair market value per
Share on the date of the grant.
(B) granted to any person, the per Share exercise price
shall be no less than 85% of the fair market value per Share on the date of
grant.
(iii) In the case of a Stock Purchase Right granted to any person,
the per Share exercise price shall be no less than 85% of the fair market value
per Share on the date of grant.
(iv) In the case of an Option or Stock Purchase Right granted on
or after the effective date of registration of any class of equity security of
the Company pursuant to Section 12 of the Exchange Act and prior to six months
after the termination of such registration, the per Share exercise price shall
be no less than 100% of the fair market value per Share on the date of grant.
(b) The fair market value shall be determined by the Board in its
discretion; provided, however, that where there is a public market for the
Capital Stock, the fair market value per Share shall be the mean of the bid and
asked prices of the Capital Stock for the date of grant, as reported in the Wall
Street Journal (or, if not so reported, as otherwise reported by the National
Association of Securities Dealers Automated Quotation (NASDAQ) System) or, in
the event the Capital Stock is listed on a stock exchange, the fair market value
per Share shall be the closing price
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<PAGE>
on such exchange on the date of grant of the Option or Stock Purchase Right, as
reported in the Wall Street Journal.
(c) The consideration to be paid for the Shares to be issued upon
exercise of an Option or Stock Purchase Right, including the method of payment,
shall be determined by the Board and may consist entirely of cash, check,
promissory note, other Shares of Capital Stock having a fair market value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said option shall be exercised, or any combination of such methods of
payment, or such other consideration and method of payment for the issuance of
Shares to the extent permitted under Sections 408 and 409 of the California
General Corporation Law. In making its determination as to the type of
consideration to accept, the Board shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company (Section 315(b)
of the California General Corporation Law).
8. OPTIONS.
(a) TERM OF OPTION. The term of each Incentive Stock Option shall be
ten (10) years from the date of grant thereof or such shorter term as may be
provided in the Stock Option Agreement. The term of each Option that is not an
Incentive Stock Option shall be ten (10) years and one (1) day from the date of
grant thereof or such shorter term as may be provided in the Stock Option
Agreement. However, in the case of an Option granted to an Employee who, at the
time the Option is granted, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, (i) if the Option is an Incentive Stock Option, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
time as may be provided in the Stock Option Agreement, or (ii) if the Option is
not an Incentive Stock Option, the term of the Option shall be five (5) years
and one (1) day from the date of grant thereof or such other term as may be
provided in the Stock Option Agreement.
(b) EXERCISE OF OPTION.
(i) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 7 of the Plan. The
Company shall issue a stock certificate evidencing such shares as soon as
practicable. Until the Company receives written notice of such exercise and
full payment for the Shares, no right to vote or receive
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<PAGE>
dividends or any other rights as a shareholder shall exist with respect to the
Optioned Stock. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the stock certificate is issued,
except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(ii) TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT. If an
Employee or Consultant ceases to serve as an Employee or Consultant (as the case
may be), he may, but only within thirty (30) days (or such other period of time
not exceeding three (3) months as is determined by the Board at the time of
grant of the Option) after the date he ceases to be an Employee or Consultant
(as the case may be) of the Company, exercise his Option to the extent that he
was entitled to exercise it at the date of such termination. To the extent that
he was not entitled to exercise the Option at the date of such termination, or
if he does not exercise such Option (which he was entitled to exercise) within
the time specified herein, the Option shall terminate.
(iii) DISABILITY OF OPTIONEE. Notwithstanding the provisions of
Section 8(b)(ii) above, in the event an Employee or Consultant is unable to
continue his employment or consulting relationship (as the case may be) with the
Company as a result of his total and permanent disability (as defined in
Section 22(e)(3) of the Code), he may, but only within six (6) months (or such
other period of time not exceeding twelve (12) months as is determined by the
Board at the time of grant of the Option) from the date of termination, exercise
his Option to the extent he was entitled to exercise it at the date of such
termination. To the extent that he was not entitled to exercise the Option at
the date of termination, or if he does not exercise such Option (which he was
entitled to exercise) within the time specified herein, the Option shall
terminate.
(iv) DEATH OF OPTIONEE. In the event of the death of an
Optionee:
(i) during the term of the Option who is at the time of his
death an Employee or Consultant of the Company and who shall have been
in Continuous Status as an Employee or Consultant since the date of
grant of the Option, the Option may be exercised, at any time within
six (6) months (or such other period of time as is determined by the
Board at the time of grant of the Option) following the date of death,
by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that would have accrued had the Optionee
continued living and remained in Continuous Status as an Employee or
Consultant six (6) months (or such other period of time as is
determined by the Board at the time of grant of the Option) after the
date of death; or
(ii) within thirty (30) days (or such other period of time as is
determined by the Board at the time of grant of the Option) after the
termination of Continuous Status as an Employee or Consultant, the
Option may be exercised, at any time within six (6) months (or such
other period of time as is determined by the Board at
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<PAGE>
the time of grant of the Option) following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise
the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the date of termination.
9. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. After the Board of Directors determines that
it will offer an Employee or Consultant a Stock Purchase Right, it shall deliver
to the offeree a stock purchase agreement or stock bonus agreement, as the case
may be, setting forth the terms, conditions and restrictions relating to the
offer, including the number of Shares which such person shall be entitled to
purchase, and the time within which such person must accept such offer, which
shall in no event exceed six (6) months from the date upon which the Board of
Directors or its Committee made the determination to grant the Stock Purchase
Right. The offer shall be accepted by execution of a stock purchase agreement
or stock bonus agreement in the form determined by the Board of Directors.
(b) ISSUANCE OF SHARES. Forthwith after payment therefor, the Shares
purchased shall be duly issued; provided, however, that the Board may require
that the Purchaser make adequate provision for any Federal and State withholding
obligations of the Company as a condition to the Purchaser purchasing such
Shares.
(c) REPURCHASE OPTION. Unless the Board determines otherwise, the
stock purchase agreement or stock bonus agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the Purchaser's employment with the Company for any reason (including death or
disability). If the Board so determines, the purchase price for shares
repurchased may be paid by cancellation of any indebtedness of the Purchaser to
the Company. The repurchase option shall lapse at such rate as the Board may
determine.
(d) OTHER PROVISIONS. The stock purchase agreement or stock bonus
agreement shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Board of Directors.
10. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. The Options
and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee or Purchaser, only by the Optionee or Purchaser.
*11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any
required action by the shareholders of the Company, the number of shares of
Capital Stock covered by each outstanding Option and Stock Purchase Right, and
the number of shares of Capital Stock which have been authorized for issuance
under the Plan but as to which no Options or Stock Purchase Rights
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* Subject to the approval of the Board.
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<PAGE>
have yet been granted or which have been returned to the Plan upon cancellation
or expiration of an Option or Stock Purchase Right, or repurchase of Shares from
a Purchaser upon termination of employment, as well as the price per share of
Capital Stock covered by each such outstanding Option or Stock Purchase Right,
shall be proportionately adjusted for any increase or decrease in the number of
issued shares of Capital Stock resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Capital Stock of
the Company or the payment of a stock dividend with respect to the Capital Stock
or any other increase or decrease in the number of issued shares of Capital
Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Capital Stock subject to an Option or Stock Purchase Right.
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Optionee at least thirty (30) days prior to
such proposed action. To the extent it has not been previously exercised, the
Option will terminate immediately prior to the consummation of such proposed
action. In the event of a merger of the Company with or into another
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. In the event that such successor corporation does not
agree to assume the Option or to substitute an equivalent option the Board shall
notify the Optionee that the Option shall be exercisable for a period of thirty
(30) days from the date of such notice, and the Option will terminate upon the
expiration of such period.
12. TIME OF GRANT. The date of grant of an Option or Stock Purchase Right
shall, for all purposes, be the date on which the Board makes the determination
granting such Option or Stock Purchase Right. Notice of the determination shall
be given to each Employee or Consultant to whom an Option or Stock Purchase
Right is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem advisable;
provided that, the following revisions or amendments shall require approval of
the shareholders of the Company in the manner described in Section 17 of the
Plan:
(i) any increase in the number of Shares subject to the Plan,
other than in connection with an adjustment under Section 11 of the
Plan;
(ii) any change in the designation of the class of persons
eligible to be granted Options and Stock Purchase Rights; or
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(iii) if the Company has a class of equity securities registered
under Section 12 of the Exchange Act at the time of such revision or
amendment, any material increase in the benefits accruing to
participants under the Plan.
(b) SHAREHOLDER APPROVAL. If any amendment requiring shareholder
approval under Section 13(a) of the Plan is made subsequent to the first
registration of any class of equity securities by the Company under Section 12
of the Exchange Act, such shareholder approval shall be solicited as described
in Section 17 of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted and such Options or Stock Purchase Rights shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee or Purchaser (as the case may be)
and the Board, which agreement must be in writing and signed by the Optionee or
Purchaser (as the case may be) and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Rights unless the
exercise of such Option or Stock Purchase Rights and the issuance and delivery
of such Shares pursuant thereto shall comply with all relevant provisions of
law, including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option or Stock Purchase Rights,
the Company may require the person exercising such Option or Stock Purchase
Rights to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned relevant
provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
16. OPTION, STOCK PURCHASE AND STOCK BONUS AGREEMENTS. Options shall be
evidenced by written option agreements in such form as the Board shall approve.
Upon the exercise of Stock Purchase Rights, the Purchaser shall sign a stock
purchase agreement or stock bonus agreement in such form as the Board shall
approve.
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<PAGE>
17. SHAREHOLDER APPROVAL.
(a) Continuance of the Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months before or after the date
the Plan is adopted. If such shareholder approval is obtained at a duly held
shareholders' meeting, it may be obtained by the affirmative vote of the holders
of a majority of the outstanding shares of the Company, such holders being
present or represented and entitled to vote thereon. If such shareholder
approval is obtained by written consent, it must be obtained by the unanimous
written consent of all shareholders of the Company, or by written consent of a
smaller percentage of shareholders but only if the Board determines, in its
discretion after consultation with the Company's legal counsel, that the written
consent of such a smaller percentage of shareholders will comply with all
applicable laws and will not adversely affect the qualification of the Plan
under Section 422A of the Code.
(b) If and in the event that the Company registers any class of any
equity securities pursuant to Section 12 of the Exchange Act, any required
approval of the shareholders of the Company obtained after such registration
shall be solicited substantially in accordance with Section 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder.
(c) If any required approval by the shareholders of the Plan itself
or of any amendment thereto is solicited at any time otherwise than in the
manner described in Section 17(b) hereof, then the Company shall, at or prior to
the first annual meeting of shareholders held subsequent to the later of (1) the
first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act or (2) the granting of an Option hereunder to an
officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to vote for the
Plan substantially the same information which would be required (if proxies to
be voted with respect to approval or disapproval of the Plan or amendment were
then being solicited) by the rules and regulations in effect under Section 14(a)
of the Exchange Act at the time such information is furnished; and
(ii) file with, or mail for filing to, the Securities and
Exchange Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information is first
sent or given to shareholders.
*18. INFORMATION TO OPTIONEES. The Company shall provide to each Optionee
and to each individual who acquired Shares pursuant to the Plan, during the
period such Optionee or purchaser has one or more Options or Stock Purchase
Rights outstanding, and, in the case of an individual who acquired Shares
pursuant to the Plan, during the period such individual owns such shares, copies
of all annual reports and other information which are provided to all
shareholders of the Company. The Company shall not be required to provide such
information if the issuance of Options or Stock
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* Subject to the approval of the Board.
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Purchase Rights under the Plan is limited to key employees whose duties in
connection with the Company assure their access to equivalent information.
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<PAGE>
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES
ACT OF 1933.
STOCK OPTION AGREEMENT
AEHR TEST SYSTEMS, a California corporation (the "Company"), hereby
grants to (the "Optionee") an Option to purchase a total of ____________
shares of Common Stock (the "Shares"), at the price determined as provided
herein, and in all respects subject to the terms, definitions and provisions
of the Amended 1986 Incentive Stock Plan (the "Plan") adopted by the Company,
which is incorporated herein by reference. Unless otherwise defined herein,
the terms defined in the Plan shall have the same defined meanings herein.
1. NATURE OF THE OPTION. If Optionee is an Employee of the Company,
this Option is intended to qualify as an Incentive Stock Option. If Optionee
is a Consultant of the Company, this Option is a Nonstatutory Stock Option
and is not intended to qualify for any special tax benefits to the Optionee.
2. EXERCISE PRICE. The exercise price is $_______ for each share of
Common Stock, which price is not less than the fair market value per share of
Common Stock on the date of grant, as determined by the Board; provided,
however, in the event Optionee is an Employee and owns stock representing
more than ten percent (10%) of the total combined voting power of all classes
of stock of the Company or of its Parent or Subsidiary corporations
immediately before this Option is granted, said exercise price is not less
than one hundred ten percent (110%) of the fair market value per share of
Common Stock on the date of grant as determined by the Board.
3. EXERCISE OF OPTION. This Option shall be exercisable during its
term in accordance with the provisions of Section 8 of the Plan as follows:
(i) RIGHT TO EXERCISE
(a) Subject to Subsections 3(i)(b), (c), (d) and (e) below, one
forty-eighth (1/48th) of the total number of shares subject to this Option shall
become exercisable on _______________ and at the end of each full month
thereafter until all of such shares are
<PAGE>
exercisable.
(b) This Option may not be exercised for a fraction of a
Share.
(c) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 7, 8 and 9 below, subject to the limitations contained in
subsections 3(i)(d) and (e).
(d) In no event may this Option be exercised after the date
of expiration of the term of this Option as set forth in Section 11 below.
(e) If this Option is intended to qualify as an Incentive
Stock Option, in no event may this Option become exercisable at a time or
times which, when this Option is aggregated with all other incentive stock
options granted to Optionee by the Company or any Parent or Subsidiary, would
result in Shares having an aggregate fair market value (determined for each
Share as of the date of grant of the option covering such share) in excess of
$100,000 becoming first available for purchase upon exercise of one or more
incentive stock options during any calendar year.
(ii) METHOD OF EXERCISE. This Option shall be exercisable by
written notice which shall state the election to exercise the Option, the
number of Shares in respect of which the Option is being exercised, and such
other representations and agreements as to the holder's investment intent
with respect to such shares of Common Stock as may be required by the Company
pursuant to the provisions of the Plan. Such written notice shall be signed
by Optionee and shall be delivered in person or by certified mail to the
President, Secretary or Chief Financial Officer of the Company. The written
notice shall be accompanied by payment of the exercise price. This Option
shall be deemed to be exercised upon receipt by the Company of such written
notice accompanied by the exercise price.
No shares will be issued pursuant to the exercise of an Option
unless such issuance and such exercise shall comply with all relevant
provisions of law and the requirements of any stock exchange upon which the
Shares may then be listed. Assuming such compliance, for income tax purposes
the Shares shall be considered transferred to the Optionee on the date on
which the Option is exercised with respect to such Shares. Assuming such
compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.
4. INVESTMENT REPRESENTATIONS; RESTRICTIONS ON TRANSFER.
(i) By receipt of this Option, by its execution and by its
exercise in whole or in part, Optionee represents to the Company the
following:
(a) Optionee understands that this Option and any Shares
purchased upon its exercise are securities, the issuance of which requires
compliance with federal and state securities laws.
(b) Optionee is aware of the Company's business affairs and
financial
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condition and has acquired sufficient information about the Company to reach
an informed and knowledgeable decision to acquire the securities. Optionee is
acquiring these securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution"
thereof within the meaning of the Securities Act of 1933, as amended (the
"Securities Act").
(c) Optionee acknowledges and understands that the securities
constitute "restricted securities" under the Securities Act and must be held
indefinitely unless they are subsequently registered under the Securities Act
or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to
register the securities. Optionee understands that the certificate
evidencing the securities will be imprinted with a legend which prohibits the
transfer of the securities unless they are registered or such registration is
not required in the opinion of counsel satisfactory to the Company, a legend
prohibiting their transfer without the consent of the Commissioner of
Corporations of the State of California and any other legend required under
applicable state securities laws.
(d) Optionee is familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance,
permit limited public resale of "restricted securities" acquired, directly or
indirectly, from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of exercise of the Option by the
Optionee, such exercise will be exempt from registration under the Securities
Act. In the event the Company later becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter the securities exempt under Rule 701 may be
resold, subject to the satisfaction of certain of the conditions specified by
Rule 144, including among other things: (1) the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly
with a market maker (as said term is defined under the Securities Exchange
Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, and the amount of securities
being sold during any three month period not exceeding the limitations
specified in Rule 144(e), if applicable. Notwithstanding this paragraph
4(i)(d), the Optionee acknowledges and agrees to the restrictions set forth
in paragraph 4(ii).
In the event that the Company does not qualify under Rule 701 at
the time of exercise of the Option, then the securities may be resold in
certain limited circumstances subject to the provisions of Rule 144, which
requires among other things: (1) the availability of certain public
information about the Company; (2) the resale occurring not less than two
years after the party has purchased, and made full payment for, within the
meaning of Rule 144, the securities to be sold; and (3) in the case of an
affiliate, or of a non-affiliate who has held the securities less than three
years, the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934) and the amount of
securities being sold during any three month period not exceeding the
specified limitations stated therein, if applicable.
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<PAGE>
(ii) Optionee agrees, in connection with the Company's initial
underwritten public offering of the Company's securities, (1) not to sell,
make short sale of, loan, grant any options for the purchase of, or otherwise
dispose of any shares of Common Stock of the Company held by Optionee (other
than those shares included in the registration) without the prior written
consent of the Company or the underwriters managing such initial underwritten
public offering of the Company's securities for one hundred eighty (180) days
from the effective date of such registration, and (2) further agrees to
execute any agreement reflecting (1) above as may be requested by the
underwriters at the time of the public offering.
5. METHOD OF PAYMENT. Payment of the purchase price shall be made by
cash or check.
6. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule
under Part 207 of Title 12 of the Code of Federal Regulations (Regulation G)
as promulgated by the Federal Reserve Board. As a condition to the exercise
of this Option, the Company may require Optionee to make any representation
and warranty to the Company as may be required by any applicable law or
regulation.
7. TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT. In the event
of termination of Optionee's Continuous Status as an Employee or Consultant,
Optionee may, but only within thirty (30) days after the date of such
termination (but in no event later than the date of expiration of the term of
this Option as set forth in Section 11 below), exercise this Option to the
extent that Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise this
Option at the date of such termination, or if Optionee does not exercise this
Option within the time specified herein, this Option shall terminate.
8. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section
7 above, in the event of termination of Optionee's Continuous Status as an
Employee or Consultant as a result of Optionee's permanent and total
disability (as defined in Section 22(e)(3) of the Code), Optionee may, but
only within six (6) months from the date of termination of employment or
consulting relationship (but in no event later than the date of expiration of
the term of this Option as set forth in Section 11 below), exercise this
Option to the extent Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise this
Option at the date of termination, or if Optionee does not exercise such
Option (which Optionee was entitled to exercise) within the time specified
herein, this Option shall terminate.
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<PAGE>
9. DEATH OF OPTIONEE. In the event of the death of Optionee:
(i) during the term of this Option while an Employee or Consultant
of the Company and having been in Continuous Status as an Employee or
Consultant since the date of grant of this Option, this Option may be
exercised, at any time within six (6) months following the date of death (but
in no event later than the date of expiration of the term of this Option as
set forth in Section 11 below), by Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only
to the extent of the right to exercise that would have accrued had Optionee
continued living and remained in Continuous Status as an Employee or
Consultant six (6) months after the date of death, subject to the limitations
contained in Section 3(i)(e) above; or
(ii) within thirty (30) days after the termination of Optionee's
Continuous Status as an Employee or Consultant, this Option may be exercised,
at any time within six (6) months following the date of death (but in no
event later than the date of expiration of the term of this Option as set
forth in Section 11 below), by Optionee's estate or by a person who acquired
the right to exercise this Option by bequest or inheritance, but only to the
extent of the right to exercise that had accrued at the date of termination.
10. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by
Optionee. The terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of Optionee.
11. TERM OF OPTION. Notwithstanding Section 9, this Option may not be
exercised more than five (5) years from the date of grant of this Option, and
may be exercised during such term only in accordance with the Plan and the
terms of this Option.
12. EARLY DISPOSITION OF STOCK. If Optionee is an Employee, Optionee
understands that, if Optionee disposes of any Shares received under this
Option within two (2) years after the date of this Agreement or within one
(1) year after such Shares were transferred to Optionee, Optionee will be
treated for federal income tax purposes as having received ordinary income at
the time of such disposition in an amount generally measured as the
difference between the price paid for the Shares and the lower of the fair
market value of the Shares at the date of exercise or the fair market value
of the Shares at the date of disposition. The amount of such ordinary income
may be measured differently if Optionee is an officer, director or 10%
shareholder of the Company, or if the Shares were subject to a substantial
risk of forfeiture at the time they were transferred. Any gain recognized on
such a premature sale of the Shares in excess of the amount treated as
ordinary income will be characterized as capital gain. OPTIONEE HEREBY
AGREES TO NOTIFY THE COMPANY IN WRITING WITHIN THIRTY (30) DAYS AFTER THE
DATE OF ANY SUCH DISPOSITION. Optionee understands that if Optionee disposes
of such Shares at any time after the expiration of such two-year and one-year
holding periods, any gain on such sale will be treated as long-term capital
gain.
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<PAGE>
13. TAXATION UPON EXERCISE OF OPTION. If Optionee is a Consultant,
Optionee understands that, upon exercise of this Option, Optionee will
recognize income for tax purposes in an amount equal to the excess of the
then fair market value of the Shares over the exercise price. Upon a resale
of such shares by the Optionee, any difference between the sale price and the
fair market value of the shares on the date of exercise of the Option will be
treated as capital gain or loss.
14. TAX CONSEQUENCES. The Optionee understands that any of the
foregoing references to taxation are based on federal income tax laws and
regulations now in effect. The Optionee has reviewed with the Optionee's own
tax advisors the federal, state, local and foreign tax consequences of the
transactions contemplated by this Agreement. The Optionee is relying solely
on such advisors and not on any statements or representations of the Company
or any of its agents. The Optionee understands that the Optionee (and not
the Company) shall be responsible for the Optionee's own tax liability that
may arise as a result of the transactions contemplated by this Agreement.
DATE OF GRANT: _______________
AEHR TEST SYSTEMS
By: __________________________________
Title: _____________________________
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<PAGE>
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR
CONSULTANT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED,
BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT THIS OPTION, THE COMPANY'S PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND
THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED
PROMISE OF CONTINUED ENGAGEMENT AS AN EMPLOYEE OR CONSULTANT FOR THE VESTING
PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S
RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTING
RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
annexed hereto, represents that Optionee is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the
terms and provisions thereof. Optionee has reviewed the Plan and this Option
in their entirety, has had an opportunity to obtain the advice of counsel
prior to executing this Option and fully understands all provisions of the
Option. Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board or of the Committee upon any
questions arising under the Plan. Optionee further agrees to notify the
Company upon any change in the residence address indicated below.
Dated: ____________________
____________________________________
, Optionee
Residence Address:
____________________________________
____________________________________
Social Security No. ________________
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<PAGE>
EXHIBIT 10.5
AEHR TEST SYSTEMS
CAPITAL STOCK PURCHASE AGREEMENT
This Capital Stock Purchase Agreement ("Agreement") is made as of the 11th
day of September, 1979, by and between AEHR TEST SYSTEMS, a California
corporation (the "Company") and MAYFIELD III, a California Limited Partnership
("Purchaser").
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto mutually agree as follows:
1. SALE OF CAPITAL STOCK.
Subject to the terms and conditions hereof, on the Closing Date the
Company will issue and sell to Purchaser and Purchaser agrees to purchase
from the Company, 20,000 shares of Company's Capital Stock (the "Shares") at
a price of $2.50 per share. The term "Shares" refers to the purchased Shares
and all securities received in replacement of Shares or as stock dividends,
splits, or the like.
2. CLOSING DATES; PRICES; DELIVERY; QUALIFICATION.
(a) The closing of the purchase and sale of the Shares hereunder (the
"Closing") shall be held at the offices of Wilson, Sonsini, Goodrich & Rosati,
Two Palo Alto Square, Suite 900, Palo Alto, California, at 10:00 a.m. on
September 11, 1979.
(b) At the Closing, the Company will deliver to Purchaser a
certificate representing the Shares to be purchased by it (which shall be issued
in Purchaser's name) against payment of the purchase
<PAGE>
price therefor by a check, payable to the order of the Company.
(c) The sale of the securities which are the subject of this
Agreement, if not yet qualified with the California Corporations Commissioner,
is subject to such qualification, and the issuance of such securities, or the
receipt of any part of the consideration prior to such qualification is
unlawful. The rights of the parties to this Agreement are expressly conditioned
upon such qualification being obtained. The Closing referred to above is
subject to the provisions of this Section 2(c).
3. THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants to Purchaser that:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of California and has all requisite
power and authority to own and lease property and to conduct its business as
presently conducted. The Company is, to the best of its knowledge, not required
to be qualified as a foreign corporation in any other jurisdiction. The Company
has no subsidiaries. Correct copies of Company's Articles of Incorporation,
By-Laws and Minutes of Directors and Stockholders Meetings have been made
available to Purchaser.
(b) Company's outstanding securities have been validly issued and
fully paid. Except as set forth in Exhibit A, no securities convertible into,
or exchangeable for, Shares of any class of capital stock of the Company and no
subscription, warrant, option or other right to purchase or acquire any Shares
of any class of capital stock of the Company or any securities convertible
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<PAGE>
into, or exchangeable for, Shares of any class of capital stock of the Company
are authorized or outstanding and there is no commitment of the Company to issue
any Shares, warrants, options or such rights, except as contemplated herein.
(c) The Company is not a party to any contract, agreement or lease
which materially affects the conduct and operation of its business and
properties other than as described in this Agreement or on Exhibit B attached
hereto.
(d) The issuance, sale and delivery of the Shares to the Purchaser in
accordance herewith has been duly authorized by all requisite corporate action;
the Shares are not subject to preemptive or any other similar rights of the
stockholders of the Company; and the Shares being issued against payment of the
purchase price therefor will be validly issued and outstanding, fully paid and
nonassessable and in compliance with applicable legal requirements.
(e) To the best of the knowledge of the Company there is no action,
proceeding or investigation pending or threatened against or involving the
Company or any of its properties or assets which might result in any material
and adverse change in the property, assets or financial condition of the
Company, and to the best knowledge of the Company, it is not in violation of any
law or regulation applicable to it where said violation might result in any
material and adverse change in the property, assets or financial condition of
the Company.
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<PAGE>
(f) The Company has no knowledge or information that any of its
officers or key employees intends to, or is considering, severing his employment
or other relationship with the Company, nor is any such individual incapacitated
or unable to carry on fulltime employment with the Company. Each employee
engaged in technical work has agreed to transfer to Company inventions made by
him relating to Company's business.
(g) No loan or agreement (oral or in writing) exists between the
Company and any officer or director or any member of the immediate family of
such officer or director except as disclosed in this Agreement or its financial
statements.
(h) The Company has furnished to Purchaser a copy of its unaudited
financial statements. Such financial statements fairly present the financial
position of the Company as of June 30, 1979 and the Company's operations for the
period covered. Such financial statements have been prepared in accordance with
generally-accepted accounting principles applied on a consistent basis and are
in accordance with the books and records of the Company. Since June 30, 1979
there have been no material changes in the assets or liabilities or in the
financial condition or business of the Company which alone or in the aggregate
have been adverse.
(i) The Company has good and marketable title to all of its
properties and assets, including without limitation the properties and assets
reflected in the financial statements delivered to Purchaser, and assets used in
the course of its business, except for property disposed of in the ordinary
course of its business since the effective date of such financial statements.
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<PAGE>
(j) TO the best knowledge of the Company;
(i) neither the Company nor any of its employees is in breach
of any provision of any prior Agreement entered into between either the Company
or the employee and any third party, including any employee confidentiality or
patent assignment agreements, that in any way adversely affects the Company's
ability to conduct its business or affects the employee's performance of his
duties as an employee of the Company;
(ii) the Company is not knowingly infringing any patents or
other rights relating to the business and propped business of Company;
(iii) none of the employees of the Company are knowingly
violating any trade secrets of any prior employer; and
(iv) the Company has all of the rights required to carry on
the business it intends to pursue.
(k) No representation or warranty in this Agreement or any writing
furnished to the Purchaser in connection with the transaction contemplated by
this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements made, in light
of the circumstances under which they were made, not misleading.
4. REPRESENTATIONS OF PURCHASER.
In connection with the purchase of the Shares, Purchaser represents to
the Company the following:
(a) It is purchasing the Shares for investment for its own account
only and not with a view to, or for resale in
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<PAGE>
connection with, any "distribution" thereof within the meaning of the Securities
Act of 1933 ("Securities Act").
(b) It understands that the securities have not been registered under
the Securities Act by reason of a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of his investment intent
as expressed herein. In this connection, it understand that, in the view of the
Securities and Exchange Commission ("Commission"), the statutory basis for such
exemption may not be present if its representations meant that its present
intention was to hold these securities for a minimum capital gains period under
the tax statutes, for a deferred sale, for a market rise, for a sale if the
market does not rise, on for a year or any other fixed period in the future.
(c) It further acknowledges and understands that the securities
must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption form such registration is available. It
further acknowledges and understands that the Company is under no obligation
to register the securities. It understands that the certificate evidencing
the securities will be imprinted with a legend which prohibits the transfer
of the securities unless they are registered or such registration is not
required in the opinion of counsel for the Company.
(d) It is aware of the adoption of Rule 144 by the Commission,
promulgated under the Securities Act, which permits limited public resale of
securities acquired in a non-public offering subject to the satisfaction of
certain conditions, including,
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<PAGE>
among other things, the availability of certain current public information about
the Company, the resale occurring not less than two years after it has purchased
and paid for the securities to be sold, the sale being through a broker in an
unsolicited "broker's transaction" and the amount of securities being sold
during any six-month period not exceeding specified limitations (generally, 1%
of the total amount outstanding).
(e) It further acknowledges and understands that the Company may not
be satisfying the current public information requirement of Rule 144 at the time
it wishes to sell the securities; and, if so, it would be precluded from selling
the securities under Rule 144 even if the two-year minimum holding period had
been satisfied.
(f) It further acknowledges that in the event all of the requirements
of Rule 144 are not met, compliance with Regulation A or some other registration
exemption will be required; and that although Rule 144 is not exclusive, the
staff of the Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and other than
pursuant to Rule 144 will have a substantial burden of proof in establishing
that an exemption from registration is available for such offers or sales and
that such persons and the brokers who participate in the transactions do so at
their own risk.
5. SURVIVAL OF WARRANTIES.
All agreements, representations and warranties contained herein or
made in writing by or on behalf of the Company and/or
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<PAGE>
by Purchaser in connection with the transactions contemplated hereby shall
survive the execution and delivery of this Agreement, any investigation at any
time made by the Corporation or by Purchaser or on Purchaser's behalf, and the
purchase of the Shares. All statements as to factual matters contained in any
certificate or other instrument delivered by or on behalf of the Company
pursuant hereto or in connection with the transactions contemplated hereby shall
be deemed representations and warranties as of the date of such certificate or
instrument.
6. CONDITIONS OF CLOSING.
The Purchaser's obligation to purchase and pay for the Shares on each
Closing Date is subject to the fulfillment prior to or on each Closing Date of
the following conditions, any or all of which may be waived in whole or in part
by the Purchaser:
(a) The representations and warranties of the Company under this
Agreement shall be deemed to have been made on the Closing Date and shall then
be true and correct, and Purchaser shall not have discovered any material error,
misstatement or omission therein. The Company shall have performed and complied
with all obligations and conditions required to have been performed or complied
with by it under the Agreement on or prior to the Closing Date.
(b) There shall have been delivered to Purchaser a certificate, dated
at the Closing Date, signed by the Company's President, certifying that the
conditions specified in paragraph 6(a) have been fulfilled.
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<PAGE>
7. CONDITIONS OF COMPANY'S OBLIGATION AT CLOSING.
The Company's obligation to deliver the Shares at the Closing is
subject to fulfillment prior to or on the Closing Date of the following
conditions, any or all of which may be waived, all or in part, by Company.
(a) The representations and warranties of Purchaser shall be true as
of the Closing Date.
(b) There shall have been received by the Company, prior to the
Closing Date, a Permit from the California Commissioner of Corporations for the
sale and issuance of the Shares; the Company agrees to use its best efforts to
so qualify the sale and issuance of the Shares prior to the Closing Date.
8. REGISTRATION RIGHTS.
If the Company shall grant to any future purchasers of the Company's
capital Stock any rights to demand or request registration of the Company's
securities under the Securities Act, the holder of any Shares purchased
hereunder shall have the right to registration comparable to the greatest rights
under such future grants.
9. LEGENDS.
The certificate or certificates representing the Shares shall bear the
following legends:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE CALIFORNIA COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES.
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<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933.
10. MISCELLANEOUS.
(a) Any Notice, demand or request required or permitted to be given
under this Agreement shall be in writing and shall be deemed sufficient when
delivered personally or sent by telegram or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed, if to the Company, at its principal place of business,
Attention: the President, and if to Purchaser, at his address as shown on the
stock records of the Company.
(b) The rights and benefits of this Agreement shall inure to the
benefit of, and be enforceable by the Company and Purchaser, their successors
and assigns, except that the right of Purchaser to purchase Shares may be
assigned only with the prior written consent of the Company.
(c) Both parties agree to execute any additional documents necessary
to carry out the purposes of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY: PURCHASER:
AEHR TEST SYSTEMS MAYFIED III
By /s/ RHEA J. POSEDEL By /s/ [ILLEGIBLE]
---------------------------- ----------------------------
, President , General Partner
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<PAGE>
EXHIBIT A
---------
Option Holder Number of Shares
- ------------- ----------------
Donald Brame 1,000
Verna Brame 1,000
Clarence Brehm 2,000
Vivian Owen 3,000
Richard A. Paulsen 2,000
Rhea J. Posedel 5,000
At a meeting of the Board of Directors of Aehr Test Systems held on June
29, 1979, the Board of Directors authorized the grant of an additional 5,000
shares to Rhea J. Posedel, to take place on December 31, 1979, if the
corporations's performance for the year ended on that date is according to plan.
<PAGE>
Exhibit 10.6
AEHR TEST SYSTEMS
CAPITAL STOCK
INVESTMENT AGREEMENT
THIS AGREEMENT is made as of April 12, 1984 among AEHR TEST SYSTEMS (the
"Company") and the persons listed on the Schedule of Purchasers attached hereto
as Exhibit A (the "Purchasers").
1. PURCHASE AND SALE OF CAPITAL STOCK.
Subject to the terms hereof, the Company will issue and sell to the
Purchasers, and the Purchasers will buy from the Company, the number of shares
of the Company's Capital Stock specified opposite each Purchaser's name on the
Schedule of Purchasers at a cash purchase price of $8.50 per share (the "Capital
Stock") (hereinafter the shares of Capital Stock purchased and sold hereunder
shall be referred to, in all and in part, as the "Shares").
2. CLOSING, DELIVERY.
2.1 CLOSING. The closing of the purchase and sale of the Capital
Stock (the "Closing") shall be held at the law offices of Wilson, Sonsini,
Goodrich & Rosati, P.C., Two Palo Alto Square, Suite 900, Palo Alto, California,
at 10:00 A.M. on April 12, 1984, or at such other time and place upon which the
Company and the Purchasers shall agree (the "Closing Date").
2.2 DELIVERY. At the Closing, the Company will deliver to each
Purchaser a certificate representing the number of shares of Capital Stock to be
purchased by each Purchaser against payment of the purchase price therefor, by
check or wire transfer payable to the Company.
3. THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
3.1 ORGANIZATION AND STANDING. The Company is a corporation duly
organized and validly existing under the laws of the State of California and is
in good standing as a domestic corporation under the laws of said state. The
Company has all requisite corporate power and authority to own and lease
property and to conduct its business as presently conducted and as proposed to
be conducted in the AEHR TEST Financial Forecast, dated April 2, 1984 (the
"Financial Forecast"). The Company is not qualified as a foreign corporation in
any other jurisdiction and to the Company's best knowledge is not required to be
so qualified.
3.2 SUBSIDIARIES. The Company has a 50% equity interest in Aehr Test
Systems-Japan. The Company has a wholly-owned domestic
<PAGE>
international sales corporation, Aehr Test Systems International. The Company
has no other subsidiaries or affiliated companies and does not otherwise
directly or indirectly control, or have any investment in, any other business
entity.
3.3 CAPITALIZATION. The authorized capital stock of the Company
consists of 10,000,000 shares of Capital Stock. 3,140,732 shares of Capital
Stock were validly issued and outstanding as of the date hereof. The
outstanding shares of Capital Stock are fully paid and nonassessable and were
offered and sold in compliance with all applicable federal and state securities
laws.
Except as set forth below, no subscriptions, warrants, options or
other rights to purchase or acquire any shares of any class of capital stock of
the Company or securities convertible into or exchangeable for such capital
stock are authorized or outstanding.
No. of Shares Exercise Price
------------- ---------------
30,000 $0.40
20,000 $0.50
50,000 $1.80
10,000 $2.00
42,500 $4.00
59,500 $6.00
3.4 AUTHORIZATION. The execution, delivery and performance of this
Agreement by the Company has been duly authorized by all requisite corporate
action, and this Agreement constitutes the legal, valid and binding obligation
of the Company enforceable in accordance with its terms, subject as to
enforcement of remedies to applicable bankruptcy, insolvency, reorganization or
similar laws relating to or affecting the enforcement of creditors' rights. The
execution, delivery and performance of this Agreement and compliance with the
provisions hereof by the Company does not conflict with, or result in a breach
or violation of the terms, conditions or provisions of, or constitute a default
(or an event with which the giving of notice or passage of time, or both could
result in a default) under, or result in the creation or imposition of any lien
pursuant to the terms of, the Articles of Incorporation, as amended, or the
Bylaws of the Company, or any statute, law, rule or regulation or any order,
judgment, decree, indenture, mortgage, lease or other agreement or instrument to
which the Company, or any of its properties, is subject.
3.5 SHARES. The Shares when issued pursuant to the terms of the
Agreement will be validly issued, fully paid and nonassess-
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<PAGE>
able, and will be free of any liens or encumbrances caused or created by the
Company; provided, however, that the Shares shall be subject to restrictions on
transfer under state or federal securities laws as set forth in the Agreement or
otherwise required at the time a transfer is proposed.
3.6 LITIGATION. There is no action, proceeding or investigation
pending or, to the knowledge of the Company, threatened against the Company or
any of its properties or assets which alone or in the aggregate might result in
any material and adverse change in the property, assets or financial condition
of the Company, nor, to the knowledge of the Company, is there any basis for any
such action, proceeding or investigation. To the best knowledge of the Company,
the Company is in compliance in all material respects with all laws and
regulations applicable to it, its properties and its business as presently
conducted or proposed to be conducted in the Financial Forecast.
3.7 TITLE. The Company has good title to its properties and assets.
Such properties and assets are not subject to any liens, mortgages, pledges,
encumbrances or charges of any kind except liens under the Company's commercial
line of credit with the Bank of America. All leases pursuant to which the
Company leases real or personal property are in good standing and are valid and
effective in accordance with their respective terms, and, to the Company's
knowledge, there exists no default or other occurrence or condition which could
result in a material default or termination of any thereof.
3.8 TAX RETURNS. The Company has filed all federal, state and other
tax returns which are required to be filed and has paid all taxes which have
become due and payable. The Company has not been advised that any of its
returns, federal, state, or other, have been or are being audited as of the date
hereof. The Company will pay any stamp or issuance taxes required or levied in
connection with the issuance of the Shares.
3.9 INFRINGEMENTS. The Company to its knowledge is not infringing,
and is not aware of any claimed infringement of, any third party's patent,
trademark, trade secret, trade name or copyright and has not since its
incorporation, received any notice of any claimed infringement.
3.10 CONTRACTS, NONE BURDENSOME. The Company is not a party to any
contract, agreement or instrument or to its knowledge subject to any judgment,
order, writ, injunction, rule or regulation which, in opinion of the Company,
either is unduly burdensome and substantially and adversely affects its
business, operations or conditions (financial or other) or is presently antici-
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pated to be unduly burdensome and to substantially and adversely affect its
business, operations or condition (financial or other).
3.11 MATERIAL BREACH. The Company is not in violation or breach in
any material respect of any of the terms, conditions or provisions of its
Articles of Incorporation, as amended, its Bylaws, or any indenture, mortgage,
deed of trust or other material agreement, instrument, court order, judgment or
decree to which it is a party.
3.12 CONFLICT OF INTEREST. The Company and its officers have no
interest (other than as holders of securities of a publicly-traded company),
either directly or indirectly, in any entity, including without limitation
thereto any corporation, partnership, joint venture, proprietorship, firm,
person, licensee, business or association (whether as an employee, officer,
director, shareholder, agent, independent contractor, security holder, creditor,
consultant or otherwise) that presently (i) provides any services, or designs,
produces and/or sells any products or product lines, or engages in any activity
which is the same, similar to or competitive with any activity or business in
which the Company is now engaged; (ii) is a supplier, customer, creditor or has
an existing contractual relationship with any of the Company's managing
employees; (iii) has any direct or indirect interest in any asset or property,
real or personal, tangible or intangible, of the Company or any property, real
or personal, tangible or intangible, that is necessary or desirable for the
conduct of the Company's business.
3.13 REPRESENTATIONS. This Agreement, the Financial Forecast, the
Financial Statements, and any document, statement, certificate or schedule
furnished or to be furnished by the Company pursuant hereto, or in connection
with transactions contemplated hereby, do not or will not contain any untrue
statement of a material fact or omit to state a fact necessary to make the
statements or facts contained therein not misleading. There is, to the best of
the Company's knowledge, no fact which materially adversely affects the
business, prospects, conditions, affairs or operations of the Company or any of
its properties or assets which has not been set forth in this Agreement,
including the Exhibits hereto, the Financial Forecast or otherwise disclosed to
me. To the best of the Company's knowledge, the Company has provided to me all
information which the Company reasonably believes in necessary or appropriate to
enable me to make an informed investment decision. The Company warrants the
correct computation of the projections contained in the Financial Forecast but
does not warrant the accuracy of the assumptions or guarantee that such
projections will be achieved.
3.14 INTANGIBLE PROPERTY. The Company, to its knowledge and that of
its officers after due inquiry, has all right, title
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and interest in and to all intangible property and technology or is able to
obtain on reasonable terms, all permits, licenses and other authority necessary
to conduct its business as presently conducted and as proposed to be conducted
in the Financial Forecast. To the best knowledge of the Company, the Company,
its officers and employees have not improperly used and are not making improper
use of any confidential information or trade secrets of others, including those
of any former employer of an officer or employee. The Company has not sold or
granted a license with respect to any technology necessary or useful in
connection with its business as described in the Financial Forecast.
3.15 INSURANCE. The Company has fire and casualty insurance policies,
with extended coverage, sufficient in amount to allow it to replace any of its
properties which might be damaged or destroyed.
3.16 USE OF PROCEEDS. It is the Company's present intention to use
the proceeds obtained in this offering for the purchase of capital equipment,
for working capital and for debt repayment.
3.17 REGISTRATION RIGHTS. The Company has granted no registration
rights to any holders of Capital Stock other than those granted pursuant to
paragraph 5 of this Agreement.
3.18 SECURITIES LAWS. The offer, sale and issuance of the Shares as
provided in this Agreement are exempt from the registration and prospectus
delivery requirements of the Act, and have been registered or qualified (or are
exempt from registration or qualification) under the registration or
qualification requirements of the California Corporate Securities Law of 1968,
as amended.
4. REPRESENTATIONS, WARRANTIES OF PURCHASERS AND RESTRICTIONS ON TRANSFER
IMPOSED BY THE SECURITIES ACT OF 1933.
4.1 REPRESENTATIONS AND WARRANTIES BY PURCHASER. Each Purchaser, for
that Purchaser alone, represents and warrants to the Company with respect to the
purchase of the Shares as follows:
(a) This Agreement constitutes his valid and legally binding
obligation, enforceable in accordance with its terms.
(b) He is experienced in evaluating and investing in new, high
technology companies such as the Company.
(c) He is acquiring the Shares for investment for his own
account and not with a view to, or for resale in connection with, any
distribution thereof. He understands that the Shares to be purchased have not
been registered under the Act by reason of a
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specific exemption from the registration provisions of the Act which depends
upon, among other things, the bona fide nature of the investment intent as
expressed herein.
(d) He acknowledges that the Shares must be held indefinitely
unless subsequently registered under the Act or an exemption from such
registration is available. He is aware of the provisions of Rule 144
promulgated under the Act which permit limited resale of securities purchased in
a private placement subject to the satisfaction of certain conditions,
including, among other things, the existence of a public market for the
securities, the availability of certain current public information about the
Company, the resale occurring not less than two years after a party has
purchased and paid for the security to be sold, the sale being made through a
"broker's transaction" or in transactions made directly with a "market maker"
(except as provided by Rule 144(k)), and the number of securities being sold
during any three-month period not exceeding specified limitations (except as
provided by Rule 144(k)).
(e) He understands that no public market now exists for any of
the securities issued by the Company and that it is unlikely that a public
market will ever exist for the Shares.
(f) He has had an opportunity to discuss the Company's
business, management and financial affairs with its management and an
opportunity to review the Company's facilities. He understands that such
discussions, as well as to he written information issued by the Company, were
intended to describe the aspects of the Company's business and prospects
which it believes to be material but were not necessarily a thorough or
exhaustive description.
4.2 LEGENDS. Each certificate representing the Shares shall be
endorsed with the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
and if imposed by the California Department of Corporations, the following
legend:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMIS-
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SIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN
THE COMMISSIONER'S RULES.
The Company need not register a transfer of the Shares unless the conditions
specified in the foregoing legends are satisfied. The Company may also instruct
its transfer agent not to register the transfer of any of the Shares unless the
conditions specified in the foregoing legends are satisfied.
4.3 REMOVAL OF LEGENDS AND TRANSFER RESTRICTIONS. The legend
relating to the Act endorsed on a stock certificate pursuant to paragraph 4.2
of this Agreement and the stop transfer instructions with respect to the
Shares represented by such certificate shall be removed and the Company shall
issue a certificate without such legend to the holder of such Shares if such
Shares are registered under the Act and a prospectus meeting the requirements
of Section 10 of the Act is available, or if such holder provides to the
Company an opinion of counsel for such holder of the Shares reasonably
satisfactory to the Company or a no-action letter or interpretive opinion of
the staff of the Securities and Exchange Commission (the "Commission") to the
effect that a public sale, transfer or assignment of such Shares may be made
without registration and without compliance with any restriction such as Rule
144. The California Commissioner of Corporations' legend (if required) will
be removed if the Commissioner of Corporations of the State of California has
consented to the removal of such legend.
5. REGISTRATION RIGHTS.
5.1 DEFINITIONS. As used in this paragraph 5, the following terms
shall have the following respective meanings:
(a) "Commission" shall mean the Securities and Exchange
Commission or any other Federal agency at the time administering the Act.
(b) "Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
(c) "Transfer" shall mean any disposition of the Shares which
would constitute a sale thereof within the meaning of the Act.
(d) "Restricted Securities" shall mean the Shares or any common
stock issued as a dividend or other distribution with respect to, or in exchange
for, or in replacement of, such Shares, and the 20,000 shares of Capital Stock
purchased by Mayfield III, a
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<PAGE>
California limited partnership, pursuant to the Capital Stock Purchase Agreement
of September 11, 1979, as subsequently converted into 100,000 shares of Capital
Stock pursuant to a five-for-one stock split on April 21, 1982, provided the
obligation hereunder shall have not terminated with respect thereto under
paragraph 5.7 hereof.
5.2 OTHER REGISTRATION RIGHTS. Without the written consent of the
holders of fifty percent (50%) of the then outstanding Restricted Securities,
the Company shall not enter into any agreement with any holder or prospective
holder of any securities of the Company which would allow such holder or
prospective holder to make a demand registration which could result in such
registration statement being declared effective prior to the earlier of of
either of the dates set forth in paragraph 5.3(a), or have other material
terms more favorable than those contained in paragraph 5.3 or which would
limit the effect of the proviso contained in the second sentence of paragraph
5.4.
5.3 REQUESTED REGISTRATION.
(a) If at any time after the earlier of (i) March 1, 1989, or
(ii) one hundred twenty (120) days after the effective date of the first
registration statement of a public offering of Capital Stock of the Company
(other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a Commission Rule 145 transaction), the Company
shall be requested by the holders of not less than 50% of the total number of
shares of Restricted Securities, the Company shall promptly, and in any case
within ten (10) days, give written notice of such proposed registration to
all holders of Restricted Securities. Thereupon the Company shall as
expeditiously as possible use its best efforts to effect the registration on
Form S-1 (or on a form of general use then in effect under the Act) of the
shares of Restricted Securities which the Company has been requested to
register (i) in such request and (ii) in any response to such notice given to
the Company within twenty (20) days after the Company's giving of such
notice, in order to permit the sale or other disposition of such shares in
accordance with the intended method of sale or other disposition given in the
request and in any such response.
The Company shall be obligated to have only one (1) registration
statement declared effective pursuant to this paragraph 5.3(a). The Company
shall not be required to effect a registration statement under this paragraph
5.3(a) during the first one hundred twenty (120) days after the effective date
of any registration statement filed by the Company under paragraph 5.3(b) or 5.4
hereof if the Company has complied with the provisions of paragraph 5.3(b) or
5.4.
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The Company may include in the registration under this paragraph
5.3(a) any other shares of Capital Stock (including issued and outstanding
shares of Capital Stock as to which the holders thereof have contracted with the
Company for "piggyback" registration rights) so long as the inclusion in such
registration of such shares will not, in the opinion of the managing
underwriter(s), interfere with the successful marketing in accordance with the
intended method of sale or other disposition of all the shares of Restricted
Securities sought to be registered by the holder or holders of Restricted
Securities pursuant to this paragraph 5.3(a). If it is determined as provided
above that there will be such interference, the other shares of Capital Stock
sought to be included shall be excluded to the extent deemed appropriate by the
managing underwriter(s) and, if the number of Restricted Securities to be
included would itself be too large, the number of shares of the holder thereof
to be included shall be determined pro rata based on the total number of
Restricted Securities owned by each holder requesting to participate.
(b) In addition to the registration rights granted in paragraph
5.3(a), if a registration may be effected by the Company on Form S-3 or a
similar short-form registration statement, and the Company shall be requested by
the holders of not less than thirty percent (30%) of the total number of shares
of Restricted Securities, the Company shall, as expeditiously as possible, use
its best efforts to effect the registration on Form S-3 or a similar short-form
registration statement of the shares of Restricted Securities which the Company
has been requested to register in such request.
The Company shall be obligated to have only one (1) registration
statement declared effective pursuant to this paragraph 5.3(b), and the rights
granted by this paragraph 5.3(b) may not be exercised during the first one
hundred twenty (120) days after the effective date of any registration statement
filed by the Company under paragraph 5.3(a) or 5.4 hereof if the Company has
complied with the provisions of paragraph 5.3(a) or 5.4.
5.4 "PIGGYBACK" REGISTRATIONS. If at any time the Company proposes
to register any of its securities under the Act (except with respect to
Registration Statements filed on Form S-8 or Form S-14 or such other similar
form then in effect under the Act), it will each such time give written notice
to all holders of Restricted Securities of its intention so to do and, upon the
written request of the holders of any Restricted Securities in order to register
such Restricted Securities, (which request shall be given within twenty (20)
days after the Company's giving of such notice and which shall state the
intended method of disposition of such Restricted Securities by the prospective
sellers), the Company will
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<PAGE>
use its best efforts to cause the Restricted Securities, as to which
registration shall have been so requested, to be included in the shares of
Capital Stock to be covered by the registration statement proposed to be filed
by the Company, all to the extent requisite to permit the sale or other
disposition (in accordance with the written request of the holders, as
aforesaid) by the prospective seller or sellers of such Restricted Securities so
registered. Notwithstanding any other provision of this paragraph 5.4, if the
managing underwriter(s) determines that the marketing factors require a
limitation of the number of shares to be underwritten, the managing
underwriter(s) may exclude some or all of the Restricted Securities from such
registration and underwriting; provided, however, that if any holders of shares
of the Company's Capital Stock other than the Restricted Securities (the "Other
Shares") request the Company to include the Other Shares in the Registration
Statement, such Other Shares shall be excluded from such registration and
underwriting before any of the Restricted Securities are excluded. In the event
that any registration pursuant to this paragraph 5.4 shall be, in whole or in
part, a firm commitment underwritten offering of securities of the Company, any
request by such holders pursuant to this paragraph 5.4 to register Restricted
Securities must specify that such shares are to be included in the underwriting
(i) on the same terms and conditions as the shares of Capital Stock, if any,
otherwise being sold through underwriters under such registration or (ii) on
terms and conditions comparable to those normally applicable to offerings of
common stock in reasonably similar circumstances in the event that no shares of
Capital Stock, other than Restricted Securities, are being sold through
underwriters under such registration.
5.5 REGISTRATION PROCEDURES AND EXPENSES. If and whenever the
Company is required by the provisions of this paragraph 5 to use its best
efforts to effect the registration of any of the Restricted Securities under the
Act, each selling shareholder will furnish in writing such information as is
reasonably requested by the Company for inclusion in the registration statement
relating to such offering and such other information and documentation as the
Company shall reasonably request, and the Company will, as expeditiously as
possible:
(a) Prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for such period as may be
necessary to permit the successful marketing of such securities but not
exceeding ninety (90) days for a firm commitment underwritten offering pursuant
to paragraph 5.3(a) hereof; six (6) months for an offering pursuant to paragraph
5.3(b) hereof; or, with regard to an offering pursuant to paragraph 5.4 hereof,
ninety (90) days or for that period asso-
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<PAGE>
ciated with the offering which gave rise to rights under paragraph 5.4 hereof,
whichever is longer.
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to comply with the provisions of the Act; and to
keep such registration statement effective for that period of time specified
in paragraph 5.5(a).
(c) Furnish to each selling shareholder such number of
prospectuses and preliminary prospectuses in conformity with the requirements of
the Act and such other documents as such seller may reasonably request in order
to facilitate the public sale or other disposition of the Restricted Securities
owned by such seller;
(d) If the Company is required by the underwriter(s), if any, of
the securities registered in a registration under this paragraph 5 to deliver an
opinion of counsel to such underwriter(s) in connection with such registration,
and if requested by any holder(s) of Restricted Securities participating in such
registration, furnish such opinion to such holder(s) on the day of delivery to
the underwriter(s), addressed to such underwriter(s) and to such holder(s),
containing substantially the following provisions: (i) that the registration
statement covering such registration of securities has become effective under
the Act; (ii) that, to the best of the knowledge of such counsel, no stop order
suspending the effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the Act; (iii)
that at the time the registration statement became effective, the registration
statement and the related prospectus complied as to form in all material
respects with the requirements of the Act and the applicable rules and
regulations of the Commission thereunder (except that such counsel need express
no opinion as to financial statements and related schedules contained therein);
(iv) that while such counsel has not independently verified the accuracy or
completeness of the information contained therein, such counsel has no reason to
believe that the registration statement at the time it became effective or the
prospectus contained any untrue statement of a material fact or omitted to state
a materail fact required to be stated therein or necessary to make the
statements therein not misleading; (v) that the descriptions in the registration
statement and the prospectus, and any amendments or supplements thereto, of all
legal and governmental matters and all contracts and other legal documents or
instruments described therein are accurate and fairly present the information
required to be stated therein concerning such matters, contracts, documents and
instruments; and (vi) that such counsel does not know of any legal or
governmental proceedings, pending or threatened, required to be described in the
registration statement or prospectus, or any amendment or supplement thereto,
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which are not described as required, nor of any contracts or documents or
instruments of a character required to be described in the registration
statement or prospectus, or any amendment or supplement thereto, or to be filed
as exhibits to the registration statement which are not described or filed as
required. Such opinion shall be in such form as is customary for similar
opinions delivered by such counsel so long as such form is acceptable to the
underwriter(s).
(e) If the Company is required by the underwriter(s), if any,
of the securities registered in a registration under this paragraph 5 to
deliver a letter from the independent certified public accountants of the
Company to such underwriter(s) in connection with such registration, and if
requested by any holder(s) of Restricted Securities participating in such
registration, furnish such letter to such holder(s) on the day of delivery to
the underwriter(s), addressed to such underwriter(s) and to such holder(s),
providing substantially that such accountants are independent certified
public accountants within the meaning of the Act and that in the opinion of
such accountants, the financial statements and other financial data of the
Company included in the registration statement and the prospectus, any
amendment or supplement thereto, comply as to form in all material respects
with the applicable accounting requirements of the Act, and such other
matters as are customary in connection with public offerings.
(f) Use its best efforts to register or qualify the Restricted
Securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as each such selling stockholder shall
reasonably request and do any and all other acts and things which may be
necessary or desirable to enable such seller to consummate the public sale or
other disposition in such jurisdiction of the Restricted Securities owned by
such seller.
All expenses incurred by the Company in complying with paragraphs
5.3, 5.4 and 5.5 hereof, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel for the
Company, blue sky fees and expenses, the fees and disbursements of counsel for
the shareholders in the case of a registration pursuant to paragraph 5.3(a) only
an the expense of any special audits incident to or required by any
registrations (but excluding the compensation of regular employees of the
Company which shall be paid in any event by the Company) are herein called
Registration Expenses; and all underwriting discounts and selling commissions
applicable to the sales and all other fees and disbursements of counsel for the
selling stockholders are herein called Selling Expenses. The Company will pay
all Registration Expenses in connection with each registration pursuant to
paragraphs 5.3 and 5.4, except as may be required to update any regis-
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tration statement kept effective for more than the period of time required by
paragraph 5.5(a). All Selling Expenses in connection with each registration
pursuant to paragraphs 5.3 and 5.4 shall be borne by the Company and the selling
stockholders pro rata in proportion to the securities covered thereby being sold
by them, except for the aforementioned fees and disbursements of counsel for the
selling shareholders, which expense shall be borne solely by such shareholders.
In the event holders of Restricted Securities propose to sell
Restricted Securities in accordance with this paragraph 5 pursuant to an
underwritten offering, the Company shall have the right to approve the managing
underwriter(s) for such offering; PROVIDED, HOWEVER, that such approval shall
not be unreasonably withheld.
5.6 INDEMNIFICATION. In the event of a registration of any of the
Restricted Securities under the Act pursuant to this paragraph 5, the Company
will hold harmless the seller of such Restricted Securities and each underwriter
of such Restricted Securities and each other person, if any, who controls such
seller or underwriter within the meaning of Section 15 of the Act, against any
losses, claims, damages or liabilities, joint or several, to which such seller
or underwriter or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained, on the effective date thereof,
in any registration statement under which such Restricted Securities were
registered under the Act, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and will reimburse such seller and each such underwriter and each
such controlling person for any legal or any other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability or action; PROVIDED, HOWEVER, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
said preliminary prospectus or said prospectus or said amendment or supplement
in reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such seller or underwriter
specifically for use in the preparation thereof; and PROVIDED, FURTHER, that if
any losses, claims, damages or liabilities arise out of or are based upon an
untrue statement, alleged untrue statement, omission or alleged omission
contained in
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any preliminary prospectus which did not appear in the final prospectus, the
Company shall not have any liability with respect thereto to (i) the seller or
any person who controls such seller within the meaning of Section 15 of the Act,
if the seller delivered a copy of the preliminary prospectus to the person
alleging such losses, claims, damages or liabilities and failed to deliver a
copy of the final prospectus, as amended or supplemented if it has been amended
or supplemented, to such person at or prior to the written confirmation of the
sale to such person, or (ii) any underwriter or any person who controls such
underwriter within the meaning of Section 15 of the Act, if such underwriter
delivered a copy of the preliminary prospectus to the person alleging such
losses, claims, damages or liabilities and failed to deliver a copy of the final
prospectus, as amended or supplemented if it has been amended or supplemented,
to such person at or prior to the written confirmation of the sale to such
person.
In the event of any registration of any of the Restricted Securities
under the Act pursuant to this paragraph 5, each seller of such Restricted
Securities, severally and not jointly, will indemnify and hold harmless the
Company and each person, if any, who controls the Company within the meaning
of Section 15 of the Act, each officer of the Company who signs the
registration statement, each director of the Company and each underwriter and
each person who controls any underwriter within the meaning of Section 15 of
the Act, against any and all such losses, claims, damages or liabilities
referred to in the first paragraph of this paragraph 5.6, if the statement,
alleged statement, omission or alleged omission in respect of which such
loss, claim, damage or liability is asserted was made in reliance upon and in
conformity with information furnished in writing to the Company by or on
behalf of such seller specifically for use in connection with the preparation
of such registration statement, preliminary prospectus, prospectus, amendment
or supplement; PROVIDED, HOWEVER, that if any losses, claims, damages or
liabilities arise out of or are based upon an untrue statement, alleged
untrue statement, omission or alleged omission contained in any preliminary
prospectus which did not appear in the final prospectus, such seller shall
not have any such liability with respect thereto to (i) the Company, any
person who controls the Company within the meaning of Section 15 of the Act,
any officer of the Company who signed the registration statement or any
director of the Company, if the Company delivered a copy of the preliminary
prospectus to the person alleging such losses, claims, damages or liabilities
and failed to deliver a copy of the final prospectus, as amended or
supplemented if it has been amended or supplemented, to such person at or
prior to the written confirmation of the sale to such person or (ii) any
underwriter or any person controlling such underwriter within the meaning of
Section 15 of the Act, if such underwriter delivered a copy of the
preliminary prospectus to
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the person alleging such losses, claims, damages or liabilities and failed to
deliver a copy of the final prospectus, as amended or supplemented if it has
been amended or supplemented, to such person at or prior to the written
confirmation of the sale to such person.
5.7 TERMINATION OF CONDITIONS AND OBLIGATIONS. The obligations and
conditions precedent imposed by this paragraph 5 shall cease and terminate as to
any of such Restricted Securities when (a) such securities shall have been
effectively registered under the Act and sold or otherwise disposed of in
accordance with the intended method of disposition by the seller or sellers
thereof set forth in the registration statement covering such securities and (b)
at such time as an opinion of counsel with respect to free transferability shall
have been rendered pursuant to paragraph 5.8. Whenever the conditions imposed
by this paragraph 5 shall terminate as herein provided, the holder of any of the
Restricted Securities bearing the first legend set forth in paragraph 4.2 as to
which such conditions shall have terminated shall be entitled to receive from
the Company, without expense, a new stock certificate not bearing such legend.
5.8 NOTICE OF PROPOSED TRANSFERS. The holder of any of the
Restricted Securities by acceptance thereof agrees to comply in all respects
with the provisions of this paragraph 5.8. Prior to any proposed transfer of
any of the Restricted Securities (other than under circumstances described in
paragraph 5.3 or 5.4 hereof or a transfer to any partner, retired partner or the
estate thereof in the case of any partnership Purchaser), the holder thereof
shall give written notice to the Company of such holder's intention to effect
such transfer. Each such notice shall describe the manner and circumstances of
the proposed transfer in sufficient detail, and shall be accompanied by an
unqualified written opinion of counsel for the shareholder (which counsel shall
be reasonably satisfactory to the Company) to the effect that (i) such proposed
transfer does not create a situation which would require the registration of any
of the Restricted Securities under the Act; and (ii) the proposed transfer may
be effected without registration under the Act of the Restricted Securities to
be transferred (as, for example, that such transfer may be made pursuant to and
in compliance with the conditions of Rule 144 or Rule 237 under the Act (or any
other similar rule in effect at the time)). The Company's acceptance of such an
opinion as satisfactory shall not be unreasonably withheld. Such proposed
transfer may be effected only if the Company shall have received such notice and
opinion of counsel, whereupon the holder of such Restricted Securities shall be
entitled to transfer such Restricted Securities in accordance with the terms of
the notice delivered by the holder to the Company. The certificate issued upon
the transfer of any such Restricted Securities as above provided (and the
certificate evidencing any untransferred balance of such Restricted Securities)
shall bear the first restric-
-15-
<PAGE>
tive legend set forth in paragraph 4.2 above, except that the certificate shall
not bear such restrictive legend and, as provided in paragraph 5.7 hereof, the
holder thereof shall be entitled to receive from the Company, without expense, a
new certificate not bearing such legend, if the opinion of counsel referred to
above is to the further effect that such legend or legends are not required in
order to establish compliance with any provisions of the Act.
6. MISCELLANEOUS
6.1 GOVERNING LAW. This Agreement shall be governed in all respects
by the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California.
6.2 SURVIVAL. The representations and warranties contained herein
shall survive the execution and delivery of this Agreement and the sale of the
Shares.
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
6.4 ENTIRE AGREEMENT. This the Purchasers Agreement embodies the
entire understanding and agreement between and the Company and supersedes all
prior agreements and understandings relating to the subject matter hereof.
6.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be effective upon receipt and shall be in writing and
may be delivered in person, by telecopy, electronic mail, overnight delivery
service or U.S. mail, in which event it may be mailed by first-class, certified
or registered, postage prepaid, addressed (a) if to the Purchasers, at the
address set forth on the Schedule of Purchasers attached hereto as Exhibit A, or
at such other address as the Purchasers have furnished the Company in writing,
or (b) if to the Company, at the address of its principal office in the State of
California, or at such other address as the Company shall have furnished to the
Purchasers in writing.
6.6 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT MAY NOT HAVE BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA. IN THE ABSENCE OF AN
EXEMPTION FROM SUCH QUALIFICATION REQUIREMENT, THE ISSUANCE OF THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL. THE RIGHTS OF ALL PARTIES TO THIS AGREE-
-16-
<PAGE>
MENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN
EXEMPTION FROM SUCH QUALIFICATION BEING APPLICABLE.
6.7 TITLES AND SUBTITLES. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and
are not to be considered in construing this Agreement.
6.8. WAIVERS AND AMENDMENTS. With the written consent of the record
holders of more than 50% of the Shares then outstanding, the obligations of the
Company and the rights of the holders of the Shares under this Agreement may be
waived (either generally or in a particular instance, either retroactively or
prospectively and either for a specified period of time or indefinitely), and
with the same consent the Company, when authorized by resolution of its Board of
Directors, may enter into a supplementary agreement for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of this Agreement; provided, however, that no such waiver or supplemental
agreement shall reduce the aforesaid percentage of Shares, the holders of which
are required to consent to any waiver or supplemental agreement, without the
consent of the record or beneficial holders of all of the Shares. Upon the
effectuation of each such waiver, consent, agreement of amendment or
modification the Company shall promptly give written notice thereof to the
record holders of the Shares who have not previously consented thereto in
writing. Neither this Agreement nor any provisions hereof may be changed,
waived, discharged or terminated orally, but only by a signed statement in
writing.
6.9 SEPARABILITY OF AGREEMENTS; SEVERABILITY OF THIS AGREEMENT. The
Company's Agreement with each of the Purchasers is a separate agreement and the
sale of the Shares to each of the Purchasers is a separate sale. Unless
otherwise expressly provided herein, the rights of each Purchaser hereunder are
several rights, not rights jointly held with any of the other Purchasers. Any
invalidity, illegality or limitation on the enforceability of the Agreement or
any part thereof, whether arising by reason of the law of the respective
Purchaser's domicile or otherwise, shall in no way affect or impair the
validity, legality or enforceability of this Agreement with respect to the other
Purchasers. In case any provision of this Agreement shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
6.10 INFORMATION CONFIDENTIAL. Each Purchaser acknowledges that the
information received by it pursuant hereto is confidential and for its use only.
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<PAGE>
6.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
The foregoing is hereby executed as of the date first above written.
PURCHASERS AEHR TEST SYSTEMS
RUTVEN ASSOCIATES I, L.P.
By: /s/ Rhea Posedel, President
-------------------------------
Rhea Posedel, President
By:
--------------------------------------
Title:
-----------------------------------
RUTVEN ASSOCIATES II, L.P.
By:
--------------------------------------
Title:
-----------------------------------
MAYFIELD III
By:
--------------------------------------
Title:
-----------------------------------
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<PAGE>
6.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
The foregoing is hereby executed as of the date first above written.
PURCHASERS AEHR TEST SYSTEMS
RUTVEN ASSOCIATES I, L.P.
By:
-------------------------------
Rhea Posedel, President
By:
--------------------------------------
Title:
-----------------------------------
RUTVEN ASSOCIATES II, L.P.
By:
--------------------------------------
Title:
-----------------------------------
MAYFIELD III
By: /s/ Illegible
--------------------------------------
Title: General Partner
-----------------------------------
-18-
<PAGE>
6.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
The foregoing is hereby executed as of the date first above written.
PURCHASERS AEHR TEST SYSTEMS
RUTVEN ASSOCIATES I, L.P. By:
-------------------------------
By: L.F. Rothschild, Unterberg, Towbin, Rhea Posedel, President
General Partner
By /s/ Illegible
---------------------------------------
Authorized Signatory
Rutven Associates II, L.P.
By: L.F. Rothschild, Unterberg, Towbin,
General Partner
By /s/ Illegible
---------------------------------------
Authorized Signatory
MAYFIELD III
By:
--------------------------------------
Title:
-----------------------------------
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<PAGE>
SCHEDULE OF PURCHASERS
Number
Name of Shares Purchase Price
---- --------- --------------
Rutven Associates I, L.P. 8,824 $ 75,004
Rutven Associates II, L.P. 5,882 $ 49,997
Mayfield III 58,824 $ 500,004
---------
Total $ 625,005
EXHIBIT A
<PAGE>
Exhibit 10.7
AMENDMENT TO REGISTRATION RIGHTS
BY HOLDERS OF
RESTRICTED SECURITIES
Aehr Test Systems (the "Company") intends to enter into a stock purchase
agreement (the "Agreement") with Summit Ventures, L.P., and certain other
entities (the "Purchasers"). Certain shareholders of the Company also intend
to enter into a stock purchase agreement with the Purchasers. Each of the
undersigned hereby consents to the amendment of the registration rights set
forth in paragraph 5 of the Capital Stock Investment Agreement dated April
12, 1984, to read as set forth in Exhibit I hereto and to the grant of the
registration rights to the Purchasers as set forth in the Agreement.
Holder of Holder of
Restricted Securities Restricted Securities Date
- --------------------- --------------------- ------------------
Mayfield III 158,824 September 17, 1985
By: /s/ Illegible
--------------------
Title: General Partner
-----------------
Rutven Associates I, L.P. 8,824 September 17, 1985
By: L.F. Rothschild,
Unterberg, Towbin,
General Partner
By:
--------------------
Authorized Signatory
Rutven Associates II, L.P. 5,882 September 17, 1985
By: L.F. Rothschild,
Unterberg, Towbin,
General Partner
By:
--------------------
Authorized Signatory
<PAGE>
EXHIBIT I
5. REGISTRATION RIGHTS.
5.1 DEFINITIONS. As used in this paragraph 5, the following terms
shall have the following respective meanings:
(a) "Commission" shall mean the Securities and Exchange
Commission or any other Federal agency at the time administering the Act.
(b) "Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
(c) "Transfer" shall mean any disposition of the Shares which
would constitute a sale thereof within the meaning of the Act.
(d) "Restricted Securities" shall mean (i) the shares as that
term is defined under the Agreement, and (ii) the 20,000 shares of Capital
Stock purchased by Mayfield III, a California Limited Partnership, pursuant
to the Capital Stock Purchase Agreement dated September 11, 1979, as
subsequently converted into 100,000 shares of Capital Stock pursuant to a 5
for 1 stock split on April 21, 1982, and (iii) any Common Stock issued as a
dividend or other distribution with respect to, or in exchange for, or in
replacement of any of the shares of Capital Stock listed in (i) and (ii)
above; provided the obligation hereunder shall not have terminated with
respect thereto under paragraph 5.7 hereof.
5.2 OTHER REGISTRATION RIGHTS. Without the written consent of the
holders of fifty percent (50%) of the then outstanding Restricted Securities,
the Company shall not enter into any agreement with any holder or prospective
holder of any securities of the Company which would allow such holder or
prospective holder to make a demand registration which could result in such
registration statement being declared effective prior to the earlier of either
of the dates set forth in paragraph 5.3(a), or have other material terms more
favorable than those contained in paragraph 5.3 or which would limit the effect
of the proviso contained in the second sentence of paragraph 5.4.
5.3 REQUESTED REGISTRATION.
(a) If at any time after the earlier of (i) March 1, 1989, or
(ii) one hundred twenty (120) days after the effective
<PAGE>
date of the first registration statement of a public offering of Capital
Stock of the Company (other than a registration statement relating either to
the sale of securities to employees of the Company pursuant to a stock
option, stock purchase or similar plan or a Commission Rule 145 transaction),
the Company shall be requested by the holders of not less than 50% of the
total number of shares of Restricted Securities, the Company shall promptly,
and in any case within ten (10) days, give written notice of such proposed
registration to all holders of Restricted Securities. Thereupon the Company
shall as expeditiously as possible use its best efforts to effect the
registration on Form S-1 (or on a form of general use then in effect under
the Act) of the shares of Restricted Securities which the Company has been
requested to register (i) in such request and (ii) in any response to such
notice given to the Company within twenty (20) days after the Company's
giving of such notice, in order to permit the sale or other disposition of
such shares in accordance with the intended method of sale or other
disposition given in the request and in any such response.
The Company shall be obligated to have only one (1) registration
statement declared effective pursuant to this paragraph 5.3(a). The Company
shall not be required to effect a registration statement under this paragraph
5.3(a) during the first one hundred twenty (120) days after the effective date
of any registration statement filed by the Company under paragraph 5.3(b) or 5.4
hereof if the Company has complied with the provisions of paragraph 5.3(b) or
5.4.
The Company may include in the registration under this paragraph
5.3(a) any other shares of Capital Stock (including issued and outstanding
shares of Capital Stock as to which the holders thereof have contracted with the
Company for "piggyback" registration rights) so long as the inclusion in such
registration of such shares will not, in the opinion of the managing
underwriter(s), interfere with the successful marketing in accordance with the
intended method of sale or other disposition of all the shares of Restricted
Securities sought to be registered by the holder or holders of Restricted
Securities pursuant to this paragraph 5.3(a). If it is determined as provided
above that there will be such interference, the other shares of Capital Stock
sought to be included shall be excluded to the extent deemed appropriate by the
managing underwriter(s) and, if the number of Restricted Securities to be
included would itself be too large, the number of shares of the holder thereof
to be included shall be determined pro rata based on the total number of
Restricted Securities owned by each holder requesting to participate.
(b) In addition to the registration rights granted in paragraph
5.3(a), if a registration may be effected by the Com-
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<PAGE>
pany on Form S-3 or a similar short-form registration statement, and the Company
shall be requested by the holders of not less than thirty percent (30%) of the
total number of shares of Restricted Securities, the Company shall, as
expeditiously as possible, use its best efforts to effect the registration on
Form S-3 or a similar short-form registration statement of the shares of
Restricted Securities which the Company has been requested to register in such
request.
The Company shall be obligated to have only one (1) registration
statement declared effective pursuant to this paragraph 5.3(b), and the rights
granted by this paragraph 5.3(b) may not be exercised during the first one
hundred twenty (120) days after the effective date of any registration statement
filed by the Company under paragraph 5.3(a) or 5.4 hereof if the Company has
complied with the provisions of paragraph 5.3(a) or 5.4.
5.4 "PIGGYBACK" REGISTRATIONS. If at any time the Company proposes to
register any of its securities under the Act (except with respect to
Registration Statements filed on Form S-8 or Form S-14 or such other similar
form then in effect under the Act), it will each such time give written
notice to all holders of Restricted Securities of its intention so to do and,
upon the written request of the holders of any Restricted Securities in order
to register such Restricted Securities, (which request shall be given within
twenty (20) days after the Company's giving of such notice and which shall
state the intended method of disposition of such Restricted Securities by the
prospective sellers), the Company will use its best efforts to cause the
Restricted Securities, as to which registration shall have been so requested,
to be included in the shares of Capital Stock to be covered by the
registration statement proposed to be filed by the Company, all to the extent
requisite to permit the sale or other disposition (in accordance with the
written request of the holders, as aforesaid) by the prospective seller or
sellers of such Restricted Securities so registered. Notwithstanding any
other provision of this paragraph 5.4, if the managing underwriter(s)
determines that the marketing factors require a limitation of the number of
shares to be underwritten, the managing underwriter(s) may exclude some or
all of the Restricted Securities from such registration and underwriting;
provided, however, that if any holders of shares of the Company's Capital
Stock other that the Registered Securities which shares possess registration
rights (the "Other Shares") request the Company to include the other shares
in the registration statement, such Other Shares be excluded from such
registration and underwriting along with the Restricted Shares on a pro-rata
basis (according to the number of shares having registration rights the
holders of which have requested such inclusion). in the event that any
registration pursuant to this paragraph 5.4 shall be, in whole or in part, a
firm commitment
-3-
<PAGE>
underwritten offering of securities of the Company, any request by such holders
pursuant to this paragraph 5.4 to register Restricted Securities must specify
that such shares are to be included in the underwriting (i) on the same terms
and conditions as the shares of Capital Stock, if any, otherwise being sold
through underwriters under such registration or (ii) on terms and conditions
comparable to those normally applicable to offerings of common stock in
reasonably similar circumstances in the event that no shares of Capital Stock,
other than Restricted Securities, are being sold through underwriters under such
registration.
5.5 REGISTRATION PROCEDURES AND EXPENSES. If and whenever the Company is
required by the provisions of this paragraph 5 to use its best efforts to effect
the registration of any of the Restricted Securities under the Act, each selling
shareholder will furnish in writing such information as is reasonably requested
by the Company for inclusion in the registration statement relating to such
offering and such other information and documentation as the Company shall
reasonably request, and the Company will, as expeditiously as possible:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for such period as may be
necessary to permit the successful marketing of such securities but not
exceeding ninety (90) days for a firm commitment underwritten offering pursuant
to paragraph 5.3(a) hereof; six (6) months for an offering pursuant to paragraph
5.3(b) hereof; or, with regard to an offering pursuant to paragraph 5.4 hereof,
ninety (90) days or for that period associated with the offering which gave rise
to rights under paragraph 5.4 hereof, whichever is longer.
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to comply with the provisions of the Act; and to
keep such registration statement effective for that period of time specified in
paragraph 5.5(a).
(c) Furnish to each selling shareholder such number of prospectuses
and preliminary prospectuses in conformity with the requirements of the Act and
such other documents as such seller may reasonably request in order to
facilitate the public sale or other disposition of the Restricted Securities
owned by such seller;
(d) If the Company is required by the underwriter(s), if any, of the
securities registered in a registration under this paragraph 5 to deliver an
opinion of counsel to such underwriter(s) in connection with such registration,
and if requested by any
-4-
<PAGE>
holder(s) of Restricted Securities participating in such registration, furnish
such opinion to such holder(s) on the day of delivery to the underwriter(s),
addressed to such underwriter(s) and to such holder(s), containing substantially
the following provisions: (i) that the registration statement covering such
registration of securities has become effective under the Act; (ii) that, to
the best of the knowledge of such counsel, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Act; (iii) that at the
time the registration statement became effective, the registration statement and
the related prospectus complied as to form in all material respects with the
requirements of the Act and the applicable rules and regulations of the
Commission thereunder (except that such counsel need express no opinion as to
financial statements and related schedules contained therein); (iv) that while
such counsel has not independently verified the accuracy or completeness of the
information contained therein, such counsel has no reason to believe that the
registration statement at the time it became effective or the prospectus
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading; (v) that the descriptions in the registration statement and the
prospectus, and any amendments or supplements thereto, of all legal and
governmental matters and all contracts and other legal documents or instruments
described therein are accurate and fairly present the information required to be
stated therein concerning such matters, contracts, documents and instruments;
and (vi) that such counsel does not know of any legal or governmental
proceedings, pending or threatened, required to be described in the registration
statement or prospectus, or any amendment or supplement thereto, which are not
described as required, nor of any contracts or documents or instruments of a
character required to be described in the registration statement or prospectus,
or any amendment or supplement thereto, or to be filed as exhibits to the
registration statement which are not described or filed as required. Such
opinion shall be in such form as is customary for similar opinions delivered by
such counsel so long as such form is acceptable to the underwriter(s).
(e) If the Company is required by the underwriter(s), if any, of the
securities registered in a registration under this paragraph 5 to deliver a
letter from the independent certified public accountants of the Company to such
underwriter(s) in connection with such registration, and if requested by any
holder(s) of Restricted Securities participating in such registration, furnish
such letter to such holder(s) on the day of delivery to the underwriter(s),
addressed to such underwriter(s) and to such holder(s), providing substantially
that such accountants are independent certified public accountants within the
meaning of the Act and that
-5-
<PAGE>
in the opinion of such accountants, the financial statements and other financial
data of the Company included in the registration statement and the prospectus,
any amendment or supplement thereto, comply as to form in all material respects
with the applicable accounting requirements of the Act, and such other matters
as are customary in connection with public offerings.
(f) Use its best efforts to register or qualify the Restricted
Securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as each such selling stockholder shall
reasonably request and do any and all other acts and things which may be
necessary or desirable to enable such seller to consummate the public sale or
other disposition in such jurisdiction of the Restricted Securities owned by
such seller.
All expenses incurred by the Company in complying with paragraphs 5.3,
5.4, and 5.5 hereof, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel for the Company, blue
sky fees and expenses, the fees and disbursements of counsel for the
shareholders in the case of a registration pursuant to paragraph 5.3(a) only and
the expense of any special audits incident to or required by any registrations
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company) are herein called Registration Expenses;
and all underwriting discounts and selling commissions applicable to the sales
and all other fees and disbursements of counsel for the selling stockholders are
herein called Selling Expenses. The Company will pay all Registration Expenses
in connection with each registration pursuant to paragraphs 5.3 and 5.4, except
as may be required to update any registration statement kept effective for more
than the period of time required by paragraph 5.5(a). All Selling Expenses in
connection with each registration pursuant to paragraphs 5.3 and 5.4 shall be
borne by the Company and the selling stockholders pro rata in proportion to the
securities covered thereby being sold by them, except for the aforementioned
fees and disbursements of counsel for the selling shareholders, which expense
shall be borne solely by such shareholders.
In the event holders of Restricted Securities propose to sell
Restricted Securities in accordance with this paragraph 5 pursuant to an
underwritten offering, the Company shall have the right to approve the managing
underwriter(s) for such offering; PROVIDED, HOWEVER, that such approval shall
not be unreasonably withheld.
5.6 INDEMNIFICATION. In the event of a registration of any of the
Restricted Securities under the Act pursuant to this
-6-
<PAGE>
paragraph 5, the Company will hold harmless the seller of such Restricted
Securities and each underwriter of such Restricted Securities and each other
person, if any, who controls such seller or underwriter within the meaning of
Section 15 of the Act, against any losses, claims, damages or liabilities, joint
or several, to which such seller or underwriter or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained, on
the effective date thereof, in any registration statement under which such
Restricted Securities were registered under the Act, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; and will reimburse such seller and each
such underwriter and each such controlling persons for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, said preliminary prospectus or said prospectus or
said amendment or supplement in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by such
seller or underwriter specifically for use in the preparation thereof; and
PROVIDED, FURTHER, that if any losses, claims, damages or liabilities arise out
of or are based upon an untrue statement, alleged untrue statement, omission or
alleged omission contained in any preliminary prospectus which did not appear in
the final prospectus, the Company shall not have any liability with respect
thereto to (i) the seller or any person who controls such seller within the
meaning of Section 15 of the Act, if the seller delivered a copy of the
preliminary prospectus to the person alleging such losses, claims, damages, or
liabilities and failed to deliver a copy of the final prospectus, as amended or
supplemented if it has been amended or supplemented, to such person at or prior
to the written confirmation of the sale to such person, or (ii) any underwriter
or any person who controls such underwriter within the meaning of Section 15 of
the Act, if such underwriter delivered a copy of the preliminary prospectus to
the person alleging such losses, claims, damages or liabilities and failed to
deliver a copy of the final prospectus, as amended or supplemented if it has
been amended or supplemented, to such person at or prior to the written
confirmation of the sale to such person.
-7-
<PAGE>
In the event of any registration of any of the Restricted Securities
under the Act pursuant to this paragraph 5, each seller of such Restricted
Securities, severally and not jointly, will indemnify and hold harmless the
Company and each person, if any, who controls the Company within the meaning of
Section 15 of the Act, each officer of the Company who signs the registration
statement, each director of the Company and each underwriter and each person who
controls any underwriter within the meaning of Section 15 of the Act, against
any and all such losses, claims, damages or liabilities referred to in the first
paragraph of this paragraph 5.6, if the statement, alleged statement, omission
or alleged omission in respect of which such loss, claim, damage or liability is
asserted was made in reliance upon and in conformity with information furnished
in writing to the Company by or on behalf of such seller specifically for use in
connection with the preparation of such registration statement, preliminary
prospectus, prospectus, amendment or supplement; PROVIDED, HOWEVER, that if any
losses, claims, damages or liabilities arise out of or are based upon an untrue
statement, alleged untrue statement, omission or alleged omission contained in
any preliminary prospectus which did not appear in the final prospectus which
did not appear in the final prospectus, such seller shall not have any such
liability with respect thereto to (i) the Company, any person who controls the
Company within the meaning of Section 15 of the Act, any officer of the Company
who signed the registration statement or any director of the Company, if the
Company delivered a copy of the preliminary prospectus to the person alleging
such losses, claims, damages or liabilities and failed to deliver a copy of the
final prospectus, as amended or supplemented if it has been amended or
supplemented, to such person at or prior to the written confirmation of the sale
to such person or (ii) any underwriter or any person controlling such
underwriter within the meaning of Section 15 of the Act, if such underwriter
delivered a copy of the preliminary prospectus to the person alleging such
losses, claims, damages or liabilities and failed to deliver a copy of the final
prospectus, as amended or supplemented if it has been amended or supplemented,
to such person at or prior to the written confirmation of the sale to such
person.
5.7 TERMINATION OF CONDITIONS AND OBLIGATIONS. The obligations and
conditions precedent imposed by this paragraph 5 shall cease and terminate as
to any of such Restricted Securities when (a) such securities shall have been
effectively registered under the Act and sold or otherwise disposed of in
accordance with the intended method of disposition by the seller or sellers
thereof set forth in the registration statement covering such securities and (b)
at such time as an opinion of counsel with respect to free transferability shall
have been rendered pursuant to paragraph 5.8. Whenever the conditions imposed
by this paragraph 5 shall terminate as herein provided, the holder of any of the
Restricted Securities
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<PAGE>
bearing the first legend set forth in paragraph 4.2 as to which such conditions
shall have terminated shall be entitled to receive from the Company, without
expense, a new stock certificate not bearing such legend.
5.8 NOTICE OF PROPOSED TRANSFERS. The holder of any of the
Restricted Securities by acceptance thereof agrees to comply in all respects
with the provisions of this paragraph 5.8. Prior to any proposed transfer of
any of the Restricted Securities (other than under circumstances described in
paragraph 5.3 or 5.4 hereof or a transfer to any partner, retired partner or the
estate thereof in the case of any partnership Purchaser), the holder thereof
shall give written notice to the Company of such holder's intention to effect
such transfer. Each such notice shall describe the manner and circumstances of
the proposed transfer in sufficient detail, and shall be accompanied by an
unqualified written opinion of counsel for the shareholder (which counsel shall
be reasonably satisfactory to the Company) to the effect that (i) such proposed
transfer does not create a situation which would require the registration of any
of the Restricted Securities under the Act; and (ii) the proposed transfer may
be effected without registration under the Act of the Restricted Securities to
be transferred (as, for example, that such transfer may be made pursuant to and
in compliance with the conditions of Rule 144 or Rule 237 under the Act (or any
other similar rule in effect at the time)). The Company's acceptance of such an
opinion as satisfactory shall not be unreasonably withheld. Such proposed
transfer may be effected only if the Company shall have received such notice and
opinion of counsel, whereupon the holder of such Restricted Securities shall be
entitled to transfer such Restricted Securities in accordance with the terms of
notice delivered by the holder to the Company. The certificate issued upon the
transfer of any such Restricted Securities as above provided (and the
certificate evidencing any untransferred balance of such Restricted Securities)
shall bear the first restrictive legend set forth in paragraph 4.2 above, except
that the certificate shall not bear such restrictive legend and, as provided in
paragraph 5.7 hereof, the holder thereof shall be entitled to receive from the
Company, without expense, a new certificate not bearing such legend, if the
opinion of counsel referred to above is to the further effect that such legend
or legends are not required in order to establish compliance with any provisions
of the Act.
-9-
<PAGE>
AEHR TEST SYSTEMS
AMENDMENT TO REGISTRATION RIGHTS
Aehr Test Systems (the "Company") intends to enter into a common stock
purchase agreement (the "Jafco Agreement") with Jafco America Ventures, Inc.,
and certain other entities (the "Purchasers") providing for the issuance and
sale by the Company of shares of Common Stock of the Company to the Purchasers.
The representative of the Purchasers has made it a condition to the execution of
the Agreement by the Purchasers that this Amendment to Registration Rights
("Amendment") be duly executed.
Pursuant to Section 6.8 of the Capital Stock Investment Agreement dated
April 12, 1984 (the "1984 Agreement"), the Company and the undersigned holder of
a majority of the Restricted Securities (as defined in the 1984 Agreement)
agrees to the amendment of paragraph 5.3 of the 1984 Agreement, to read in full
as set forth in Exhibit I hereto.
This Amendment shall be conditioned and effective upon the closing of the
Jafco Agreement.
AEHR TEST SYSTEMS MAYFIELD III
By /s/ Rhea J. Rosedel By /s/ illegible
---------------------- -----------------------
Executive Officer General Partner
<PAGE>
EXHIBIT I
5.3 REQUESTED REGISTRATION.
(a) If at any time the Company shall be requested by the holders
of not less than 50% of the total number of shares of Restricted Securities,
the Company shall promptly, and in any case within ten (10) days, give
written notice of such proposed registration to all holders of Restricted
Securities. Thereupon the Company shall as expeditiously as possible use its
best efforts to effect the registration on Form S-1 (or on a form of general
use then in effect under the Act) of the shares of Restricted Securities
which the Company has been requested to register (i) in such request and (ii)
in any response to such notice given to the Company within twenty (20) days
after the Company's giving of such notice, in order to permit the sale or
other disposition of such shares in accordance with the intended method of
sale or other disposition given in the request and in any such response.
The Company shall be obligated to have only one (1) registration
statement declared effective pursuant to this paragraph 5.3(a). The Company
shall not be required to effect a registration statement under this paragraph
5.3(a) during the first one hundred twenty (120) days after the effective
date of any registration statement filed by the Company under paragraph 5.3
(b) or 5.4 hereof if the Company has complied with the provisions of
paragraph 5.3(b) or 5.4.
The Company may include in the registration under this paragraph
5.3(a) any other shares of Capital Stock (including issued and outstanding
shares of Capital Stock as to which the holders thereof have contracted with
the Company for "piggyback" registration rights). However, if the offering of
the Restricted Securities is proposed to be underwritten on a firm commitment
basis (i) the Company (if it is including shares in the registration for its
own account) and the holders of any other shares proposed to be included in
the registration ("Other Shares") must agree to include such shares in the
underwriting on the same terms and conditions as the holders of Restricted
Securities, and (ii) if the managing underwriter(s) determines that marketing
considerations require a limitation of the total number of shares to be
included in the registration, the managing underwriter(s) will determine the
number of shares to be included in the registration for the account of the
Company (if any) and the total number of shares to be included in the
registration for the account of all others (including the holders of
Restricted Securities), which total number shall then be allocated pro rata
among such shareholders according to the number of shares owned by each of
them. All other shares shall be excluded from the registration.
2.
<PAGE>
(b) In addition to the registration rights granted in paragraphs
5.3(a), if a registration may be effected by the Company on Form S-3 or a
similar short-form registration statement, and the Company shall be requested by
the holders of not less than thirty percent (30%) of the total number of shares
of Restricted Securities, the Company shall, as expeditiously as possible, use
its best efforts to effect the registration on Form S-3 or a similar short-form
registration statement of the shares of Restricted Securities which the Company
has been requested to register in such request. The notice, underwriting and
cut-back provisions set forth in paragraph 5.3(a) shall also apply to any
registration pursuant to this paragraph 5.3(b).
The Company shall be obligated to have only one (1) registration
statement declared effective pursuant to this paragraph 5.3(b), and the rights
granted by this paragraph 5.3(b) may not be exercised during the first one
hundred twenty (120) days after the effective date of any registration statement
filed by the Company under paragraph 5.3(a) or 5.4 hereof if the Company has
complied with the provisions of paragraph 5.3(a) or 5.4.
3.
<PAGE>
AEHR TEST SYSTEMS
Stock Purchase Agreement
Dated as of September 18, 1985
<PAGE>
AEHR TEST SYSTEMS
STOCK PURCHASE AGREEMENT
Dated as of September 18, 1985
INDEX
Page
----
ARTICLE I
PURCHASE, SALE AND TERMS OF SHARES
1.01 The Shares . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Purchase and Sale of Shares . . . . . . . . . . . . . . . 1
(a) The Closing . . . . . . . . . . . . . . . . . . . . . 1
(b) Use of Proceeds . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
CONDITIONS TO CLOSING
2.01 Conditions to Purchaser's Obligations . . . . . . . . . . 2
2.02 Conditions to Company's Obligations . . . . . . . . . . . 3
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.01 Organization and Standing of the Company . . . . . . . . . 3
3.02 Corporate Action . . . . . . . . . . . . . . . . . . . . . 3
3.03 Governmental Approvals . . . . . . . . . . . . . . . . . . 4
3.04 Litigation . . . . . . . . . . . . . . . . . . . . . . . . 4
3.05 Compliance with Other Instruments . . . . . . . . . . . . 4
3.06 Title to Assets, Patents . . . . . . . . . . . . . . . . . 5
3.07 Financial Information . . . . . . . . . . . . . . . . . . 5
3.08 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.09 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.10 Transactions with Affiliates . . . . . . . . . . . . . . . 6
3.11 Other Matters . . . . . . . . . . . . . . . . . . . . . . 6
3.12 Securities Act of 1933 . . . . . . . . . . . . . . . . . . 7
3.13 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 7
3.14 No Brokers or Finders . . . . . . . . . . . . . . . . . . 7
3.15 Certain Agreements of Key Employees . . . . . . . . . . . 7
3.16 Capitalization; Status of Capital
Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.17 Books and Records . . . . . . . . . . . . . . . . . . . . 8
3.18 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 8
<PAGE>
Page
----
ARTICLE IV
COVENANTS OF THE COMPANY
4.01 Affirmative Covenants of the Company
Other Than Reporting Requirements . . . . . . . . . . . . 9
(a) Payment of Taxes and Trade Debt . . . . . . . . . . . 9
(b) Preservation of Corporate Existence . . . . . . . . . 9
(c) Compliance with Laws . . . . . . . . . . . . . . . . 10
(d) Keeping of Records and Books of
Account . . . . . . . . . . . . . . . . . . . . . . . 10
(e) Maintenance of Properties, etc. . . . . . . . . . . . 10
(f) New Developments . . . . . . . . . . . . . . . . . . 10
(g) Employee Invention and
Non-Disclosure Agreement . . . . . . . . . . . . . . 10
(h) Budgets and Board Approval . . . . . . . . . . . . . 10
(i) Financings . . . . . . . . . . . . . . . . . . . . . 11
(j) Observer Rights . . . . . . . . . . . . . . . . . . . 11
4.02 Negative Covenants of the Company . . . . . . . . . . . . 11
(a) Dealings with Affiliates and Others . . . . . . . . . 11
4.03 Reporting Requirements . . . . . . . . . . . . . . . . . . 11
4.04 Confidentiality . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE V
REGISTRATION RIGHTS
5.01 "Piggy Back" Registration . . . . . . . . . . . . . . . . 12
5.02 Effectiveness . . . . . . . . . . . . . . . . . . . . . . 13
5.03 Indemnification of Holders of
Registrable Shares . . . . . . . . . . . . . . . . . . . . 13
5.04 Indemnification of Company . . . . . . . . . . . . . . . . 14
5.05 Exchange Act Registration . . . . . . . . . . . . . . . . 16
5.06 Damages . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.07 Further Obligations of the Company . . . . . . . . . . . . 16
5.08 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.09 Transfer of Registration Rights . . . . . . . . . . . . . 17
5.10 No Superior Rights . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASERS AND
RESTRICTIONS ON TRANSFERS
6.01 Representations and Warranters by Each Purchaser . . . . . 18
6.02 Legends . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.03 Removal of Legends and Transfer Restrictions . . . . . . . 19
6.04 Additional Purchases of Common Stock . . . . . . . . . . . 20
-ii-
<PAGE>
Page
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ARTICLE VII
DEFINITIONS AND ACCOUNTING TERMS
7.01 Certain Defined Terms . . . . . . . . . . . . . . . . . . 20
7.02 Accounting Terms . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VIII
MISCELLANEOUS
8.01 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . 22
8.02 Amendments, Waivers and Consent . . . . . . . . . . . . . 22
8.03 Addresses for Notices, etc. . . . . . . . . . . . . . . . 23
8.04 Costs, Expenses and Taxes . . . . . . . . . . . . . . . . 23
8.05 Binding Effect; Assignment . . . . . . . . . . . . . . . . 23
8.06 Survival of Representations and
Warranties . . . . . . . . . . . . . . . . . . . . . . . . 24
8.07 Prior Agreements . . . . . . . . . . . . . . . . . . . . . 24
8.08 Severability . . . . . . . . . . . . . . . . . . . . . . . 24
8.09 Governing Law . . . . . . . . . . . . . . . . . . . . . . 24
8.10 Headings . . . . . . . . . . . . . . . . . . . . . . . . 24
8.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . 24
8.12 Further Assurances . . . . . . . . . . . . . . . . . . . 24
EXHIBITS
1.01 List of Purchasers
2.02 Matters to be Covered by Opinion Letter
3.03 Schedule of Exceptions and Other Matters
3.07 Financial Statements
3.15 Employee Invention and Nondisclosure Agreement
3.16 Schedule of Stock, Options and Other Rights
and Restrictions
WJS/38v
-iii-
<PAGE>
AEHR TEST SYSTEMS
135 Constitution Drive
Menlo Park, CA 94025
As of September 18, 1985
To: The Persons listed on EXHIBIT 1.01 hereto
Re: CAPITAL STOCK, WITHOUT PAR VALUE, OF AEHR TEST SYSTEMS
Dear Sirs:
Aehr Test Systems, a California corporation (the "Company"),
hereby agrees with you as follows:
ARTICLE I
PURCHASE, SALE AND TERMS OF SHARES
1.01 THE SHARES. The Company has authorized the issuance and sale of
50,000 shares (the "Shares") of the previously authorized but unissued shares of
its Capital Stock, without par value (the "Common Stock"), to the Persons
(collectively, the "Purchasers" and, individually, a "Purchaser") and in the
respective amounts set forth in EXHIBIT 1.01 hereto.
1.02 PURCHASE AND SALE OF SHARES.
(a) THE CLOSING. Subject to and in reliance upon the
representations, warranties, terms and conditions of this Agreement, the
Company agrees to issue and sell to the Purchasers, and the Purchasers,
severally but not jointly, agree to purchase, the Shares for the aggregate
purchase prices and in the amounts set forth opposite their respective names
in EXHIBIT 1.01 hereto. Such purchase and sale shall take place at a closing
(the "Closing") to be held at the office of Wilson, Sonsini, Goodrich &
Rosati, Two Palo Alto Square, Palo Alto, CA 94306 on September 18, 1985 at
10:00 A.M., or on such other date and at such time as may be mutually agreed
upon. At the Closing the Company will issue and deliver certificates
evidencing the Shares to be sold to the Purchasers, in the amounts set forth
opposite their respective names in EXHIBIT 1.01 hereto and in such
denominations as each such Purchaser shall specify, against delivery of
cashier's or certified checks payable to, or wire transfer of funds to the
account of, the Company in payment of the full purchase price for the Shares.
(b) USE OF PROCEEDS. The Company agrees to use the proceeds
from the sale of the Shares solely for working capital and other general
corporate purposes.
<PAGE>
-2-
ARTICLE II
CONDITIONS TO CLOSING
2.01 CONDITIONS TO PURCHASERS' OBLIGATIONS. The obligation of each
Purchaser to purchase and pay for the Shares at the Closing is subject to the
following conditions:
(a) Each of the representations and warranties of the Company
set forth in Article III hereof shall be true on the date of the Closing.
(b) The Purchasers shall have received prior to or at the
Closing all of the following, each in form and substance satisfactory to the
Purchasers and their special counsel, and all of the following events shall have
occurred prior to or simultaneous with the Closing hereunder:
(i) A copy of all charter documents of the Company
certified by the Secretary of State of California, a certified copy of the
resolutions of the Board of Directors and, if required, the stockholders of the
Company evidencing approval of this Agreement, the authorization for issuance of
the Shares and other matters contemplated hereby, a certified copy of the
By-laws of the Company, and certified copies of all documents evidencing other
necessary corporate or other action and governmental approvals, if any, with
respect to this Agreement and the Shares.
(ii) An opinion of Messrs. Wilson, Sonsini, Goodrich &
Rosati, counsel for the Company, in substantially the form attached hereto as
EXHIBIT 2.02.
(iii) A certificate of the Secretary or an Assistant
Secretary of the Company stating the names of the officers of the Company
authorized to sign this Agreement, the certificates for the Shares, the other
documents or certificates to be delivered pursuant to this Agreement by the
Company or any of its officers, together with the true signatures of such
officers.
(iv) A certificate from a duly authorized officer of the
Company stating that the representations and warranties of the Company contained
in Article III hereof are true and correct and that all conditions required to
be performed by the Company prior to or at the Closing have been performed.
(c) Prior to the Closing, the Company shall have obtained all
consents or waivers, if any, necessary to execute and deliver this Agreement,
issue the Shares and carry out the transactions contemplated hereby and
thereby, and all such consents and waivers shall be in full force and effect.
All corporate and other action and governmental filings necessary to
effectuate the terms of this Agreement, the Shares and other agreements and
instruments executed and delivered by the Company in connection herewith
<PAGE>
-3-
shall have been made or taken, except for any post-sale filing that may be
required under federal and state securities laws. In addition to the documents
set forth above, the Company shall have provided the Purchasers with any other
information or copies of documents that they may reasonably request.
2.02 CONDITIONS TO COMPANY'S OBLIGATIONS. The obligation of the
Company to sell the Shares at the Closing is subject to the following
conditions:
(a) Each of the representations and warranties of each of the
Purchasers set forth in Article VI hereof shall be true on the date of the
Closing.
(b) The Company shall have obtained all consents, permits and
waivers necessary or appropriate for consummation of the transactions
contemplated by this Agreement.
(c) At the time of the Closing, the purchase of the Shares by
the Purchasers hereunder shall be legally permitted by all laws and regulations
to which the Purchasers and the Company are subject.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Except as set forth in EXHIBIT 3.03, the Company represents and warrants as
follows:
3.01. ORGANIZATION AND STANDING OF THE COMPANY. The Company is a duly
organized and validly existing corporation in good standing under the laws of
the jurisdiction in which it is organized and has all requisite corporate power
and authority for the ownership and operation of its properties and for the
carrying on of its business as now conducted and as now proposed to be
conducted. The Company is duly licensed or qualified and in good standing as a
foreign corporation authorized to do business in all jurisdictions in which the
character of the property owned or leased, or the nature of the activities
conducted, by it makes such licensing or qualification necessary, or the failure
to be so qualified will not have a material adverse effect on the condition,
assets, liabilities, earnings or business of the Company.
3.02. CORPORATE ACTION. The Company has all necessary corporate power
and has taken all corporate action required to make all the provisions of this
Agreement, the Shares and any other agreements and instruments executed in
connection herewith and therewith the valid and enforceable obligations they
purport to be. The issuance of the Shares is not subject to preemptive or other
preferential rights, or similar statutory or contractual
<PAGE>
-4-
rights, either arising pursuant to any agreement or instrument to which the
Company is a party or which are otherwise binding upon the Company.
3.03. GOVERNMENTAL APPROVALS. Except for filings required by federal
or state securities laws, no authorization, consent, approval, license,
exemption of or filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary for, or in connection with, the offer,
issuance, sale, execution or delivery by the Company, of the Shares or the
performance by the Company of its obligations under the Agreement.
3.04. LITIGATION. There is no litigation or governmental proceeding or
investigation pending or threatened against the Company or the Subsidiaries
affecting any of their properties or assets, or, to the knowledge of the
Company, against any officer, or Key Employee of the Company, that might result,
either in any case or in the aggregate, in any material adverse change in the
business, operations, affairs or conditions of the Company or the Subsidiaries
or any of their material properties or assets, or that might call into question
the validity of this Agreement, any of the Shares, or any action taken or to be
taken pursuant hereto or thereto, nor, to the knowledge of the Company, has
there occurred any event or does there exist any condition on the basis of which
any litigation, proceeding or investigation might properly be instituted that
might result, either in any case or in the aggregate, in any material adverse
change in the business, operations, affairs of the Company, the Subsidiaries or
any of their material properties and assets. Neither the Company, any
Subsidiary nor, to the knowledge of the Company, any officer of the Company or
the Subsidiaries, is in default with respect to any order, writ, injunction,
decree, ruling or decision of any court, commission, board or other government
agency that might result, either in any case or in the aggregate, in any
material adverse change in the business, operations, affairs or conditions of
the Company or any of their material properties or assets. The foregoing
sentences include, without limiting their generality, actions pending or, to the
knowledge of the Company, threatened (or any basis therefor known to the
Company) involving the prior employment of employees of the Company or any of
its Subsidiaries in any of the Company's or any Subsidiary's business of any
information or techniques allegedly proprietary to any of their former
employers.
3.05. COMPLIANCE WITH OTHER INSTRUMENTS. The Company and the
Subsidiaries are in compliance in all respects with the terms and provisions of
this Agreement and of their charters and by-laws and in all material respects
with the terms and provisions of each mortgage, indenture, lease, agreement and
other instrument relating to obligations of the Company and the Subsidiaries in
excess of $50,000, individually or in the aggregate, and, of all judgments,
decrees, governmental orders, statutes, rules or regulations by which it is
bound or to which its properties or assets
<PAGE>
-5-
are subject the noncompliance with which would have a material adverse effect on
the business, operations, or affairs or conditions of the Company. There is no
term or provision in any of the foregoing documents and instruments that
materially adversely affects the business, assets or financial condition of the
Company or the Subsidiaries. Neither the execution and delivery of this
Agreement or the Shares, nor the consummation of any transaction contemplated
hereby or thereby, has constituted or resulted in or will constitute or result
in a default or violation of any term or provision in any of the foregoing
documents or instruments.
3.06. TITLE TO ASSETS, PATENTS.
(a) The Company and the Subsidiaries have good and marketable
title in fee to their fixed assets that are real property, and good and
merchantable title to all of their other significant assets, now carried on its
books including those reflected in the most recent balance sheet of the Company
contained in EXHIBIT 3.07 attached hereto, or acquired since the date of such
balance sheet (except personal property disposed of since said date in the
ordinary course of business), free of any mortgages, pledges, charges, liens,
security interests or other encumbrances. The Company enjoys peaceful and
undisturbed possession under all significant leases under which it is operating,
and all said leases are valid and subsisting and in full force and effect.
(b) The Company and the Subsidiaries own or have a valid right
to use all significant patents, patent rights, licenses, permits, trade secrets,
trademarks, trademark rights, trade names or trade name rights or franchises,
copyrights, inventions and intellectual property rights being used to conduct
their business as now operated and as now proposed to be operated; and, to the
best knowledge of the Company, the conduct of their businesses as now operated
and as now proposed to be operated does not and will not conflict in any
respects material to the Company and its Subsidiaries considered as a whole with
valid patents, patent rights, licenses, permits, trade secrets, trademarks,
trademark rights, trade names or trade name rights or franchises, copyrights,
inventions and intellectual property rights of others. The Company and the
Subsidiaries have no obligation to compensate any Person for the use of any such
patents or such rights nor has the Company or any Subsidiary granted to any
Person any license or other rights to use in any manner any of such patents or
such rights of the Company and the Subsidiaries.
3.07. FINANCIAL INFORMATION. Attached hereto as EXHIBIT 3.07 are true
and complete copies of the Consolidated audited financial statements of the
Company and its Subsidiaries for the twelve months ended May 31, 1985 and the
Company's unaudited unconsolidated financial statements for the two months ended
July 31, 1985 certified by the chief financial officer of the Company. Such
financial statements when read together, present fairly the financial position
of the Company and its Subsidiaries at the dates
<PAGE>
-6-
thereof and their results of operations for the periods covered thereby and have
been prepared in accordance with generally accepted accounting principles
consistently applied. The Company and the Subsidiaries have no liability,
contingent or otherwise, required to be disclosed in a financial statement
prepared in accordance with generally accepted accounting principles which are
not disclosed in the aforesaid financial statements or in the notes thereto,
that could, together with all such other liabilities, materially affect the
financial condition of the Company, nor does the Company have any reasonable
grounds to know of any such liability. Except as set forth in the aforesaid
audited financial statements or as otherwise set forth in this Agreement since
July 31, 1985 (i) there has been no adverse event or occurrence affecting the
business, assets or condition, financial or otherwise, or operations of the
Company and its Subsidiaries; (ii) neither the business, condition, or
operations of the Company, the Subsidiaries nor any of their properties or
assets has been adversely affected as the result of any legislative or
regulatory change, any revocation or change in any franchise, license or right
to do business, or any other event or occurrence, whether or not insured
against; and (iii) the Company has not entered into any transaction with respect
to, or made any distribution on, its capital stock.
3.08. TAXES. The Company and its Subsidiaries have accurately prepared
and timely filed all federal, state and other tax returns required by law to be
filed by them, and all taxes shown to be due and all additional assessments have
been paid or provision made therefor. To the Company's knowledge, none of the
federal income tax returns of the Company and the Subsidiaries have been audited
by the Internal Revenue Service. The Company knows of no significant additional
assessments or adjustments pending or threatened against the Company or any
Subsidiary for any period, nor of any basis for any such assessment or
adjustment.
3.09. ERISA. Neither the Company nor any Subsidiary makes
contributions to any pension, defined benefit plans or defined contribution
plans for its employees that are subject to the federal Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
3.10. TRANSACTIONS WITH AFFILIATES. Except as set forth in the audited
financial statements of the Company set forth in EXHIBIT 3.07, there are no
loans, leases, royalty agreements or other continuing transactions between the
Company and any of the Company's customers or suppliers, and any officer or
director of the Company.
3.11. OTHER MATTERS. Neither the Company nor any Subsidiary has (i)
become directly or contingently liable (including, without limitation, by way of
assumption or guaranty) on any Indebtedness of any other Person or (ii) made or
agreed to make any loan, advance or other investment to or in any other Person.
The Company and each Subsidiary is in compliance in all material respects with
all laws, rules and regulations applicable to them.
<PAGE>
-7-
3.12. SECURITIES ACT OF 1933. The Company has complied and will comply
with all applicable federal or state securities laws in connection with the
issuance and sale of the Shares. Neither the Company nor anyone acting on its
behalf has offered or will offer to sell the Shares or similar securities to, or
solicit offers with respect thereto from, or enter into any preliminary
conversations or negotiations relating thereto with, any Person, so as to bring
the issuance and sale of the Shares under the registration provisions of the
Securities Act. Except as set forth in Article V hereof, no Person has demand
or other rights to cause the Company to file any registration statement under
the Securities Act relating to any securities of the Company or any right to
participate in any such registration statement.
3.13 DISCLOSURE. Neither this Agreement, the financial statements
incorporated herein as EXHIBIT 3.07, nor any other agreement, document,
certificate or written or oral statement furnished to the Purchasers or their
special counsel by or on behalf of the Company in connection with the
transactions contemplated hereby when taken as a whole contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading.
There is no fact within the special knowledge of the Company or any of its
executive officers that has not been disclosed herein by them to the
Purchasers and that materially adversely affects, or in the future in their
opinion may, insofar as they can now foresee, materially adversely affect the
business, properties, assets or condition, financial or otherwise, of the
Company. Without limiting the foregoing, the Company has disclosed to the
Purchasers any knowledge that it has that there exists, or there is pending
or planned, any patent, invention, device, application or principle or any
statute, rule, law, regulation, standard or code that would materially
adversely affect the condition, financial or otherwise, or the operations of
the Company.
3.14. NO BROKERS OR FINDERS. No Person has or will have, as a result
of the transactions contemplated by this Agreement, any right, interest or valid
claim against or upon the Company for any commission, fee or other compensation
as a finder or broker because of any act or omission by the Company or any agent
of the Company; and the Company agrees to indemnify and hold the Purchasers
harmless against any such commissions, fees or other compensation.
3.15. CERTAIN AGREEMENTS OF KEY EMPLOYEES.
(a) To the best knowledge of the Company, no Key Employee is a
party to or bound by any agreement, contract or commitment, or subject to any
restrictions, particularly but without limitation in connection with any
previous employment of any such person, which materially and adversely affects,
or in the future may (so far as the Company can reasonably foresee) materially
and adversely affect, the business or operations of the Company or the right of
any such person to participate in the affairs of the Company;
<PAGE>
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(b) Each Key Employee who has or had access to proprietary
information of the Company has executed an employee invention and non-disclosure
agreement to the effect and in substantially the form set forth in EXHIBIT 3.15.
To the best of the Company's knowledge, no Key Employee or former Key Employee
of the Company is, or to the Company's knowledge and belief is expected to be,
in violation of the terms or the aforesaid agreements or of any other obligation
relating to the use of confidential or proprietary information of the Company.
3.16 CAPITALIZATION; STATUS OF CAPITAL STOCK. As of the date hereof,
the Company has a total authorized capitalization consisting of 75,000,000
shares of Common Stock, without par value, of which 3,432,022 shares are issued
and outstanding. A complete list of the shares of capital stock currently
issued and outstanding and the names in which such shares are registered is set
forth in EXHIBIT 3.16 hereto. All of the outstanding shares of capital stock of
the Company have been duly authorized, are validly issued and are fully paid and
nonassessable. All shares of capital stock issuable upon exercise of
outstanding options and warrants have been duly authorized and, when issued in
accordance with the terms of such options and warrants, will be validly issued,
and fully paid and nonassessable. The Shares when issued and delivered in
accordance with the terms hereof, will be duly authorized, validly issued and
fully paid and nonassessable. Except as set forth in EXHIBIT 3.16 hereto, there
are no options, warrants or rights to purchase shares of capital stock or other
securities authorized, issued or outstanding, nor is the Company obligated in
any other manner to issue shares of its capital stock or other securities.
There are no restrictions on the transfer of shares of capital stock of the
Company other than those imposed by relevant state and federal securities laws.
No holder of any security of the Company is entitled to preemptive or similar
statutory or contractual rights, either arising pursuant to any agreement or
instrument to which the Company is a party or that are otherwise binding upon
the Company. The offer and sale of all shares of capital stock or other
securities of the Company issued before the Closing complied with or were exempt
from registration or qualification under all federal and state securities laws.
3.17. BOOKS AND RECORDS. The books of account, ledgers, order books,
records and documents of the Company and the Subsidiaries accurately and
completely reflect all material information relating to the businesses of the
Company and the Subsidiaries, the nature, acquisition, maintenance, location
and collection of the assets of the Company and the Subsidiaries, and the nature
of all transactions giving rise to the obligations or accounts receivable of the
Company and the Subsidiaries.
3.18. SUBSIDIARIES. Each of the Company's Subsidiaries is listed in
EXHIBIT 3.03 below and the Company has no other Subsidiaries. All issued and
outstanding shares of capital stock of
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each present Subsidiary are owned by the Company and are the validly issued,
fully paid and nonassessable shares of each Subsidiary, respectively, and are
owned by the Company fee and clear of all encumbrances. Except as set forth in
the audited financial statements of the Company set forth in EXHIBIT 3.07, there
are no outstanding rights, options, warrants, conversion rights or agreements
for the purchase or acquisition of any shares of any of the Subsidiaries'
capital stock.
ARTICLE IV
COVENANTS OF THE COMPANY
4.01. AFFIRMATIVE COVENANTS OF THE COMPANY OF OTHER THAN REPORTING
REQUIREMENTS. Without limiting any other covenants and provisions hereof, the
Company covenants and agrees that, until the completion of a Qualified Public
Offering, and so long as the Purchasers and/or their partners, own (of record or
beneficially) 100,000 shares of Common Stock (such number of shares to be
equitably adjusted whenever there shall occur a stock split, combination,
reclassification or other similar event affecting the Common Stock after the
date of this Agreement), it will perform and observe the following covenants and
provisions and will cause each Subsidiary to perform and observe such of the
following covenants and provisions as are applicable to such Subsidiary:
(a) PAYMENT OF TAXES AND TRADE DEBT. Pay and discharge, and
cause each Subsidiary to pay and discharge, all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits or
business, or upon any properties belonging to it, prior to the date on which
penalties attach thereto, and all lawful claims, which, if unpaid, might become
a lien or charge upon any properties of the Company or any Subsidiary, provided
that neither the Company nor any Subsidiary shall be required to pay any such
tax, assessment, charge, levy or claim that is being contested in good faith and
by appropriate proceedings if the Company or Subsidiary concerned shall have
set aside on its books adequate reserves with respect thereto as shall be
determined by its Board of Directors. Pay and cause each Subsidiary to pay,
when due, or in conformity with customary trade terms, all lease obligations,
all trade debt, and all other Indebtedness incident to the operations of the
Company or its Subsidiaries, except such as are being contested in good faith
and by appropriate proceedings if the Company or Subsidiary concerned shall
have set aside on its books adequate reserves with respect thereto as shall be
determined by its Board of Directors.
(b) PRESERVATION OF CORPORATE EXISTENCE. Preserve and maintain,
and cause each Subsidiary to preserve and maintain, its corporate existence,
rights, franchises and privileges in the jurisdiction of its incorporation, and
qualify and remain qualified, and cause each Subsidiary to qualify and remain
qualified, as a
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foreign corporation in each jurisdiction in which the failure to qualify will
have a material adverse effect upon the condition, assets, liabilities, earnings
or business of the Company. Preserve and maintain, and cause each Subsidiary
to preserve and maintain, all material licenses and other rights to use patents,
processes, licenses, trademarks, trade names, inventions, intellectual property
rights or copyrights owned or possessed by it and necessary to the conduct of
its business.
(c) COMPLIANCE WITH LAWS. Comply, and cause each Subsidiary to
comply, in all material respects with all applicable laws, rules, regulations
and orders of any governmental authority, noncompliance with which could
materially adversely affect its business or condition, financial or otherwise,
except non-compliance being contested in good faith through appropriate
proceedings so long as the Company shall have set up sufficient reserves, if
any, required under generally accepted accounting principles with respect to
such items.
(d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Keep, and cause
each Subsidiary to keep, adequate records and books of account, in which
complete entries will be made in accordance with generally accepted accounting
principles consistently applied, reflecting all financial transactions of the
Company and each Subsidiary, and in which, for each fiscal year, all proper
reserves for depreciation, depletion, obsolescence, amortization, taxes, bad
debts and other purposes in connection within its business shall be made.
(e) MAINTENANCE OF PROPERTIES, ETC. Maintain and preserve, and
cause each Subsidiary to maintain and preserve, all of its properties, necessary
or useful in the proper conduct of its business, in good repair, working order
and condition, ordinary wear and tear excepted.
(f) NEW DEVELOPMENTS. Use its best efforts to cause all Key
Employees of the Company and each Subsidiary to execute appropriate patent
assignment agreements to the Company and, where possible and appropriate, to
file and prosecute United States and foreign patent applications relating to and
protecting such developments on behalf of the Company or such subsidiary.
(g) EMPLOYEE INVENTION AND NON-DISCLOSURE AGREEMENT. Use its
best efforts to cause each Key Employee now or hereafter employed by the Company
or any Subsidiary promptly to execute an agreement substantially in the form of
EXHIBIT 3.15 hereto or in a form approved by the Board of Directors.
(h) BUDGETS AND BOARD APPROVAL. Within ninety (90) days of the
commencement of each fiscal year, prepare and submit to, and obtain the approval
of a majority of, the Board of Directors of a budget for the upcoming fiscal
year, including projections of capital and operating expenses, cash flow, and
profits and losses, all itemized in reasonable detail.
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(i) FINANCINGS. Promptly, fully and in detail, inform the Board
of Directors in advance of any commitments or contracts relating to financing of
any nature for the Company or pledge of corporate assets.
(j) OBSERVER RIGHTS. Invite a representative of the Purchasers,
which representative shall be designated by the Purchasers, to attend all
meetings of its Board of Directors in a non-voting, observer capacity, and, in
connection therewith, give such representative copies of all notices, minutes,
consents and other materials, financial and otherwise, that it provides to its
board of directors.
4.02. NEGATIVE COVENANTS OF THE COMPANY. Without limiting any other
covenants and provisions hereof, the Company covenants and agrees that, until
the completion of a Qualified Public Offering, and so long as the Purchasers
and/or their partners, own (of record or beneficially) 100,000 shares of
Common Stock (such number of shares to be equitably adjusted whenever there
shall occur a stock split, combination, reclassification or other similar
event affecting the Common Stock after the date of this Agreement), it will
comply with and observe the following covenants and provisions, and will cause
each Subsidiary to comply with and observe such of the following covenants
and provisions as are applicable to such Subsidiary, and WILL NOT, without
the approval of holders of the Shares in accordance with Section 8.02:
(a) DEALINGS WITH AFFILIATES AND OTHERS. Enter into any
transaction, including, without limitation, any loans or extensions of credit or
royalty agreements, with any officer or director of the Company or any
Subsidiary or holder of any class of capital stock of the Company, or any member
of their respective immediate families or any corporation or other entity
directly or indirectly controlled by one or more of such officers, directors or
stockholders or members of their immediate families unless such transaction is
approved in advance by a majority of disinterested members of the Board of
Directors.
4.03 REPORTING REQUIREMENTS. Until the completion of a Qualified
Public Offering, and so long as the Purchasers and/or their partners, own (of
record or beneficially) 100,000 shares of Common Stock (such number of shares to
be equitably adjusted whenever there shall occur a stock split, combination,
reclassification or other similar event affecting the Common Stock after the
date of this Agreement), the Company will furnish the following to each
Purchaser.
(a) as soon as available and in any event within forty-five (45)
days after the end of each fiscal quarter of the Company, Consolidated balance
sheets of the Company and its Subsidiaries as of the end of such quarter and
Consolidated statements of income and retained earnings of the Company and its
Subsidiaries for the period ending with such quarter, setting forth in each
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case in comparative form the corresponding figures for the corresponding period
of the prior fiscal year, all in reasonable detail and duly certified (subject
to year-end audit adjustments) by the chief financial officer of the Company as
having been prepared in accordance with generally accepted accounting principals
consistently applied, except for the absence of footnotes; provided, however,
that the obligation to deliver Consolidated financial statements shall commence
with the quarter ending February 28, 1986 and until that date the Company shall
use its best efforts to deliver Consolidated financial statements.
(b) as soon as available and in any event within ninety (90)
days after the end of each fiscal year of the Company, a copy of the annual
audit report for such year for the Company and its Subsidiaries, including
therein Consolidated (and, to the extent otherwise prepared by the Company,
consolidating) balance sheets of the Company and its Subsidiaries as of the end
of such fiscal year and Consolidated (and, to the extent otherwise prepared by
the Company, consolidating) statements of income and retained earnings and of
changes in financial position of the Company and its Subsidiaries for such
fiscal year, setting forth in each case in comparative form the corresponding
figures for the preceding fiscal year, all duly certified by an independent
public accountant of national standing;
(c) promptly after sending, making available, or filing the
same, all reports and financial statements that the Company or any Subsidiary
sends or makes available to the stockholders of the Company or the Securities
and Exchange Commission; and
(d) all other information respecting the business, properties or
the condition or operations, financial or otherwise, of the Company or any of
its Subsidiaries that any Purchaser may from time to time reasonably request.
4.40. CONFIDENTIALITY. Any confidential information obtained by any
holder of the Shares pursuant to this Agreement shall be treated as confidential
and shall not be disclosed to a third party without the consent of the Board of
Directors, except that such information shall not be deemed confidential for the
purpose of enforcement of this Agreement or valuation of the Shares and except
that any such holder may otherwise disclose such information to its partners
if such partners agree to be bound by the restrictions contained in this
Section 4.04.
ARTICLE V
REGISTRATION RIGHTS
5.01 "PIGGY BACK" REGISTRATION. If at any time the Company shall
determine to register under the Securities Act (including pursuant to a demand
of any stockholder of the Company
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exercising registration rights) any of its Common Stock (except shares to be
issued solely in connection with any acquisition of any entity or business,
shares issuable solely upon exercise of stock options, or shares issuable solely
pursuant to employee benefit plans), it shall send to each holder of Registrable
Shares, written notice of such determination and, if within thirty (30) days
after receipt of such notice, such holder shall so request in writing, the
Company shall use its best efforts to include in such registration statement all
or any part of the Registrable Shares that such holder requests to be
registered, except that if, in connection with any offering involving an
underwriting of Common Stock to be issued by the Company, the managing
underwriter shall impose a limitation on the number of shares of such Common
Stock included in any such registration statement because, in its judgment, such
limitation is necessary to effect an orderly public distribution, and such
limitation is imposed among all holders of Common Stock exercising their
contractual incidental ("piggy back") right to include such Common Stock in the
registration statement as provided below on a PRO RATA basis (according to the
number of shares of Common Stock held by such holders that are entitled to such
"piggy back" registration rights). In the event of any such limitation, the
Company may include in such registration statement only (i) shares of Common
Stock to be sold for the Company's account; (ii) Registrable Shares; and (iii)
shares of Common Stock the holders of which are entitled to registration
pursuant to an agreement with the Company approved by the Board of Directors;
provided, that, in the case of clauses (ii) and (iii) of the preceding sentence,
such inclusion shall be on the PRO RATA basis hereinabove described.
Notwithstanding the foregoing, no such reduction shall be made with respect to
securities being offered by the Company for its own account. If any holder of
Registrable Shares disapproves of the terms of such underwriting, he may elect
to withdraw therefrom by written notice to the Company and the managing
underwriter.
5.02 EFFECTIVENESS. The Company will use its best efforts to maintain
the effectiveness for up to ninety (90) days of any registration statement
pursuant to which any of the Registrable Shares are being offered, and from time
to time will amend or supplement such registration statement and the prospectus
contained therein as and to the extent necessary to comply with the Securities
Act and any applicable state securities statute or regulation.
5.03 INDEMNIFICATION OF HOLDERS OF REGISTRABLE SHARES. In the event
that the Company registers any of the Registrable Shares under the Securities
Act, the Company will indemnify and hold harmless each holder and each
underwriter of the Registrable Shares so registered (including any broker or
dealer through whom such shares may be sold) and each person, if any, who
controls such holder or any such underwriter within the meaning of Section 15 of
the Securities Act from and against any and all losses, claims, damages,
expenses or liabilities, joint or several, to
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which they or any of them become subject under the Securities Act or under any
other statute or at common law or otherwise, and, except as hereinafter
provided, will reimburse each such holder, each such underwriter and each such
controlling person, if any, for any legal or other expenses reasonably incurred
by them or any of them in connection with investigating or defending any actions
whether or not resulting in any liability, insofar as such losses, claims,
damages, expenses, liabilities or actions arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in the
registration statement, in any preliminary or amended preliminary prospectus or
in the prospectus (or the registration statement or prospectus as from time to
time amended or supplemented by the Company) or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading or any violation by the Company of any rule or regulation promulgated
under the Securities Act applicable to the Company and relating to action or
inaction required of the Company in connection with such registration, unless
such untrue statement or omission was made in such registration statement,
preliminary or amended, preliminary prospectus or prospectus in reliance upon
and in conformity with information furnished in writing to the Company in
connection therewith by such holder of Registrable Shares, any such underwriter
or any such controlling person expressly for use therein. Promptly after
receipt by any holder of Registrable Shares, any underwriter or any controlling
person of notice of the commencement of any action in respect of which indemnity
may be sought against the Company, such holder of Registrable Shares, or such
underwriter or such controlling person, as the case may be, will notify the
Company in writing of the commencement thereof, and, subject to the provisions
hereinafter stated, the Company shall assume the defense of such action
(including the employment of counsel, who shall be counsel satisfactory to such
holder of Registrable Shares, such underwriter or such controlling person, as
the case may be), and the payment of expenses insofar as such action shall
relate to any alleged liability in respect of which indemnity may be sought
against the Company. Such holder of Registrable Shares, any such underwriter or
any such controlling person shall have the right to employ separate counsel in
any such action and to participate in the defense thereof but the fees and
expenses of such counsel shall not be at the expense of the Company unless the
employment of such counsel has been specifically authorized by the Company. The
Company shall not be liable to indemnify any person for any settlement of any
such action effected without the Company's consent. The Company shall not,
except with the approval of each party being indemnified under this Section
5.03, consent to entry of any judgment or enter into any settlement that does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to the parties being so indemnified of a release from all liability in
respect to such claim or litigation.
<PAGE>
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5.04. INDEMNIFICATION OF COMPANY. In the event that the Company
registers any of the Registrable Shares under the Securities Act, each holder
of the Registrable Shares so registered will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed the
registration statement, each underwriter of the Registrable Shares so registered
(including any broker or dealer through whom such of the shares may be sold) and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act from and against any and all losses, claims, damages,
expenses, or liabilities, joint or several, to which they or any of them may
become subject under the Securities Act or under any other statue or at common
law or otherwise, and, except as hereinafter provided, will reimburse the
Company and each such director, officer, underwriter or controlling person for
any legal or other expenses reasonably incurred by them or any of them in
connection with investigating or defending any actions whether or not resulting
in any liability, insofar as such losses, claims, damages, expenses, liabilities
or actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement, in any
preliminary or amended preliminary prospectus or in the prospectus (or the
registration statement or prospectus as from time to time amended or
supplemented) or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, but only insofar as any
such statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company in connection therewith by such
holder of Registrable Shares expressly for use therein; PROVIDED, HOWEVER, that
such holder's obligations hereunder shall be limited to an amount equal to the
proceeds to such holder of the Registrable Shares sold in such registration.
Promptly after receipt of notice of the commencement of any action in respect of
which indemnity may be sought against such holder of Registrable Shares, the
Company will notify such holder of Registrable Shares in writing of the
commencement thereof, and such holder of Registrable Shares shall, subject to
the provisions hereinafter stated, assume the defense of such action (including
the employment of counsel, who shall be counsel satisfactory to the Company) and
the payment of expenses insofar as such action shall relate to the alleged
liability in respect of which indemnity may be sought against such holder of
Registrable Shares. The Company and each such director, officer, underwriter
or controlling person shall have the right to employ separate counsel in any
such action and to participate in the defense thereof but the fees and expenses
of such counsel shall not be at the expense of such holder of Registrable Shares
unless employment of such counsel has been specifically authorized by such
holder of Registrable Shares. Notwithstanding the two preceding sentences, if
the action is one in which the Company may be obligated to indemnify any holder
of Registrable Shares pursuant to Section 5.03, the Company shall have the right
to assume the defense of such action, subject to the right of such holders to
participate
<PAGE>
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therein as permitted by Section 5.03. Such holder of Registrable Shares shall
not be liable to indemnify any person for any settlement of any such action
effected without such holder's consent. Such holder shall not, except with the
approval of the Company, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to the party being so indemnified of a release from
all liability in respect to such claim or litigation.
5.05. EXCHANGE ACT REGISTRATION. The Company will use its best efforts
to file on a timely basis with the Securities and Exchange Commission all
information that the Commission may require under either of Section 13 or
Section 15(d) of the Exchange Act and shall use its best efforts to take all
action that may be required as a condition to the availability of Rule 144 under
the Securities Act (or any successor exemptive rule hereinafter in effect) with
respect to the Company's Common Stock. The Company shall furnish to any holder
of Registrable Shares forthwith upon request (i) a written statement by the
Company as to its compliance with the reporting requirements of Rule 144, (ii) a
copy of the most recent annual or quarterly report of the Company as filed with
the Securities and Exchange Commission, and (iii) any other reports and
documents that a holder may reasonably request in availing itself of any rule or
regulation of the Securities and Exchange Commission allowing a holder to sell
any such Registrable Securities without registration.
5.06. DAMAGES. The Company recognizes and agrees that the holder of
Registrable Shares will not have an adequate remedy if the Company fails to
comply with this Article V and that damages will not be readily ascertainable,
and the Company expressly agrees that, in the event of such failure, it shall
not oppose an application by the holder of Registrable Shares or any other
person entitled to the benefits of this Article V requiring specific performance
of any and all provisions hereof or enjoining the Company from continuing to
commit any such breach of this Article V.
5.07 FURTHER OBLIGATIONS OF THE COMPANY. Whenever under the
preceding Sections of this Article V, the Company is required hereunder to
register Registrable Shares, it agrees that it shall also do the following:
(a) Furnish to each selling holder of Registrable Shares such
copies of each preliminary and final prospectus and any other documents that
such holder may reasonably request to facilitate the public offering of its
Registrable Shares;
(b) Use its best efforts to register or qualify the Registrable
Shares to be registered pursuant to this Article V under the applicable
securities or "blue sky" laws of such jurisdictions as any selling holder may
reasonably request; PROVIDED, HOWEVER, that the Company shall not be obligated
to qualify to do business in any jurisdiction where it is not then so qualified
or to take any action that would subject it to the service of process
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in suits other than those arising out of the offer or sale of the securities
covered by the registration statement in any jurisdiction where it is not then
so subject;
(c) Furnish to each selling holder a signed counterpart of
(i) an opinion of counsel for the Company, dated the effective
date of the registration statement, and
(ii) "comfort" letters signed by the Company's independent public
accountants who have examined and reported on the Company's financial
statements included in the registration statement, to the extent permitted
by the standards of the American Institute of Certified Public Accountants,
covering substantially the same matters with respect to the registration
statement (and the prospectus included therein) and (in the case of the
accountants' "comfort" letters) with respect to events subsequent to the date of
the financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' "comfort" letters delivered to the underwriters in
underwritten public offerings of securities, to the extent that the Company is
required to deliver or cause the delivery of such opinion or "comfort" letters
to the underwriters in an underwritten public offering of securities;
(d) Permit each selling holder of Registrable Shares or his counsel or
other representatives to inspect and copy such corporate documents and records
as may reasonably be requested by them; and
(e) Furnish to each selling holder, upon request, a copy of all
documents filed and all correspondence from or to the Securities and Exchange
Commission in connection with any such offering.
5.08. EXPENSES. In the case of a registration under Sections 5.01, the
Company shall bear all costs and expenses of each such registration, including,
but not limited to, printing, legal and accounting expenses, Securities and
Exchange Commission filing fees and "blue sky" fees and expenses; PROVIDED,
HOWEVER, that the Company shall have no obligation to pay or otherwise bear (i)
any portion of the fees or disbursements of counsel (other than counsel for the
Company) for the selling holders of Registrable Shares in connection with the
registration of their Registrable Shares, or (ii) any portion of the
underwriters' commissions or discounts attributable to the Registrable Shares
being offered and sold by the holders of Registrable Shares.
5.09. TRANSFER OF REGISTRATION RIGHTS. The registration rights of the
holders of Registrable Shares under this Article V may be transferred without
the consent of the Company to any
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transferee of Registrable Shares that (i) is a partner of a Purchaser, (ii)
acquires all of the Registrable Shares held by a Purchaser or (iii) holds 25,000
Registrable Shares (such number to be equitably adjusted whenever there shall
occur a stock split, combination, reclassification or other similar event
affecting the Common Stock after the date of this Agreement).
5.10. NO SUPERIOR RIGHTS. The Company will not grant registration
rights to any Person that are superior to the rights granted hereunder without
the prior consent of Purchasers holding at least fifty-one percent (51%) of the
Registrable Shares unless the holders of Registrable Shares are also granted
such superior rights.
ARTICLE VI
Representations and Warranties of Purchasers
and Restrictions on Transfer
6.01 REPRESENTATIONS AND WARRANTIES BY EACH PURCHASER. Each
Purchaser, for that Purchaser alone, represents and warrants to the Company with
respect to this purchase as follows:
(a) This Agreement constitutes the Purchaser's valid and legally
binding obligation, enforceable in accordance with its terms.
(b) It is experienced in evaluating and investing in high
technology companies such as the Company.
(c) It is acquiring the Shares for investment for its own
account and not with a view to, or for resale in connection with, any
distribution thereof. It understands that the Shares to be purchased have not
been registered under the Securities Act by reason of a specific exemption from
the registration provisions of the Securities Act that depends upon, among other
things, the bona fide nature of the investment intent as expressed herein.
(d) It acknowledges that the Shares must be held indefinitely
unless subsequently registered under the Securities Act, or unless an exemption
from such registration is available. It is aware of the provisions of Rule 144
promulgated under the Securities Act that permit limited resale of Shares
purchased in a private placement subject to the satisfaction of certain
conditions.
(e) It understands that no public market now exists for any of
the securities issued by the Company, and that it is unlikely that a public
market will ever exist for the Shares.
(f) It has had an opportunity to discuss the Company's business,
management, and financial affairs with the Company's management and to review
the Company's facilities. It understands that such discussions, as well as the
written information
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issued by the Company, were intended to describe the aspects of the Company's
business and prospects that the Company believes to be material, but that these
descriptions were not necessarily thorough or exhaustive.
6.02 LEGENDS. Each certificate representing the Shares shall be
endorsed with the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
and if imposed by the California Department of Corporations, the following
legend:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY,
OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION
THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED
IN THE COMMISSIONER'S RULES.
The Company need not register a transfer of Shares, unless the conditions
specified in the foregoing legends are satisfied. The Company may also instruct
its transfer agent not to register the transfer of any of the Shares unless the
conditions specified in the foregoing legends are satisfied.
6.03 REMOVAL OF LEGENDS AND TRANSFER RESTRICTIONS. The legend
relating to the Securities Act endorsed on a stock certificate pursuant to
Section 6.02 of this Agreement and the stop transfer instructions with respect
to the Shares represented by such certificate shall be removed and the Company
shall issue a certificate without such legend to the holder of such Shares if
such Shares are registered under the Securities Act and a prospectus meeting the
requirements of Section 10 of the Securities Act is available or if such holder
provides to the Company an opinion of counsel for such holder of the Shares
reasonably satisfactory to the Company, or a no-action letter or interpretive
opinion of the staff of the Securities and Exchange Commission (the
"Commission") to the effect that a public sale, transfer or assignment of such
Shares may be made without registration and without compliance with any
restriction such as Rule 144. The California Commissioner of Corporations
legend (if required) will be removed if the Commissioner of Corporations of the
State of California has consented to the removal of such legend.
<PAGE>
-20-
6.04 ADDITIONAL PURCHASES OF COMMON STOCK. The Purchasers covenant
and agree that they shall not acquire more than an aggregate of three hundred
thousand shares of Common Stock (including the Shares) or other equity
securities of the Company (such number to be appropriately adjusted for stock
splits, stock dividends and the like) from the Company or from other
stockholders of the Company without the prior approval of the Board of
Directors. This section 6.04 shall terminate automatically upon the closing of
the Company's initial registered public offering under the Securities Act.
ARTICLE VII
DEFINITIONS AND ACCOUNTING TERMS.
7.01. CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Agreement" means this Common Stock Purchase Agreement as from time to
time amended and in effect between the parties.
"Board of Directors" shall mean the then present members of the Board of
Directors of the Company.
"Company" means and shall include Aehr Test Systems and its successors and
assigns.
"Consolidated" when used with reference to any term defined herein mean
that term as applied to the accounts of the Company and its Subsidiaries
consolidated in accordance with generally accepted accounting principles after
eliminating intercompany items and minority interests.
"ERISA" shall have the meaning assigned to that term in Section 3.09.
"Exchange Act" means the Securities Exchange Act of 1934, or any similar
federal statute, and the rules and regulations of the Securities and Exchange
Commission (or of any other Federal Agency then administering the Exchange Act)
thereunder, all as the same shall be in effect at the time.
"Indebtedness" means all obligations, contingent and otherwise, which
should, in accordance with generally accepted accounting principles consistently
applied, be classified upon the obligor's balance sheet as liabilities,
excluding any liabilities in respect of deferred federal or state income taxes,
but in any event including, without limitation, liabilities secured by any
mortgage on property owned or acquired subject to such mortgage, whether or not
the liability secured thereby shall have been assumed, and
<PAGE>
-21-
also including, without limitation, (i) all guaranties, endorsements and other
contingent obligations, in respect of Indebtedness of others, whether or not the
same are or should be so reflected in said balance sheet, except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business and (ii) the present value of
any lease payments due under leases required to be capitalized in accordance
with applicable Statements of Financial Accounting Standards, determined by
discounting all such payments at the interest rate determined in accordance with
applicable Statements of Financial Accounting Standards.
"Key Employee" means and includes, currently, Rhea Posedel, Richard Sette,
Thomas Lee, Malcolm Farnsworth, Jr., Charles Shalvoy, and in the future the
foregoing individuals as well as the Chairman of the Board of Directors, the
President, any Vice-President and the Treasurer of the Company or any
Subsidiary, or any person who is not an officer of the Company or any Subsidiary
and is in charge of one or more of the following functions: sales, marketing,
production, or engineering and technical development or any other position or
employee so designated by the Board of Directors of the Company.
"Ownership Percentage" means and includes, with respect to each holder of
Registrable Shares for purposes of Section 5.01, the number of Registrable
Shares held by such holder divided by the aggregate of the then-outstanding
shares of Common Stock of the Company.
"Person" means an individual, corporation, partnership, joint venture,
trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Purchaser" means and shall include the persons listed on EXHIBIT 1.01.
"Qualified Public Offering" means and includes the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, converting the offer and sale of
Common Stock for the account of the Company from which the aggregate gross
proceeds to the Company exceed $7,500,000 and in which the price per share is at
least $10.00 per share (such amount to be equitably adjusted whenever there
shall occur a stock split, combination, reclassification or other similar event
affecting the Common Stock).
"Registrable Shares" means and includes (i) the Shares, (ii) any other
shares of Common Stock acquired by the Purchasers within 60 days of the Closing
and (iii) any shares of Common Stock issued on or with respect to the foregoing
by way of stock split, stock dividend, recapitalization or the like.
<PAGE>
-22-
"Securities Act" means the Securities Act of 1933, or any similar Federal
statute, and the rules and regulations of the Securities and Exchange Commission
(or of any other Federal agency then administering The Securities Act)
thereunder, all as the same shall be in effect at the time.
"Shares" shall have the meaning assigned to that term in Section 1.01.
"Subsidiary" or "Subsidiaries" means any corporation, 50% or more of the
outstanding voting stock of which shall at the time be owned by the Company or
by one or more Subsidiaries, or any other entity or enterprise, 50% or more of
the equity of which shall at the time be owned by the Company or by one or more
Subsidiaries.
7.02. ACCOUNTING TERMS. All accosting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles consistent with those applied in preparation of the financial
statements set forth in EXHIBIT 3.07, and all other financial data submitted
pursuant to this Agreement and all financial tests to be calculated in
accordance with this Agreement shall be prepared and calculated in accordance
with such principles.
ARTICLE VIII
MISCELLANEOUS
8.01. NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part
of any Purchaser, or any other holder of the Shares in exercising any right,
power or remedy hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy
hereunder. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
8.02. AMENDMENTS, WAIVERS AND CONSENTS. Any provision in this
Agreement or the Shares to the contrary nothwithstanding, changes in or
additions to this Agreement or the Shares may be made, and compliance with any
covenant or provision herein or therein set forth may be omitted or waived, if
the Company, (i) shall obtain consent thereto in writing from Persons holding an
aggregate of at least sixty percent (60%) of the Shares, and (ii) shall, in each
such case, deliver copies of such consent in writing to any holders who did not
execute the same. Any waiver or consent may be given subject to satisfaction of
conditions stated therein and any waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
<PAGE>
-23-
8.03. ADDRESS FOR NOTICES, ETC. All notices, requests, demands and
other communications provided for hereunder shall be in writing (including
telegraphic communication) and mailed or telegraphed or delivered to the
applicable party at the addresses indicated below:
If to the Company:
Aehr Test Systems
135 Constitution Drive
Menlo Park, CA 94025
with a copy to:
Mario M. Rosati
Wilson, Sonsini, Goodrich & Rosati
Two Palo Alto Square, Suite 900
Palo Alto, CA 94306
If to the Purchaser: at the addresses set forth under their respective
names on EXHIBIT 1.01 hereto.
If to any other holder of the Shares: at such holder's address for notice
as set forth in the register maintained by the Company, or, as to each of the
foregoing, at such other address as shall be designated by such Person in a
written notice to the other party complying as to delivery with the terms of
this Section. All such notices, requests, demands and other communications
shall, when mailed or telegraphed, respectively, be effective when deposited in
the mails or delivered to the telegraph company, respectively, addressed as
aforesaid.
8.04. COSTS, EXPENSES AND TAXES. The Company agrees to pay the
reasonable fees and out-of-pocket expenses of Messrs. Testa, Hurwitz &
Thibeault, special counsel for the Purchasers with respect thereto (which costs
and expenses shall not exceed $10,000). In addition, the Company shall pay any
and all stamp and other taxes payable or determined to be payable in connection
with the execution and delivery of this Agreement, the Shares, and other
instruments and documents to be delivered hereunder or thereunder and agrees to
save the Purchaser harmless from the against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes
and filing fees.
8.05. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Company and the Purchasers and their
respective successors and assigns, except that the Company shall not have the
right to assign its rights hereunder or any interest herein without the prior
written consent of the Purchasers obtained in accordance with Section 8.02
hereof.
<PAGE>
-24-
8.06. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made in this Agreement, the Shares, or any other instrument or
document delivered in connection herewith or therewith, shall survive the
execution and delivery hereof or thereof.
8.07. PRIOR AGREEMENTS. This Agreement constitutes the entire
agreement between the parties and supersedes any prior understandings or
agreements concerning the subject matter hereof.
8.08. SEVERABILITY. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
8.09. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
8.10. HEADINGS. Article, Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
8.11. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
8.12. FURTHER ASSURANCES. From and after the date of this
Agreement, upon the request of the Purchasers, the Company and each Subsidiary
shall execute and deliver such instruments, documents and other writings as may
be necessary or desirable to confirm and carry out and to effectuate fully the
intent and purposes of this Agreement and the Shares.
[The remainder of this page is intentionally left blank.]
<PAGE>
-25-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
AEHR TEST SYSTEMS
By: /s/ Rhea J. Posedel
-------------------------------
President
SUMMIT VENTURES, L.P.
By: Summit Partners, L.P.
General Partner
By: Stamps, Woodsum & Co.
General Partner
By: /s/ illegible
---------------------------
General Partner
SV EUROFUND C.V.
By: SV International, L.P.
General Partner
By: Stamps, Woodsum
International & Co.
General Partner
By: /s/ illegible
----------------------
General Partner
SUMMIT INVESTORS. L.P.
By: /s/ illegible
--------------------------------
General Partner
<PAGE>
EXHIBIT 1.01
LIST OF PURCHASERS
Name and Address Number of Aggregate Purchase
of Purchaser Shares Price of Shares
- ---------------- --------- -----------------
Summit Ventures, L.P. 30,002 $300,020
One Boston Place
Boston, MA 02108
SV Eurofund C.V. 19,773 197,730
c/o SV Interna-
tional, L.P.
One Boston Place
Boston, MA 02108
Summit Investors, L.P. 225 2,250
c/o Summitt Partners, L.P.
One Boston Place
Boston, MA 02108 ------ -------
TOTAL 50,000 $500,000
------ --------
------ --------
<PAGE>
September 19, 1985
To Each Purchaser listed on
the List of Purchasers
Gentlemen:
This opinion is rendered to you in compliance with Section 2.01 (b) (ii) of
the Stock Purchase Agreement dated as of September 18, 1985 (the "Agreement")
among Aehr Test Systems (the "Company") and you. The terms as defined in the
Agreement shall, unless otherwise defined herein or unless the context otherwise
requires, have the same defined meanings herein.
We are general legal counsel to the Company. As its counsel, we have made
such legal and factual examinations and inquiries as we have deemed advisable or
necessary for the purpose of rendering this opinion and have examined, among
other things, originals, certified copies, or copies otherwise identified to our
satisfaction as being true copies of the originals of the following:
(a) The Articles of Incorporation and By-Laws, as amended to date, of the
Company;
(b) Advice from the California Secretary of State and California Franchise
Tax Board as to the good standing of the Company;
(c) The resolutions of the board of directors of the Company with respect
to the Agreement and the transactions covered thereby; and
(d) The Agreement and the Exhibits thereto.
<PAGE>
We have also relied upon and obtained from public officials, officers and
representatives of the Company, such other certificates and written assurances
as we consider necessary for the purposes of rendering this opinion. As used in
this opinion, the expressions "to our knowledge" and "known to us" with
reference to matters of fact means that, after an examination of documents made
available to us by the Company, we find no reason to believe that the opinions
expressed herein are factually incorrect, but beyond that we have made no
independent factual investigation for the purpose of rendering this opinion.
The opinions hereinafter expressed are subject to the following
qualifications:
(a) No opinion is given with respect to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the rights of creditors generally;
(b) No opinion is given with respect to the effect of rules of law
governing specific performance, injunctive relief or other equitable remedies;
(c) No opinion is given with respect to the enforceability of the
indemnification provisions of Sections 5.03 or 5.04 of the Agreement;
(d) No opinion is given with respect to compliance with the antifraud
provisions under federal and state laws; and
(e) We are members of the bar of the state of California and we do not
hold ourselves out as experts of the laws of other states.
On the basis of the foregoing and in reliance thereon, we are of the
opinion that:
1. The Company is a duly organized and validly existing corporation in
good standing under the laws of the jurisdiction in which it was organized and
has all requisite corporate power and authority for the ownership and operation
of its properties and for the carrying on of its business as now conducted and
as now proposed to be conducted. Except as disclosed in Exhibit 3.03 of the
Agreement, the Company is duly licensed or qualified and in good standing as a
foreign corporation authorized to do business in all jurisdictions in which the
character of the property owned or leased, or the nature of the activities
conducted, by it makes such licensing or qualification necessary, or the failure
to be so qualified will not have a materially adverse effect on the condition,
assets, liabilities, earnings or business of the Company.
-2-
<PAGE>
2. The Company has all necessary corporate power and has taken all
corporate action required to make all the provisions of the Agreement and any
other agreements and instruments executed in connection with the Agreement the
valid and binding obligations of the Company enforceable in accordance with
their respective terms. The Company has duly executed and delivered the
Agreement, the Shares, and each other agreement and instrument executed in
connection with the agreement and each is a legal, valid and binding obligation
of the Company enforceable in accordance with its terms. The issuance of the
Shares does not require any further corporate action, and will not be subject to
preemptive or other preferential rights or similar statutory or contractual
rights arising pursuant to any agreement or instrument, known to us, to which
the Company is a party or which are otherwise binding upon the Company.
3. Except for filings under federal and state securities law which may be
made under applicable provisions after the Closing, no further authorization,
consent, approval, license, exemption of or filing or registration with any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, under any applicable laws, rules or
regulations in effect, is or will be necessary for, or in connection with, the
offer, issuance, sale, execution or delivery by the Company of the Shares, or
for the performance by it of the Company's obligations under the Agreement or
the Shares.
4. There is, to our knowledge, no litigation or governmental proceeding
or investigation pending or threatened against the Company or any of its
Subsidiaries affecting any of their material properties or assets, or, to our
knowledge, against any officer or Key Employee of the Company, that might
result, either in any case or in the aggregate, in any material adverse change
in the business, operations, affairs or conditions of the Company, any of its
Subsidiaries, or any of their material properties or assets, or that might call
into question the validity of the Agreement, any of the Shares, or any action
taken or to be taken pursuant thereto, nor, to our knowledge, has there occurred
any event or does there exist any condition on the basis of which any
litigation, proceeding or investigation might properly be instituted that might
result, either in any case or in the aggregate, in any material adverse change
in the business, operations, affairs or conditions of the Company, any of its
Subsidiaries, or any of their material properties or assets. To our knowledge,
no officer of Key Employee of the Company, or any of its Subsidiaries, is in
default with respect to any order, writ, injunction decree, ruling or decision
of any court, commission, board of other government agency that might result,
either in any case or in the aggregate, in any material adverse change in the
business, operations, affairs or conditions of the Company, any of its
Subsidiaries, or any of their material properties or assets. The fore-
-3-
<PAGE>
going sentences include, without limiting their generality, actions pending or
threatened, which are known to us, (or any basis therefor known to us) involving
the prior employment of any of the Company's or any Subsidiary's officers or
employees or their use in connection with the Company or any Subsidiary's
business of any information or techniques allegedly proprietary to any of their
former employers.
5. The Company is in compliance in all respects with the terms and
provisions of its Articles of Incorporation and By-laws and in all material
respects with the terms and provisions of the mortgages, indentures, leases,
agreements and other instruments known to us relating to obligations of the
Company in excess of $50,000, individually or in the aggregate, and of all
judgments, decrees, governmental orders, statutes, rules or regulations by which
it is bound or to which it or any of its properties or assets are subject of
which we have knowledge, the noncompliance with which would have a materially
adverse effect on the business, operations, affairs or conditions of the
Company, or any of its material properties or assets. Neither the execution and
delivery of the Agreement or Shares, nor the consummation or any transaction
contemplated thereby, has constituted or resulted in or will constitute or
result in a default or violation of any term or provision in any of the
documents, instruments, judgements, decrees, orders, statutes, rules and
regulations, known to us.
6. Subject to the accuracy of the Purchaser's representations in Section
6.01 of the Agreement and in written responses to the Company's inquiries, the
offer, sale, and issuance of the Shares in conformity with the terms of the
Agreement constitute transactions exempt from the registration requirements of
Section 5 of the Securities Act of 1933, as amended and the registration or
qualification requirements of the applicable state securities laws.
7. The Company has a total authorized capitalization consisting of
75,000,000 shares of Common Stock, of which 3,432,022 shares are issued and
outstanding. All the outstanding shares of capital stock of the Company have
been duly authorized, are validly issued and are fully paid and nonassessable.
The Shares, when issued and delivered in accordance with the terms thereof, will
be duly authorized, validly issued and fully paid and nonassessable. Except as
set forth in Exhibit 3.16 to the Agreement, there are no options, warrants or
rights to purchase shares of capital stock or other securities of the Company
which are authorized, issued or outstanding, nor is the Company obligated in any
other manner to issue shares of its capital stock other than those imposed by
relevant state and federal securities laws and those contemplated by the
Agreement. No holder of any security of the Company is entitled to preemptive
or similar statutory or contractual rights, either arising pursuant to any
agreement or instrument, known to
-4-
<PAGE>
us, to which the Company is a party or which is otherwise binding upon the
Company. The offer and sale of the shares of Capital Stock under the Capital
Stock Investment Agreement dated April 12, 1984 was exempt from the registration
requirements of Section 5 of the Securities Act of 1933, as amended.
This opinion may not be furnished to, quoted to or relied upon by any other
person, firm or corporation without our prior written consent.
Very truly yours,
WILSON, SONSINI, GOODRIBH & ROSATI
J. Casey McGlynn
-5-
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------------
3. PROPERTY AND EQUIPMENT:
Property and equipment at May 31 comprise:
1995 1984
---- ----
Leasehold improvements $ 513,649 $ 397,792
Furniture and fixtures 374,134 211,251
Machinery and equipment 645,110 261,024
Test equipment 1,007,672 497,293
Transportation equipment - 7,333
---------- ----------
2,540,565 1,374,693
Less accumulated
depreciation and
amortization 657,677 336,910
---------- ----------
$1,882,888 $1,037,783
---------- ----------
---------- ----------
4. INVESTMENT IN FOREIGN JOINT VENTURE:
In October 1981, the Company and an individual formed a corporate
joint venture in Tokyo, Japan to manufacture, import, export and sell
test systems, parts and accessories. The Company contributed cash of
$241,895 for a 50% interest in the profits or losses of the joint
venture. The Company also holds an option to purchase all or part of
the remaining 50% interest in such amounts and at such times it
chooses through March 1, 1997 at an exercise price based on future
earnings of the joint venture as defined in the agreement.
Continued
8
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------------
4. INVESTMENT IN FOREIGN JOINT VENTURE, continued:
Summary financial information as of May 31, 1985 and 1984 and for the
years then ended follows:
Balance Sheets: 1985 1984
-------------- ---- ----
Cash and cash equivalents $ 837,209 $ 915,352
Accounts receivable 2,817,991 918,366
Inventories 4,425,863 1,737,424
Other assets 692,994 397,893
---------- ----------
$8,774,057 $3,969,035
---------- ----------
---------- ----------
Notes payable $2,469,234 $1,720,060
Account payable to Aehr Test Systems 707,888 383,621
Accounts payable and accrued liabilities 4,294,708 1,228,850
---------- ----------
7,471,830 3,332,531
Stockholder's equity 1,302,227 636,504
---------- ----------
$8,774,057 $3,969,035
---------- ----------
---------- ----------
Statements of Income:
--------------------
Sales $9,040,033 $4,474,578
Cost of sales 5,808,328 3,012,783
---------- ----------
Gross profit 3,231,705 1,461,795
Selling, general and administrative
expense 1,112,528 869,619
Research and development expense 360,583 -
---------- ----------
Income before income taxes and
extraordinary item 1,758,594 592,176
Provision for income taxes 1,033,674 365,110
---------- ----------
Income before extraordinary item 724,920 227,066
Extraordinary item - tax benefit
resulting from utilization of
loss carryforward - 67,072
---------- ----------
Net income $ 724,920 $ 294,138
---------- ----------
---------- ----------
During fiscal 1985 and 1984, respectively, the Company sold $2,666,943
and $1,386,217 of its product to the joint venture.
Continued
9
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------------
5. NOTES PAYABLE:
At May 31, 1985, the Company had available an unsecured revolving line
of credit with a bank which provides for borrowings of up to
$4,500,000. Under this agreement which is available until
September 30, 1985, interest is charged at the bank's prime rate
(10.0% at May 31, 1985). The agreement requires the Company to
maintain specified financial ratios and an average compensating
balance of $200,000. The compensating balance does not constitute a
legal restriction on the Company's cash, and to the extent it is not
maintained, the bank charges a fee based on an interest formula
contained within the agreement. At May 31, 1985 $1,200,000 was
outstanding under the line of credit.
6. LONG-TERM DEBT:
Long-term debt at May 31 consists of:
1985 1984
---- ----
Unsecured revolving term loan
bearing interest at the bank's
prime rate plus 0.25% (10.25%
at May 31, 1985). Borrowing, up
to a maximum amount of $3,500,000,
are available until September 30,
1986. Principal outstanding at
September 30, 1986 will be payable
in sixty equal monthly installments
commencing October 1, 1986. $1,400,000 -
Term note bearing interest at the
bank's prime rate plus 1/2%. - $475,000
Term note bearing interest at the
bank's prime rate plus 3/4%. - 308,335
Obligations under capital leases 16,664 32,057
---------- --------
1,416,664 815,392
Less amount due within one year 10,153 188,136
---------- --------
$1,406,511 $627,256
---------- --------
---------- --------
Continued
10
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------------
6. LONG-TERM DEBT, continued:
The aggregate amount of future maturities by fiscal year for all long-
term debt at May 31, 1985 is as follows:
1986 $ 12,872
1987 77,250
1988 280,000
1989 280,000
1990 280,000
Thereafter 490,000
----------
1,420,122
Less interest relating to
capital leases 3,458
----------
$1,416,664
----------
----------
7. LEASE COMMITMENTS:
The Company leases most of its present manufacturing and office space
under an operating lease which expires in 1991. Under the terms of
the lease, the rentals will be adjusted upward every two years based
on the Consumer Price Index but with increases not to exceed 14% for
any adjustment. The lease contains a renewal option whereby the
Company may extend the lease term for an additional five years with
the same terms. In addition, the Company is required to pay for
insurance, taxes and maintenance of the property.
The Company has entered into an operating lease agreement for
additional office space. The lease commences upon the later of
completion of the facility or January 15, 1986 and expires in 1991.
The Company will be responsible for taxes, insurance, maintenance and
utilities related to the property. The lease contains a renewal
option whereby the Company may extend the lease term for an additional
four years, with rentals to be determined by mutual agreement at the
time of renewal.
Continued
11
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------------
7. LEASE COMMITMENTS, continued:
Minimum annual rentals payable under operating leases in each of the
next five years are as follows:
1986 $ 511,191
1987 953,309
1988 967,009
1989 986,365
1990 1,007,718
Thereafter 1,277,675
----------
$5,703,267
----------
----------
Net rent expense for the years ended May 31, 1985 and 1984 was
approximately $432,000 and $334,000, respectively.
8. COMMON STOCK:
Approximately 625,000 shares of common stock outstanding at May 31,
1985 have certain registration rights which are exercisable after the
earlier of March 1, 1989 or 120 days after the effective date of the
first registration of a public offering of the Company's capital
stock.
9. STOCK OPTIONS:
The Company has two incentive stock option plans under which 775,000
shares of capital stock were reserved for issuance to employees and
paid consultants. Both plans provide that options be granted at an
exercise price equal to the fair market value at the date of grant, as
determined by the Board of Directors. The options expire five years
from the grant date and most options become exercisable in increments
over a four-year period from the date of grant. At May 31, 1985,
options to purchase 95,675 shares were exercisable.
Continued
12
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
9. STOCK OPTIONS, continued:
Activity under the two plans was as follows:
<TABLE>
<CAPTION>
Optioned Shares
Reserved But --------------------------------------------
Unoptioned Number of Price
Shares Shares Per Share Total
---------- --------- --------- -----
<S> <C> <C> <C> <C>
Balances,
June 1, 1983 140,000 269,000 $ .40 to $ 4.00 $505,500
Options granted (67,100) 67,100 $6.00 to $ 8.50 419,100
Options exercised - (80,250) $ .40 to $ 4.00 (83,250)
Options terminated 42,250 (42,250) $3.60 to $ 6.00 (169,500)
------- ------- --------------- ----------
Balances,
May 31, 1984 115,150 213,600 $ .40 to $ 8.50 671,850
Options granted (73,630) 73,630 $8.50 to $10.00 631,105
Options exercised - (58,250) $ .50 to $ 4.00 (31,750)
Options terminated 34,650 (34,650) $ .40 to $ 8.50 (87,900)
------- ------- --------------- ----------
Balances,
May 31, 1985 76,170 194,330 $ .40 to $10.00 $1,183,305
------- ------- --------------- ----------
------- ------- --------------- ----------
</TABLE>
Notes receivable for capital stock comprises $350,000 of noninterest-
bearing notes received by the Company from employees exercising stock
options in 1981 and a $92,400 note bearing interest at 9% issued in 1984 in
connection with the sale of stock to an employee. The notes are
collateralized by the shares issued to the employees, except one note for
$150,000 which is collateralized by a deed of trust in real property. The
notes are due in the years 1986 and 1989, except one note for $200,000
which is due upon the creation of a public market for the Company's stock
or May 1986, whichever occurs later.
10. EMPLOYEE BONUS PLAN:
The Company has a noncontributory, trusteed employee bonus plan for
full-time employees. The intent of the Company is to contribute shares of
the Company's stock to the plan, although the plan also allows cash
contributions. The contribution is determined annually by the Company and
cannot exceed 15% of the annual aggregate salaries of those employees
eligible for participation in the plan. Individuals' account balances vest
at a rate of 25% per year commencing upon completion of three years of
service. Nonvested balances which are forfeited are allocated to the
remaining employees in the plan.
Continued
13
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
10. EMPLOYEE BONUS PLAN, continued
The authorized contribution to the plan for the year ended May 31, 1985 was
approximately $241,900, which was charged to expense in fiscal 1985 and
will be paid to the plan in fiscal 1986 by the issuance of 24,190 shares of
the Company's capital stock. The number of shares of stock to be issued to
the plan was based on a valuation by the Board of Directors of $10.00 per
share as of May 31, 1985.
The authorized contribution to the plan for the year ended May 31, 1984 was
approximately $164,000, which was charged to expense in fiscal 1984 and was
paid to the plan in fiscal 1985 by the issuance of 19,192 shares of the
Company's capital stock. The number of shares of stock issued to the plan
was based on a valuation by the Board of Directors of $8.50 per share as of
May 31, 1984.
The contribution of 25,180 shares made to the plan in fiscal 1984 was
authorized and charged to expense in fiscal 1983.
11. PROVISION FOR INCOME TAXES:
The provision for income taxes for the years ended May 31 consists of the
following:
1985 1984
---- ----
State income taxes:
Currently payable $ 285,000 $ 36,000
Deferred 37,000 174,000
Federal income taxes:
Currently payable (refundable) 524,000 (278,000)
Deferred 218,000 797,000
---------- --------
$1,064,000 $729,000
---------- --------
---------- --------
Continued
14
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
11. PROVISION FOR INCOME TAXES, continued:
The Company's effective tax rate differs from the U.S. federal statutory
tax rate as follows:
1985 1984
---- ----
Maximum statutory income tax rate 46.0% 46.0%
Effect of graduated rates (.5) (.9)
Investment tax credit (1.7) (1.9)
Research and development tax credit (11.1) (10.3)
State taxes, net of federal tax
effect 4.9 4.8
Undistributed earnings of foreign
joint venture not having a
federal tax effect (4.5) (2.9)
DISC earnings not subjected to
federal taxes (2.4) (3.0)
FSC earnings exempt from
federal taxes (2.0) -
Other (.1) (.5)
----- -----
Provision for income taxes 28.6% 31.3%
----- -----
----- -----
15
<PAGE>
[AEHR TEST SYSTEMS LETTERHEAD]
September 12, 1985
Summit Ventures
One Boston Place
Boston, MA 02108
Gentlemen:
To my knowledge, the attached unaudited and unconsolidated Income Statement for
the two months ended July 31, 1985 and Balance Sheet as of July 31, 1985 are
true and correct.
/s/ Malcolm M. Farnsworth
-----------------------------
Malcolm M. Farnsworth
Treasurer and Chief Financial
Officer
<PAGE>
AEHR TEST SYSTEMS
INCOME STATEMENT
FOR THE TWO MONTHS ENDED JULY 31, 1985
($ in thousands)
Net Sales $5,096
Cost of Goods Sold 2,703
------
Gross Margin 2,393
Operating Expenses:
Sales and Marketing 636
R & D 616
General & Admin 216
------
Total Operating Exp 1,468
------
Operating Profit 925
------
Other Income & Expense:
Interest 15
Other Expense 75
------
Total Other 90
------
Net Income Before Taxes 835
Tax Provision 311
Net Income $524
------
------
/s/ Malcolm M. Farnsworth
- -----------------------------
Malcolm M. Farnsworth
Treasurer and Chief Financial
Officer
<PAGE>
AEHR TEST SYSTEMS
BALANCE SHEET
JULY 31, 1985
($ in thousands)
ASSETS
Current Assets:
Cash ($23)
Accounts Receivable, Net 5,621
Inventories 7,723
Prepaid Expenses 47
--------
Total Current Assets 13,368
Property, Plant & Equipment, Net 1,836
Other Assets 749
--------
Total Assets $15,953
--------
--------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $2,112
Accrued Liabilities 1,791
Accrued Income Taxes 1,940
--------
Total Current Liabilities 5,843
Other Long-term Liabilities 255
--------
Total Liabilities 6,098
Stockholders' Equity:
Capital Stock 2,130
Notes Secured by Capital Stock (442)
Retained Earnings 7,643
Net Income YTD 524
--------
Total Stockholders' Equity 9,855
--------
Total Liabilities and Stockholders' Equity $15,953
--------
--------
/s/ Malcolm M. Farnsworth
- -----------------------------
Malcolm M. Farnsworth
Treasurer and Chief Financial
Officer
<PAGE>
PATENT AND CONFIDENTIALITY AGREEMENT
In consideration and as a condition of my employment or continued
employment by AEHR TEST SYSTEMS (the "Company") and the compensation paid
therefor:
1. ASSIGNMENT OF INVENTIONS. I hereby assign and transfer to the Company
my entire right, title and interest in and to all inventions, improvements,
discoveries, ideas, designs, documents, and other data (whether or not
patentable) made, conceived, or first reduced to practice by me, whether solely
or jointly with others, during the period of my employment with the Company (the
"Inventions"), which relate in any manner to the actual or anticipated business
or research and development of the Company or its subsidiaries, or result from
or are suggested by any task assigned to me or by any of the work I have
performed or may perform for the Company. Provided, however, that this
Agreement does not require assignment of an Invention which qualifies fully for
protection under Section 2870 of the California Labor Code (hereinafter "Section
2870"). In the event any Invention relating in any manner to the actual or
anticipated business or research and development of the Company or its
subsidiaries is disclosed by me under paragraph 2 within six (6) months after
ceasing to serve as a consultant of the Company, it is to be presumed that such
Invention was conceived or resulted form developments made during the period of
my relationship with the Company and I agree that any such Invention will belong
to the Company, subject to the provisions of section 2870.
2. DISCLOSURE OF INVENTIONS; PATENTS. I agree promptly to disclose all
Inventions to whomever may be designated by the Company, regardless of whether I
believe the Invention is protected by Section 2870, in order to permit the
Company to claim rights to which it may be entitled under this Agreement. Such
disclosure shall be received in confidence by the Company. With respect to all
inventions which are to be assigned pursuant to paragraph 1, I will assist the
Company in any reasonable manner to obtain for its own benefit patents thereon
in any and all countries, and I will execute when requested, patent applications
and assignments thereof to the Company or persons designated by it, and any
other lawful documents deemed necessary by the Company to carry out the purposes
of this agreement, and I will further assist the Company in every way to enforce
any patents obtained, including, without limitation, testifying in any suit or
proceeding involving any of said patents or executing any documents deemed
necessary by the Company, all without further consideration than provided for
herein, but at the expense of the Company. I agree to preserve such Inventions
as confidential information of the Company. I further agree that the
obligations and undertakings stated in this paragraph 2 shall con-
3.15
<PAGE>
tinue beyond the termination of my consulting relationship with the Company, but
if I am called upon to render such assistance after the termination of my
consulting relationship, then I shall be entitled to a fair and reasonable per
diem fee in addition to reimbursement of any expenses incurred at the request
of the Company. I agree to keep and maintain adequate and current written
records of all such Inventions made by me (in the form of notes, sketches,
drawings and as may be specified by the Company), which records shall be
available to and remain the property of the Company at all times.
3. CONFIDENTIALITY. I agree that without the Company's prior express
consent, I will not during my employment by the Company engage directly or
indirectly in any employment, consulting or activity other than for the
Company in any business in which the Company is now or may hereafter become
engaged. I agree that I will not during the period I am serving as an
employee for the Company or thereafter at any time disclose directly or
indirectly to any person or entity or use for my own benefit any trade
secrets or confidential information relating to products, processes,
know-how, machines, designs, drawings, software, formulas, test data,
marketing data, business plans and strategies, employees, negotiations and
contracts with other companies, disclosures and applications for patents and
the status of their prosecution, or any other subject matter pertaining to
any of the business of the Company or any of its clients, customers,
consultants, licensees or affiliates, known to, learned or acquired by me
during the period or my employment by the Company, except to such an extent
as may be necessary in the ordinary course of performing my particular duties
as an employee of the Company. I acknowledge that all the foregoing
information is proprietary to the Company and is a special, valuable and
unique asset of the business of the Company, and that my giving service as an
employee creates a relationship of confidence and trust between myself and
the Company with respect to the proprietary information.
4. PRIOR INVENTIONS. All inventions which I have made prior to my
employment by the Company shall be excluded from the scope of this Agreement.
As a matter of record, I have set forth at the end of this Agreement a complete
list of all inventions, discoveries or improvements relating to the Company's
business which I have conceived prior to my serving as a consultant for the
Company. I represent and covenant that the list is complete and that, if no
items are on the list, I have no such prior inventions.
5. RETURN OF CONFIDENTIAL MATERIAL. I agree to deliver promptly to the
Company on termination of my employment by the Company, whether or not for cause
and whatever the reason, or at any time it may so request, all memoranda, notes,
records, reports, manuals, drawings, blueprints, and any other documents of a
con-
-2-
<PAGE>
fidential nature belonging to the Company, including all copies of such
materials, which I may then possess or have under my control. I further agree
that upon termination of my status as a consultant that I shall not take with me
any document or data of any description containing or pertaining to the
proprietary information of the Company as set forth in paragraph 3.
6. CUSTOMER LISTS AND EMPLOYEES. I agree that I shall not for a period
of six (6) months immediately following the termination of my relationship with
the Company for any reason, whether with or without cause, either directly or
indirectly: (1) call on, solicit, or take away any of the customers of the
Company on whom I called or with whom I became acquainted during the period of
my employment with the Company, either for myself or for any other person or
entity, or (2) solicit or take away, or attempt to solicit or take away any
employees of the Company, either for myself or for any other person or entity.
7. TRADE SECRETS OF OTHERS. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep in confidence proprietary information or trade
secrets acquired by me in confidence or in trust prior to my entering into
a consulting relationship with the Company, and I will not disclose to the
Company, or induce the Company to use, any confidential or proprietary
information or material belonging to any previous employer or others. I agree
not to enter into any agreement either written or oral in conflict herewith.
8. OTHER OBLIGATIONS. I acknowledge that the Company from time to time
may have agreements with other persons or with the U.S. Government, or agencies
thereof, which impose obligations or restrictions on the Company regarding
inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the obligations
of the Company thereunder.
9. INJUNCTIVE RELIEF. I agree that it would be difficult to measure the
damage to the Company from any breach by me of the covenants set forth in
paragraphs 1, 2, 3, 5, or 6 herein, that injury to the Company from any such
breach would be impossible to calculate, and that money damages would therefore
be an inadequate remedy for any such breach. Accordingly, I agree that if I
breach paragraphs 1, 2, 3, 5, and 6 or any of them, the Company shall be
entitled, in addition to all other remedies it may have, to injunctions or other
appropriate orders to restrain any such breach without showing or proving any
actual damage to the Company.
-3-
<PAGE>
10. GENERAL. I acknowledge receipt of this Agreement and agree that, with
respect to the subject matter hereof, this Agreement is my entire agreement with
the Company, superseding any previous oral or written communications,
representations, understandings, or agreements with the Company or any officer
or representative thereof. This Agreement shall inure to the benefit of the
successors and assigns of the Company, and shall be binding upon my heirs,
assigns, administrators and representatives. To the extent that any of the
agreements set forth herein, or any word, phrase, clause or sentence thereof
shall be found to be illegal or unenforceable for any reason, such agreement,
word, phrase, clause or sentence shall be modified or deleted in such a manner
so as to make the Agreement, as modified, legal and enforceable under applicable
laws. This Agreement shall be governed by the laws of the State of California,
which state shall have jurisdiction of the subject matter hereof. This
Agreement may not be changed, modified, released, discharged, abandoned, or
otherwise amended, in whole or in part, except by an instrument in writing
signed by the Consultant and the Company.
Dated: , 19 .
----------- ---
Employee:
-----------------------------------
Print Name
-----------------------------------
Signature
AEHR TEST SYSTEMS
By:
------------------------------
Title:
-----------------------------
-4-
<PAGE>
AEHR TEST SYSTEMS
SHAREHOLDERS LIST
August 15, 1985
Cert. Total
Name No. Date Shares Shares
- ----------------------------------- ------ ---------- --------- ---------
Aehr Test Systems 128 09/07/82 28,120
Employee Stock Bonus Plan 189 10/08/83 18,418
135 Constitution Dr. 205 08/30/84 19,192
Menlo Park, CA 94025 248 02/28/85 31,517
257 04/10/85 2,559
273 08/15/85 23,800
277 08/15/85 2,686 126,292
Allen Amsbaugh and 28 08/10/79 1,000
Judith Amsbaugh, JTWROS 80 04/21/82 4,000 5,000
900 Menlo Oaks Drive
Menlo Park, CA 94025
Masamichi Ariga 268 08/12/85 9,800 9,800
c/o ATS Japan
19-25, 1-Chome
Shimura, Itabashi-Ku
Tokyo, 174 Japan
Atherton Ventures 156 05/27/83 8,250 8,250
c/o Mario M. Rosati
Two Palo Alto Square, Suite 900
Palo Alto, CA 94306
Ross Atwood 216 11/12/84 1,000 1,000
738 Long Ridge
Oakland, CA 94610
Patricia J. Battaglia and 222 12/03/84 1,100 1,100
Biogio G. Battaglia,
Joint Tenants
706 Hillcrest Way
Redwood City, CA 94062
Robert R. Berry 29 08/10/79 1,500
628 Forest Ave., Apt. A 81 04/21/82 6,000 7,500
Palo Alto, CA 94301
3.16
<PAGE>
Cert. Total
Name No. Date Shares Shares
- ----------------------------------- ------ ---------- --------- ---------
Mark A. Bertelsen 138 03/07/83 3,130 3,130
2 Palo Alto Square, Suite 900
Palo Alto, CA 94306
Charles W. Bishop 30 08/10/79 1,000
3091 Chardonnay 217 11/12/84 3,000 4,000
Pleasanton, CA 94566
Bernard Bouyea and Margaret 225 12/03/84 555 555
Bouyea, Joint Tenants
166 Shell Street
Pacifica, CA 94044
Roger D. Bouyea and 147 05/04/83 125,000
Lorraine M. Bouyea, his wife, 227 12/03/84 1,313 126,313
as their Community Property
1000 North Point Street
Apt. 1001
San Francisco, CA 94109
John Bouyea, Jr. 172 08/04/83 1,660 1,660
2615 Lincoln Way
San Francisco, CA 94122
Roger Bouyea, Jr. 171 08/04/83 1,660 1,660
1000 Northpoint, Apt. 1001
San Francisco, CA 94109
Ronald E. Boyd 231 12/05/84 9,500 9,500
24390 Summerhill Road
Los Altos Hills, CA 94022
Verna L. Brame 201 04/18/84 5,000 5,000
322 Cuardo Avenue
Millbrae, CA 94030
Verna L. Brame Trustee 169 07/26/83 204,900 204,900
Verna L. Brame Trust
U/D/T dated May 20, 1983
322 Cuardo Ave.
Millbrae, CA 94030
Clarence M. Brehm 149 05/04/83 10,000 10,000
1047 Mango Ave.
Sunnyvale, CA 94087
-2-
<PAGE>
Cert. Total
Name No. Date Shares Shares
- ----------------------------------- ------ ---------- --------- ---------
Faye Crawford Bremond, 159 05/30/83 3,750 3,750
Trustee of the Faye Crawford
Bremond Separate Property Trust
U/D/T January 6, 1983
101 Catalpa Drive
Atherton, CA 94025
Harry B. Bremond 145 03/08/83 3,750 3,750
2 Palo Alto Square, Suite 900
Palo Alto, CA 94306
J. Edwin Brooks 187 10/07/83 2,114 2,114
50 Pasatiempo Drive
Santa Cruz, CA 95060
Barbara J. Brown 151 05/27/83 400 400
1621 Albatross Drive
Sunnyvale, CA 94086
T. Steven Brown and 20 07/20/79 5,000
Elizabeth Brown JTWROS 86 04/21/82 20,000 25,000
16601 Sagewood Lane
Poway, CA 92064
Carl N. Buck 232 12/28/84 1,000 1,000
Aehr Test Systems
135 Constitution Drive
Menlo Park, CA 94025
Robert R. Buck 233 12/28/84 500 500
167 Pleasant Avenue
Fanwood, NJ 07023
Louis J. Cartalano 32 08/10/79 1,000
750 Sunshine Dr. 87 04/21/82 64,000
Los Altos, CA 94022 157 05/27/83 5,000
158 05/30/83 6,000
202 04/18/84 6,500
239 12/28/84 30,000 112,500
John Case 236 12/28/84 2,000 2,000
The Case Companies
969 Buenos Avenue
San Diego, CA 92110
-3-
<PAGE>
Cert. Total
Name No. Date Shares Shares
- ----------------------------------- ------ ---------- --------- ---------
CHARALYN, Inc. Defined Benefit 255 03/06/85 3,000 3,000
and Money Purchase Pension Plan
(Fred Pilster, Trustee)
12002 Old Snakey Road
Los Altos Hills, CA 94022
Gene S. Crockett 78 04/15/82 3,000
1200 Mosswood 88 04/21/82 12,000 15,000
Irving, Texas 75061
John Cruse and Carol 226 12/03/84 277 277
Cruse, Joint Tenants
1380 Flores Drive
Pacifica, CA 94044
Jean Pierre Dammann and 89 04/21/82 8,000 8,000
Winifred S. Dammann, JTWROS
19 Whitlaw Close
Chappaqua, New York 10514
Carol A. Decker 152 05/27/83 250
6227 Balsamo Dr. 243 01/07/85 5,000 5,250
San Jose, CA 95129
Dr. R. Cameron Emmott 168 07/26/83 100 100
315 Barroilhet Avenue
San Mateo, CA 94402
James Fadiman 129 09/20/82 3,375
1070 Colby Ave. 130 09/21/82 6,000 9,375
Menlo Park, CA 94025
James Fadiman, Trustee 26 07/20/79 5,000
UAD 6/1/68 f/b/o CHRISTINE E. 91 04/21/82 20,000 25,000
CROSBY TRUST #2
P.O. Box 1032
Menlo Park, CA 94025
James Fadiman, Trustee 27 07/20/79 5,000
UAD 3/1/79 f/b/o TAMARA E. 92 04/21/82 20,000 25,000
CROSBY TRUST #2
P.O. Box 1032
Menlo Park, CA 94025
-4-
<PAGE>
Cert. Total
Name No. Date Shares Shares
- ----------------------------------- ------ ---------- --------- ---------
Andree P. Feldmann 35 08/10/79 2,500
Kreidelstrasse 4 90 04/21/82 10,000 12,500
D6200 Wiesbaden
Erbenheim, West Germany
Ferlic Investments, Ltd. 182 10/12/83 1,000 1,000
c/o Randolph M. Ferlic
509 Doctor Building
Omaha, NE 68131
William R. Franke and 93 04/21/82 30,000
Barbara J. Franke, JTWROS 253 02/20/85 4,500 34,500
P.O. Box 722
Kenwood, CA 95452
Trina Anne Franke 252 02/20/85 1,000 1,000
P.O. Box 722
Kenwood, CA 95452
Frank J. George and 24 07/20/79 10,000
Evelyn E. George 36 08/10/79 1,000
3716 Kenwood Ave. 94 04/21/82 44,000 55,000
San Mateo, CA 94403
William P. Gilbreath and 37 08/10/79 1,500
Vibeke Gilbreath, JTWROS 95 04/21/82 6,000 7,500
1624 Petal Way
San Jose, CA 95129
Susan Golden 212 10/10/84 186 186
410 Belmont Way
San Jose, CA 95125
John Goodrich 241 12/28/84 4,687 4,687
2 Palo Alto Square, Suite 900
Palo Alto, CA 94306
Margaret K. Goodrich 240 12/28/84 4,688 4,688
21132 Patriot Way
Cupertino, CA 95014
J. Barry Gray 133 02/17/83 2,000 2,000
15725 Peach Hill Road
Los Gatos, CA 95034
-5-
<PAGE>
Cert. Total
Name No. Date Shares Shares
- ----------------------------------- ------ ---------- --------- ---------
Peter Tyler Hall 60 05/15/80 4,000
c/o Dean Witter Reynolds 96 04/21/82 76,000
720 Santa Cruz Avenue 134 02/17/83 3,000 83,000
Menlo Park, CA 94025
Takahiro Hatakenaka 267 08/12/85 7,800
c/o ATS Japan
19-25,1-Chome
Shimura, Itabashi-Ku
Tokyo, 174 Japan
Martin J. Held, Trustee of 237 12/28/84 500 500
M.J. Held Associates Money
Purchase Pension & Defined
Benefit Pension Trust
DTD 1-28-82
240 Tamal Vista Blvd., #130
Corte Madera, CA 94925
Alan Helgesson 166 07/05/83 30,000 30,000
12997 Cortez Court
Los Altos Hills, CA 94022
Alan L. Helgesson and 39 08/10/79 2,500
Llyssa H. Helgesson 98 07/21/82 10,000 12,500
Trustees U/D/T dated
4/19/78
12997 Cortez Court
Los Altos Hills, CA 94022
Janet Palm Higginbotham 40 08/10/79 500
223 More Avenue 99 04/21/82 2,000 2,500
Los Gatos, CA 95030
Tom A. Kelley, Trustee 238 12/28/84 2,000 2,000
of the Thomas A. Kelley
Pension & Profit Sharing Trust
Building 2, Suite 120
3000 San Hill Road
Menlo Park, CA 94025
Allan King 234 12/28/84 1,000 1,000
1542 Winding Way
Belmont, CA 94022
-6-
<PAGE>
Cert. Total
Name No. Date Shares Shares
- ----------------------------------- ------ ---------- --------- ---------
Joel Klein 193 02/08/84 1,000 1,000
354 Seale Ave.
Palo Alto, CA 94301
Ralph W. Kummer 57 03/26/80 1,200
Post Office Box 420 100 04/21/82 4,800 6,000
Colfax, CA 95713
Charles F. LaBrecque 77 04/18/82 1,000
302 Old Westford Road 101 04/21/82 4,000
Chelmsford, MA 01824 126 06/16/82 2,500
135 03/04/83 1,000 8,500
Thomas Lee 19 07/20/79 5,000
240 Floresta Way 70 05/11/81 20,000
Portola Valley, CA 94025 102 04/21/82 100,000 125,000
Barbara Long, Trustee 160 05/30/83 5,000 5,000
of the Kevin Allen
Torresdal Trust I
U/T/A dated 5/30/83
3828 Hamilton Way
Redwood City, CA 94062
Barbara Long, Trustee 161 05/30/83 5,000 5,000
of the Candice Ann
Torresdal Trust I
U/T/A dated 5/30/83
3828 Hamilton Way
Redwood City, CA 94062
Barbara Long, Trustee 162 05/30/83 5,000 5,000
of the Kyler David
Torresdal Trust I
U/T/A dated 5/30/83
3828 Hamilton Way
Redwood City, CA 94062
Barbara Long, Trustee 163 05/30/83 5,000 5,000
of the Eric Nels
Torresdal Trust I
U/T/A dated 5/30/83
3828 Hamilton Way
Redwood City, CA 94062
-7-
<PAGE>
Cert. Total
Name No. Date Shares Shares
- ----------------------------------- ------ ---------- --------- ---------
Barbara Long, Trustee 164 05/30/83 5,000 5,000
of the Brock Frank
Torresdal Trust I
U/T/A dated 5/30/83
3828 Hamilton Way
Redwood City, CA 94062
Harvey Long and Barbara 228 12/03/84 1,200 1,200
Long, Joint Tenants
3828 Hamilton Way
Redwood City, CA 94062
Los Gatos Ventures 246 01/15/85 5,000 5,000
2 Palo Alto Square
Palo Alto, CA 94306
Frank and Josephine Luporini 196 03/27/84 3,750 3,750
1324 Hover
Menlo Park, CA 94025
Dana Marie Mahoney 251 02/20/85 1,000 1,000
663 Simpson Street
Santa Rosa, CA 95401
Paul Margolin 41 08/10/79 5,000
P.O. Box 2302 106 04/21/82 20,000 25,000
16 Tall Oaks Drive
Wayne, New Jersey 07470
Renzo Maraviglia and 223 12/03/84 775 775
Joan M. Maraviglia,
Joint Tenants
301 Heather Way
South San Francisco, CA 94080
James S. Mathews 76 04/15/82 1,000
26 Spruce Lane 103 04/21/82 4,000
Holden, MA 01520 127 06/16/82 2,500 7,500
Mayfield III 50 09/11/79 20,000
2200 Sand Hill Road 61 07/21/80 18,000
Menlo Park, CA 94025 73 08/11/81 5,000
104 04/21/82 172,000
132 11/23/83 10,000
197 04/12/84 58,824 283,824
-8-
<PAGE>
Cert. Total
Name No. Date Shares Shares
- ----------------------------------- ------ ---------- --------- ---------
Martina McGlynn as 63 07/24/80 25
Custodian for Kathleen 105 04/21/82 100 125
Ann McGlynn (UGMA)
440 Coleridge
Palo Alto, CA 94301
Alexandria Jean McGurn 125 05/27/82 12,000
975 Marlin Drive 192 11/04/83 3,000 15,000
Vista, CA 92082
James F. McGurn 124 05/27/82 12,000
9292 Chesepeake Drive 191 11/04/83 3,000 15,000
San Diego, CA 92123
Linda C. Miller 249 02/15/85 1,000 1,000
2225 Vineyard Court
Los Altos, CA 94022
John Spencer Morse and 175 08/30/83 50,000
Annette Ruth Morse, 178 08/30/83 2,000
Trustees of the 179 08/30/83 40,000
John Spencer Morse and 260 04/16/85 3,000 95,000
Annette Ruth Rose
Trusts, U/D/T dated
December 23, 1982
19479 Miller Court
Saratoga, CA 95070
Roger Mosher 140 03/07/83 11,875 11,875
525 University Avenue
Suite 1410
Palo Alto, CA 94301
Walter Neumann 153 05/27/83 300
1339 Lerida Way 242 01/04/85 10,000 10,300
Pacifica, CA 94044
Walter F. Neumann 53 11/02/79 500
and Susan Garder Neumann 109 04/21/82 2,000 2,500
JT TEN WROS
1339 Lerida Way
Pacifica, CA 94044
-9-
<PAGE>
Cert. Total
Name No. Date Shares Shares
- ----------------------------------- ------ ---------- --------- ---------
F.D. Orahood 14 07/20/79 25,000
655 West Evelyn Ave. 48 08/20/79 2,500
Mountain View, CA 94041 110 04/21/82 110,000 137,500
Leonard E. Orsak and 52 11/02/79 1,000
Marjorie L. Orsak 111 04/21/82 4,000 5,000
JT TEN WROS
241 Biarritz Circle
Los Altos, CA 94022
Vivian M. Owen 4 07/20/79 5,000
1736 Terrace 112 04/21/82 20,000
Belmont, CA 94002 181 09/21/83 15,000 40,000
Victor P. Pagani 15 07/20/79 25,000
and Diane R. Pagani 43 08/10/79 2,500
205 Garden Lane 113 04/21/82 110,000 137,500
Colma, CA 94015
Joseph F. Pickering, Trustee 67 05/07/81 2,375
of the Joseph F. Pickering and 114 04/21/82 9,500 11,875
Helen D. Pickering Trusts U/D/T
dated 1/12/77
c/o Rollins, Burdick, Hunter
P.O. Box 51110
Palo Alto, CA 94303
Portola Valley Ventures 254 03/05/85 3,810 3,810
Two Palo Alto Square, Ste. 900
Palo Alto, CA 94306
Rhea J. Posedel 1 07/20/79 125,000
1736 Terrace 25 07/20/79 2,500
Belmont, CA 94002 58 04/17/80 2,500
62 07/21/80 32,000
65 06/24/80 5,000
115 04/21/82 668,000
200 04/18/84 25,000
266 07/22/85 50,000 910,000
Carol A. Preble 154 05/27/83 300 300
19973 Peartree Ct.
Cupertino, CA 95014
-10-
<PAGE>
Cert. Total
Name No. Date Shares Shares
- ----------------------------------- ------ ---------- --------- ---------
Rosanna McClure Roedder 190 10/21/83 15,000 15,000
Schonauerstrasse No. 19
5206 Wolperath
West Germany
M.M. Rosati & D. M. Laurice 264 05/15/85 5,000 5,000
Trustees FBO Mario M. Rosati
WILSON, SONSINI, GOODRICH &
ROSATI
Two Palo Alto Square, Ste. 900
Palo Alto, CA 94306
Rutven Associates I, L.P. 198 04/16/84 8,824 8,824
c/o L.F. Rothschild,
Unterberg & Towbin
55 Water Street
New York, NY 10041
Rutven Associates II, L.P. 199 04/16/84 5,882 5,882
c/o L. F. Rothschild,
Unterberg & Towbin
55 Water Street
New York, NY 10041
Marvin R. Samuel and 44 08/10/79 5,000
Margery F. Samuel, JTWROS 117 04/21/82 20,000 25,000
471 Panchita Way
Los Altos, CA 94022
Ramona Lee Santos 250 02/20/85 1,000 1,000
32 Escanyo Drive
So. San Francisco, CA 94080
Carol C. Scott 155 05/27/83 500 500
4812 Corrales Dr.
San Jose, CA 95136
Richard F. Sette 195 03/19/84 15,400
13070 Regan Lane 271 08/12/85 1,000 16,400
Saratoga, CA 95070
Charles E. Shalvoy 118 04/21/82 60,000 70,400
111 Selby Lane 261 05/13/85 10,400
Atherton, CA 94025
-11-
<PAGE>
Cert. Total
Name No. Date Shares Shares
- ----------------------------------- ------ ---------- --------- ---------
Charles E. Shalvoy, Sr. 244 01/11/85 500 500
or Helen M. Shalvoy,
JT WROS
17910 Villamoura Drive
Poway, CA 92064
James A. Shalvoy, Trustee 218 11/13/84 2,300 4,600
of the Brenton O. Shalvoy, 263 05/13/85 2,300
Trust I UTA dated July 25,
1984
113-35th Place
Manhattan Beach, CA 90266
Sabro Shikano 269 08/12/85 4,900 4,900
c/o ATS Japan
19-25, 1-Chume
Shimura, Itabashi-Ku
Tokyo, 174 Japan
Wayne L. Sloyer 204 07/02/84 500
1149 S. Mary Avenue 265 06/28 500 1,000
Sunnyvale, CA 94087
Larry W. Sonsini 141 03/07/83 11,560 11,560
2 Palo Alto Square, Suite 900
Palo Alto, CA 94306
Martin C. Sturzenbecker 220 11/30/84 250 250
4125 Tulare Court
Concord, CA 94521
Mel Thomsen 174 08/08/83 1,250 1,250
555 Latimer Circle
Campbell, CA 95008
David Torresdal 18 07/20/79 10,000
and Betty Torresdal 120 04/21/82 263,000
427 Hillcrest Way 165 05/30/83 25,000
Redwood City, CA 94062 210 10/05/84 5,000
229 12/03/84 800 303,800
Margo Tullus 170 08/04/83 1,660 1,660
2515 Lunada Lane
Walnut Creek, CA 94595
-12-
<PAGE>
Cert. Total
Name No. Date Shares Shares
- ----------------------------------- ------ ---------- --------- ---------
Margo D. Tullus and 224 12/03/84 1,000 1,000
David Shelton Tullus,
Community Property
2515 Lunada Lane
Walnut Creek, CA 94595
John A. Wilson 142 03/07/83 10,625 10,625
2 Palo Alto Square, Suite 900
Palo Alto, CA 94306
Miriam E. Wolff 207 09/05/84 10,000 10,000
Trust FBO Miriam E. Wolff
25623 Elena Rd.
Los Altos Hills, CA 94022
Donald E. Yost 47 08/10/79 2,500
1860 Middleton Ave. 123 04/21/82 10,000 12,500
Los Altos, CA 94022
----------
TOTAL OUTSTANDING - 3,432,022
*Held in Safe
-13-
<PAGE>
AEHR TEST SYSTEMS
Amended May 1978 STOCK OPTION PLAN
OPTION STATUS
September 13, 1985
<TABLE>
<CAPTION>
Total
Exer- Shares Outstanding
Name of Date cise Shares Exer- Shares and
Optionee of Grant Price Granted cised Returned Unexercised
- --------------------- -------- -------- ---------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert N. Allebrand 05/22/84 $8.50 400 400
Christian J. C. 03/15/84 $6.00 4,000 4,000
Bastoul
Charles A. Briggs 03/15/82 $2.00 5,000 5,000 0
Ricky I. Bonbright 05/22/84 $8.50 400 400
Ronald E. Boyd 09/15/82 $4.00 25,000
05/13/83 $4.00 25,000 12,500 37,500 0
Donald Brame 04/19/79 $ .40 5,000 5,000 0
Verna Brame 04/19/79 $ .40 5,000 5,000 0
Clarence Brehm 04/19/79 $ .40 10,000 10,000 0
Carl N. Buck 08/20/84 $8.50 200 200
Louis J. Cartalano 10/22/79 $ .50 50,000 50,000 0
Michael J. Coggiano 06/15/84 $8.50 2,000 2,000
Jonathan D. Craig 03/15/84 $6.00 2,000 2,000
James A. Crawford 05/22/84 $8.50 2,500 2,500
Carol A. Decker 01/14/80 $ .50 5,000 5,000 0
Malcolm M. Farnsworth 03/15/84 $6.00 7,000 7,000
Patrick K. Flaherty 03/15/84 $6.00 1,000 1,000 0
Peter Hall 10/22/79 $ .50 20,000 20,000 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Total
Exer- Shares Outstanding
Name of Date cise Shares Exer- Shares and
Optionee of Grant Price Granted cised Returned Unexercised
- --------------------- --------- -------- ---------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Arthur Harui 05/27/80 $ .50 20,000 20,000 0
Alan Helgesson 05/11/81 $2.00 60,000 30,000 30,000 0
Bruce W. Howard 06/15/84 $8.50 1,000 1,000 0
Aleck S. Kogan 03/15/84 $6.00 700 700
Fred Lauriello 05/13/83 $4.00 20,000 20,000
Tom Lee 12/05/80 $2.00 100,000 100,000 0
Pamela Mayerfeld 06/15/84 $8.50 3,000 3,000
Rosie McClure Roedder 10/22/79 $ .50 15,000 15,000 0
Robert Morgan 06/15/84 $8.50 400 400
John Morse 10/22/79 $ .50 50,000 50,000
12/05/80 $2.00 10,000 10,000 0
Thomas A. Nelson 03/15/84 $6.00 500 500
Walter F. Neumann 01/14/80 $ .50 10,000 10,000 0
Vivian Owen 04/19/79 $. 40 15,000 15,000 0
Richard A. Paulsen 04/19/79 $ .40 10,000 10,000 0
Peter Penwarden 05/22/84 $8.50 400 400 0
Rhea J. Posedel 04/19/79 $ .40 25,000
01/03/80 $ .50 25,000
07/24/80 $1.80 25,000
07/24/80 $2.00 25,000 100,000 0
Carol Preble 03/15/84 $6.00 200 200
Francisco A. Roa 03/15/84 $6.00 1,000 1,000
Loren S. Rhodes 05/22/84 $8.50 400 400
Mario Rosati 10/22/79 $ .50 5,000 5,000 0
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
Total
Exer- Shares Outstanding
Name of Date cise Shares Exer- Shares and
Optionee of Grant Price Granted cised Returned Unexercised
- --------------------- -------- -------- ---------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Richard F. Sette 03/15/84 $6.00 16,600 16,600
Charles E. Shalvoy 05/11/81 $2.00 75,000 75,000 0
Michael S. Silverman 08/20/84 $8.50 500 500
Mel Thomsen 03/15/82 $2.00 5,000 1,250 3,750 0
Michael Kent Throck- 06/15/84 $8.50 2,500 2,500
morton
David Torresdal 10/22/79 $ .50 5,000 5,000 0
---------- ---------- ---------- ----------
Totals : 696,700 523,750 108,650 64,300
Shares Available in Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . .625,000
Total Outstanding and Unexercised. . . . . . . . . . . . . . . . 64,300
Total Exercised. . . . . . . . . . . . . . . . . . . . . . . . . 523,750 588,050
------- ---------
Total Available for Future Grants. . . . . . . . . . . . . . . . 36,950
</TABLE>
-3-
<PAGE>
AEHR TEST SYSTEMS
1983 INCENTIVE STOCK OPTION PLAN
OPTION STATUS
September 13, 1985
<TABLE>
<CAPTION>
Total
Exer- Shares Outstanding
Name of Date cise Shares Exer- Shares and
Optionee of Grant Price Granted cised Returned Unexercised
- --------------------- -------- -------- ---------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ross Atwood 02/28/85 $ 8.50 4,000 4,000
Edward J. Barlow 09/14/84 $ 8.50 11,750
02/08/85 $ 8.50 3,250 15,000
Keith Blackey 05/23/83 $ 4.00 5,000 5,000
Jeff Brehm 05/23/83 $ 4.00 1,000 1,000
Carl Buck 07/13/83 $ 6.00 5,000 5,000
Anpao Chou 02/28/85 $ 8.50 500 500
Garry Clark 02/28/85 $ 8.50 2,000 2,000
Gerard Connolly 09/14/84 $ 8.50 500 500
Malcolm Farnsworth 07/13/83 $ 6.00 10,000
02/28/85 $ 8.50 3,000 13,000
Steve Feller 11/14/84 $ 8.50 280 280
Robert Gorman 02/28/85 $ 8.50 500 500
Richard Graves 09/16/83 $ 6.00 1,000 1,000 0
Scott Harlow 04/01/85 $ 8.50 1,000 1,000
Ray Ingraham 09/14/84 $ 8.50 2,000 2,000
Richard Jensen 04/01/85 $ 8.50 3,000 3,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Total
Exer- Shares Outstanding
Name of Date cise Shares Exer- Shares and
Optionee of Grant Price Granted cised Returned Unexercised
- --------------------- -------- -------- ---------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Goutama Kantamaneni 02/28/85 $ 8.50 2,000 2,000
Bryan Kember 05/23/83 $ 4.00 1,000 1,000
Allan King 02/28/85 $ 8.50 3,000 3,000
Aleck Kogan 02/28/85 $ 8.50 500 500
Thomas Lee 02/28/85 $ 8.50 10,000 10,000
Timothy Lee 02/28/85 $ 8.50 1,000 1,000
John Ludlow 09/14/84 $ 8.50 3,500 3,500
Joan McCall 02/28/85 $ 8.50 3,000 3,000
Robert Morgan 07/12/85 $10.00 500 500
Fred Muraira 02/28/85 $ 8.50 2,000 2,000
John Rand Perretta 09/14/84 $ 8.50 2,000 2,000
Linda Raggi 07/12/85 $10.00 4,000 4,000
Jerry Schlegel 07/12/85 $10.00 500 500
Richard Sette 07/12/85 $10.00 3,000 3,000
George Skevos 09/14/84 $ 8.50 750 750
Wayne Sloyer 05/23/83 $ 4.00 2,000 1,000 1,000 0
Roger Smith 07/13/83 $ 6.00 11,000 11,000
Martin Sturzenbecker 05/23/83 $ 4.00 1,000 250 750 0
James Tomic 04/01/85 $ 8.50 500 500
</TABLE>
-2-
<PAGE>
Total
Exer- Shares Outstanding
Name of Date cise Shares Exer- Shares and
Optionee of Grant Price Granted cisedReturned Unexercised
- ---------------- --------- ----- ------- ----- -------- -----------
Albert Wang 09/16/83 $ 6.00 500 500 0
Jim Wrenn 02/28/85 $ 8.50 3,000 3,000
------- ------ ------- ---------
Totals: 108,530 1,250 3,250 104,030
Shares Available in Plan. . . . . . . . . . . . . . . . . 150,000
Total Outstanding and Unexercised. . . . . . . . 104,030
Total Exercised. . . . . . . . . . . . . . . . . 1,250
---------
105,280
-------
Total Available for Future Grants. . . . . . . . 44,720
-------
-3-
<PAGE>
SCHEDULE OF EXCEPTIONS
This Schedule of Exceptions, dated as of September 18, 1985, is made and
given pursuant to Article III of the Aehr Test Systems Stock Purchase
Agreement dated September 18, 1985 (the "Agreement"). The section numbers in
this Schedule of Exceptions correspond to the section numbers in the
Agreement; however, any information disclosed herein under any section number
shall be deemed to be disclosed and incorporated into any other section
number under the Agreement where such disclosure would be appropriate. Any
terms defined in the Agreement shall have the same meaning when used in this
Schedule of Exceptions as when used in the Agreement unless the context
otherwise requires.
3.01 ORGANIZATION AND STANDING OF COMPANY.
The Company has sales offices in Texas and Massachusetts and an
employee in Pennsylvania. The Company is not qualified to do business in any of
these states.
3.05 COMPLIANCE WITH OTHER INSTRUMENTS.
The Company believed that to the extent it is not in compliance in all
material respects with the terms and provisions of an agreement or other
instrument relating to obligations of the Company that such noncompliance is
currently adequately reserved for on its financial statements.
3.06 TITLE TO ASSETS, PATENTS.
(b) Under Japanese law the Company may be required to purchase patents
from its employees in order to acquire proprietary rights to such patents.
3.07 FINANCIAL STATEMENTS.
The May 31, 1985 financial statements include the accounts of the
Company and its wholly-owned subsidiaries, a domestic international sales
corporation and a foreign sales corporation. Aehr Test Japan, the foreign joint
venture, was accounted for by the equity method.
The Company's backlog on May 31,1985, and July 31, 1985, was
approximately $16,500,000 and $12,400,000, respectively. The Company believes
that this trend may continue until a rebound occurs in the semiconductor market.
Exhibit 3.03
<PAGE>
Since July 31, 1985 the Company has issued the following shares of its
Capital Stock:
Aehr Test Systems Employee
Stock Bonus Plan 23,800(1)
Richard F. Sette 1,000(2)
The employees of Aehr Test Japan 22,500(2)
- -----------------------
(1) Contribution to Plan.
(2) $10.00 per share cash issuance price.
3.08 TAXES.
The Company has obtained an extension from the Internal Revenue
Service for the filing of its income tax return for the year ending May 31,
1985.
3.09 ERISA.
The Company has an employee stock ownership plan, a copy of which has
been provided to the special counsel for the Purchasers. See Note 10 of Notes
to Consolidated Financial Statements of Aehr Test Systems and Subsidiaries for
the year ended May 31, 1985.
The Company's practice has been to repurchase, at the then current
fair market value, shares distributed by the Employee Stock Bonus Plan to
terminated employees if the employees so desire. The current fair market value
of the Company's Capital Stock is $10.00 per share. The Company intends to
repurchase approximately 5,000 shares from recently terminated employees in the
near future.
3.10 TRANSACTIONS WITH AFFILIATES.
Mario M. Rosati is director and secretary of the Company and is a
member of Wilson, Sonsini, Goodrich & Rosati, the Company's general counsel.
Set forth below are the outstanding principal amounts of loans owed to
the Company by its officers:
Tom Lee $200,000
Charles Shalvoy $150,000
Richard Sette $ 92,400
-2-
<PAGE>
3.11 OTHER MATTERS.
Under certain theories of successor liability, the Company may be
liable for certain Indebtedness of its Subsidiaries.
3.12 SECURITIES OF ACT OF 1933.
173,530 shares of the Common Stock of the Company have certain
registration rights as set forth in the Stock Investment Agreement dated April
12, 1984, and the Capital Stock Purchase Agreement dated September 11, 1979.
3.15 CERTAIN AGREEMENTS OF KEY EMPLOYEES.
(b) Tom Lee has agreed to sign a modified confidentiality agreement,
but has not yet done so. No former Key Employee has signed a proprietary
information agreement, however to the Company's knowledge, no former employee is
wrongfully using any proprietary information of the Company.
3.18 SUBSIDIARIES.
The Company has three Subsidiaries, Aehr Test Japan, a partially-owned
subsidiary incorporated under the laws of Japan, Aehr Test Foreign Sales
Corporation, a foreign sales corporation, organized under the laws of the
Virgin Islands and Aehr Test International, a domestic international sales
corporation. The Company has an option to acquire all of the outstanding shares
of Aehr Test Japan. A copy of such documentation has been provided to special
counsel for the purchasers.
IN WITNESS WHEREOF, the Company has executed this Schedule of Exceptions as
of the date first above written.
AEHR TEST SYSTEMS
By:
---------------------------
Title:
-------------------------
-3-
<PAGE>
[COOPERS & LYBRAND LETTERHEAD]
To the Board of Directors
and Stockholders
Aehr Test Systems
Menlo Park, California
We have examined the consolidated balance sheets of Aehr Test Systems and
Subsidiaries as of May 31, 1985 and 1984 and the related consolidated statements
of income, stockholders' equity and changes in financial position for the years
then ended. Our examinations were made in accordance with generally accepted
auditing standards, and, accordingly, included such tests of the accounting
records and such other auditing procedures as we considered necessary in the
circumstances.
In our opinion, the aforementioned financial statements present fairly the
consolidated financial position of Aehr Test Systems and Subsidiaries as of May
31, 1985 and 1984 and the consolidated results of their operations and changes
in their financial position for the years then ended in conformity with
generally accepted accounting principles applied on a consistent basis.
COOPERS & LYBRAND
San Jose, California
July 15, 1985
3.07
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, May 31, 1985 and 1984
---------------
ASSETS 1985 1984
---- ----
Current assets:
Cash $ 498,190 $ 182,973
Accounts receivable, less allowance
for doubtful accounts of $670,954
in 1985 and $147,000 in 1984 5,375,067 5,700,056
Account receivable from foreign joint
venture 707,888 383,621
Inventories 8,390,500 5,467,671
Refundable income taxes - 232,251
Prepaid expenses and other current
assets 23,755 20,420
----------- -----------
Total current assets 14,995,400 11,986,992
Property and equipment 1,882,888 1,037,783
Investment in foreign joint venture 682,267 319,807
Other assets 36,683 29,598
----------- -----------
$17,597,238 $13,374,180
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable 1,200,000 1,900,000
Current portion of long-term debt 10,153 188,136
Accounts payable 2,144,504 2,196,089
Accured expenses 1,895,300 1,068,547
Income taxes payable 434,000 -
Deferred income taxes 1,109,238 975,000
----------- -----------
Total current liabilities 6,793,195 6,327,772
Long-term debt, less current portion 1,406,511 627,256
Deferred income taxes 241,000 120,779
----------- -----------
Total liabilities 8,440,706 7,075,807
----------- -----------
Commitments (Note 7).
Stockholders' equity:
Capital stock, no par value:
Authorized, 75,000,000 shares;
Issued and outstanding, 3,334,591
shares in 1985 and 3,263,262
shares in 1984 2,037,780 1,894,858
Notes receivable for capital stock (442,400) (502,400)
Retained earnings 7,561,152 4,905,915
----------- -----------
Total stockholders' equity 9,156,532 6,298,373
----------- -----------
$17,597,238 $13,374,180
----------- -----------
----------- -----------
The accompanying notes are an integral part
of these consolidated financial statements.
2
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the years ended May 31, 1985 and 1984
---------------
1985 1984
---- ----
Net sales $30,133,510 $18,257,267
Cost of sales 17,398,070 10,067,576
----------- -----------
Gross profit 12,735,440 8,189,691
----------- -----------
Selling, general and administrative
expense 5,352,319 3,572,883
Research and development expense 3,625,620 2,261,618
Equity in net income of foreign
joint venture (362,460) (147,070)
Interest expense, net 400,724 172,138
----------- -----------
9,016,203 5,859,569
----------- -----------
Income before provision for
income taxes 3,719,237 2,330,122
Provision for income taxes 1,064,000 729,000
----------- -----------
Net income $ 2,655,237 $ 1,601,122
----------- -----------
----------- -----------
The accompanying notes are an integral
part of these consolidated financial statements.
3
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended May 31, 1985 and 1984
-------
<TABLE>
<CAPTION>
Notes
Capital Stock Receivable
--------------------- for Capital Retained
Shares Amount Stock Earnings Total
------ ------ ----------- -------- -----
<C> <S> <S> <S> <S> <S>
Balances, June 1, 1983 3,103,550 $1,033,272 $(470,000) $3,304,793 $3,868,065
Issuance of capital stock:
Private placement, net of offering costs of $2,260 73,530 622,745 622,745
Stock options exercised 80,250 83,250 83,250
Pursuant to employee bonus plan 25,180 151,080 151,080
To employee 15,400 92,400 (92,400) -
Repurchases of capital stock:
From employee (30,000) (60,000) 60,000 -
From employee bonus plan (4,648) (27,889) (27,889)
Net income 1,601,122 1,601,122
--------- ---------- ---------- ----------- ----------
Balances, May 31, 1984 3,263,262 1,894,858 (502,400) 4,905,915 6,298,373
Issuance of capital stock:
Stock options exercised 58,250 31,750 31,750
Pursuant to employee bonus plan 19,192 163,132 163,132
Repurchase of capital stock:
From employee bonus plan (6,113) (51,960) (51,960)
Repayment of notes receivable 60,000 60,000
Net income 2,655,237 2,655,237
--------- ---------- ---------- ----------- ----------
Balances, May 31, 1985 3,334,591 $2,037,780 $(442,400) $7,561,152 $9,156,532
--------- ---------- ---------- ----------- ----------
--------- ---------- ---------- ----------- ----------
</TABLE>
The accompanying notes are an Integral part
of these consolidated financial statements.
4
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
for the years ended May 31, 1985 and 1984
--------
Resources provided: 1985 1984
---- ----
From operations:
Net income $2,655,237 $1,601,122
Items included in net income not
affecting working capital:
Depreciation and amortization 320,767 164,908
Equity in net income of foreign
joint venture (362,460) (147,070)
Noncurrent deferred income taxes 120,221 24,779
---------- ----------
Working capital provided by
operations 2,733,765 1,643,739
Proceeds from issuance of capital
stock and exercise of stock
options, net 202,922 829,186
Proceeds from long-term debt 2,258,333 475,000
---------- ----------
Total resources provided 5,195,020 2,947,925
---------- ----------
Resources applied:
Expenditures for property and equipment 1,165,872 557,055
Payments and current maturities of
long-term debt 1,479,078 197,041
Other 7,085 7,086
---------- ----------
Total resources applied 2,652,035 761,182
---------- ----------
Increase in working capital $2,542,985 $2,186,743
---------- ----------
---------- ----------
Increase (decrease) on working capital by
components:
Increase (decrease) in current assets:
Cash 315,217 (272,294)
Accounts receivable (722) 2,894,558
Inventories 2,922,829 3,178,036
Prepaid expenses and other current
assets 3,335 7,077
---------- ----------
3,240,659 5,807,377
---------- ----------
Decrease (increase) in current
liabilities:
Notes payable 700,000 (1,900,000)
Current portion of long-term debt 177,983 (73,525)
Accounts payable 51,585 (1,126,077)
Accrued expenses (826,753) (212,283)
Income taxes payable and refundable (666,251) 638,251
Deferred income taxes (134,238) (947,000)
---------- ----------
(697,674) (3,620,634)
---------- ----------
Increase in working capital $2,542,985 $2,186,743
---------- ----------
---------- ----------
The accompanying notes are an integral
part of these consolidated financial statements.
5
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION:
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries, a domestic international sales corporation
(DISC) and a foreign sales corporation (FSC). The foreign joint venture
is accounted for by the equity method. All intercompany accounts and
transactions have been eliminated.
FOREIGN CURRENCY TRANSLATION:
The Company's equity in income and losses from its investment in the
foreign joint venture is translated into United States dollar equivalents
using the weighted average exchange rates in effect during the year.
INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Leasehold improvements are
amortized over the lesser of their useful lives or the terms of the related
lease. Furniture, fixtures and equipment are depreciated on a
straight-line basis over their useful lives. The range of estimated useful
lives is as follows:
Leasehold improvements Life of lease
Furniture and fixtures 5 to 7 years
Equipment 3 to 7 years
INCOME TAXES:
Deferred income taxes are recorded to reflect the tax effects of timing
differences in reporting certain items for financial statement and income
tax purposes. The differences relate primarily to installment sales,
depreciation and a portion of DISC income.
Continued
6
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
INCOME TAXES, continued:
Investment tax credits are accounted for by the flowthrough method which
reduces the provision for federal income taxes during the year in which the
credits are utilized.
The Company intends to reinvest its share of the undistributed earnings of
its foreign joint venture. Therefore, it makes no provision for additional
U.S. taxes which might result from distribution of such earnings unless
they are actually repatriated. Through May 31, 1985, the Company's share
of the joint venture's income on which no provision for any additional U.S.
income taxes had been made amounted to $440,372.
2. INVENTORIES:
Inventories at May 31 comprise:
1985 1984
---- ----
Raw materials and sub-
assemblies $5,077,488 $3,476,689
Work in process 2,568,533 1,884,968
Finished product 744,479 106,014
---------- ----------
$8,390,500 $5,467,671
---------- ----------
---------- ----------
Continued
7
<PAGE>
AEHR TEST SYSTEMS
Common Stock Purchase Agreement
February 26, 1990
<PAGE>
INDEX
Page
----
ARTICLE I - PURCHASE, SALE AND TERMS OF SHARES . . . . . . . . . . . . . . 1
1.1 Authorization of Shares. . . . . . . . . . . . . . . . . . . . . 1
1.2 Purchase and Sale of Shares . . . . . . . . . . . . . . . . . . 1
ARTICLE II - CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . 2
2.1 Conditions to Purchasers' Obligations. . . . . . . . . . . . . . 2
2.2 Conditions to Company's Obligations. . . . . . . . . . . . . . . 3
ARTICLE III - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . 3
3.1 Organization and Standing of the Company . . . . . . . . . . . . 3
3.2 Corporate Action . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . 4
3.4 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.5 Compliance with Other Instruments. . . . . . . . . . . . . . . . 5
3.6 Title to Assets, Patents . . . . . . . . . . . . . . . . . . . . 5
3.7 Financial Information. . . . . . . . . . . . . . . . . . . . . . 6
3.8 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.9 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.10 Transactions with Affiliates . . . . . . . . . . . . . . . . . . 7
3.11 Other Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.12 Securities Act of 1933 . . . . . . . . . . . . . . . . . . . . . 7
3.13 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.14 No Brokers or Finders. . . . . . . . . . . . . . . . . . . . . . 8
3.15 Certain Agreements of Employees. . . . . . . . . . . . . . . . . 8
3.16 Capitalization; Status of Capital Stock. . . . . . . . . . . . . 8
3.17 Books and Records. . . . . . . . . . . . . . . . . . . . . . . . 9
3.18 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.19 Environmental Protection . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV - COVENANTS OF THE COMPANY. . . . . . . . . . . . . . . . . . . 10
4.1 Affirmative Covenants of the Company Other Than
Reporting Requirements . . . . . . . . . . . . . . . . . . . . 10
4.2 Negative Covenants of the Company. . . . . . . . . . . . . . . . 12
4.3 Reporting Requirements . . . . . . . . . . . . . . . . . . . . . 13
4.4 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . 14
<PAGE>
ARTICLE V - REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . . . . . . 14
5.1 "Piggy-Back" Registration. . . . . . . . . . . . . . . . . . . . 14
5.2 Effectiveness. . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.3 Indemnification of Holders of Registrable Shares . . . . . . . . 15
5.4 Indemnification of Company . . . . . . . . . . . . . . . . . . . 16
5.5 Exchange Act Registration. . . . . . . . . . . . . . . . . . . . 18
5.6 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.7 Further Obligations of the Company . . . . . . . . . . . . . . . 18
5.8 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.9 Transfer of Registration Rights. . . . . . . . . . . . . . . . . 19
5.10 No Superior Rights . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE VI - REPRESENTATIONS AND WARRANTIES OF PURCHASERS
AND RESTRICTIONS ON TRANSFER. . . . . . . . . . . . . . . . . 20
6.1 Representations and Warranties by Each Purchaser . . . . . . . . 20
6.2 Legends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.3 Removal of Legends and Transfer Restrictions . . . . . . . . . . 21
6.4 Additional Purchases of Common Stock . . . . . . . . . . . . . . 22
ARTICLE VII - DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . . . 22
7.1 Certain Defined Terms. . . . . . . . . . . . . . . . . . . . . . 22
7.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE VIII - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 24
8.1 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . 24
8.2 Amendments, Waivers and Consents . . . . . . . . . . . . . . . . 24
8.3 Addresses for Notices, etc.. . . . . . . . . . . . . . . . . . . 25
8.4 Costs, Expenses and Taxes. . . . . . . . . . . . . . . . . . . . 25
8.5 Binding Effect; Assignment . . . . . . . . . . . . . . . . . . . 25
8.6 Survival of Representations and Warranties . . . . . . . . . . . 26
8.7 Prior Agreements . . . . . . . . . . . . . . . . . . . . . . . . 26
8.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.10 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.12 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 26
-ii-
<PAGE>
EXHIBITS
1.1 List of Purchasers
2.1(b) Opinion Letter
2.1(c) Amendment to Registration Rights
3.0 Schedule of Exceptions and Other Matters
3.7 Financial Statements
3.15 Employee Invention and Nondisclosure Agreement
3.16 Schedule of Stock, Options and Other Rights
and Restrictions
4.1(k) Aehr Test Systems Japan Term Sheet
4.1(l) Conditional Waiver
-iii-
<PAGE>
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement ("Agreement') is made as of February
26, 1990 among Aehr Test Systems, a California corporation (the "Company"), and
the persons identified on EXHIBIT 1.1 hereto (the "Purchasers").
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
PURCHASE, SALE AND TERMS OF SHARES
1.1 AUTHORIZATION OF SHARES. The Company has authorized the issuance and
sale of 385,715 shares (the "Shares") of the previously authorized but unissued
shares of its Capital Stock, without par value (the "Common Stock"), to the
Purchasers and in the respective amounts set forth in EXHIBIT 1.1 hereto.
1.2 PURCHASE AND SALE OF SHARES.
(a) THE CLOSING. Subject to and in reliance upon the
representations, warranties, terms and conditions of this Agreement, the Company
agrees to issue and sell to the Purchasers, and the Purchasers, severally but
not jointly, agree to purchase, the Shares for the aggregate purchase prices and
in the amounts set forth opposite their respective names in EXHIBIT 1.1 hereto.
Such purchase and sale shall take place at a closing (the "Closing") to be held
at the offices of Wilson, Sonsini, Goodrich & Rosati, Two Palo Alto Square, Palo
Alto, CA 94306 on February 26, 1990 at 10:00 a.m., or on such date and time as
may be mutually agreed upon. At the Closing the Company will issue and deliver
certificates evidencing the Shares to be sold to the Purchasers, in the amounts
set forth opposite their respective names in EXHIBIT 1.1 hereto and in such
denominations as each such Purchaser shall specify, against delivery of
cashier's or certified checks payable to, or wire transfer of funds to the
account of, the Company in payment of the full purchase price for the Shares.
(b) SUBSEQUENT SALES OF SHARES. At any time on or before the 60th
day following the Closing, the Company may sell up to the balance of the shares
of Common Stock authorized for issuance and sale and not sold at the Closing, to
such persons as may be approved by the Board of Directors of the Company. All
such sales shall be made on the terms and conditions set forth in this
Agreement. Any shares of Common Stock sold pursuant to this Section 1.2(b)
shall be deemed to be "Shares" for all purposes under this Agreement, and any
purchasers thereof shall be deemed to be
<PAGE>
"Purchasers" for all purposes under this Agreement. Should any such sales be
made, the Company shall prepare and distribute to the Purchasers a list of
subsequent purchasers in the form of EXHIBIT 1.1 hereto reflecting such sales.
ARTICLE II
CONDITIONS TO CLOSING
2.1 CONDITIONS TO PURCHASERS' OBLIGATIONS. The obligation of each
purchaser to purchase and pay for the Shares at the Closing is subject to the
following conditions:
(a) Each of the representations and warranties of the Company set
forth in Article III hereof shall be true on the date of the Closing.
(b) The Purchasers shall have received prior to or at the Closing
all of the following, each in form and substance satisfactory to the Purchasers
and their special counsel, and all of the following events shall have occurred
prior to or simultaneous with the Closing hereunder:
(i) A copy of all charter documents of the Company certified
by the Secretary of State of California, a certified copy of the resolutions of
the Board of Directors and, if required, the stockholders of the Company
evidencing approval of this Agreement, the authorization for issuance of the
Shares and other matters contemplated hereby, a certified copy of the By-laws of
the Company, and certified copies of all documents evidencing other necessary
corporate or other action and governmental approvals, if any, with respect to
this Agreement and the Shares.
(ii) An opinion of Messrs. Wilson, Sonsini, Goodrich & Rosati,
counsel for the Company, in substantially the form attached hereto as EXHIBIT
2.1(b).
(iii) A certificate of the Secretary or an Assistant Secretary
of the Company stating the names of the officers of the Company authorized to
sign this Agreement, the certificates for the Shares, and the other documents or
certificates to be delivered pursuant to this Agreement by the Company or any of
its officers, together with the true signatures of such officers.
(iv) A certificate from a duly authorized officer of the
Company stating that the representations and warranties of the Company contained
in Article III hereof are true and correct and that all conditions required to
be performed by the Company prior to or at the Closing have been performed.
-2-
<PAGE>
(v) An amendment to the Company's existing registration
rights in the form attached hereto as Exhibit 2.1(c).
(c) Prior to the Closing, the Company shall have obtained all
consents or waivers, if any, necessary to execute and deliver this Agreement,
issue the Shares and carry out the transactions contemplated hereby and thereby,
and all such consents and waivers shall be in full force and effect. All
corporate and other action and governmental filings necessary to effectuate the
terms of this Agreement, the Shares and other agreements and instruments
executed and delivered by the Company in connection herewith shall have been
made or taken, except for any post-sale filing that may be required under
federal and state securities laws. In addition to the documents set forth
above, the Company shall have provided the Purchasers with any other information
or copies of documents that they may reasonably request.
2.2 CONDITIONS TO COMPANY'S OBLIGATIONS. The obligation of the Company
to sell the Shares at the Closing is subject to the following conditions:
(a) Each of the representations and warranties of each of the
Purchasers set forth in Article VI hereof shall be true on the date of the
Closing.
(b) The Company shall have obtained all consents, permits and
waivers necessary or appropriate for consummation of the transactions
contemplated by this Agreement.
(c) At the time of the Closing, the purchase of the Shares by the
Purchasers hereunder shall be legally permitted by all laws and regulations to
which the Purchasers and the Company are subject.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Except as set forth in EXHIBIT 3.0, the Company represents and warrants as
follows:
3.1 ORGANIZATION AND STANDING OF THE COMPANY. The Company is a duly
organized and validly existing corporation in good standing under the laws of
the jurisdiction in which it is organized and has all requisite corporate power
and authority for the ownership and operation of its properties and for the
carrying on of its business as now conducted and as now proposed to be
conducted. The Company is duly licensed or qualified and in good standing as a
foreign
-3-
<PAGE>
corporation authorized to do business in all jurisdictions in which the
character of the property owned or leased, or the nature of the activities
conducted, by it makes such licensing or qualification necessary, or the failure
to be so qualified will not have a material adverse effect on the condition,
assets, liabilities, earnings or business of the Company.
3.2 CORPORATE ACTION. The Company has all necessary corporate power and
has taken all corporate action required to make all the provisions of this
Agreement, the Shares and any other agreements and instruments executed in
connection herewith and therewith the valid and enforceable obligations they
purport to be. The issuance of the Shares is not subject to preemptive or other
preferential rights, or similar statutory or contractual rights, either arising
pursuant to any agreement or instrument to which the Company is a party or which
are otherwise binding upon the Company.
3.3 GOVERNMENTAL APPROVALS. Except for filings required by federal or
state securities laws, no authorization, consent, approval, license, exemption
of or filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, is or
will be necessary for, or in connection with, the offer, issuance, sale,
execution or delivery by the Company, of the Shares or the performance by the
Company of its obligations under the Agreement.
3.4 LITIGATION. There is no litigation or governmental proceeding or
investigation pending or threatened against the Company or the Subsidiaries
affecting any of their properties or assets, or, to the knowledge of the
Company, against any officer, or Key Employee of the Company, that might result,
either in any case or in the aggregate, in any material adverse change in the
business, operations, affairs or conditions of the Company or the Subsidiaries
or any of their material properties or assets, or that might call into question
the validity of this Agreement, any of the Shares, or any action taken or to be
taken pursuant hereto or thereto, nor, to the knowledge of the Company, has
there occurred any event or does there exist any condition on the basis of which
any litigation, proceeding or investigation might properly be instituted that
might result, either in any case or in the aggregate, in any material adverse
change in the business, operations, affairs of the Company, the Subsidiaries or
any of their material properties and assets. Neither the Company, any
Subsidiary nor, to the knowledge of the Company, any officer of the Company or
the Subsidiaries, is in default with respect to any order, writ, injunction,
decree, ruling or decision of any court, commission, board or other government
agency that might result, either in any case or in the aggregate, in any
material adverse change in the business, operations, affairs or conditions of
the Company or any of their material properties or assets. The foregoing
sentences
-4-
<PAGE>
include, without limiting their generality, actions pending or, to the knowledge
of the Company, threatened (or any basis therefor known to the Company)
involving the prior employment of employees of the Company or, any of its
Subsidiaries in any of the Company's or any Subsidiary's business of any
information or techniques allegedly proprietary to any of their former
employers.
3.5 COMPLIANCE WITH OTHER INSTRUMENTS. The Company and the Subsidiaries
are in compliance in all respects with the terms and provisions of this
Agreement and of their charters and by-laws and in all material respects with
the terms and provisions of each mortgage, indenture, lease, agreement and other
instrument relating to obligations of the Company and the Subsidiaries in excess
of $50,000, individually or in the aggregate, and, of all judgments, decrees,
governmental orders, statutes, rules or regulations by which it is bound or to
which its properties or assets are subject the noncompliance with which would
have a material adverse effect on the business, operations, or affairs or
conditions of the Company. There is no term or provision in any of the
foregoing documents and instruments that materially adversely affects the
business, assets or financial condition of the Company or the Subsidiaries.
Neither the execution and delivery of this Agreement or the Shares, nor the
consummation of any transaction contemplated hereby or thereby, has constituted
or resulted in or will constitute or result in a default or violation of any
term or provision in any of the foregoing documents or instruments.
3.6 TITLE TO ASSETS, PATENTS.
(a) The Company and the Subsidiaries have good and marketable title
in fee to their fixed assets that are real property, and good and merchantable
title to all of their other significant assets, now carried on its books
including those reflected in the most recent balance sheet of the Company
contained in EXHIBIT 3.7 attached hereto, or acquired since the date of such
balance sheet (except personal property disposed of since said date in the
ordinary course of business), free of any mortgages, pledges, charges, liens,
security interests or other encumbrances. The Company enjoys peaceful and
undisturbed possession under all significant leases under which it is operating,
and all said leases are valid and subsisting and in full force and effect.
(b) The Company and the Subsidiaries own or have a valid right to
use all significant patents, patent rights, licenses, permits, trade secrets,
trademarks, trademark rights, trade names or trade name rights or franchises,
copyrights, inventions and intellectual property rights being used to conduct
their business as now operated and as now proposed to be operated; and, to the
best knowledge of the Company, the conduct of their businesses as now operated
and as now proposed to be operated does not and will not
-5-
<PAGE>
conflict in any respects material to the Company and its Subsidiaries considered
as a whole with valid patents, patent rights, licenses, permits, trade secrets,
trademarks, trademark rights, trade names or trade name rights or franchises,
copyrights, inventions and intellectual property rights of others. The Company
and the Subsidiaries have no obligation to compensate any Person for the use of
any such patents or such rights nor has the Company or any Subsidiary granted to
any Person any license or other rights to use in any manner any of such patents
or such rights of the Company and the Subsidiaries.
3.7 FINANCIAL INFORMATION. Attached hereto as EXHIBIT 3.7 are true and
complete copies of the Consolidated audited financial statements of the Company
and its Subsidiaries for the twelve months ended May 31, 1989 and the Company's
unaudited unconsolidated financial statements for the seven months ended
December 31, 1989 certified by the chief financial officer of the Company. Such
financial statements when read together, present fairly the financial position
of the Company and its Subsidiaries at the dates thereof and their results of
operations for the periods covered thereby and have been prepared in accordance
with generally accepted accounting principles consistently applied. The Company
and the Subsidiaries have no liability, contingent or otherwise, required to be
disclosed in a financial statement prepared in accordance with generally
accepted accounting principles which are not disclosed in the aforesaid
financial statements or in the notes thereto, that could, together with all such
other liabilities, materially affect the financial condition of the Company, nor
does the Company have any reasonable grounds to know of any such liability.
Except as set forth in the aforesaid audited financial statements or as
otherwise set forth in this Agreement since December 31, 1989 (i) there has been
no adverse event or occurrence affecting the business, assets or condition,
financial or otherwise, or operations of the Company and its Subsidiaries; (ii)
neither the business, condition, or operations of the Company, the Subsidiaries
nor any of their properties or assets has been adversely affected as the result
of any legislative or regulatory change, any revocation or change in any
franchise, license or right to do business, or any other event or occurrence,
whether or not insured against; and (iii) the Company has not entered into any
transaction with respect to, or made any distribution on, its capital stock.
3.8 TAXES. The Company and its Subsidiaries have accurately prepared and
timely filed all federal, state and other tax returns required by law to be
filed by them, and all taxes shown to be due and all additional assessments have
been paid or provision made therefor. To the Company's knowledge, none of the
federal income tax returns of the Company and the Subsidiaries have been audited
by the Internal Revenue Service. The Company knows of no
-6-
<PAGE>
significant additional assessments or adjustments pending or threatened
against the Company or any Subsidiary for any period, nor of any basis for
any such assessment or adjustment.
3.9 ERISA. Neither the Company nor any Subsidiary makes contributions to
any pension, defined benefit plans or defined contribution plans for its
employees that are subject to the federal Employee Retirement Income Security
Act of 1974, as amended ("ERISA").
3.10 TRANSACTIONS WITH AFFILIATES. Except as set forth in the audited
financial statements of the Company set forth in EXHIBIT 3.7, there are no
loans, leases, royalty agreements or other continuing transactions between the
Company and any of the Company's customers or suppliers, and any officer or
director of the Company.
3.11 OTHER MATTERS. Neither the Company nor any Subsidiary has (i) become
directly or contingently liable (including, without limitation, by way of
assumption or guaranty) on any Indebtedness of any other Person or (ii) made or
agreed to make any loan, advance or other investment to or in any other Person.
The Company and each Subsidiary is in compliance in all material respects with
all laws, rules and regulations applicable to them.
3.12 SECURITIES ACT OF 1933. The Company has complied and will comply
with all applicable federal or state securities laws in connection with the
issuance and sale of the Shares. Neither the Company nor anyone acting on its
behalf has offered or will offer to sell the Shares or similar securities to, or
solicit offers with respect thereto from, or enter into any preliminary
conversations or negotiations relating thereto with, any Person, so as to bring
the issuance and sale of the Shares under the registration provisions of the
Securities Act. Except as set forth in Article V hereof, no Person has demand
or other rights to cause the Company to file any registration statement under
the Securities Act relating to any securities of the Company or any right to
participate in any such registration statement.
3.13 DISCLOSURE. Neither this Agreement, the financial statements
incorporated herein as EXHIBIT 3.7, nor any other agreement, document,
certificate or written or oral statement furnished to the Purchasers or their
special counsel by or on behalf of the Company in connection with the
transactions contemplated hereby when taken as a whole contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading. There
is no fact within the special knowledge of the Company or any of its executive
officers that has not been disclosed herein by them to the Purchasers and that
materially adversely affects, or in the
-7-
<PAGE>
future in their opinion may, insofar as they can now foresee, materially
adversely affect the business, properties, assets or condition, financial or
otherwise, of the Company. Without limiting the foregoing, the Company has
disclosed to the Purchasers any knowledge that it has that there exists, or
there is pending or planned, any patent, invention, device, application or
principle or any statute, rule, law, regulation, standard or code that would
materially adversely affect the condition, financial or otherwise, or the
operations of the Company.
3.14 NO BROKERS OR FINDERS. No Person has or will have, as a result of
the transactions contemplated by this Agreement, any right, interest or valid
claim against or upon the Company for any commission, fee or other compensation
as a finder or broker because of any act or omission by the Company or any agent
of the Company; and the Company agrees to indemnify and hold the Purchasers
harmless against any such commissions, fees or other compensation.
3.15 CERTAIN AGREEMENTS OF EMPLOYEES.
(a) To the best knowledge of the Company, no Key Employee is a
party to or bound by any agreement, contract or commitment, or subject to any
restrictions, particularly but without limitation in connection with any
previous employment of any such person, which materially and adversely
affects, or in the future may (so far as the Company can reasonably foresee)
materially and adversely affect, the business or operations of the Company or
the right of any such person to participate in the affairs of the Company;
(b) Each Key Employee who has or had access to proprietary
information of the Company has executed an employee invention and non-disclosure
agreement to the effect and in substantially the form set forth in EXHIBIT 3.15.
To the best of the Company's knowledge, no Key Employee or former Key Employee
of the Company is, or to the Company's knowledge and belief is expected to be,
in violation of the terms of the aforesaid agreements or of any other obligation
relating to the use of confidential or proprietary information of the Company.
3.16 CAPITALIZATION; STATUS OF CAPITAL STOCK. As of the date hereof, the
Company has a total authorized capitalization consisting of 75,000,000 shares of
Common Stock of which 3,526,986 shares are issued and outstanding and 10,000,000
shares of Preferred Stock, none of which is issued or outstanding. In addition,
the Company has options exercisable for 299,300 shares of Common Stock issued
and outstanding and warrants exercisable for 9,333 shares of Common Stock issued
and outstanding. A complete list of the shares of capital stock currently
issued and outstanding and the names in which such shares are registered is set
forth in EXHIBIT 3.16
-8-
<PAGE>
hereto. All of the outstanding shares of capital stock of the Company have
been duly authorized, are validly issued and are fully paid and
nonassessable. All shares of capital stock issuable upon exercise of
outstanding options and warrants have been duly authorized and, when issued
in accordance with the terms of such options and warrants, will be validly
issued, and fully paid and nonassessable. The Shares when issued and
delivered in accordance with the terms hereof, will be duly authorized,
validly issued and fully paid and nonassessable. Except as set forth in
EXHIBIT 3.16 hereto, there are no options, warrants or rights to purchase
shares of capital stock or other securities authorized, issued or
outstanding, nor is the Company obligated in any other manner to issue shares
of its capital stock or other securities. There are no restrictions on the
transfer of shares of capital stock of the Company other than those imposed
by relevant state and federal securities laws. No holder of any security of
the Company is entitled to preemptive or similar statutory or contractual
rights, either arising pursuant to any agreement or instrument to which the
Company is a party or that are otherwise binding upon the Company. The offer
and sale of all shares of capital stock or other securities of the Company
issued before the Closing complied with or were exempt from registration or
qualification under all federal and state securities laws.
3.17 BOOKS AND RECORDS. The books of account, ledgers, order books,
records and documents of the Company and the Subsidiaries accurately and
completely reflect all material information relating to the businesses of the
Company and the Subsidiaries, the nature, acquisition, maintenance, location and
collection of the assets of the Company and the Subsidiaries, and the nature of
all transactions giving rise to the obligations or accounts receivable of the
Company and the Subsidiaries.
3.18 SUBSIDIARIES. Each of the Company's Subsidiaries is listed in
EXHIBIT 3.0 below and the Company has no other Subsidiaries. All issued and
outstanding shares of capital stock of each present Subsidiary are owned by the
Company and are the validly issued, fully paid and nonassessable shares of each
Subsidiary, respectively, and are owned by the Company free and clear of all
encumbrances. Except as set forth in the audited financial statements of the
Company set forth in EXHIBIT 3.7, there are no outstanding rights, options,
warrants, conversion rights or agreements for the purchase or acquisition of any
shares of any of the Subsidiaries' capital stock.
3.19 ENVIRONMENTAL PROTECTION. After reasonable inquiry, to its knowledge
the Company has obtained all material permits, licenses and other authorizations
which are required under federal, state and local laws relating to public health
and safety, worker health and safety and pollution or protection of the
environment,
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including laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants or hazardous or toxic substances
(including petroleum) into ambient air, surface water, ground water or land,
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants or hazardous or toxic substances (including petroleum). After
reasonable inquiry, to its knowledge the Company is in compliance with all
material terms and conditions of such required permits, licenses and
authorizations, and is also in compliance with all other material
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in any federal, state or
local law or any regulation, code, plan, order, decree or judgment relating
to public health and safety, worker health and safety and pollution or
protection of the environment the non-compliance with which would have a
material adverse affect upon the Company. The Company has not received
notice of any claim or action, or threatened claim or action, or any common
law or legal liability under any law or regulation related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, release or threatened
release into the environment, of any pollutant, contaminant or hazardous or
toxic substance (including petroleum) which, if adversely decided against or
imposed upon the Company, would have a material adverse affect upon the
Company.
ARTICLE IV
COVENANTS OF THE COMPANY
4.1 AFFIRMATIVE COVENANTS OF THE COMPANY OTHER THAN REPORTING
REQUIREMENTS. Without limiting any other covenants and provisions hereof, the
Company covenants and agrees that, until the completion of a Qualified Public
Offering, and so long as the Purchasers and/or their partners, own (of record or
beneficially) 50,000 shares of Common Stock (such number of shares to be
equitably adjusted whenever there shall occur a stock split, combination,
reclassification or other similar event affecting the Common Stock after the
date of this Agreement), it will perform and observe the following covenants and
provisions and will cause each Subsidiary to perform and observe such of the
following covenants and provisions as are applicable to such Subsidiary:
(a) PAYMENT OF TAXES AND TRADE DEBT. Pay and discharge, and cause
each Subsidiary to pay and discharge, all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits or business, or
upon any properties belonging to it, prior to the date on which penalties attach
thereto, and all
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lawful claims, which, if unpaid, might become a lien or charge upon any
properties of the Company or any Subsidiary, provided that neither the
Company nor any Subsidiary shall be required to pay any such tax, assessment,
charge, levy or claim that is being contested in good faith and by
appropriate proceedings if the Company or Subsidiary concerned shall have set
aside on its books adequate reserves with respect thereto as shall be
determined by its Board of Directors. Pay and cause each Subsidiary to pay,
when due, or in conformity with customary trade terms, all lease obligations,
all trade debt, and all other Indebtedness incident to the operations of the
Company or its Subsidiaries, except such as are being contested in good faith
and by appropriate proceedings if the Company or Subsidiary concerned shall
have set abide on its books adequate reserves with respect thereto as shall
be determined by its Board of Directors.
(b) PRESERVATION OF CORPORATE EXISTENCE. Preserve and maintain,
and cause each Subsidiary to preserve and maintain, its corporate existence,
rights, franchises and privileges in the jurisdiction of its incorporation, and
qualify and remain qualified, and cause each Subsidiary to qualify and remain
qualified, as a foreign corporation in each jurisdiction in which the failure to
qualify will have a material adverse effect upon the condition, assets,
liabilities, earnings or business of the Company. Preserve and maintain, and
cause each Subsidiary to preserve and maintain, all material licenses and other
rights to use patents, processes, licenses, trademarks, trade names, inventions,
intellectual property rights or copyrights owned or possessed by it and
necessary to the conduct of its business.
(c) COMPLIANCE WITH LAWS. Comply, and cause each Subsidiary to
comply, in all material respects with all applicable laws, rules, regulations
and orders of any governmental authority, noncompliance with which could
materially adversely affect its business or condition, financial or otherwise,
except non-compliance being contested in good faith through appropriate
proceedings so long as the Company shall have set up sufficient reserves, if
any, required under generally accepted accounting principles with respect to
such items.
(d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Keep, and cause each
Subsidiary to keep, adequate records and books of account, in which complete
entries will be made in accordance with generally accepted accounting principles
consistently applied, reflecting all financial transactions of the Company and
each Subsidiary, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection within its business shall be made.
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(e) MAINTENANCE OF PROPERTIES. Maintain and preserve, and cause
each Subsidiary to maintain and preserve, all of its properties, necessary or
useful in the proper conduct of its business, in good repair, working order and
condition, ordinary wear and tear excepted.
(f) NEW DEVELOPMENTS. Use its best efforts to cause all Key
Employees of the Company and each Subsidiary to execute appropriate patent
assignment agreements to the Company and, where possible and appropriate, to
file and prosecute United States and foreign patent applications relating to and
protecting such developments on behalf of the Company or such subsidiary.
(g) EMPLOYEE INVENTION AND NON-DISCLOSURE AGREEMENT. Use its best
efforts to cause each Key Employee now or hereafter employed by the Company or
any Subsidiary promptly to execute an agreement substantially in the form of
EXHIBIT 3.15 hereto or in a form approved by the Board of Directors.
(h) BUDGETS AND BOARD APPROVAL. Within ninety (90) days of the
commencement of each fiscal year, prepare and submit to, and obtain the approval
of a majority of, the Board of Directors of a budget for the upcoming fiscal
year, including projections of capital and operating expenses, cash flow, and
profits and losses, all itemized in reasonable detail.
(i) FINANCINGS. Promptly, fully and in detail, inform the Board of
Directors in advance of any commitments or contracts relating to financing of
any nature for the Company or pledge of corporate assets.
(j) OBSERVER RIGHTS. Invite a representative of the Purchasers,
which representative shall be designated by the Purchasers, to attend all
meetings of its Board of Directors in a non-voting, observer capacity, and, in
connection therewith, give such representative copies of all notices, minutes,
consents and other materials, financial and otherwise, that it provides to its
board of directors.
(k) JAPANESE OFFERING. The Company shall cause Aehr Test Japan, a
subsidiary of the Company, to offer and sell equity securities to the Purchasers
upon the terms set forth in the Term Sheet attached hereto as Exhibit 4.1(k).
(l) DEBT REPAYMENT. As required pursuant to Exhibit 4.1(l), the
Company shall repay any overadvance outstanding with Union Bank upon receipt of
funds from the Purchasers at the Closing.
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4.2 NEGATIVE COVENANTS OF THE COMPANY. Without limiting any other
covenants and provisions hereof, the Company covenants and agrees that, until
the completion of a Qualified Public Offering, and so long as the Purchasers
and/or their partners, own (of record or beneficially) 50,000 shares of Common
Stock (such number of shares to be equitably adjusted whenever there shall occur
a stock split, combination, reclassification or other similar event affecting
the Common Stock after the date of this Agreement), it will comply with and
observe the following covenants and provisions, and will cause each Subsidiary
to comply with and observe such of the following covenants and provisions as are
applicable to such Subsidiary, and WILL NOT, without the approval of holders of
the Shares in accordance with Section 8.2:
(a) DEALINGS WITH AFFILIATES AND OTHERS. Enter into any
transaction, including, without limitation, any loans or extensions of credit or
royalty agreements, with any officer or director of the Company or any
Subsidiary or holder of any class of capital stock of the Company, or any member
of their respective immediate families or any corporation or other entity
directly or indirectly controlled by one or more of such officers, directors or
stockholders or members of their immediate families unless such transaction is
approved in advance by a majority of disinterested members of the Board of
Directors.
4.3 REPORTING REQUIREMENTS. Until the completion of a Qualified Public
Offering, and so long as the Purchasers and/or their partners, own (of record or
beneficially) 50,000 shares of Common Stock (such number of shares to be
equitably adjusted whenever there shall occur a stock split, combination,
reclassification or other similar event affecting the Common Stock after the
date of this Agreement), the Company will furnish the following to each
Purchaser:
(a) as soon as available and in any event within forty-five (45)
days after the end of each fiscal quarter of the Company, Consolidated balance
sheets of the Company and its Subsidiaries as of the end of such quarter and
Consolidated statements of income and retained earnings of the Company and its
Subsidiaries for the period ending with such quarter, setting forth in each case
in comparative form the corresponding figures for the corresponding period of
the prior fiscal year, all in reasonable detail and duly certified (subject to
year-end audit adjustments) by the chief financial officer of the Company as
having been prepared in accordance with generally accepted accounting principles
consistently applied, except for the absence of footnotes.
(b) as soon as available and in any event within ninety (90) days
after the end of each fiscal year of the Company, a copy of the annual audit
report for such year for the Company and its
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Subsidiaries, including therein Consolidated (and, to the extent otherwise
prepared by the Company, consolidating) balance sheets of the Company and its
Subsidiaries as of the end of such fiscal year and Consolidated (and, to the
extent otherwise prepared by the Company, consolidating) statements of income
and retained earnings and of changes in financial position of the Company and
its Subsidiaries for such fiscal year, setting forth in each case in
comparative form the corresponding figures for the preceding fiscal year, all
duly certified by an independent public accountant of national standing;
(c) promptly after sending, making available, or filing the same,
all reports and financial statements that the Company or any Subsidiary sends or
makes available to the stockholders of the Company or the Securities and
Exchange Commission; and
(d) all other information respecting the business, properties or
the condition or operations, financial or otherwise, of the Company or any of
its Subsidiaries that any Purchaser may from time to time reasonably request.
4.4 CONFIDENTIALITY. Any confidential information obtained by any holder
of the Shares pursuant to this Agreement shall be treated as confidential and
shall not be disclosed to a third party without the consent of the Board of
Directors, except that such information shall not be deemed confidential for the
purpose of enforcement of this Agreement or valuation of the Shares and except
that any such holder may otherwise disclose such information to its partners if
such partners agree to be bound by the restrictions contained in this
Section 4.4.
ARTICLE V
REGISTRATION RIGHTS
5.1 "PIGGY-BACK" REGISTRATION. If at any time the Company shall
determine to register under the Securities Act (including pursuant to a demand
of any stockholder of the Company exercising registration rights) any of its
Common Stock (except shares to be issued solely in connection with any
acquisition of any entity or business, shares issuable solely upon exercise of
stock options, or shares issuable solely pursuant to employee benefit plans), it
shall send to each holder of Registrable Shares, written notice of such
determination and, if within thirty (30) days after receipt of such notice, such
holder shall so request in writing, the Company shall use its best efforts to
include in such registration statement all or any part of the Registrable Shares
that such holder requests to be registered, except that if, in connection with
any offering involving an underwriting of Common Stock to be issued by
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the Company, the managing underwriter shall impose a limitation on the number
of shares of such Common Stock included in any such registration statement
because, in its judgment, such limitation is necessary to effect an orderly
public distribution, and such limitation is imposed among all holders of
Common Stock exercising their contractual incidental ("piggy back") right to
include such Common Stock in the registration statement as provided below on
a PRO RATA basis (according to the number of shares of Common Stock held by
such holders that are entitled to such "piggy-back" registration rights). In
the event of any such limitation, the Company may include in such
registration statement only (i) shares of Common Stock to be sold for the
Company's account; (ii) Registrable Shares; and (iii) shares of Common Stock
the holders of which are entitled to registration pursuant to an agreement
with the Company approved by the Board of Directors; provided, that, in the
case of clauses (ii) and (iii) of the preceding sentence, such inclusion
shall be on the PRO RATA basis hereinabove described. Notwithstanding the
foregoing, no such reduction shall be made with respect to securities being
offered by the Company for its own account. If any holder of Registrable
Shares disapproves of the terms of such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter.
5.2 EFFECTIVENESS. The Company will use its best efforts to maintain the
effectiveness for up to ninety (90) days of any registration statement pursuant
to which any of the Registrable Shares are being offered, and from time to time
will amend or supplement such registration statement and the prospectus
contained therein as and to the extent necessary to comply with the Securities
Act and any applicable state securities statute or regulation.
5.3 INDEMNIFICATION OF HOLDERS OF REGISTRABLE SHARES. In the event that
the Company registers any of the Registrable Shares under the Securities Act,
the Company will indemnify and hold harmless each holder and each underwriter of
the Registrable Shares so registered (including any broker or dealer through
whom such shares may be sold) and each person, if any, who controls such holder
or any such underwriter within the meaning of Section 15 of the Securities Act
from and against any and all losses, claims, damages, expenses or liabilities,
joint or several, to which they or any of them become subject under the
Securities Act or under any other statute or at common law or otherwise, and,
except as hereinafter provided, will reimburse each such holder, each such
underwriter and each such controlling person, for any legal or other expenses
reasonably incurred by them or any of them in connection with investigating or
defending any actions whether or not resulting in any liability, insofar as such
losses, claims, damages, expenses, liabilities or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in the registration statement, in any preliminary or amended
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preliminary prospectus or in the prospectus (or the registration statement or
prospectus as from time to time amended or supplemented by the Company) or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading or any violation by the Company of any rule or
regulation promulgated under the Securities Act applicable to the Company and
relating to action or inaction required of the Company in connection with such
registration, unless such untrue statement or omission was made in such
registration statement, preliminary or amended, preliminary prospectus or
prospectus in reliance upon and in conformity with information furnished in
writing to the Company in connection therewith by such holder of Registrable
Shares, any such underwriter or any such controlling person expressly for use
therein. Promptly after receipt by any holder of Registrable Shares, any
underwriter or any controlling person of notice of the commencement of any
action in respect of which indemnity may be sought against the Company, such
holder of Registrable Shares, or such underwriter or such controlling person, as
the case may be, will notify the Company in writing of the commencement thereof,
and, subject to the provisions hereinafter stated, the Company shall assume the
defense of such action (including the employment of counsel, who shall be
counsel satisfactory to such holder of Registrable Shares, such underwriter or
such controlling person, as the case may be) and the payment of expenses insofar
as such action shall relate to any alleged liability in respect of which
indemnity may be sought against the Company. Such holder of Registrable Shares,
any such underwriter or any such controlling person shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof but the fees and expenses of such counsel shall not be at the expense of
the Company unless the employment of such counsel has been specifically
authorized by the Company. The Company shall not be liable to indemnify any
person for any settlement of any such action effected without the Company's
consent. The Company shall not, except with the approval of each party being
indemnified under this Section 5.3, consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to the parties being so indemnified of a
release from all liability in respect to such claim or litigation.
5.4 INDEMNIFICATION OF COMPANY. In the event that the Company registers
any of the Registrable Shares under the Securities Act, each holder of the
Registrable Shares so registered will indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed the registration
statement, each underwriter of the Registrable Shares so registered (including
any broker or dealer through whom such of the shares may be sold) and each
person, if any, who controls the Company within the
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meaning of Section 15 of the Securities Act from and against any and all
losses, claims, damages, expenses or liabilities, joint or several, to which
they or any of them may become subject under the Securities Act or under any
other statute or at common law or otherwise, and, except as hereinafter
provided, will reimburse the Company and each such director, officer,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions whether or not resulting in any liability, insofar as such
losses, claims, damages, expenses, liabilities or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material
fact contained in the registration statement, in any preliminary or amended
preliminary prospectus or in the prospectus (or the registration statement or
prospectus as from time to time amended or supplemented) or arise out of or
are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading, but only insofar as any such statement or
omission was made in reliance upon and in conformity with information
furnished in writing to the Company in connection therewith by such holder of
Registrable Shares expressly for use therein; PROVIDED, HOWEVER, that such
holder's obligations hereunder shall be limited to an amount equal to the
proceeds to such holder of the Registrable Shares sold in such registration.
Promptly after receipt of notice of the commencement of any action in respect
of which indemnity may be sought against such holder of Registrable Shares,
the Company will notify such holder of Registrable Shares in writing of the
commencement thereof, and such holder of Registrable Shares shall, subject to
the provisions hereinafter stated, assume the defense of such action
(including the employment of counsel, who shall be counsel satisfactory to
the Company) and the payment of expenses insofar as such action shall relate
to the alleged liability in respect of which indemnity may be sought against
such holder of Registrable Shares. The Company and each such director,
officer, underwriter or controlling person shall have the right to employ
separate counsel in any such action and to participate in the defense thereof
but the fees and expenses of such counsel shall not be at the expense of such
holder of Registrable Shares unless employment of such counsel has been
specifically authorized by such holder of Registrable Shares.
Notwithstanding the two preceding sentences, if the action is one in which
the Company may be obligated to indemnify any holder of Registrable Shares
pursuant to Section 5.3, the Company shall have the right to assume the
defense of such action, subject to the right of such holders to participate
therein as permitted by Section 5.3. Such holder of Registrable Shares shall
not be liable to indemnify any person for any settlement of any such action
effected without such holder's consent. Such holder shall not, except with
the approval of the Company, consent to entry of any judgment or enter into
any settlement that does not include as an unconditional term thereof
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the giving by the claimant or plaintiff to the party being so indemnified of
a release from all liability in respect to such claim or litigation.
5.5 EXCHANGE ACT REGISTRATION. The Company will use its best efforts to
file on a timely basis with the Securities and Exchange Commission all
information that the Commission may require under either of Section 13 or
Section 15(d) of the Exchange Act and shall use its best efforts to take all
action that may be required as a condition to the availability of Rule 144 under
the Securities Act (or any successor exemptive rule hereinafter in effect) with
respect to the Company's Common Stock. The Company shall furnish to any holder
of Registrable Shares forthwith upon request (i) a written statement by the
Company as to its compliance with the reporting requirements of Rule 144, (ii) a
copy of the most recent annual or quarterly report of the Company as filed with
the Securities and Exchange Commission, and (iii) any other reports and
documents that a holder may reasonably request in availing itself of any rule or
regulation of the Securities and Exchange Commission allowing a holder to sell
any such Registrable Securities without registration.
5.6 DAMAGES. The Company recognizes and agrees that the holder of
Registrable Shares will not have an adequate remedy if the Company fails to
comply with this Article V and that damage will not be readily ascertainable,
and the Company expressly agrees that, in the event of such failure, it shall
not oppose an application by the holder of Registrable Shares or any other
person entitled to the benefits of this Article V requiring specific performance
of any and all provisions hereof or enjoining the Company from continuing to
commit any such breach of this Article V.
5.7 FURTHER OBLIGATIONS OF THE COMPANY. Whenever under the preceding
Sections of this Article V, the Company is required hereunder to register
Registrable Shares, it agrees that it shall also do the following:
(a) Furnish to each selling holder of Registrable Shares such
copies of each preliminary and final prospectus and any other documents that
such holder may reasonably request to facilitate the public offering of its
Registrable Shares;
(b) Use its best efforts to register or qualify the Registrable
Shares to be registered pursuant to this Article V under the applicable
securities or "blue sky" laws of such jurisdictions as any selling holder may
reasonably request; PROVIDED, HOWEVER, that the Company shall not be obligated
to qualify to do business in any jurisdiction where it is not then so qualified
or to take any action that would subject it to the service of process
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in suits other than those arising out of the offer or sale of the securities
covered by the registration statement in any jurisdiction where it is not
then so subject;
(c) Furnish to each selling holder a signed counterpart of
(i) an opinion of counsel for the Company, dated the
effective date of the registration statement, and
(ii) "comfort" letters signed by the Company's independent
public accountants who have examined and reported on the Company's
financial statements included in the registration statement, to the extent
permitted by the standards of the American Institute of Certified Public
Accountants,
covering substantially the same matters with respect to the registration
statement (and the prospectus included therein) and (in the case of the
accountants' "comfort" letters) with respect to events subsequent to the date of
the financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' "comfort" letters delivered to the underwriters in
underwritten public offerings of securities, to the extent that the Company is
required to deliver or cause the delivery of such opinion or "comfort" letters
to the underwriters in an underwritten public offering of securities;
(d) Permit each selling holder of Registrable Shares or his counsel
or other representatives to inspect and copy such corporate documents and
records as may reasonably be requested by them; and
(e) Furnish to each selling holder, upon request, a copy of all
documents filed and all correspondence from or to the Securities and Exchange
Commission in connection with any such offering.
5.8 EXPENSES. In the case of a registration under Section 5.1, the
Company shall bear all costs and expenses of each such registration, including,
but not limited to, printing, legal and accounting expenses, Securities and
Exchange Commission filing fees and "blue sky" fees and expenses; PROVIDED,
HOWEVER, that the Company shall have no obligation to pay or otherwise bear
(i) any portion of the fees or disbursements of counsel (other than counsel for
the Company) for the selling holders of Registrable Shares in connection with
the registration of their Registrable Shares, or (ii) any portion of the
underwriters' commissions or discounts attributable to the Registrable Shares
being offered and sold by the holders of Registrable Shares.
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5.9 TRANSFER OF REGISTRATION RIGHTS. The registration rights of the
holders of Registrable Shares under this Article V may be transferred without
the consent of the Company to any transferee of Registrable Shares that (i) is a
partner of a Purchaser, (ii) acquires all of the Registrable Shares held by a
Purchaser or (iii) holds 29,000 Registrable Shares (such number to be equitably
adjusted whenever there shall occur a stock split, combination, reclassification
or other similar event affecting the Common Stock after the date of this
Agreement).
5.10 NO SUPERIOR RIGHTS. The Company will not grant registration rights
to any Person that are superior to the rights granted hereunder without the
prior consent of Purchasers holding at least fifty-one percent (51%) of the
Registrable Shares unless the holders of Registrable Shares are also granted
such superior rights.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
AND RESTRICTIONS ON TRANSFER
6.1 REPRESENTATIONS AND WARRANTIES BY EACH PURCHASER. Each Purchaser,
for that Purchaser alone, represents and warrants to the Company with respect to
this purchase as follows:
(a) This Agreement constitutes the Purchaser's valid and legally
binding obligation, enforceable in accordance with its terms.
(b) It is experienced in evaluating and investing in high
technology companies such as the Company.
(c) It is acquiring the Shares for investment for its own account
and not with a view to, or for resale in connection with, any distribution
thereof. It understands that the Shares to be purchased have not been
registered under the Securities Act by reason of a specific exemption from the
registration provisions of the Securities Act that depends upon, among other
things, the bona fide nature of the investment intent as expressed herein.
(d) It acknowledges that the Shares must be held indefinitely
unless subsequently registered under the Securities Act, or unless an exemption
from such registration is available. It is aware of the provisions of Rule 144
promulgated under the Securities Act that permit limited resale of Shares
purchased in a private placement subject to the satisfaction of certain
conditions.
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(e) It understands that no public market now exists for any of the
securities issued by the Company, and that it is unlikely that a public market
will ever exist for the Shares.
(f) It has had an opportunity to discuss the Company's business,
management, and financial affairs with the Company's management and to review
the Company's facilities. It understands that such discussions, as well as the
written information issued by the Company, were intended to describe the aspects
of the Company's business and prospects that the Company believes to be
material, but that these descriptions were not necessarily thorough or
exhaustive.
6.2 LEGENDS. Each certificate representing the Shares shall be endorsed
with the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED
FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO
THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
and if imposed by the California Department of Corporations, the following
legend:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES.
The Company need not register a transfer of Shares, unless the conditions
specified in the foregoing legends are satisfied. The Company may also instruct
its transfer agent not to register the transfer of any of the Shares unless the
conditions specified in the foregoing legends are satisfied.
6.3 REMOVAL OF LEGENDS AND TRANSFER RESTRICTIONS. The legend relating to
the Securities Act endorsed on a stock certificate pursuant to Section 6.2 of
this Agreement and the stop transfer instructions with respect to the Shares
represented by such certificate shall be removed and the Company shall issue a
certificate without such legend to the holder of such Shares if such Shares are
registered under the Securities Act and a prospectus meeting the requirements of
Section 10 of the Securities Act is available or if such holder provides to the
Company an opinion of counsel for such holder of the Shares reasonably
satisfactory to the Company, or a
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<PAGE>
no-action letter or interpretive opinion of the staff of the Securities and
Exchange Commission (the "Commission") to the effect that a public sale,
transfer or assignment of such Shares may be made without registration and
without compliance with any restriction such as Rule 144. The California
Commissioner of Corporations legend (if required) will be removed if the
Commissioner of Corporations of the State of California has consented to the
removal of such legend.
6.4 ADDITIONAL PURCHASES OF COMMON STOCK. The Purchasers covenant and
agree that they shall not acquire any additional shares of Common Stock or other
equity securities of the Company (other than shares acquired by way of stock
splits, stock dividends and the like) from the Company or from other
stockholders of the Company without the prior approval of the Board of
Directors. This Section 6.4 shall terminate automatically upon the closing of a
Qualified Public Offering.
ARTICLE VII
DEFINITIONS AND ACCOUNTING TERMS
7.1 CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Agreement" means this Common Stock Purchase Agreement as from time
to time amended and in effect between the parties.
"Board of Directors" shall mean the then present members of the Board
of Directors of the Company.
"Company" means and shall include Aehr Test Systems and its
successors and assigns.
"Consolidated" when used with reference to any term defined herein
means that term as applied to the accounts of the Company and its Subsidiaries
consolidated in accordance with generally accepted accounting principles after
eliminating intercompany items and minority interests.
"ERISA" shall have the meaning assigned to that term in Section 3.9.
"Exchange Act" means the Securities Exchange Act of 1934, or any
similar federal statute, and the rules and regulations of the Securities and
Exchange Commission (or of any other Federal
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<PAGE>
Agency then administering the Exchange Act) thereunder, all as the same shall
be in effect at the time.
"Indebtedness" means all obligations, contingent and otherwise, which
should, in accordance with generally accepted accounting principles consistently
applied, be classified upon the obligor's balance sheet as liabilities,
excluding any liabilities in respect of deferred federal or state income taxes,
but in any event including, without limitation, liabilities secured by any
mortgage on property owned or acquired subject to such mortgage, whether or not
the liability secured thereby shall have been assumed, and also including,
without limitation, (i) all guaranties, endorsements and other contingent
obligations, in respect of Indebtedness of others, whether or not the same are
or should be so reflected in said balance sheet, except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business and (ii) the present value of
any lease payments due under leases required to be capitalized in accordance
with applicable Statements of Financial Accounting Standards, determined by
discounting all such payments at the interest rate determined in accordance with
applicable Statements of Financial Accounting Standards.
"Key Employee" means and includes the Chairman of the Board of
Directors, the President, any Vice-President and the Treasurer of the Company or
any Subsidiary, or any person who is not an officer of the Company or any
Subsidiary and is in charge of one or more of the following functions: sales,
marketing, production, or engineering and technical development or any other
position or employee so designated by the Board of Directors of the Company.
"Ownership percentage" means and includes, with respect to each
holder of Registrable Shares for purposes of Section 5.1, the number of
Registrable Shares held by such holder divided by the aggregate of the then-
outstanding shares of Common Stock of the Company.
"Purchaser" means and shall include the persons listed on
EXHIBIT 1.1.
"Person" means an individual, corporation, partnership, joint
venture, trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Qualified Public Offering" means and includes the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock for the account of the Company.
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<PAGE>
"Registrable Shares" means and includes (i) the Shares, (ii) any
other shares of Common Stock acquired by the Purchasers within sixty (60) days
of the Closing and (iii) any shares of Common Stock issued on or with respect to
the foregoing by way of stock split, stock dividend, recapitalization or the
like.
"Securities Act" means the Securities Act of 1933, or any similar
Federal statute, and the rules and regulations of the Securities and Exchange
Commission (or of any other Federal agency then administering The Securities
Act) thereunder, all as the same shall be in effect at the time.
"Shares" shall have the meaning assigned to that term in Section 1.1.
"Subsidiary" or "Subsidiaries" means any corporation, 50% or more of
the outstanding voting stock of which shall at the time be owned by the Company
or by one or more Subsidiaries, or any other entity or enterprise, 50% or more
of the equity of which shall at the time be owned by the Company or by one or
more Subsidiaries.
7.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles consistent with those applied in preparation of the financial
statements set forth in EXHIBIT 3.7; and all other financial data submitted
pursuant to this Agreement and all financial tests to be calculated in
accordance with this Agreement shall be prepared and calculated in accordance
with such principles.
ARTICLE VIII
MISCELLANEOUS
8.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part of
any Purchaser, or any other holder of the Shares in exercising any right, power
or remedy hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
hereunder. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
8.2 AMENDMENTS, WAIVERS AND CONSENTS. Any provision in this Agreement or
the Shares to the contrary notwithstanding, changes in or additions to this
Agreement or the Shares may be made, and compliance with any covenant or
provision herein or therein set
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<PAGE>
forth may be omitted or waived, if the Company, (i) shall obtain consent
thereto in writing from Persons holding an aggregate of at least sixty
percent of the Shares, and (ii) shall, in each such case, deliver copies of
such consent in writing to any holders who did not execute the same. Any
waiver or consent may be given subject to satisfaction of conditions stated
therein and any waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
8.3 ADDRESSES FOR NOTICES, ETC. All notices, requests, demands and other
communications provided for hereunder shall be in writing (including telegraphic
communication) and mailed or telegraphed or delivered to the applicable party at
the addresses indicated below or at such other address as shall be designated by
such Person in a written notice to the other party complying as to delivery with
the terms of this Section.
If to the Company:
Aehr Test Systems
155 Constitution Drive
Menlo Park, CA 94025
Attn: President
with a copy to:
Mario M. Rosati
Wilson, Sonsini, Goodrich & Rosati
Two Palo Alto Square, Suite 900
Palo Alto, CA 94306
If to the Purchaser: at the addresses set forth under their respective
names on EXHIBIT 1.1 hereto.
If to any other holder of the Shares: at such holder's address for notice
as set forth in the register maintained by the Company.
All such notices, requests, demands and other communications shall, when
mailed or telegraphed, respectively, be effective when deposited in the mails or
delivered to the telegraph company, respectively, addressed as aforesaid.
8.4 COSTS, EXPENSES AND TAXES. The Company shall pay any and all stamp
and other taxes payable or determined to be payable in connection with the
execution and delivery of this Agreement, the Shares, and other instruments and
documents to be delivered hereunder or thereunder and agrees to hold the
Purchaser harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes and filing
fees.
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<PAGE>
8.5 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Company and the Purchasers and their respective
successors and assigns, except that the Company shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the Purchasers obtained in accordance with Section 8.2 hereof.
8.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made in this Agreement, the Shares, or any other instrument or
document delivered in connection herewith or therewith, shall survive the
execution and delivery hereof or thereof.
8.7 PRIOR AGREEMENTS. With the exception of any applicable
confidentiality agreement, this Agreement constitutes the entire agreement
between the parties and supersedes any prior understandings or agreements
concerning the subject matter hereof.
8.8 SEVERABILITY. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision.
8.9 GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
8.10 HEADINGS. Article, Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
8.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
8.12 FURTHER ASSURANCES. From and after the date of this Agreement, upon
the request of the Purchasers, the Company and each Subsidiary shall execute and
deliver such instruments, documents and other writings as may be necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement and the Shares.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
AEHR TEST SYSTEMS
By: /s/ Rhea J. Posedel
-----------------------------------
President
JAPAN ASSOCIATED FINANCE CO., LTD.
By: /s/ Kunio Takai
-----------------------------------
Kunio Takai, President
Toshiba Building
10th Floor
1-1-1 Shibaura, Minato-ku
Tokyo, Japan 105
JAFCO G-2(A) INVESTMENT
ENTERPRISE PARTNERSHIP
By: /s/ Kunio Takai
-----------------------------------
Kunio Takai, President
Japan Associated Finance Co., Ltd.
Executive Partner
JAFCO G-2(B) INVESTMENT
ENTERPRISE PARTNERSHIP
By: /s/ Kunio Takai
-----------------------------------
Kunio Takai, President
Japan Associated Finance Co., Ltd.
Executive Partner
JAFCO No. 5 INVESTMENT
ENTERPRISE PARTNERSHIP
By: /s/ Kunio Takai
-----------------------------------
Kunio Takai, President
Japan Associated Finance Co., Ltd.
Executive Partner
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<PAGE>
JAFCO No. 6 INVESTMENT
ENTERPRISE PARTNERSHIP
By: /s/ Kunio Takai
-----------------------------------
Kunio Takai, President
Japan Associated Finance Co., Ltd.
Executive Partner
JAFCO G-3 INVESTMENT
ENTERPRISE PARTNERSHIP
By: /s/ Kunio Takai
-----------------------------------
Kunio Takai, President
Japan Associated Finance Co., Ltd.
Executive Partner
NIKKO VENTURE CAPITAL CO., LTD.
By: /s/ [illegible]
-----------------------------------
Title: Attorney-in-Fact
--------------------------------
THE CENTRAL CAPITAL LIMITED
By: /s/ [illegible]
-----------------------------------
Title: Attorney-in-Fact
--------------------------------
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<PAGE>
EXHIBIT 1.1
LIST OF PURCHASERS
NUMBER AGGREGATE
NAME AND ADDRESS OF SHARES PURCHASE PRICE
- ---------------- --------- --------------
Japan Associated Finance Co., Ltd. 57,715 $ 404,005.00
Toshiba Building, 10th Floor
1-1-1 Shibaura, Minato-ku
Tokyo, Japan 105
JAFCO G-2(A) Investment 29,000 $ 203,000.00
Enterprise Partnership
Toshiba Building, 10th Floor
1-1-1 Shibaura, Minato-ku
Tokyo, Japan 105
JAFCO G-2(B) Investment 29,000 $ 203,000.00
Enterprise Partnership
Toshiba Building, 10th Floor
1-1-1 Shibaura, Minato-ku
Tokyo, Japan 105
JAFCO No. 5 Investment 43,000 $ 301,000.00
Enterprise Partnership
Toshiba Building, 10th Floor
1-1-1 Shibaura, Minato-ku
Tokyo, Japan 105
JAFCO No. 6 Investment 43,000 $ 301,000.00
Enterprise Partnership
Toshiba Building, 10th Floor
1-1-1 Shibaura, Minato-ku
Tokyo, Japan 105
JAFCO G-3 Investment 84,000 $ 588,000.00
Enterprise Partnership
Toshiba Building, 10th Floor
1-1-1 Shibaura, Minato-ku
Tokyo, Japan 105
Nikko Venture Capital Co., Ltd. 50,000 $ 350,000.00
2-7-3 Marunouchi
Chiyoda-Ku, Tokyo
Japan
The Central Capital Ltd. 50,000 $ 350,000.00
1-7-17 Nihonbashi
Chuo-Ku, Tokyo
Japan
------- -------------
TOTAL: 385,715 $2,700,005.00
<PAGE>
EXHIBIT 2.1(b)
[Legal Opinion of Wilson, Sonsini, Goodrich & Rosati, P.C.]
February __, 1990
To the Purchasers Listed in
Exhibit 1.1 to the Aehr Test Systems
Common Stock Purchase Agreement
Dated as of February __, 1990
Ladies and Gentlemen:
Reference is made to the Common Stock Purchase Agreement, complete with
all listed exhibits thereto, dated as of February __, 1990 (the "Agreement"),
by and among Aehr Test Systems, a California corporation (the "Company"), and
the persons and entities listed in Exhibit 1.1 to the Agreement (the
"Purchasers"), which provides for the issuance by the Company to the
Purchasers of shares of Common Stock of the Company, without par value (the
"Shares"). This opinion is rendered to you pursuant to Section 2.1(b)(ii) of
the Agreement, and all terms used herein have the meanings defined for them
in the Agreement unless otherwise defined herein.
We have acted as counsel for the Company in connection with the
negotiation of the Agreement and the issuance of the Shares. As such counsel,
we have made such legal and factual examinations and inquiries as we have
deemed advisable or necessary for the purpose of rendering this opinion. In
addition, we have examined originals or copies of documents, corporate
records and other writings which we consider relevant for the purposes of
this opinion. In such examination we have assumed the genuineness of all
signatures on original documents, the conformity to original documents of all
copies submitted to us and the due execution and delivery of all documents
where due execution and delivery are a prerequisite to the effectiveness
thereof.
As used in this opinion, the expression "to our knowledge" with
reference to matters of fact means that, after an examination of documents in
our files and documents made available to us by the Company and after
inquiries of officers of the Company, we find no reason to believe that the
opinions expressed herein are factually incorrect; but beyond that we have
made no independent factual investigation for the purpose of rendering this
opinion.
<PAGE>
For purposes of this opinion, we are assuming that you have all
requisite power and authority, and have taken any and all necessary corporate
or partnership action, to execute and deliver the Agreement, and we are
assuming that the representations and warranties made by the Purchasers and
the Company under the Agreement are true and correct.
The opinions hereinafter expressed are subject to the following
qualifications:
(a) We express no opinion as to the effect of applicable
bankruptcy and other similar laws affecting the rights of creditors generally;
(b) We express no opinion as to the effect of rules of law
governing specific performance, injunctive relief or other equitable remedies;
(c) We express no opinion as to compliance with applicable
anti-fraud provisions of federal or state securities laws;
(d) We express no opinion as to the enforceability of the
indemnification provisions set forth in Section 5.3 of the Agreement to the
extent the provisions thereof may be subject to limitations of public policy;
and
(e) We are members of the Bar of the State of California and,
except as set forth in paragraph 7 below with respect to the securities laws
of other states, we are not expressing any opinion as to any matter relating
to the laws of any jurisdiction other than the laws of the United States of
America and the laws of the State of California. To the extent this opinion
addresses applicable securities laws of states other than the State of
California, we have not retained nor relied on the opinion of counsel
admitted to the bar of such states, but rather have relied on compilations of
the securities laws of such states contained in looseleaf reporting services
presently available to us.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing
under, and by virtue of, the laws of the State of California and is in good
standing under such laws. The Company has requisite corporate power to own
and operate its properties and assets, and to carry on its business as
presently conducted. The Company is qualified to do business as a foreign
corporation in each jurisdiction where such qualification is presently
required and the failure to so qualify would have a material adverse effect
on the Company.
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<PAGE>
2. The Company has all requisite legal and corporate power to execute
and deliver the Agreement, to sell and issue the Shares thereunder and to
carry out and perform its obligations under the terms of the Agreement.
3. The authorized capital stock of the Company consists of 75,000,000
shares of Common Stock and 10,000,000 shares of Preferred Stock. Immediately
prior to the Closing, 3,526,986 shares of Common Stock and no shares of
Preferred Stock were outstanding. All such issued and outstanding shares of
Common Stock have been duly authorized and validly issued, are fully paid and
nonassessable, and are free of any preemptive or similar rights contained in
the Articles of Incorporation or Bylaws of the Company. As of the date
hereof the Company has outstanding options exercisable for 299,300 shares of
Common Stock and warrants exercisable for 9,333 shares of Common Stock. The
Shares issued under the Agreement are validly issued, fully paid and
nonassessable and free of any liens, encumbrances and preemptive or similar
rights except as specifically provided in the Agreement; provided, however,
that the Shares may be subject to restrictions on transfer under state and/or
federal securities laws as set forth in the Agreement. To our knowledge,
except for rights described in the Agreement and the Exhibits thereto, there
are no other options, warrants, conversion privileges or other rights
presently outstanding to purchase or otherwise acquire any authorized but
unissued shares of capital stock or other securities of the Company, or any
other agreements to issue any such securities or rights.
4. All corporate action on the part of the Company, its directors and
shareholders necessary for the authorization, execution, delivery and
performance of the Agreement by the Company, the authorization, sale,
issuance and delivery of the Shares and the performance of the Company's
obligations under the Agreement has been taken. The Agreement has been duly
and validly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company, enforceable in accordance with its terms.
5. The Company is not in violation of any term of its Articles of
Incorporation or Bylaws, or, to our knowledge and except as set forth in the
Agreement, in any material respect of any term or provision of any material
contract, agreement, instrument, judgment or decree binding upon the Company.
The execution, delivery and performance of and compliance with the terms of
the Agreement, and the issuance of the Shares, do not violate any provision
of the Articles of Incorporation or Bylaws, or, to our knowledge, any
provision of any applicable federal, state or local law, rule or regulation.
To our knowledge, the execution, delivery and performance of and compliance
with the Agreement, and the issuance of the Shares have not resulted and will
not result in any violation of,
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<PAGE>
or conflict with, or constitute a default under, any material contract,
agreement, instrument, judgment or decree binding upon the Company.
6. Except as identified in the Agreement, to our knowledge, there are
no actions, suits, proceedings or investigations pending against the Company
or its properties before any court or governmental agency (nor, to our
knowledge, is there any written threat thereof), which, either in any case or
in the aggregate, might result in any material adverse change in the business
or financial condition of the Company or any of its properties, or in any
material impairment of the right or ability of the Company to carry on its
business as now conducted or in any material liability on the part of the
Company, or which questions the validity of the Agreement or any action taken
or to be taken by the Company in connection therewith.
7. No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of the
Company is required in connection with the valid execution and delivery of
the Agreement, or the offer, sale or issuance of the Shares or the
consummation of any other transaction contemplated thereby, except
qualification (or taking such action as may be necessary to secure an
exemption from qualification, if available) of the offer and sale of the
Shares under the California Corporate Securities Laws and other applicable
securities laws (but excluding jurisdictions outside of the United States),
filings for which have been accomplished and are effective, except filings
which may be made after the date hereof and which the Company has agreed to
make in a timely manner.
8. Subject to the accuracy of the Purchasers' representations in
Section 6.1 of the Agreement and their responses (if any) to the Company's
inquiries, the offer, sale and issuance of the Shares to be issued in
conformity with the terms of the Agreement constitute transactions exempt
from the registration requirements of Section 5 of the Securities Act of
1933, as amended.
This opinion is furnished to the Purchasers solely for their benefit in
connection with the purchase of the Shares, and may not be relied upon by any
other person without prior written consent.
Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
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<PAGE>
EXHIBIT 2.1(c)
AEHR TEST SYSTEMS
AMENDMENT TO REGISTRATION RIGHTS
Aehr Test Systems (the "Company") intends to enter into a common stock
purchase agreement (the "Jafco Agreement") with Jafco America Ventures, Inc.,
and certain other entities (the "Purchasers") providing for the issuance and
sale by the Company of shares of Common Stock of the Company to the
Purchasers. The representative of the Purchasers has made it a condition to
the execution of the Agreement by the Purchasers that this Amendment to
Registration Rights ("Amendment") be duly executed.
Pursuant to Section 6.8 of the Capital Stock Investment Agreement dated
April 12, 1984 (the "1984 Agreement"), the Company and the undersigned holder
of a majority of the Restricted Securities (as defined in the 1984 Agreement)
agrees to the amendment of paragraph 5.3 of the 1984 Agreement, to read in
full as set forth in Exhibit I hereto.
This Amendment shall be conditioned and effective upon the closing of
the Jafco Agreement.
AEHR TEST SYSTEMS MAYFIELD III
By By
---------------------------- ------------------------------
Executive Officer General Partner
<PAGE>
EXHIBIT I
5.3 REQUESTED REGISTRATION.
(a) If at any time the Company shall be requested by the holders
of not less than 50% of the total number of shares of Restricted Securities,
the Company shall promptly, and in any case within ten (10) days, give
written notice of such proposed registration to all holders of Restricted
Securities. Thereupon the Company shall as expeditiously as possible use its
best efforts to effect the registration on Form S-1 (or on a form of general
use then in effect under the Act) of the shares of Restricted Securities
which the Company has been requested to register (i) in such request and (ii)
in any response to such notice given to the Company within twenty (20) days
after the Company's giving of such notice, in order to permit the sale or
other disposition of such shares in accordance with the intended method of
sale or other disposition given in the request and in any such response.
The Company shall be obligated to have only one (1) registration
statement declared effective pursuant to this paragraph 5.3(a). The Company
shall not be required to effect a registration statement under this paragraph
5.3(a) during the first one hundred twenty (120) days after the effective
date of any registration statement filed by the Company under paragraph
5.3(b) or 5.4 hereof if the Company has complied with the provisions of
paragraph 5.3(b) or 5.4.
The Company may include in the registration under this paragraph
5.3(a) any other shares of Capital Stock (including issued and outstanding
shares of Capital Stock as to which the holders thereof have contracted with
the Company for "piggyback" registration rights). However, if the offering
of the Restricted Securities is proposed to be underwritten on a firm
commitment basis (i) the Company (if it is including shares in the
registration for its own account) and the holders of any other shares
proposed to be included in the registration ("Other Shares") must agree to
include such shares in the underwriting on the same terms and conditions as
the holders of Restricted Securities, and (ii) if the managing underwriter(s)
determines that marketing considerations require a limitation of the total
number of shares to be included in the registration, the managing
underwriter(s) will determine the number of shares to be included in the
registration for the account of the Company (if any) and the total number of
shares to be included in the registration for the account of all others
(including the holders of Restricted Securities), which total number shall
then be allocated pro rata among such shareholders according to the number of
shares owned by each of them. All other shares shall be excluded from the
registration.
<PAGE>
(b) In addition to the registration rights granted in paragraph
5.3(a), if a registration may be effected by the Company on Form S-3 or a
similar short-form registration statement, and the Company shall be requested
by the holders of not less than thirty percent (30%) of the total number of
shares of Restricted Securities, the Company shall, as expeditiously as
possible, use its best efforts to effect the registration on Form S-3 or a
similar short-form registration statement of the shares of Restricted
Securities which the Company has been requested to register in such request.
The notice, underwriting and cut-back provisions set forth in paragraph
5.3(a) shall also apply to any registration pursuant to this paragraph 5.3(b).
The Company shall be obligated to have only one (1) registration
statement declared effective pursuant to this paragraph 5.3(b), and the
rights granted by this paragraph 5.3(b) may not be exercised during the first
one hundred twenty (120) days after the effective date of any registration
statement filed by the Company under paragraph 5.3(a) or 5.4 hereof if the
Company has complied with the provisions of paragraph 5.3(a) or 5.4.
2.
<PAGE>
EXHIBIT 3.0
SCHEDULE OF EXCEPTIONS
This Schedule of Exceptions, dated as of February 8, 1990, is made and
given pursuant to Article 3 of the Aehr Test Systems Common Stock Purchase
Agreement dated February 8, 1990 (the "Agreement"). The section numbers in
this Schedule of Exceptions correspond to the section numbers in the
Agreement; however, any information disclosed herein under any section number
shall be deemed to be disclosed and incorporated into any other section
number under the Agreement where such disclosure would be appropriate. Any
terms defined in the Agreement shall have the same meaning when used in this
Schedule of Exceptions as when used in the Agreement unless the context
otherwise requires.
3.5 COMPLIANCE WITH OTHER INSTRUMENTS.
Both the agreement with Dana Commercial Credit and Equitable Lomas
Leasing referenced below contain provisions of default including a cross
default clause. If the Company's default on its line of credit with Union
Bank caused Union Bank to accelerate such line of credit (see "Line of
Credit" below), the Company would be in default of both agreements.
3.6 TITLE TO ASSETS, PATENTS.
All of the Company's property and equipment in the U.S. is pledged
as collateral under term debt agreements with Equitable Lomas Leasing, Dana
Commercial Credit and various leasing companies under capital lease
obligations. The Company's outstanding principle balance due Equitable Lomas
Leasing at December 31, 1989 was $1,432,213 and is evidenced by a promissory
note bearing interest at 12.8% per year. This loan is payable in equal
monthly installments of $48,146 through December 1992. The outstanding
principle balance due Dana Commercial Credit at December 31, 1989 was
$750,882 and is evidenced by a promissory note bearing interest at 12.55% per
year. The loan is payable in equal monthly installments of $17,119 through
December 1994.
Capital lease obligations as of December 31, 1989 of $513,000
consist of various leases payable in installments through fiscal 1994 at a
weighted average interest rate of 11.3% per year.
3.12 SECURITIES ACT OF 1933. The holders of Restricted Securities, as
defined in the Capital Stock Investment Agreement dated April 12, 1984, as
amended, have the registration rights set forth in paragraph 5 thereof. The
holders of Registrable Shares, as defined in the Stock Purchase Agreement
dated September 18, 1985, have the registration rights set forth in Article V
thereof.
<PAGE>
3.13 DISCLOSURE
PROJECTIONS
No representation or warranty is made concerning the financial
projections provided to Purchasers, except that they were prepared in good
faith based on assumptions which the Company believes to be reasonable.
Projections of future financial results for a company in the semiconductor
industry are inherently subject to substantial risks of inaccuracy. No
assurance can be given that the assumptions on which projections are based
will prove to be correct. Variations from the projections could be
substantial and adverse.
The Company's projections depend on a number of factors including
present backlog, expected future orders and shipment of new burn-in test
equipment being developed and built by the Company under contract with IBM
(the "Wide I/0"). (See "Contract with IBM" below.) The Company has
experienced declining order rates and declining backlog over the last four
quarters as shown below:
In Millions
-----------
Quarter Ended Orders Backlog
------------------------------------------------------------------
November 30, 1988 $10.1 $20.0
February 28, 1989 $12.8 $20.8
May 31, 1989 $12.3 $20.9
August 31, 1989 $ 6.5 $15.9
November 30, 1989 $ 6.3 $13.9
The Company includes in backlog orders to which a purchase order
number has been assigned by the customer and which are expected to be shipped
within one year. Orders are subject to cancellation by the customer with
limited charges. Included in the backlog are orders from IBM for Wide I/O
systems totaling approximately $4 Million.
The Company's projections contain revenues for which purchase
orders have not yet been received by the Company. Also included in the
Company's projection for the six month period ending May 31, 1990 are the
revenues expected from the shipment of two Wide I/O systems to IBM totaling
$2,400,000. The Company has experienced delays in completing this project.
Further delays in completing the Wide I/O project and delays in receiving
purchase orders for other shipments in the projection would result in
significantly lower revenues and could lead to a material loss in each of the
quarters ending February 28, 1990 and May 31, 1990, and possibly result in a
loss for the fiscal year ending May 31, 1990.
CONTRACT WITH IBM
Included in work-in-process at May 31, 1989 and November 30, 1989
are deferred costs of $1,673,000 and $2,360,389 respectively, related to the
Wide I/O project with IBM. Deferred costs primarily include manufacturing
direct material, direct labor
-2-
<PAGE>
and overhead and tooling, and exclude research and development that is
expensed as incurred. This production contract is accounted for under the
units of delivery method. Development problems have been experienced, which
have delayed shipment of the equipment. The latest scheduled delivery date
was August 15, 1989. Additional development problems could be encountered in
the future, which could further delay shipment and possibly lead to order
cancellations. Initial product acceptance procedures were expected to
commence in December 1989 but have been delayed until February 1990. The
contract is subject to cancellation by the customer for noncompliance and the
Company may incur a material loss if the contract is canceled. Related
progress payments received under the contract of $197,000 included in
customer deposits as of May 31, 1989, and $874,000 received during June 1989,
might be refundable in the event of the customer's cancellation of the
contract.
QUARTERLY LOSSES
The Company incurred an after tax loss of $245,000 in its quarter
ended November 30, 1989 and is projecting a loss in its quarter ending
February 28, 1990. For the seven month period ended December 31, 1989 the
Company incurred an after tax loss of $449,000. The Company could incur
losses in the future.
LINE OF CREDIT
On September 20, 1989, the Company renewed its line of credit
agreement with Union Bank. This agreement, renewable again on September 15,
1990, provides for maximum borrowings of up to the lesser of $5,000,000 or
80% of eligible accounts receivable (borrowing base formula), including a
maximum of $500,000 in standby letters of credit. Borrowings under the
agreement bear interest at 0.75% in excess of the bank's reference rate and
are collateralized by accounts receivable, inventories, certain property and
equipment and other assets of the Company. Under this agreement, the Company
is required to maintain certain financial ratios, profitability on a
quarterly basis and an average compensating balance of $200,000.
The Company is currently in default of the profitability covenant
because it incurred an after tax loss of $241,000 in its U.S. operations for
the quarter ended November 30, 1989. The Company is forecasting an after tax
loss of over $400,000 in its U.S. operations for the quarter ending February
28, 1990 and will remain in default of the profitability covenant. In
addition, the Company is currently in default of its borrowing base
limitation. As of December 31, 1989, the Company's borrowings under its line
of credit were $2,425,000 which was in excess of the amount available under
the borrowing base formula by approximately $500,000. The Company's target
cash balance in the United States is approximately $1,000,000. In order to
maintain this target balance, the Company is forecasting that its borrowings
will remain in excess of the amount permitted by the formula through May 31,
1990 and that the excess amount will exceed $1,300,000 during that period.
The Company has negotiated with the Bank a conditional waiver of the
profitability covenant, the current default and the borrowing base
-3-
<PAGE>
limit, a copy of which is attached as Exhibit 4.1(l) to the Agreement.
The proceeds from the sale of stock offered hereby will be used to
repay the Company's bank line of credit to cure the default of the borrowing
base. The Company believes it will be able to maintain its line of credit
under its current terms. However, loss of the line of credit with Union Bank
may require the Company to raise additional equity capital if a bank line of
credit could not be obtained from alternative sources. There is no assurance
that the Company could raise such equity capital on favorable terms.
SOLE SOURCE COMPONENTS
The Company is dependent on several vendors as sole suppliers. One
of these suppliers, Texas Instruments, has informed the Company that it will
no longer manufacture two integrated circuits which are used in large
quantities in all of the Company's older model dynamic and test burn-in
systems. In 1989, the Company entered into an agreement with Arrow Kierrulff
(acting as Texas Instruments distributor) to purchase a two to three year
supply of these circuits amounting to a total purchase order commitment of
$717,000. The Company has taken partial delivery on the contract and as of
December 31, 1989 had an excess supply of parts over current demand of
$343,000 in inventory. The Company is currently negotiating deferral of
shipments of the balance of the contract of $404,000 in excess parts
scheduled for delivery monthly through June of 1990.
These integrated circuits are no longer used in the industry and
the Company is the only major customer for these parts. No reserve for loss
or obsolescence has been recorded in the Company's financial statements for
this contract or for the excess inventory because the Company believes it
will use all of the parts in its burn-in systems sold in future years, and in
support of its installed base of over 1,000 systems.
3.18 SUBSIDIARIES. The Company holds 78.6% of the outstanding stock and
has rights to purchase all of the minority interest of Aehr Test Systems,
Japan, a Japanese corporation.
-4-
<PAGE>
EXHIBIT 3.7
CERTIFICATE OF CHIEF FINANCIAL OFFICER
OF
AEHR TEST SYSTEMS
The undersigned Acting Chief Financial Officer hereby certifies to the
items below. Capitalized terms shall have the meanings assigned to them in the
Common Stock Purchase Agreement dated February 26, 1990, between Aehr Test
Systems and certain Purchasers (the "Agreement").
1. She is the Acting Chief Financial Officer of Aehr Test Systems, a
California corporation.
2. Attached hereto are true and complete copies of the Consolidated
audited financial statements of the Company and its Subsidiaries for the twelve
months ended May 31, 1989 and the Company's unaudited unconsolidated financial
statements for the seven months ended December 31, 1989.
IN WITNESS WHEREOF, the undersigned has executed this certificate this 26th
day of February, 1990.
------------------------------
Linda Raggi,
Acting Chief Financial Officer
<PAGE>
LIST OF PURCHASERS
NUMBER AGGREGATE
NAME AND ADDRESS OF SHARES PURCHASE PRICE
- ---------------- --------- --------------
Jafco American Ventures, Inc. 12,000 Y42,000,000
555 California Street
24th Floor, Suite 2450
San Francisco, CA 94104
Nikko Venture Capital Co., Ltd. 2,000 Y 7,000,000
2-7-3 Marunouchi
Chiyoda-Ku, Tokyo
Japan
The Central Capital Ltd. 2,000 Y 7,000,000
1-7-17 Nihonbashi
Chuo-Ku, Tokyo
Japan
-------- -----------
TOTAL: 16,000 Y56,000,000
<PAGE>
AEHR TEST SYSTEMS
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1989
(UNAUDITED)
($ in '000s)
ASSETS
CURRENT ASSETS:
CASH $4,267
ACCOUNTS RECEIVABLE 9,075
INVENTORY 13,444
OTHER CURRENT ASSETS 1,342
--------
TOTAL CURRENT ASSETS 28,128
FIXED ASSETS 3,674
OTHER ASSETS 1,270
--------
TOTAL ASSETS $33,072
--------
--------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
NOTES PAYABLE $7,813
ACCOUNTS PAYABLE 5,957
ACCRUED EXPENSES 1,617
CUSTOMER DEPOSITS 1,129
ACCRUED INCOME TAXES 150
--------
TOTAL CURRENT LIABILITIES 16,666
LONG TERM LIABILITIES 2,922
MINORITY INTEREST 821
--------
TOTAL LIABILITIES 20,409
--------
STOCKHOLDERS' EQUITY:
CAPITAL STOCK 3,530
RETAINED EARNINGS (PRIOR) 8,625
RETAINED EARNINGS (CURRENT) (449)
TRANSLATION ADJUSTMENT 957
--------
TOTAL STOCKHOLDERS' EQUITY 12,663
--------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $33,072
--------
--------
<PAGE>
AEHR TEST SYSTEMS
CONSOLIDATED STATEMENT OF OPERATIONS
SEVEN MONTHS ENDED DECEMBER 31, 1989
(UNAUDITED)
($ in '000s)
ACTUAL %
-------- ----
REVENUE $21,082 100%
COST OF GOODS SOLD 11,843 56%
-------- ----
GROSS PROFIT 9,239 44%
OPERATING EXPENSES:
RESEARCH & DEVELOPMENT 3,586 17%
SELLING, GENERAL & ADMIN 5,602 27%
-------- ----
TOTAL OPERATING EXPENSES 9,188 44%
-------- ----
OPERATING PROFIT (LOSS) 51 0%
INTEREST, NET 392 2%
OTHER (INCOME) EXPENSE 69 0%
-------- ----
TOTAL OTHER (INCOME) EXPENSE 461 2%
-------- ----
PROFIT BEFORE TAXES AND
MINORITY INTEREST (410) -2%
TAX PROVISION 6 0%
-------- ----
PROFIT BEFORE MINORITY INTEREST (416) -2%
MINORITY INTEREST 33 0%
-------- ----
NET INCOME (LOSS) ($449) -2%
-------- ----
-------- ----
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
----------
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
as of May 31, 1988 and 1989
and for each of the three years
in the period ended May 31, 1989
<PAGE>
[Letterhead of Coopers & Lybrand, Certified Public Accountants]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders
Aehr Test Systems:
We have audited the accompanying consolidated balance sheets of Aehr Test
Systems and Subsidiaries as of May 31, 1988 and 1989 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended May 31, 1989. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aehr Test Systems and
Subsidiaries as of May 31, 1988 and 1939, and the results of their operations
and their cash flows for each of the three years in the period ended May 31,
1989, in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND
San Jose, California
July 7, 1989, except for Notes 2 and 15,
for which the dates are September 30, 1989
and September 20, 1989, respectively
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, May 31, 1988 and 1989
----------
<TABLE>
<CAPTION>
ASSETS 1988 1989
---- ----
(in thousands,
except share data)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,877 $ 2,826
Short-term cash deposits 1,237 211
Accounts receivable (less allowance for doubtful
accounts of $127 and $136 at 1988 and 1989,
respectively) 8,972 13,367
Inventories 8,786 11,560
Refundable income taxes 582 133
Deferred income taxes 671
Other 184 250
------- -------
Total current assets 22,638 29,018
Property and equipment, net 3,917 3,985
Other assets, net 792 1,326
------- -------
Total assets $27,347 $34,329
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable -- banks 7,357 7,275
Current portion of long-term debt and capital lease
obligations 555
Accounts payable 4,321 6,615
Accrued expenses 1,472 2,050
Customer deposits 1,478 389
Income taxes payable 1,216
------- -------
Total current liabilities 14,628 18,100
Long-term debt and capital lease obligations, net of
current portion 1,679
Deferred income taxes 576 825
Minority interest in subsidiary 983 797
------- -------
Total liabilities 16,187 21,401
------- -------
Contingencies and commitments (Notes 2, 7 and 9).
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized: 10,000,000 shares:
Issued and outstanding: none
Common stock, $.01 par value:
Authorized: 75,000,000 shares;
Issued and outstanding: 3,513,077 shares and
3,526,986 shares at 1988 and 1989,
respectively 35 35
Additional paid-in capital 3,411 3,595
Notes receivable for capital stock (150)
Retained earnings 6,768 8,525
Translation adjustment 1,096 773
------- -------
Total stockholders' equity 11,160 12,928
------- -------
Total liabilities and stockholders' equity $27,347 $34,329
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
2
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended May 31, 1987, 1988 and 1989
----------
<TABLE>
<CAPTION>
1987 1988 1989
---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C>
Net sales $24,547 $26,323 $41,828
------- ------- -------
Costs and expenses:
Cost of goods sold 15,938 15,185 21,774
Research and development 5,141 5,303 7,533
Selling, general and administrative 6,774 6,780 8,259
------- ------- -------
27,853 27,268 37,566
------- ------- -------
Income (loss) from operations (3,306) (945) 4,262
Interest expense (351) (485) (730)
Interest income 210 272 84
------- ------- -------
Income (loss) before income taxes,
minority interest in subsidiary
and extraordinary credit (3,447) (1,158) 3,616
Provision (benefit) for income taxes (1,388) (445) 1,812
------- ------- -------
Income (loss) before minority
interest in subsidiary and
extraordinary credit (2,059) (713) 1,804
Minority interest in net income (loss)
of subsidiary (277) 113 238
------- ------- -------
Income (loss) before extraordinary
credit (1,782) (826) 1,566
Extraordinary credit -- tax benefit
from utilization of operating
loss carryforwards 208 291
------- ------- -------
Net income (loss) $(1,782) $ (618) $ 1,857
------- ------- -------
------- ------- -------
Net income (loss) per common and common
equivalent share:
Before extraordinary credit $(.51) $(.23) $.45
Extraordinary credit .06 .8
------- ------- -------
$(.51) $(.17) $.53
------- ------- -------
------- ------- -------
Weighted average number of common and common
equivalent shares used in per share
calculations 3,508 3,531 3,528
------- ------- -------
------- ------- -------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
3
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended May 31, 1987, 1988 and 1989
----------
<TABLE>
<CAPTION>
Notes
Common Stock Additional Receivable
------------ Paid-in for Capital Retained Translation
Shares Amount Capital Stock Earnings Adjustment Total
------ ------ ---------- ----------- -------- ----------- -----
(in thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, June 1, 1986 3,489,680 $ 35 $ 3,194 $ (242) $ 9,168 $ 444 $ 12,599
Issuance of common stock:
Fiscal 1986 contribution to employee stock
bonus plan 18,965 190 190
To employees 500 5 5
Repurchase of common stock from employees (550) (8) (8)
Issuance of warrants 9 9
Net loss (1,782) (1,782)
Translation adjustment 323 323
--------- ---- ------- ------ ------- ----- --------
Balances, May 31, 1987 3,508,595 35 3,390 (242) 7,386 767 11,336
Issuance of common stock to employees 30,003 170 170
Repurchase of common stock:
From employee stock bonus plan (13,321) (76) (76)
From employees (12,200) (73) 73 --
Repayment of notes receivable 19 19
Net loss (618) (618)
Translation adjustment 329 329
--------- ---- ------- ------ ------- ----- --------
Balances, May 31, 1988 3,513,077 35 3,411 (150) 6,768 1,096 11,160
Issuance of common stock to employees 49,909 300 300
Repurchases of common stock from employee
stock bonus plan (11,000) (66) (66)
Surrender of common stock and cancellation of
related note receivable (25,000) (50) 150 (100) --
Net income 1,857 1,857
Translation adjustment (323) (323)
--------- ---- ------- ------ ------- ----- --------
Balances, May 31, 1989 3,526,986 $35 $ 3,595 $ -- $8,525 $773 $12,928
--------- ---- ------- ------ ------- ----- --------
--------- ---- ------- ------ ------- ----- --------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended May 31, 1987, 1988 and 1989
----------
<TABLE>
<CAPTION>
1987 1988 1989
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,782) $ (618) $1,857
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Minor interest in subsidiary (277) 113 238
Depreciation and amortization 956 1,276 1,324
Decrease (increase) in accounts receivable 1,800 (2,314) (5,407)
Decrease (increase) in inventories 2,585 (2,600) (3,111)
Decrease (increase) in recoverable income
taxes and other current assets (1,023) 599 312
Increase in accounts payable 272 1,102 2,824
Increase in accrued expenses, income taxes
payable and customer deposits 208 1,240 764
Decrease in deferred income taxes (291) (240) (397)
------- ------ ------
Net cash provided by (used in)
operating activities 2,448 (1,442) (1,596)
------- ------ ------
Cash flows from investing activities:
Decrease (increase) in short-term cash
deposits (1,921) 863 960
Additions to property and equipment (1,490) (1,266) (729)
Decrease (increase) in other assets 2 (103) (609)
------- ------ ------
Net cash used in investing activities (3,409) (506) (378)
------- ------ ------
Cash flows from financing activities:
Increase (decrease) in notes payable - banks 1,708 (622) 495
Borrowings under long-term debt 1,800
Long-term debt and capital lease principal
payments (249)
Proceeds from issuance of capital stock,
exercise of stock options and issuance
of warrants 204 170 300
Repurchase of common stock (8) (76) (66)
Repayment of notes receivable from
shareholders 19
------- ------ ------
Net cash provided by (used in)
financing activities 1,904 (509) 2,280
------- ------ ------
Effect of exchange rates on cash 373 655 357
------- ------ ------
Net increase (decrease) in cash and
cash equivalents 1,316 (1,802) (51)
Cash and cash equivalents, beginning of year 3,363 4,679 2,877
------- ------ ------
Cash and cash equivalents, end of year $ 4,679 $2,877 $2,826
------- ------ ------
------- ------ ------
Supplemental cash flow information:
Cash paid during the year for:
Interest $257 $505 $732
Income taxes 4 660
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
5
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION:
The financial statements include the accounts of the Company, its wholly
owned foreign sales corporation (FSC) and both its wholly owned and
majority owned foreign subsidiaries. All intercompany accounts and
transactions have been eliminated.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS:
Assets and liabilities of the Company's foreign subsidiaries are translated
into U.S. dollars using the exchange rate in effect at the balance sheet
date. Additionally, their revenues and expenses are translated using
exchange rates approximating average rates prevailing during the fiscal
year. Translation adjustments that arise from translating their financial
statements from their local currencies to U.S. dollars are accumulated and
reflected as a separate component of stockholders' equity.
Transaction gains and losses that arise from exchange rate changes
denominated in currencies other than the local currency are included in the
statements of operations as incurred and are not significant.
CASH EQUIVALENTS AND SHORT-TERM CASH DEPOSITS:
All highly liquid debt instruments purchased with a maturity of three
months or less are considered to be cash equivalents.
Short-term cash deposits represent interest bearing tine deposits with a
maturity greater than three months.
INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Continued
6
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-----------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Leasehold improvements are
amortized over the lesser of their estimated useful lives or the terms of
the related lease. Furniture, fixtures and equipment are depreciated on a
straight-line basis over their estimated useful lives. The range of
estimated useful lives is as follow:
Leasehold improvements Life of lease
Furniture and fixtures 3 to 15 years
Machinery and equipment 2 to 11 years
REVENUE RECOGNITION:
Revenue related to systems is recognized upon shipment. A provision for
the estimated future cost of warranty is recorded upon shipment.
PRODUCT DEVELOPMENT COSTS AND CAPITALIZED SOFTWARE:
Costs incurred in the research and development of new products or systems
are charged to operations as incurred.
Costs incurred in the development of software programs for the Company's
products are charged to operations as incurred until technological
feasibility of the software has been established. After technological
feasibility is established, any additional costs are capitalized.
Capitalized costs of approximately $168,000 and $265,000 are included in
inventory at May 31, 1988 and 1989. No software development Costs were
capitalized prior to 1988.
Continued
7
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-----------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
INCOME TAXES:
Deferred income taxes are recorded to reflect the tax effects of timing
differences in reporting certain items for financial statement and income
tax purposes. The differences relate primarily to installment sales,
inventory and warranty reserves, reserve for doubtful accounts and
depreciation.
The Company intends to reinvest its share of the undistributed earnings of
its majority owned foreign subsidiaries. Therefore, it makes no provision
for additional U.S. taxes, which might result from distribution of such
earnings unless they are actually repatriated. At May 31, 1989, the
cumulative amount of earnings from subsidiaries on which the Company has
not provided U.S. income taxes was approximately $2,400,000.
Statement of Financial Accounting Standards No. 96, "Accounting for Income
Taxes" (FAS No. 96), was issued in December 1987. The Company is required
to adopt the statement for its fiscal year ending May 31, 1991, although
early adoption is allowed. The change in accounting required by the
statement is not expected to have a material effect on the Company's
financial position or results of operations.
NET INCOME (LOSS) PER SHARE:
Net income per share has been computed using the treasury stock method
after considering the dilutive effect of stock options and warrants. Net
loss per share has been computed using the weighted average shares of
Common Stock outstanding as the affect of stock options and warrants is
antidilutive.
Continued
8
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-----------
2. INVENTORIES:
Inventories at May 31 comprise:
1988 1989
------ -------
(in thousands)
Raw materials and subassemblies $3,590 $3,028
Work in process 3,581 7,559
Finished product 1,615 973
------ -------
$8,786 $11,560
------ -------
------ -------
Included in work-in-process at May 31, 1989 and September 30, 1989 are
deferred Costs of $1,673,000 and $2,361,000, respectively, related to new
burn-in test equipment being developed and built by the Company under
contract. Deferred costs primarily include manufacturing direct material,
direct labor and overhead and tooling, and exclude research and development
that is expensed as incurred. This production contract is accounted for
under the units of delivery method. The latest scheduled delivery date
was August 15, 1989. Development problems have been experienced, which have
delayed shipment of the equipment. Additional development problems could
be encountered in the future, which could further delay shipment and
possibly lead to order cancellations. Initial product acceptance procedures
are expected to commence in December 1989. Management believes it will
meet its obligations under the contract. Currently, the contract may be
canceled by the customer in the event of noncompliance with the required
delivery schedule and the Company may incur a significant loss if the
contract. is canceled. Related progress payments received under the
contract of $197,000 included in customer deposits as of May 31, 1989, and
$874,000 received during June 1989, might be refundable in the event of the
customer's cancellation of the contract.
Continued
9
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-----------
3. PROPERTY AND EQUIPMENT:
Property and equipment as of May 31, at cost, including equipment under
capital leases entered into during fiscal 1989 (cost of $683,000, less
accumulated amortization of $84,000 at May 31, 1989), comprises:
1988 1989
------ ------
(in thousands)
Leasehold Improvements $ 896 $ 982
Furniture and fixtures 2,117 2,395
Machinery and equipment 2,718 3,096
Test equipment 1,861 2,285
------ ------
7,592 8,758
Less accumulated deprecation and
amortization 3,675 4,773
------ ------
$3,917 $3,985
------ ------
------ ------
4. OPTION TO PURCHASE MINORITY INTEREST IN SUBSIDIARY:
In fiscal 1982, the Company and an individual formed a Japanese corporate
joint venture to manufacture, import, export and sell the Company's
products. The Company his an option to purchase the individual's initial
50% interest through March 1, 1997 at specified prices based on the
joint venture's future earnings. Joint venture interests acquired. by
the Company upon formation and subsequent exercises of its option are as
follows:
Interest Cost
-------- ------
(in thousands)
Formation 50.0% $ 242
Fiscal 1987 13.9 695
Fiscal 1988 4.9 147
Fiscal 1989 9.8 295
---- ------
Balances, May 31, 1989 78.6% $1,379
---- ------
---- ------
Continued
10
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-----------
4. OPTION TO PURCHASE MINORITY INTEREST IN SUBSIDIARY, continued:
Prior to the Company's initial exercise of its option in fiscal
1987, the Company accounted for its investment using the equity
method. Subsequently, the joint venture has been consolidated with the
Company and each purchase under the option has been accounted for as a
step purchase. The cost in excess of the fair value of the net
assets acquired of $692,000 is being amortized on a straight-line
basis over 20 years and is included in other assets, net of
accumulated amortization of $117,000 at May 31, 1989.
5. JOINT VENTURE:
In June 1989, the Company's majority owned Japanese subsidiary formed a
joint venture with a U.S. company for the purpose of marketing certain
products and technology in Japan and to develop and manufacture
products particular to the Japanese market. The joint venture
corporation is equally owned by the two corporate partners with each
contributing 50,000,000 yen of capital (approximately $350,000), which
was contributed on May 29, 1989 and is included in other assets as of
May 31, 1989.
6. NOTES PAYABLE:
At May 31, 1988 and 1989 short-term bank borrowings totaled $7,357,000
and $7,275,000, respectively. These outstanding borrowings at May 31, 1989
were comprised of short-term bank loans to the Company's majority
owned subsidiary totaling $4,270,000 at a weighted average interest
rate of 5.2%, secured by inventories, and $3,005,000 under the
Company's revolving line of credit (see below) at prime plus 2% (13.5%
at May 31, 1989).
Continued
11
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-----------
6. NOTES PAYABLE, Continued:
As of May 31, 1989 and through September 19, 1989, the Company's
revolving line of credit provided for maximum borrowings of up to the
lesser of $3,500,000 or 60% of eligible accounts receivable. Borrowings
under this agreement, renewed on September 20, 1989 (see Note 15), bore
interest at 2.0% in excess of the bank's reference rate (a total of
13.5% as of May 31, 1989) and were collateralized by accounts
receivable, inventories, certain property and equipment and other assets
of the Company. Under this agreement, the Company was required to
maintain certain financial ratios, profitability on a quarterly basis
and an average compensating balance of $200,000. The compensating
balance did not constitute a legal restriction on the Company's cash and
to the extent it was not maintained, the bank would charge a fee based
on an interest formula contained within the agreement.
7. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
Long-term debt as of May 31, 1989 of $1,651,000 consists of an equipment
loan, evidenced by a promissory note, payable to a financing company
bearing interest at 12.8% per annum. The loan is payable in equal
monthly principal and interest installments of $48,146 through December
1992 and is collateralized by the Company's property and equipment. Under
the loan agreement, the Company must pay a prepayment penalty of
approximately 4% to 5% of the outstanding principal balance in the
event of full prepayment between January 1990 and December 1992.
Capital lease obligations as of May 31, 1989 of $583,000 consist of
various leases payable in installments through fiscal 1994 at a
weighted average interest rate of 11.3% per annum.
Principal payments under long-term debt and capital lease obligations for
each of the next five years as of May 31, 1989 are as follows:
1990 $555
1991 632
1992 646
1993 387
1994 14
Continued
12
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-----------
8. ACCRUED EXPENSES:
Accrued expenses at May 31 comprise:
1988 1989
------ ------
(in thousands)
Commissions $ 274 $ 203
Warranty 147 93
Payroll 554 899
Vacation 284 286
Other 213 569
------ ------
$1,472 $2,050
------ ------
------ ------
9. COMMITMENTS:
The Company leases most of its present manufacturing and office space under
operating leases which expire between fiscal 1990 and 1992. Under the
terms of certain leases, the rentals will be adjusted upward every
two years based on the Consumer Price Index but with increases not to
exceed 14% for any adjustment. The leases contain renewal options whereby
the Company may extend the lease term for up to an additional five years.
In addition, the Company is required to pay for insurance, taxes and
maintenance of the property. The Company is subleasing a portion of this
space under noncancelable subleases expiring in 1991.
Minimum annual rentals payable under operating leases in each of the next
five fiscal years (in thousands) are as follows:
1990 $1,307
1991 1,226
1992 338
1993 15
1994 9
------
2,895
Less rentals receivable under subleases 118
------
$2,777
------
------
Rent expense for the years ended May 31, 1987, 1988 and 1989 was
approximately $1,229,000, $1,303,000 and $1,405,000, respectively.
Continued
13
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-----------
9. COMMITMENTS, Continued:
The Company's Japanese subsidiary discounts notes receivable at banks in
the ordinary course of business. The proceeds of such discounting for
the years ended May 31, 1987, 1988 and 1989 were approximately
$4,533,000, $4,524,000 and $3,507,000, respectively. As of May 31, 1989
there were no trade notes receivable discounted at banks.
10. SHAREHOLDERS' EQUITY:
In September 1988, the Company amended its Articles of Incorporation to
authorize the issuance of 10,000,000 shares of preferred stock, and
75,000,000 shares of common stock, and to assign a par value of $.01
to each share. The Board of Directors is authorized to determine the
rights of the preferred stockholders.
The financial statements have been restated to reflect this change.
11. COMMON STOCK:
Approximately 925,000 shares of common stock outstanding at May 31, 1989
have certain registration rights which are exercisable.
During fiscal 1987, the Company issued warrants to purchase 16,000 shares
of common stock at $6.00 per share to members of the Company's Board of
Directors. These transferable warrants, valued at $.60 each, are
exercisable at any time and expire five years from date of issuance. As of
May 31, 1989, the Company has reserved 16,000 shares of its common stock
for issuance upon exercise of these warrants.
Continued
14
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-----------
12. STOCK OPTIONS:
The Company has reserved 1,025,000 shares of common stock for issuance to
employees and paid consultants under its three stock option plans. All
three plans provide that qualified options be granted at an exercise price
equal to the fair market value at the date of grant, as determined by
the Board of Directors (85% of fair market value in the case of
nonstatutory options and purchase rights and 110% of fair market value in
certain circumstances). Qualified options expire five years from date
of grant, nonqualified options ten years from date of grant, and stock
purchase rights six months from date of grant. Most options become
exercisable in increments over a four-year period from the date of grant.
Options to purchase approximately 121,000 shares were exercisable at
May 31, 1989.
Activity under the three plans was as follows:
Optioned Shares
Reserved But --------------------------
Unoptioned Number of Price
Shares Shares Per Share Total
------------ --------- --------- -----
(in thousands, except per share data)
Balances
June 1, 1986 77 166 $4.00 to $10.00 $1,151
Increase in
options available
under plans 250
Options granted (115) 115 $6.00 to $10.00 736
Options terminated 110 (110) $6.00 to $10.00 (891)
---- ---- ------
Balances,
May 31, 1987 322 171 $4.00 to $10.00 996
Options granted (113) 113 $6.00 682
Options exercised (5) $4.00 (20)
Options terminated 19 (19) $6.00 to $10.00 (124)
---- ---- ------
Balances,
May 31, 1988 228 260 $4.00 to $10.00 1,534
Options granted (84) 84 $6.00 504
Options exercised (1) $6.00 (5)
Options terminated 100 (100) $4.00 to $10.00 (552)
---- ---- ------
Balances,
May 31, 1989 244 243 $4.00 to $6.00 $1,471
---- ---- ------
---- ---- ------
Continued
15
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-----------
13. EMPLOYEE STOCK BONUS PLAN:
The Company has a noncontributory, trusteed employee stock bonus plan for
full-time employees. The intent of the Company is to contribute shares of
the Company's stock to the plan, although the plan also allows cash
contributions. The contribution is determined annually by the Company and
cannot exceed 15% of the annual aggregate salaries of those employees
eligible for participation in the plan. Individuals' account balances vest
at a rate of 25% per year commencing upon completion of three years of
service. Nonvested balances which are forfeited are allocated to the
remaining employees in the plan.
No contribution to the plan was authorized for the years ended May 31,
1987, 1988 and 1989.
14. PROVISION (BENEFIT) FOR INCOME TAXES:
The provision benefit for income taxes consists of the following:
May 31,
---------------------------
1987 1988 1989
------- ----- ------
(in thousands)
Federal income taxes:
Current $(1,047) $(400) $ 547
Deferred (18) (269) (125)
State income taxes:
Current 151
Deferred (63)
Foreign income taxes:
Current 224 1,303
Deferred (323) (1)
------- ----- ------
$(1,388) $(445) $1,812
------- ----- ------
------- ----- ------
The Company's effective tax (benefit) rate differs from the U.S. federal
statutory tax (benefit) rate as follows:
May 31,
---------------------------
1987 1988 1989
------- ----- ------
(in thousands)
Maximum statutory income tax (benefit)
rate (46.0)% (46.0)% 34.0%
Foreign income (loss) taxed
(benefited) at a higher (lower) rate (5.5) (4.4) 15.3
State taxes, net of federal tax effect 5.2
FSC earnings exempt from
federal taxes (6.6)
Other 0.2 3.2 2.2
----- ----- ----
Effective tax (benefit) rate (40.3)% (38.4)% 50.1%
----- ----- ----
----- ----- ----
Continued
16
<PAGE>
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-----------
15. SUBSEQUENT EVENT:
On September 20, 1989, the Company renewed its line of credit agreement
(see Note 6). The renewed agreement, renewable again on September 15,
1990, provides for maximum borrowings of up to the lesser of $5,000,000 or
80% of eligible accounts receivable, including a maximum of $500,000 in
standby letters of credit. Borrowings under the renewed agreement bear
interest at 0.75% in excess of the bank's reference rate. Other
provisions of the renewed agreement are similar to those of the previous
agreement.
Continued
17
<PAGE>
EXHIBIT 3.15
EMPLOYMENT AGREEMENT
REGARDING PROPRIETARY DEVELOPMENTS
AND CONFIDENTIAL INFORMATION
Name:
------------------
(Type or Print)
1. I am a paid employee of Aehr Test Systems (the "Company").
2. This Agreement concerns inventions, improvements, data, processes, computer
software programs and discoveries (hereinafter called "Proprietary
Developments") that are conceived or made by me alone or with others while
I am employed by the Company; and that relate to the research and
development or the business of the Company, or result form tasks assigned
to me by the Company. Such Proprietary Developments are the sole property
of the Company, and I agree:
a. To disclose them promptly to the Company;
b. To assign them to the Company; and
c. To execute all documents and do all things necessary to assist
the Company in obtaining patent, copyright and/or trade secret
protection in all countries, the Company to pay the expenses.
3. This Agreement also concerns trade secrets, confidential business and
technical information, and know-how not generally known to the public, that
are acquired or produced by me in connection with my employment by the
Company. As to these, I agree:
a. To use them only in the performance of the Company's duties; and
b. To hold them in confidence and trust, and to use all reasonable
precautions to assure that they are not disclosed to unauthorized
persons or used in an authorized manner, both during and after my
employment with the Company.
4. Upon termination of employment, I will not take with me any documents or
materials of any nature relating to the subject matter described in
paragraphs 2 and 3 above.
5. This Agreement does not relate to any information which qualifies fully for
protection under Section 2870 of the California Labor Code. A copy of
Section 2870 of the California Labor Code is attached hereto as Exhibit A.
6. The above provisions shall be separately construed. If any of them is
held to be unenforceable, the remaining provisions shall not be affected.
-----------------------------
(Signature)
-----------------------------
(Date)
WITNESS:
- -----------------------------
<PAGE>
EXHIBIT A
CALIFORNIA LABOR CODE SECTION 2870
EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS
"Any provision in an employment agreement which provides that an employee
shall assign or offer to assign any of his or her rights in an invention to his
or her employer shall not apply to an invention for which no equipment,
supplies, facility, or trade secret information of the employer was used and
which was developed entirely on the employee's own time, and (a) which does not
relate (1) to the business of the employer or (2) to the employer's actual or
demonstrably anticipated research or development, or (b) which does not result
from any work performed by the employee for the employer. Any provision which
purports to apply to such an invention is to that extent against the public
policy of this state and is to that extent void and unenforceable."
<PAGE>
EXHIBIT 3.16
AEHR TEST SYSTEMS
SHAREHOLDERS LIST
February 2, 1990
Cert Total
Name No. Date Shares Shares
- ---------------------------------- -------- -------- -------- ---------
Aehr Test Systems
Employee Stock Bonus Plan 273 08/15/95 23,800
155 Constitution Dr. 327 03/03/86 27,751
Menlo Park, CA 94025 355 09/22/86 11,124
357 06/26/86 18,965
358 10/10/86 3,055
394 11/09/87 4,677
445 02/01/89 20,428
465 11/13/89 2,333 112,133
Allen Amsbaugh and 80 04/21/82 4,000 4,000
Judith Amsbaugh, JTWROS
900 Menlo Oaks Drive
Menlo Park, CA 94025
A.T. Venture Investments 343 05/12/86 3,000 3,000
c/o Robert Salipante
900 Euclid Avenue, T-18
Cleveland, OH 44101
Hasamichi Ariga 330 03/07/86 4,455
c/o ATS Japan 383 09/01/87 4,455
19-25, 1-Chome 431 08/23/88 4,455
Shimura, Itabashi-ku 454 04/05/89 4,455 17,820
Tokyo, 174 Japan
Ross Atwood 216 11/12/84 1,000 1,000
305 St. James Drive
Piedmont, CA 94611
Janet Palm Higginbotham Bailey 40 08/10/79 500 500
223 More Avenue
Los Gatos, CA 95030
Edward Barlow 391 11/09/87 134 134
1533 Orillia Court
Sunnyvale, CA 94087
<PAGE>
Cert Total
Name No. Date Shares Shares
- ---------------------------------- -------- -------- -------- ---------
Patricia J. Battaglia and 222 12/03/84 1,100 1,100
Biogio G. Battaglia,
Joint Tenants
706 Hillcrest Way
Redwood City, CA 94062
Robert and Dorothy Bechler 306 11/21/85 200 200
3455 Santa Rosa Blvd., #30
Santa Rosa, CA 95407
Robert R. Berry 29 08/10/79 1,500
201 Cuesta Dr., Apt. 11 335 03/03/86 1,000
Los Altos, CA 94022 336 03/03/86 1,000
337 03/03/86 1,000
338 03/03/86 1,000 5,550
Mark A. Bertelsen 138 03/07/83 3,130 3,130
2 Palo Alto Square, Suite 900
Palo Alto, CA 94306
Keith Blackey 389 11/09/87 624 624
1032 Shoreline Drive
San Mateo, CA 94025
Charles W. Bishop 30 08/10/79 1,000
3091 Chardonnay 217 11/12/84 3,000 4,000
Pleasanton, CA 94566
John and Joyce Boscacci 305 11/21/85 1,000
1355 Monterey Boulevard 364 12/09/86 1,000 2,000
San Francisco, CA 94127
Bernard Bouyea and Margo 225 12/03/84 555 555
Bouyea, Joint Tenants
166 Shell Street
Pacifica, CA 94044
Roger D. Bouyea and
Lorraine M. Bouyea, his wife, 315 11/21/85 100,000
as their Community Property 317 11/21/85 5,000
1000 North Point Street, #1001 318 11/21/85 5,000
San Francisco, CA 94109 322 11/21/85 1,704
365 12/09/86 13
470 11/24/89 2,980 114,697
<PAGE>
Cert Total
Name No. Date Shares Shares
- ---------------------------------- -------- -------- -------- ---------
John Bouyea, Jr. 172 08/04/83 1,660
2615 Lincoln Way 440 12/06/88 835
San Francisco, CA 94122 469 11/24/89 505 3,000
Roger Bouyea, Jr. 171 08/04/83 1,660
2141 Hillview Drive 439 12/06/88 835
Walnut Creek, CA 94596 468 11/24/89 505 3,000
Ronald E. Boyd 231 12/05/84 9,500 9,500
24390 Summerhill Road
Los Altos Hills, CA 94022
Richard Bracken 393 11/09/87 61 61
138 Wilmar Way
Los Gatos, CA 95030
Verna L. Brame 201 04/18/84 5,000 5,000
322 Cuardo Avenue
Millbrae, CA 94030
Verna L. Brame Trustee 282 09/27/85 154,900 154,900
Verna L. Brame Trust
U/D/T dated May 20, 1983
322 Cuardo Ave.
Millbrae, CA 94030
Clarence M. Brehm 285 09/27/85 5,000 5,000
1047 Mango Ave.
Sunnyvale, CA 94087
Faye Crawford Bremond, 159 05/30/83 3,750 3,750
Trustee of the Faye Crawford
Bremond Separate Property Trust
U/D/T January 6, 1983
101 Catalpa Drive
Atherton, CA 94025
Harry B. Bremond 145 03/08/83 3,750 3,750
2 Palo Alto Square, Suite 900
Palo Alto, CA 94306
J. Edwin Brooks 187 10/07/83 2,114 2,114
50 Pasatiempo Drive
Santa Cruz, CA 95060
<PAGE>
Cert Total
Name No. Date Shares Shares
- ---------------------------------- -------- -------- -------- ---------
Barbara J. Brown 151 05/27/83 400 400
1855 Graham Lane
Santa Clara, CA 95050
T. Steven Brown and 20 07/20/79 5,000
Elizabeth Brown JTWROS 86 04/21/82 20,000 25,000
11822 Paseo Lucido, #2020
San Diego, CA 92128
Carl M. Buck 232 12/28/84 1,000 1,000
Aehr Test Systems
155 Constitution Drive
Menlo Park, CA 94025
Robert R. Buck 233 12/28/84 500 500
167 Pleasant Avenue
Fenwood, NJ 07023
Louis J. Cartalano 32 08/10/79 1,000
750 Sunshine Dr. 87 04/21/82 64,000
Los Altos, CA 94022 158 05/30/83 6,000
202 04/18/84 6,500
239 12/28/84 30,000
367 12/18/86 3,000 110,500
John Case 236 12/28/84 2,000 2,000
The Case Companies
969 Buenos Avenue
San Diego, CA 92110
(Dr.) Stanton M. Charney and 420 09/19/88 5,000
Freya Charney, Trustees of the 422 09/19/88 4,125
Stanton M. Charney Family 424 09/19/88 1,104
Trust U/T/A dated 10/2/75 426 09/19/88 4,561 14,790
4 Surrey Lane
Atherton, CA 94025
Charles T. C. Compton 344 07/17/86 175 175
27855 Via Ventana
Los Altos Hills, CA 94022
Continental Trust Company 385 11/09/87 3,000 3,000
Trustee FBO Fred M. Pilster, IRAR
P.O. Box 809009
Dallas, TX 75380
<PAGE>
Cert. Total
Name No. Date Shares Shares
- ---------------------------------- -------- -------- -------- ---------
Hewitt D. Crane 428 09/19/88 1,905 1,905
25 Cordova Court
Portola Valley, CA 94025
Gene S. Crockett 78 04/15/82 3,000
1200 Mosswood 88 04/21/82 12,000 15,000
Irving, Texas 75061
John Cruse and Carol 226 12/03/84 277 277
Cruse, Joint Tenants
1380 Flores Drive
Pacifica, CA 94044
Carol A. Decker 152 05/27/83 250
P.O. Box 692 243 01/07/85 5,000 5,250
Pollock Pines, CA 95726
Alice Jane Edge 366 12/18/86 2,000 2,000
149 Eunice
Mountain View, CA 94040
William W.R. Elder, Trustee of 430 09/19/88 2,500 2,500
the William W.R. Elder Separate
Property Trust, U/D/T dated
April 18, 1983
19485 Montevina Road
Los Gatos, CA 95030
Dr. R. Cameron Emmott 168 07/26/83 100 100
315 Berroilnet Avenue
San Mateo, CA 94402
James Fadimen 129 09/20/82 3,375
1070 Colby Ave. 130 09/21/82 6,000 9,375
Menlo Park, CA 94025
James Fadiman, Trustee 26 07/20/79 5,000
UAD 6/1/68 f/b/o CHRISTINE E. 283 09/27/85 7,500 12,500
CROSBY TRUST #2
P.O. Box 1032
Menlo Park, CA 94025
<PAGE>
Cert. Total
Name No. Date Shares Shares
- ---------------------------------- -------- -------- -------- ---------
James Fadiman, Trustee 27 07/20/79 5,000
UAD 3/1/79 f/b/o TAMARA E. 284 09/27/85 7,500 12,500
CROSBY TRUST #2
P.O. Box 1032
Menlo Park, CA 94025
Andree P. Feldmann 340 03/03/86 1,500
242 Watson Avenue 449 04/30/89 6,000 7,500
Monterey, CA 93940
Ferlic Investments, Ltd. 182 10/12/83 1,000 1,000
c/o Randolph M. Ferlic
309 Doctor Building
Omaha, NE 68131
Patrick K. Flaherty 326 03/03/86 369 369
390 Echo Drive
Los Altos, CA 94022
Wiliam R. Franke and 93 04/21/82 30,000
Barbara J. Franke, JTWROS 253 02/20/85 4,500 34,500
P.O. Box 722
Kenwood, CA 95452
Trina Anne Franke 252 02/20/85 1,000 1,000
P.O. Box 722
Kenwood, CA 95452
David Garaviglia 463 11/13/89 202 202
- ----------------------------------
- ----------------------------------
Frank J. George and 24 07/20/79 10,000
Evelyn E. George 36 08/10/79 1,000
3716 Kenwood Ave. 94 04/21/82 44,000 55,000
San Mateo, CA 94403
William P. Gilbreath and 37 08/10/79 1,500
Vibeke Gilbreath, JTWROS 95 04/21/82 6,000 7,500
1624 Petal Way
San Jose, CA 95129
Susan Golden 300 10/08/85 93 93
1722 Valpico Drive
San Jose, CA 95124
<PAGE>
Cert. Total
Name No. Date Shares Shares
- ---------------------------------- -------- -------- -------- ---------
John Goodrich 241 12/28/84 4,687 4,687
2 Palo Alto Square, Suite 900
Palo Alto, CA 94306
Margaret K. Goodrich 240 12/28/84 4,688 4,688
21132 Patriot Way
Cupertino, CA 95014
James Grant 442 11/17/88 35 35
534 Madison Ave.
Redwood City, CA 94061
Peter Tyler Hall 96 04/21/82 76,000
c/o Dean Witter Reynolds 134 02/17/83 3,000
720 Santa Cruz Avenue 286 09/27/85 1,000
Menlo Park, CA 94025 402 01/28/88 400
409 08/12/88 800 81,200
Takahiro Hatakenaka 267 08/12/85 7,800
c/o ATS Japan 328 03/07/86 12,028
19-25, 1-Chome 384 09/01/87 12,028
Shimura, Itabashi - Ku 432 08/23/88 12,028
Tokyo, 174 Japan 455 04/05/89 12,028 55,912
Martin J. Held, Trustee of 453 06/14/89 500 500
M.J. Held & Associates,
Incorporated Profit Sharing Trust
IQ #68-007184
160 Shoreline Highway, Suite 958
Mill Valley, CA 94941
Alan Helgesson 166 07/05/83 30,000
505 Cypress Point Dr., #169 404 03/16/88 12,500 42,500
Mt. View, CA 94043
Jack Edward Hubbell 410 08/12/88 800 800
14388 Liddicoate Drive
Los Altos Hills, CA 94022
Richard Jensen 397 12/01/87 500 500
367 Mandell Way
Los Altos, CA 94022
Jack and Carleta Jones 394 11/16/87 150 150
616 Morningside
Los Altos, CA 94022
<PAGE>
Cert Total
Name No. Date Shares Shares
- ---------------------------------- -------- -------- -------- ---------
Allan King 234 12/28/84 1,000 1,000
1542 Winding Way
Belmont, CA 94022
Bruce C. Keller 301 10/08/85 93 93
6339 Broadway, #306
Oakland, CA 94618
Ralph W. Kummer 57 03/26/80 1,200
Post Office Box 420 100 04/21/82 4,800 6,000
Colfax, CA 95713
Teruo Kunugi 299 10/08/85 9,800
c/o ATS Japan 329 03/07/86 5,346
19-25, 1-Chome 382 09/01/87 5,346
Shimura, Habashi-Ku 433 08/23/88 5,346
Tokyo, 174 Japan 456 04/05/89 5,346 31,184
Charles F. LaBrecque 77 04/18/82 1,000
302 Old Westford Road 101 04/21/82 4,000
Chelmsford, MA 01824 126 06/16/82 2,500
135 03/04/83 1,000 8,500
Thomas Lee 332 04/10/86 77,780 77,780
128 Escobar Road
Portolo Valley, CA 94025
Barbara Long, Trustee 160 05/30/83 5,000
of the Kevin Allen 411 08/23/88 1,800 6,800
Torresdal Trust I
U/T/A dated 5/30/83
3828 Hamilton Way
Redwood City, CA 94062
Barbara Long, Trustee 161 05/30/83 5,000
of the Candice Ann 412 08/23/88 1,800 6,800
Torresdal Trust I
U/T/A dated 5/30/83
3828 Hamilton Way
Redwood City, CA 94062
Barbara Long, Trustee 162 05/30/83 5,000
of the Kyler David 413 08/23/88 1,800 6,800
Torresdal Trust I
U/T/A dated 5/30/83
3828 Hamilton Way
Redwood City, CA 94062
<PAGE>
Cert Total
Name No. Date Shares Shares
- ---------------------------------- -------- -------- -------- ---------
Barbara Long, Trustee 163 05/30/83 5,000
of the Eric Nels 414 08/23/88 1,800 6,800
Torresdal Trust I
U/T/A dated 5/30/83
3828 Hamilton Way
Redwood City, CA 94062
Barbara Long, Trustee 164 05/30/83 5,000
of the Brock Frank 415 08/23/88 1,800 6,800
Torresdal Trust I
U/T/A dated 5/30/83
3828 Hamilton Way
Redwood City, CA 94062
Harvey Long and Barbara 228 12/03/84 1,200 1,200
Long, Joint Tenants
3828 Hamilton Way
Redwood City, CA 94062
Frank and Josephine Luporini 196 03/27/84 3,750 3,750
1324 Hover
Menlo Park, CA 94025
Dana Marie Mahoney 251 02/20/85 1,000 1,000
P.O. Box 722
Kenwood, CA 95452
Paul Margolin 41 08/10/79 5,000
P.O. Box 2302 106 04/21/82 20,000 25,000
16 Tall Oaks Drive
Wayne, New Jersey 07470
Renzo Maraviglia and 223 12/03/84 775 775
Joan M. Maraviglia, Joint Tenants
301 Heather Way
South San Francisco, CA 94080
Victoria Martinez 464 11/13/89 24 24
2875 White Acres Drive
San Jose, CA 95148
James S. Mathews 76 04/15/82 1,000
26 Spruce Lane 103 04/21/82 4,000
Holden, WA 01520 127 06/16/82 2,500 7,500
<PAGE>
Cert Total
Name No. Date Shares Shares
- ---------------------------------- -------- -------- -------- ---------
Mayfield III 50 09/11/79 20,000
2200 Sand Hill Road, Suite 200 61 07/21/80 18,000
Menlo Park, CA 94025 73 08/11/81 5,000
104 04/21/82 172,000
132 11/23/82 10,000
197 04/12/84 58,824 283,824
Martina McGlynn as 63 07/24/80 25
Custodian for Kathleen 105 04/21/82 100 125
Ann McGlynn (UGMA)
440 Coleridge
Palo Alto, CA 94301
Alexandria Jean McGurn 125 05/27/82 12,000
6210 Agee Street, #237 369 12/31/86 2,000 14,000
San Diego, CA 92122
James F. McGurn 124 05/27/82 12,000
c/o MACS Corp. 191 11/04/83 3,000
9292 Chesepeake Dr. 368 12/31/86 1,000 16,000
San Diego, CA 92123
Linda C. Miller 249 02/15/85 1,000 1,000
2225 Vineyard Court
Los Altos, CA 94022
Shigeru Miyazaki 446 03/01/89 437 437
2-22-11 Kamisho Kujiicho
Berima-ku, Tokyo
Pamela Moon 437 12/06/88 2,495
197 Ramona Avenue 466 11/24/89 505 3,000
Pacifica, CA 94044
Vanda Morello 392 11/09/87 79 79
555 Jeter Street
Redwood City, CA 94062
John Spencer Morse and Annette 175 08/30/83 50,000
Ruth Morse, Trustees of the 260 04/16/85 3,000
John Spencer Morse and 362 11/14/86 1,643 54,643
Annette Ruth Morse Trusts,
U/D/T dated December 23, 1982
15463 El Camino Grande
Saratoga, CA 95070
<PAGE>
Cert. Total
Name No. Date Shares Shares
- ---------------------------------- -------- -------- -------- ---------
Richard W. and Nell Neil 321 11/21/85 300 300
600 Meadowood Lane
St. Helena, CA 94594
Walter Neumann 153 05/27/83 300
1339 Lorida Way 242 01/04/85 10,000 10,300
Pacifica, CA 94044
Walter F. Neumann and Susan 53 01/02/79 500 500
Gardner Neumann, JT TEN WROS
1339 Lorida Way
Pacifica, CA 94044
Timothy F. O'Brien and Pearl 363 12/09/86 300 300
O'Brien, as Community Property
1709 Pine Knoll Drive
Belmont, CA 94022
F.D. Orahood 14 07/20/79 25,000
16882 Bolsa Chica Road 48 08/20/79 2,500
Huntington Beach, CA 92649 110 04/21/82 110,000 137,500
Leonard E. Orsak and 52 11/02/79 1,000
Marjorie L. Orsak 111 04/21/82 4,000 5,000
JT TEN WROS
241 Biarritz Circle
Los Altos, CA 94022
Douglas A. Owen, Trustee for 459 08/04/89 2,000 2,000
Douglas Owen Search Consultants
Profit Sharing Plan
3000 Sand Hill Road, 2-120
Menlo Park, CA 94025
Vivian H. Owen 4 07/20/79 5,000
1736 Terrace 112 04/21/82 20,000
Belmont, CA 94002 181 09/21/83 15,000 40,000
Diane R. Pagani 460 08/11/89 100,000 100,000
22140 Cedar Springs Road
Twain Harte, CA 95383
<PAGE>
Cert. Total
Name No. Date Shares Shares
- ---------------------------------- -------- -------- -------- ---------
Joseph F. Pickering, Trustee 67 05/07/81 2,375
of the Joseph F. Pickering and 114 04/21/82 9,500 11,875
Helen D. Pickering Trusts U/D/T
dated 1/12/77
c/o Rollins, Burdick, Hunter
P.O. Box 51110
Palo Alto, CA 94303
Frank and Donna Pitto, Sr. 307 11/21/85 500 500
445 Keith Court
Walnut Creek, CA 94596
Frank Pitto, Sr., Custodian 309 11/21/85 50 50
for John Frank Pitto under
the California Uniform
Transfers to Minors Act
445 Keith Court
Walnut Creek, CA 94596
Frank Pitto, Sr., Custodian 308 11/21/85 50 50
for John Frank Pitto under
the California Uniform
Transfers to Minors Act
445 Keith Court
Walnut Creek, CA 94596
Anne Popylisen 441 10/27/88 50 50
424 Paula Court, #15
Santa Clara, CA 95050
Rhea J. Posedel 1 07/20/79 125,000
1736 Terrace 25 07/20/79 2,500
Belmont, CA 94002 58 04/17/80 2,500
62 07/21/80 32,000
65 06/24/80 5,000
115 04/21/82 668,000
200 04/18/84 25,000
342 05/12/86 27,000 887,000
Carol A. Preble 154 05/27/83 300 300
19973 Peartree Ct.
Cupertine, CA 95014
Craig Ringener 408 08/02/88 416 416
408 Canyon Ridge Dr.
Richardson, TX 75080
<PAGE>
Cert. Total
Name No. Date Shares Shares
- ---------------------------------- -------- -------- -------- ---------
Rosanna McClure Roedder 190 10/21/83 15,000 15,000
Schonauerstrasse No. 19
5206 Wolperath
West Germany
M.M. Rosati & D. M. Laurice 264 05/15/85 5,000
Trustees FBO Mario M. Rosati 333 03/03/86 2,000
Wilson, Sonsini, Goodrich & 341 03/03/86 1,000
Rosati 374 05/14/87 2,343
Two Palo Alto Square, Ste. 900 378 07/28/87 7,657
Palo Alto, CA 94306 450 04/30/89 2,000 20,000
Mario M. Rosati & Sally J. 407 05/29/88 4,722
Rosati, Trustees of the 417 09/19/88 333
Mario M. & Sally J. Rosati 419 09/19/88 3,000
Trust, UDT 9/30/76, as amended 421 09/19/88 4,125
Wilson, Sonsini, Goodrich & 423 09/19/88 1,104
Rosati 425 09/19/88 4,561
Two Palo Alto Square, Suite 900 427 09/19/88 1,903
Palo Alto, CA 94306 429 09/19/88 2,500
451 04/30/89 2,000
452 01/13/89 667 26,917
Rutven Associates I, L.P. 198 04/16/84 8,824 8,824
c/o Cornerstone Management
2420 Sand Hill Road, #202
Menlo Park, CA 94025
Attn: Barbara Anderson
Rutven Associates II, L.P. 199 04/16/84 5,882 5,882
c/o Cornerstone Management
2420 Sand Hill Road, #202
Menlo Park, CA 94025
Attn: Barbara Anderson
Marvin R. Samuel and 117 04/21/82 20,000 20,000
Margery F. Samuel, JTWROS
471 Panchita Way
Los Altos, CA 94022
Ramona Lee Santos 250 02/20/85 1,000 1,000
32 Escanyo Drive
So. San Francisco, CA 94080
Carol C. Scott 155 05/27/83 500 500
21200 Todd Valley Road, #160
Foresthill, CA 95631
<PAGE>
Cert Total
Name No. Date Shares Shares
- ------------------------- -------- -------- --------- -------
Richard F. Sette 271 08/12/85 1,000
45425 Potawatami Drive 356 09/30/86 500
Fremont, CA 94539 390 11/09/87 296
406 04/12/88 3,200 4,996
Charles E. Shalvoy 401 01/05/88 4,000
111 Selby Lane 458 05/31/89 35,000 39,000
Atherton, CA 94025
Charles E. Shalvoy, Sr. 244 01/11/85 500 500
or Helen M. Shalvoy, JT WROS
17910 Villamoure Drive
Poway, CA 92064
James A. Shalvoy, Trustee of 347 07/11/86 2,000
the Alexandra Miller Shalvoy 399 12/31/87 3,000
1986 Trust, U/T/A dated 400 01/05/88 3,000 8,000
7/11/86
115 19th Place
Manhattan Beach, CA 90266
James A. Shalvoy, Trustee 218 11/13/84 2,300
of the Brenton O. Shalvoy, 263 05/13/85 2,300
Trust I UTA dated July 25, 1984 346 07/11/86 2,000
115 19th Place 398 12/31/87 1,400 8,000
Manhattan Beach, CA 90266
Saburo Shikano 269 08/12/85 4,900
c/o ATS Japan 331 03/07/86 2,674
19-25, 1-Chome 381 09/01/87 2,674
Shimura, Itabashi-Ku 434 08/23/88 2,674
Tokyo, 174 Japan 457 04/05/89 2,674 15,596
Frances Ellen Sloyer, Trustee 462 09/12/89 1,000 1,000
U/D/T dated 10-26-82
2920 Lakemont Drive
Fallbrook, CA 92028
Peter Spire 435 09/29/88 1,000 1,000
3356 La Mesa #2
San Carlos, CA 94070
Martin C. Sturzenbecker 220 11/30/84 250 250
1 Michael Court
Carmel, NY 10512
<PAGE>
Cert Total
Name No. Date Shares Shares
- ------------------------- -------- -------- --------- -------
Summit Investors, L.P. 280 09/19/85 223
c/o Summit Partners, L.P. 296 09/27/85 1,013 1,238
One Boston Place
Boston, MA 02108
Summit Ventures, L.P. 278 09/19/85 30,002
One Boston Place 294 09/27/85 150,455 180,457
Boston, MA 02108
SV Eurofund C.V. 279 09/19/85 19,773
c/o SV International, L.P. 295 09/27/85 99,157 118,930
One Boston Place
Boston, MA 02108
Mel Thomsen 174 08/08/83 1,250 1,250
555 Latimer Circle
Campbell, CA 95008
David Torresdal 120 04/21/82 263,000
and Betty Torresdal 210 10/05/84 5,000
427 Hillcrest Way 229 12/03/84 800
Redwood City, CA 94062 287 09/27/85 5,000 273,800
Thanh Tran Dinh 443 11/17/88 54 54
544 W. 4th Street
San Jose, CA 95112
Margo Tullus 170 08/04/83 1,660
636 La Casa Via 438 12/06/88 835
Walnut Creek, CA 94598 467 11/24/89 505 3,000
David and Margo Tullus, Sr. 310 11/21/85 366 366
636 La Casa Via
Walnut Creek, CA 94598
David and Margo Tullus, Sr. 313 11/21/85 55 55
Custodians for Andrew
Richard Tullus under the
Uniform Transfers to Minors Act
636 La Casa Via
Walnut Creek, CA 94598
<PAGE>
Cert Total
Name No. Date Shares Shares
- ------------------------- -------- -------- --------- -------
David and Margo Tullus, Sr. 312 11/21/85 110 110
Custodians for Bonwyn Pamela
Tullus under the California
Uniform Transfers to Minors Act
636 La Casa Via
Walnut Creek, CA 94598
David and Margo Tullus, Sr. 314 11/21/85 165 165
Custodians for David Shelton
Tullus
636 La Casa Via
Walnut Creek, CA 94598
Margo D. Tullus and 224 12/03/84 1,000 1,000
David Shelton Tullus,
Community Property
636 La Casa Via
Walnut Creek, CA 94598
Donna G. Widner 304 11/21/85 500 500
13 Adelphi Court
Sacramento, CA 95825
John A. Wilson and Nancy S. 405 03/28/88 10,625 10,625
Wilson, Trustees of the
Nancy S. and John A. Wilson
Family Trust U/D/T dated
October 27, 1987
2 Palo Alto Square, Suite 900
Palo Alto, CA 94306
Miriam E. Wolff Trust 290 09/27/85 9,000 9,000
Trust FBO Miriam E. Wolff
25623 Elena Rd.
Los Altos Hills, CA 94022
WS Investment Company 87A 371 05/14/87 3,040 3,040
Two Palo Alto Square, Suite 900
Palo Alto, CA 94306
Donald E. Yost and Patricia 370 04/20/87 2,500 2,500
Yost, Trustees of the Yost
Family Trust u/d/t dated 08/31/87
1860 Middleton Ave.
Los Altos, CA 94022
TOTAL OUTSTANDING 3,526,986
---------
---------
<PAGE>
AEHR TEST SYSTEMS
CAPITAL STOCK PURCHASE WARRANT HOLDERS
July 10, 1989
Exercise
No. of Price Expiration
Name Shares Per Share Date
- ---------------------------------- -------- --------- ----------
Robert R. Anderson 3,333 $ 6.00 12/31/92
KLA Instruments Corp.
2051 Mission College Blvd.
P.O. Box 58016
Santa Clara, CA 95052
Peter Tyler Hall 3,000 $ 6.00 05/06/92
c/o Dean Witter Reynolds
720 Santa Cruz Ave.
Menlo Park, CA 94025
David Torresdal 3,000 $ 6.00 05/06/92
c/o Davtron
427 Hillcrest Way
Redwood City, CA 94062
<PAGE>
Page 21
Outstanding Options, Warrants and Other Rights
to Purchase Shares of Common Stock
Exercise
Price Number
Description Per Share of Shares
- ---------------------------------- --------- ---------
Warrants $6.00 9,333
Amended 1978 Stock Option Plan $6.02(1) 61,250
Amended 1983 Incentive Stock Plan $6.00(1) 83,100
Amended 1986 Incentive Stock Plan $6.00 154,950
(1) Weighted Average
<PAGE>
EXHIBIT 4.1(k)
AEHR TEST SYSTEMS-JAPAN
FEBRUARY 9, 1990
MEMORANDUM OF TERMS FOR PRIVATE PLACEMENT OF COMMON STOCK
Aehr Test Systems-Japan, a corporation organized under the laws of Japan
("ATS-Japan") presently has 400,000 authorized shares of Common Stock, par value
Y500 per share. Before the closing of the Common Stock sale described below,
ATS-Japan will have 220,000 shares of Common Stock outstanding. No other shares
of stock, or options or warrants to purchase stock from ATS-Japan, will be
outstanding at the time of the closing.
ATS-Japan proposes a private placement of shares of Common Stock on the
following terms:
Aggregate Purchase Price: Y56,000,000
Number of Shares: 16,000 (see attached list
of purchasers)
Price Per Share: Y3,500
Information Rights: Until ATS-Japan completes a public offering
of shares in Japan ("Public Offering") and so
long as a purchaser holds all shares of
Common Stock initially purchased, ATS-Japan
will provide to the purchaser (i) an
unaudited semi-annual balance sheet and
income statement, (ii) an audited annual
balance sheet and income statement and
(iii) all other information concerning ATS-
Japan's finances or operations reasonably
requested by the purchaser. Any information
provided to a purchaser shall be subject to
standard confidentiality provisions.
<PAGE>
Transferability: Until a Public Offering, each share shall be
subject to ATS-Japan's right of first refusal
on any transfer, except a transfer pursuant
to a merger or sale of assets of the
purchaser, or a transfer among affiliated
entities.
Standoff: Each purchaser shall not purchase any more
shares of ATS-Japan, either from ATS-Japan or
its shareholders, without the prior consent
of ATS-Japan's board of directors.
Forced Sale: In the event of a Public Offering, if the
Company is required by law to sell such
number of shares as would result in Aehr Test
Systems, a California corporation, holding
less than 70% of the stock of ATS-Japan after
the completion of the Public Offering, then
ATS-Japan may require the purchasers, on a
pro rata basis, to sell their shares in the
Public Offering.
Purchase Agreement: The investment shall be made pursuant to a
Stock Purchase Agreement reasonably
acceptable to ATS-Japan and the purchasers.
The agreement shall contain appropriate
representations and warranties of ATS-Japan
and the purchasers and conditions of closing.
Closing: May 1, 1990
-2-
<PAGE>
EXHIBIT 4.1(l)
[letterhead of Union Bank]
January 29, 1990
Mr. Malcolm M. Farnsworth
Chief Financial Officer
Aehr Test Systems
135 Constitution Drive
Menlo Park, CA 94025
Dear Mr. Farnsworth:
Aehr Test Systems is currently in default of certain terms and conditions of the
Letter Agreement ("Agreement") dated September 20, 1989 between Union Bank
("Bank") and Aehr Test Systems ("Borrower") regarding a Line of Credit ("Line")
in the amount of $5 Million.
You have requested waivers with regard to the following conditions of the
Agreement:
"Advances shall be limited to $5,000,000, or 80% of eligible accounts
receivable, whichever is less. Eligible accounts receivable is defined as total
accounts receivable less those accounts which are over 90 days past due from
invoice date, and those accounts due from Aehr Test-Japan."
Advances exceed eligible accounts receivable by $499,000 as of December 31,
1989.
"7. To be profitable on a pretax basis for the quarters ending August 1989,
November 1989, February 1990, May 1990 and August 1990."
The actual profitability on a pretax basis for the quarter ending August 1989,
November 1989, February 1990, May 1990 and August 1990."
The actual profitability on a pretax basis for the quarter ending November 1989
was a loss of $403,000.
Additionally, you have informed us that you will not be in compliance
<PAGE>
with the borrowing base formula for the periods ending January 31, 1990 and
February 28, 1990. You have also stated that you will not be in compliance
with the requirement for quarterly profitability for the quarter ending
February 28, 1990. You have indicated you are anticipating a loss before tax
of $648,000 for the quarter ending February 1990.
The Bank agrees to forbear from taking action on the defaults occurring on or
before December 31, 1989, as you have indicated that the Company will be
receiving cash in the amount of $2 Million in the form of equity from JAFCO
("JAFCO") America Ventures, Inc. You have advised us that this cash will be
used to pay off over advance on the Company's Line. Over advance is defined as
funds borrowed by the Company in excess of the agreed upon advance rate of 80%
of eligible accounts receivable, as determined by the Company's submissions of
monthly borrower base certificates. Bank agrees to allow over advances in the
following amounts as noted below.
For the period: 1/3/90 through 1/31/90: $500,000
For the period: 2/1/90 through 2/28/90: $1,500,000
For the period: after 2/28/90: 0
Over advances shall bear interest at the rate of 3.0% above the Bank's Reference
Rate and shall be charged on February 28, 1990 to Borrower's account for the
period February 6, 1990 through February 28, 1990.
The Bank agrees to waive the anticipated default for quarterly profitability
expected to occur upon receipt of the Borrower's February 28, 1990 financial
statements, providing the following:
1. Borrower has received $2 Million in cash from JAFCO in the form of equity.
2. Borrower pays off any over advance outstanding upon receipt of $2 Million
in cash from JAFCO which is anticipated prior to February 28, 1990.
3. Borrower is in compliance with all other covenants per the Letter Agreement
dated September 20, 1989 between Borrower and Bank.
4. Borrower's pretax loss for the quarter ending February 1990 is not to
exceed $950,000.
5. Bank to receive by February 19, 1990 commitment letter from JAFCO
indicating $2 Million purchase of stock.
<PAGE>
This letter will not be a waiver of an existing or future default unless
specified herein.
Sincerely,
UNION BANK
/s/ James L. Weber
James L. Weber
Vice President & SAE
Acknowledged and Accepted by:
AEHR TEST SYSTEMS
By: /s/ M.M. Farnsworth
-------------------------------
Title: Chief Financial Officer
----------------------------
Date: 2-8-90
---------
<PAGE>
Exhibit 10.11
1. PARTIES. THIS LEASE, is entered into on this 14th day of May, 1991,
between The John A. & Susan R. Sobrato 1979 Revocable Trust and Aehr Test
Systems, Inc., a California Corporation, hereinafter called, respectively,
"Landlord" and "Tenant".
2. PREMISES. Landlord hereby leases to Tenant, and Tenant leases from
Landlord, those certain Premises with the appurtenances, situated in the City of
Mountain View, County of Santa Clara, State of California, and more particularly
described as follows, to-wit:
That certain real property commonly known and designated as 1667
Plymouth Street (APN 116-13-17, 116-13-21 AND 116-09-22)
containing a building (the "Building") consisting of 61,364
square feet as outlined in red on EXHIBIT "A" attached hereto and
incorporated herein by reference.
3. USE. Tenant shall use the Premises only for legally permitted uses.
4. TERM AND RENTAL. The term (the "Lease Term") shall be for
ninety-six (96) months, commencing on the "Commencement Date" as defined in
subparagraph 7.T of this Lease and ending ninety-six months thereafter (the
"Expiration Date"), unless sooner terminated pursuant to the terms hereof.
Tenant shall pay as monthly rent for the Premises the following amounts:
PERIOD MONTHLY RENT
- -------------------------------------------------- ------------------------
Commencement Date - lst Anniversary $0 per month
of Commencement Date (12 months)
1st Anniversary of Commencement Date through 5th $79,773.20 per month
Anniversary of Commencement Date (48 Months)
5th Anniversary of Commencement Date through $85,909.60 per month
Expiration Date (36 months)
Monthly rent shall be due on or before the first day of each calendar month
during the Lease Term. Said rental shall be paid in lawful money of the United
States of America, without offset or deduction except as set forth in this
Lease, and shall be paid to Landlord at such place or places as may be
designated from time to time in writing by Landlord. Rent for any period less
than a calendar month shall be prorated based on a thirty (30) day month.
5. A. SECURITY DEPOSIT. Within three (3) business days after both
parties' execution of this Lease, Tenant shall deposit with Landlord the sum of
Sixty Seven Thousand Four Hundred Eighty-Five Dollars ($67,485) as a security
deposit. If Tenant defaults with respect to any provisions of this Lease,
including, but not limited to, the provisions relating to payment of rent or
other charges, Landlord may, to the extent reasonably necessary to remedy
Tenant's default, use all or any part of said deposit for the payment of rent or
other charges in default or the payment of any other amount which Landlord may
spend or become obligated to spend by reason of Tenant's default
<PAGE>
or to compensate Landlord for any other loss or damage which Landlord may suffer
by reason of Tenant's default. If any portion of said deposit is so used or
applied, Tenant shall, within ten (10) days after written demand therefor,
deposit cash with Landlord in an amount sufficient to restore said deposit to
the full amount hereinabove stated. Said deposit shall be returned to Tenant
within thirty (30) days after the expiration or earlier termination of the Lease
Term, less any amount deducted in accordance with this paragraph, together with
Landlord's written notice itemizing the amounts and purposes for such retention.
In the event of termination of Landlord's interest in this Lease, Landlord shall
transfer said deposit to Landlord's successor in interest.
B. LETTER OF CREDIT: Notwithstanding the provisions of
paragraph 5.A, Landlord agrees that in lieu of a cash security deposit, Tenant
may deposit a letter of credit in a form reasonably acceptable to Landlord.
Landlord shall be entitled to draw against the letter of credit at any time that
Tenant has committed a default under this Lease as defined in paragraph 22,
provided that Landlord certifies to the issuer of the letter of credit under
penalty of perjury that Tenant is in default under the Lease. Tenant shall keep
the letter of credit in effect during the entire Lease Term, as the same may be
extended, plus a period of four (4) weeks thereafter. At least sixty (60) days
prior to expiration of any letter of credit, the term thereof shall be renewed
or extended. Subject to Tenant's cure rights under Paragraph 22, Tenant's
failure to so renew or extend the letter of credit shall be a material default
of this Lease by Tenant. If Landlord draws against the letter of credit, Tenant
shall replenish the existing letter of credit or cause a new letter of credit to
be issued such that the aggregate amount of letters of credit available to
Landlord at all times during the Lease Term is the amount of the security
deposit originally required.
6. LATE CHARGES. Tenant hereby acknowledges that late payment by Tenant
to Landlord of rent and other sums due hereunder will cause Landlord 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,
administrative, processing, accounting charges, and late charges, which may be
imposed on Landlord by the terms of any contract, revolving credit, mortgage or
trust deed covering the Premises. Accordingly, if any installment of rent or
any other sum due from Tenant shall not be received by Landlord or Landlord's
designee within five (5) days after receipt by Tenant of written notice
specifying that Landlord has failed to receive the amount in question, Tenant
shall pay to Landlord a late charge equal to five percent (5%) of such overdue
amount, which shall be due and payable with the payment then delinquent. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Landlord will incur by reason of late payment by Tenant.
Acceptance of such late charge by Landlord shall in no event constitute a waiver
of Tenant's default with respect to such overdue amount, nor prevent Landlord
from exercising 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 rent, then rent shall automatically become
due and payable quarterly in advance, rather than monthly, notwithstanding any
provision of this Lease to the contrary.
-2-
<PAGE>
7. CONSTRUCTION AND POSSESSION.
A. DEFINITIONS: As used in this paragraph 7, the following terms
shall have the following meanings:
1. ARCHITECT: The term "Architect" shall mean Dennis Kobza &
Associates.
2. BUILDING SHELL: The term "Building Shell" shall mean
(i) the one story Building containing 61,364 square feet of floor space as shown
on those certain plans and specifications prepared by the Architect (the
"Building Shell Plans"); (ii) all parking areas, driveways, sidewalks, site
utility installations, exterior lighting, irrigation systems, landscaping, and
other outside area improvements specified on the Building Shell Plans; (iii) all
other on-site and off-site improvements required by any governmental agency as a
condition of its issuance of any approval for construction of the Building
Shell; and (iv) those modifications set forth in Exhibit "B" hereto and
incorporated herein by reference.
3. FINAL TENANT IMPROVEMENT PLANS: The term "Final Tenant
Improvement Plans" shall mean those plans, specifications, and working drawings
for the Tenant Improvements prepared and approved by the parties in accordance
with this paragraph 7.
4. PRELIMINARY TENANT IMPROVEMENT PLANS: The term "Preliminary
Tenant Improvement Plans" shall mean those plans and specifications for the
Tenant Improvements prepared and approved by the parties in accordance with this
paragraph 7.
5. TENANT IMPROVEMENTS: The term "Tenants Improvements" shall
mean all partitions, windows, walls, wall coverings, HVAC equipment, lighting,
ceilings, utility fixtures and other improvements and fixtures, installed in the
Building Shell to the extent that such improvements and fixtures are specified
on the Final Tenant Improvement Plans and to the extent such improvements are
not shown on the Building Shell Plans. Without limiting the generality of the
foregoing, the Tenant Improvements shall also include the following: (i) water
drains for water cooled systems to be used by Tenant, (ii) the cement pad for
Tenant's generator, (iii) cement trash compactor pad, and (iv) exterior security
fencing.
6. TENANT IMPROVEMENT ALLOWANCE/MOVING ALLOWANCE: The term
"Tenant Improvement Allowance" shall mean One Million Five Hundred Thirty Four
Thousand Dollars ($1,534,000), which Landlord must contribute for construction
of Tenant Improvements. The term "Moving Allowance" shall mean Sixty-One
Thousand Three Hundred Sixty-Four Dollars ($61,364). Tenant may use the Moving
Allowance for all of Tenant's moving and relocation expenses including without
limitation the following: (i) the purchase of new furniture, (ii) transportation
costs, (iii) the costs of installing telephone systems and computer cabling.
The Tenant Improvement Allowance shall be reduced by the amount of the Moving
Allowance used by Tenant.
-3-
<PAGE>
7. TENANT IMPROVEMENT COSTS: The term "Tenant Improvement
Costs" shall mean the lesser of (a) the Tenant Improvement Cost Estimate, or
(b) the sum of the following: (i) payments to third party contractors,
subcontractors and materialman for the construction of the Tenant Improvements;
(ii) reasonable fees paid to architects, engineers and other construction
professionals (other than employees of Landlord or of entities in any way
affiliated with Landlord) for services required in connection with the design
and construction of the Tenant Improvements; (iii) fees paid to architects,
space planners, designers, inspectors and other construction professionals in
connection with the design of the Tenant Improvements; (iv) utility connection
charges incurred by Tenant; (v) permit and license fees paid for use and
occupancy permits required for Tenant to occupy the Premises; (vi) the amounts
paid to governmental authorities or agencies for inspections and issuance of
building permits and approvals for the Improvements (but not that portion of
such amounts applicable to, or based on the value of, the Building Shell);
(vii) a development fee (in lieu of any general conditions, overhead, profit or
other fee) equal to eight percent (8%) of Tenant Improvement Costs. In no event
shall Tenant Improvement Costs include (herein "Excluded Costs"): (i) charges
and expenses for changes to either the Building Shell Plans or the Final Tenant
Improvement Plans which have not been approved by Tenant in writing; (ii) wages,
labor and overhead for overtime and premium time unless approved by Tenant in
writing in Tenant's discretion; (iii) additional costs and expenses incurred by
Landlord on account of any contractor's or subcontractor's default or
construction defects; (iv) interest and fees for construction financing;
(v) off-site management or other general overhead costs incurred by Landlord;
(vi) bond premiums; (vii) costs for which Landlord has a right of reimbursement
from others (including, without limitation, insurers and warrantors); (viii) the
cost of bringing the Building Shell and surrounding lot into compliance with
applicable building codes, environmental laws, or other statutes, laws, rules
and regulations; (ix) costs of management, design and all other services
provided by employees or affiliates of Landlord and the cost of any
administration, profit and overhead for Landlord or any of its employees or
affiliates in excess of the developer's fee mentioned above; (x) costs incurred
as a result of delays caused by the acts or omissions of Landlord or its
employees, agents, contractors or subcontractors; (xi) any expense or cost which
is not required to be incurred in order to complete construction of the Tenant
Improvements; (xii) any costs associated with the design or construction of the
Building Shell; (xiii) any cost associated with a casualty or Act of God; and
(xiv) any costs associated with the removal of Hazardous Materials (as defined
in paragraph 18) or asbestos from the Building or Premises. All of the
foregoing "Excluded Costs" shall be the sole obligation of Landlord.
8. TENANT IMPROVEMENT COST ESTIMATE: The term "Tenant Improvement Cost
Estimate" shall mean the total estimated cost of constructing the Tenant
Improvements prepared and approved by Landlord and Tenant in accordance with
this paragraph 7, as modified by change orders approved by Tenant in accordance
with this paragraph 7. The Tenant Improvement Cost Estimate may contain a
contingency reserve of one and one-half percent (1 1/2%) of the Tenant
Improvement Costs. If such contingency reserve is not used by Landlord due to
unforeseen conditions related to the construction of the Tenant Improvements,
such contingency reserve shall not be a part of the Tenant Improvement Costs.
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9. SUBSTANTIAL COMPLETION: The term "Substantial Completion" shall mean
that (i) all necessary governmental approvals for occupancy of the Building have
been obtained (including, if applicable, a certificate of occupancy); (ii) the
Premises fully meet the Final Tenant Improvement Plans and the Building Shell
Plans approved by Tenant; (iii) the Premises are in a "broom clean" finished
condition; (iv) all utilities be supplied to the Premises are hooked up and
available for use by Tenant; (v) Tenant has had fourteen (14) days to install
its trade fixtures in the Building pursuant to subparagraph 7.N below;
(vi) Landlord has completed the Building Shell, including any modifications
thereto described in EXHIBIT "B"; (vii) the Architect has certified that the
Premises have been completed in accordance with the Final Tenant Improvement
Plans; (viii) all incomplete or defective construction which interferes with
Tenant's use of the Premises has been remedied and repaired, subject only to the
completion of minor "punch list" items not interfering with Tenant's use of the
Premises; and (ix) Landlord has offered to deliver possession of the Premises to
Tenant.
B. PRELIMINARY PLANS FOR INTERIOR IMPROVEMENTS: Landlord and Tenant
have agreed upon preliminary space plans for the Tenant Improvements which are
attached hereto as EXHIBIT "C" (the "Preliminary Tenant Improvement Plans").
Landlord has provided Tenant with a preliminary cost estimate based upon the
Preliminary Tenant Improvement Plans.
C. FINAL TENANT IMPROVEMENT PLANS AND COST ESTIMATE: Tenant shall
cooperate with the Architect to that the Architect may prepare and deliver to
Landlord proposed final plans, specifications and working drawings for the
Tenant Improvements by May 20, 1991. Landlord shall submit any reasonable
objections to the proposed final plans, specifications and working drawings to
Tenant in writing within fourteen (14) days after Landlord's receipt of same and
shall submit a proposed tenant improvement cost estimate for the Tenant
Improvements shown on the proposed final plans, specifications and working
drawings, as amended by the changes reasonably made by Landlord. If Tenant
disapproves the cost estimate or the proposed final plans with Landlord's
modifications in any respect, then within seven (7) days following receipt of
the proposed final plans and cost estimate, Tenant may deliver to Landlord its
written proposal for the changes necessary, in Tenant's opinion, to satisfy
Tenant's objections or to reduce costs. If Tenant proposes changes to the
proposed final plans for the Tenant Improvements, Landlord shall not
unreasonably withhold its approval of such change and the parties shall confer
and negotiate in good faith to reach agreement on specific required
modifications to the proposed final plans and costs estimate as a consequence of
such change. If Tenant believes that the cost estimate is incorrect, it may
require that all or any portion of the work be submitted for competitive bids.
The final plans, modified for changes proposed by Tenant and approved by
Landlord pursuant to this paragraph, shall be the approved Final Tenant
Improvement Plans and the cost estimate approved by Tenant shall be the Tenant
Improvement Cost Estimate for the purposes of this Addendum.
D. TERMINATION: Tenant shall have the right in Tenant's discretion
to terminate this Lease by delivery of written notice within five (5) days of
Tenant's receipt of the final plans to Landlord if both (i) the final cost
estimate for the final plans exceeds twenty-five dollars and fifty cents
($25.50) per square foot, and (ii) the final plans are consistent in scope with
the Preliminary Tenant Improvement Plans.
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<PAGE>
E. APPLICATION FOR APPROVALS: As soon as the Final Tenant
Improvement Plans are approved by Landlord and Tenant, Landlord shall submit the
approved Final Tenant Improvement Plans to all appropriate governmental agencies
for their approval and issuance of all required permits. Landlord shall use its
best efforts to obtain all governmental approvals and permits necessary for
construction of the Premises in accordance with the Final Tenant Improvement
Plans on or before July 15, 1991. Landlord and Tenant shall initial the Final
Tenant Improvement Plans immediately after all governmental approvals and
permits have been obtained and shall append the approved Final Tenant
Improvement Plans and Tenant Improvement Cost Estimate to this Lease.
F. CHANGES TO PLANS: After the Final Tenant Improvement Plans have
been approved by Landlord and Tenant as provided above, neither party shall have
the right to require extra work or make any modifications with respect to the
construction of the Tenant Improvements, without the prior written consent of
the other party as to (i) the change, (ii) any estimated delay in the scheduled
completion date of the Premises caused by the change, and (iii) any modification
to the Tenant Improvement Cost Estimate as a consequence of the change.
Landlord shall not unreasonably withhold or delay its consent to changes or
extra work proposed by Tenant with respect to the Tenant Improvements and, if
the change will not materially modify the exterior appearance of the Building
Shell, then Landlord also shall not unreasonably withhold its consent to change
in the Building Shell. Tenant may withhold its consent, in its discretion, to
any change in the Final Tenant Improvement Plans or the Tenant Improvement Cost
Estimate.
G. GENERAL CONTRACTOR: Landlord shall serve as the general
contractor for construction of the Tenant Improvements. Landlord shall cause
each subcontract to be competitively bid by three contractors for construction
of the Tenant Improvements. The contractors to whom such work shall be
competitively bid shall be selected by Landlord and approved by Tenant, which
approval shall not be unreasonably withheld. All bids shall be opened
simultaneously. All work shall be awarded based upon the lowest bid submitted
unless agreed in writing by Tenant. Notwithstanding Tenant's right to approve
the subcontractors, each subcontractor is a contractor only of Landlord and
Tenant shall have no liability to the subcontractor under any subcontract or
otherwise with respect to the Building.
H. LANDLORD'S OBLIGATION TO CONSTRUCT: As soon as the Final Tenant
Improvement Plans have been approved, all necessary governmental approvals and
permits have been obtained, and the bids have been accepted, Landlord shall
cause construction of the Tenant Improvements to be commenced and diligently
prosecuted to completion, so that the Premises will be Substantially Complete as
soon as possible.
I. SCHEDULE OF CRITICAL DATES: Set forth in this paragraph is a
schedule of certain critical dates relating to Landlord's and Tenant's
respective obligations regarding the construction of the Building Shell and the
Interior Improvements (the "Schedule of Performance"). Landlord and Tenant
shall each be obligated to use reasonable efforts to perform their respective
obligations within the time periods set forth in this Schedule of Performance
and elsewhere in this Construction Addendum. The Schedule of Performance is as
follows:
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DATE
(Days After
ACTION Another Event
- -------------------------------------------------- -------------------------
1. Tenant Submits Proposed Final Interior Plans On or before May 20, 1991
2. Landlord Submits Reasonable Objections to 14 days after Item 1
Proposed Final Tenant Improvement Plans and
Submits Proposed Tenant Improvement Cost
Estimate Based On Bids
3. Tenant Modifies Plans To Reduce Tenant 7 days after Item 2
Improvement Cost Estimate, or to Resolve
Tenant's Objections if required or Tenant
so elects
4. Landlord Rebids Tenant Improvement Cost, if 7 days after Item 3
appropriate, and Submits Revised Tenant
Improvement Cost Estimate To Tenant
5. Parties Finally Approve Final Tenant June 15, 1991
Improvement Plans
6. Issuance Of All Construction Permits For July 15, 1991
Landlord's
7. Last Date For Issuance Of All Construction October 1, 1991
Permits (or Tenant may terminate this Lease
in accordance with this paragraph 7)
8. Scheduled Substantial Completion Date September 30, 1991
9. Last Date For Delivery of Premises March 15, 1992
Substantially Complete (or Tenant may
terminate as set forth in this paragraph 7)
J. DELIVERY OF POSSESSION: When the Premises are Substantially Complete,
Landlord shall deliver possession of the Premises to Tenant. However, Tenant
shall have no obligation to accept possession of the Premises or commence
payment of rent until the Commencement Date as defined in subparagraph 7.T.
K. FAILURE TO DELIVER: Landlord hereby acknowledges that its failure to
deliver to Tenant Premises that are Substantially Complete on or before
September 30, 1991 will cause Tenant to incur costs not contemplated by the
Lease, the exact amount of which will be extremely difficult to ascertain.
Consequently, if the Commencement Date has not occurred on or before
September 30, 1991, then in addition to Tenant's other rights and remedies, the
date Tenant is otherwise obligated to commence paying monthly and additional
rent shall be delayed two days for each day that the Commencement Date is
delayed beyond September 30, 1991.
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<PAGE>
L. TENANT'S CONTRIBUTION TO INTERIOR IMPROVEMENT COSTS: Tenant's
obligation to pay the cost of constructing the Premises shall be limited to the
positive difference, if any, between (i) the lesser of the Tenant Improvement
Costs or the Tenant Improvement Cost Estimate approved by Tenant in writing; and
(ii) the Tenant Improvement Allowance. The parties acknowledge that Tenant
shall have no obligation to pay any cost of constructing any portion of the
Tenant Improvements in excess of such amount. If the Tenant Improvement Cost
Estimate is more than the Tenant Improvement Allowance, Tenant shall pay to
Landlord the difference (described in the first sentence of this subparagraph)
on the later to occur of the following (i) fifteen (15) days after the
Commencement Date; or (ii) within fifteen (15) days after receipt of a statement
and reasonable documentation of such costs from Landlord. If Tenant pays any
such excess Tenant Improvement Costs, as soon as possible after commencement of
the Lease, Landlord and Tenant shall designate as Tenant's property, Tenant
Improvements having a cost approximately equal to the excess paid by Tenant.
Property designated as Tenant's property under the terms of this paragraph may
be removed from the Premises at any time by Tenant and Tenant shall be entitled
to all investment tax credit, depreciation, and other tax attributes relating to
such property. In determining which Tenant Improvements will be designated as
Tenant's property, the parties shall confer in good faith and shall give
preference to those Tenant Improvements which are most readily removable from
the Building and which shall have the greatest utility for Tenant outside of the
Building but which are not required for the basic operation of the tenant. At
the expiration or sooner termination of the Lease Term, all Tenant Improvements
not designated as Tenant's property under this paragraph shall be surrendered to
Landlord in accordance with the terms of the Lease. If the Tenant Improvement
Cost Estimate exceeds the Tenant Improvement Allowance, Tenant shall deposit a
letter of credit in a form reasonably acceptable to Landlord to secure the
amount by which Tenant is required to contribute to the cost of the Tenant
Improvements pursuant to this subparagraph. Landlord shall be entitled to draw
against the letter of credit in an amount equal to the amount by which Tenant
fails to make its required contribution to the cost of the Tenant Improvements,
provided that Landlord certifies to the issuer of the letter of credit under
penalty of perjury that (i) the Commencement Date under the Lease has occurred,
(ii) The draw against the letter of credit represents an amount which Tenant has
failed to make its required contribute to Landlord for the construction of the
Tenant Improvements under the Lease within the time period permitted by the
Lease.
M. RIGHTS IF ALLOWANCE UNUSED: If the amount of the Tenant
Improvement Costs (and any amount designated by Tenant for future alterations to
the Premises) is less than the Tenant Improvement Allowance, then beginning on
the first anniversary of the Commencement Date, the monthly rental under the
Lease shall be reduced at the rate of Fifteen Dollars ($15.00) per month for
each One Thousand Dollars ($1,000) of the Tenant Improvement Allowance not used.
N. TENANT'S RIGHT TO ENTER: Tenant and its authorized
representatives shall have the right to enter the Building at all reasonable
times for the purpose of inspecting the progress of the construction of the
Tenant Improvements. Landlord shall give Tenant at least fifteen (15) days
prior written notice of its estimated date for Substantial Completion of the
Premises, so that Tenant may cause its fixtures and equipment to be ordered.
When the construction of the Tenant Improvements has proceeded to the point
where Tenant's work of installing its fixtures and equipment in the
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<PAGE>
Building can be commenced in accordance with good construction practice,
Landlord also shall notify Tenant to that effect and shall permit Tenant and its
authorized representatives and contractors to have access to the Building for a
period of not less than fifteen (15) days for the purpose of installing Tenant's
trade fixtures and equipment.
O. CONSTRUCTION WARRANTY FOR THE BUILDING: Notwithstanding anything
to the contrary in the Lease, effective upon delivery of the Premises to Tenant,
Landlord does hereby warrant (i) that the Building Shell, Tenant Improvements
and Premises fully comply with all applicable covenants, conditions or
restrictions and the rules, regulations, codes, statutes, ordinances, and laws
of all governmental and quasi-governmental authorities having jurisdiction over
the Premises; (ii) that the Tenant Improvements are constructed in accordance
with the Final Tenant Improvement Plans and in a good and workmanlike manner;
and (iii) that all material and equipment installed at the Premises conform to
the Final Tenant Improvement Plans and are new and otherwise of good quality.
Notwithstanding anything to the contrary contained in the Lease, Tenant's
acceptance of the Premises shall not be deemed a waiver of the foregoing
warranty or any other warranty of Landlord under the Lease, and Landlord shall
promptly repair all violations of the warranty set forth in this paragraph at
its sole cost and expense.
P. RISK OF LOSS: Risk of loss of the Premises prior to the
Commencement Date of the Lease shall be borne by Landlord. At all times prior
to the Commencement Date, Landlord at its sole cost and expense shall maintain
so-called contingent liability and broad form "builder's risk" insurance with
coverage in an amount equal to the replacement cost of the Building Shell plus
the Tenant Improvement Cost Estimate. The insurance policy (i) shall be in a
form reasonably satisfactory to Tenant, (ii) shall be carried with a company
reasonably acceptable to Tenant, (iii) shall provide that such policy shall not
be subject to cancellation or change except after at least ten (10) days prior
written notice to Tenant, and (iv) shall contain a "cross liability" provision
insuring Landlord and Tenant against any loss caused by the negligence of the
other party. If the Building is damaged or destroyed prior to the Commencement
Date, Tenant shall have the right to terminate the Lease, if the Premises, in
the reasonable opinion of the Architect, cannot be Substantially Complete prior
to March 15, 1992. If the Lease is so terminated, Tenant shall be entitled to
that amount of the builder's risk insurance proceeds equal to the amount, if
any, paid by Tenant for construction of the Tenant Improvements prior to the
termination date. If the Premises are damaged or destroyed and the Lease is not
terminated pursuant to the terms of the Lease, Landlord shall promptly and
diligently complete construction of the Building in accordance with this Lease
and all insurance proceeds with respect to the loss shall be paid to an
independent depository, reasonably acceptable to Landlord and Tenant, for
disbursement to the contractors completing the Building as the work progresses
in accordance with customary institutional lending practices.
Q. RIGHTS UPON TERMINATION: If the Lease is terminated pursuant to
any provision of this paragraph 7, then in addition to all other amounts due
Tenant hereunder, all security deposits, letters of credit, prepaid rent, shall
be returned to Tenant promptly upon demand.
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<PAGE>
R. ACCOUNTING: Landlord shall submit to Tenant on a monthly basis
an accounting of all Tenant Improvement Costs, certified as true and correct by
Landlord. Tenant shall have the right to audit the books, records and
supporting documents of Landlord during normal business hours, after giving
Landlord at least twenty-four (24) hours prior notice to the extent reasonably
necessary to determine the accuracy of any accounting. Within thirty (30) days
after Substantial Completion, Landlord shall render to Tenant a final and
detailed accounting of all Tenant Improvement Costs paid by Landlord and Tenant,
certified as true and correct by Landlord. Tenant shall have the same audit
rights as set forth above with respect to the monthly accounting. If such audit
discloses that an overpayment was made by Tenant, there shall be an adjustment
between Landlord and Tenant as soon as reasonably practicable such that each
shall only be required to contribute to the payment of costs to the extent
provided for in this paragraph 7.
S. TENANT DELAYS: For purposes of this Lease, the foregoing shall
be deemed "Tenant Delays": (i) Tenant's failure to submit plans and information
or review and approve information including the Tenant Improvement Cost Estimate
by the dates set forth in this paragraph 7; or (ii) as a result of written
change orders made by Tenant pursuant to the terms of this paragraph 7 after
final approval of the Final Tenant Improvement Plans, to the extent specified in
any written change order approved by Tenant in writing. In the event of such
Tenant Delays, then the dates on which Tenant is entitled to free rent and to
terminate this Lease on account of Landlord's failure to Substantially Complete
the Premises shall be postponed one day for each day of the actual delay in
Substantial Completion caused by such Tenant Delay. Furthermore, the date
Tenant is otherwise obligated to begin paying rent shall occur one day earlier
than the Commencement Date for each day that the Commencement Date is actually
delayed as a result of a Tenant Delay; provided, however, that for purposes of
this paragraph, the Commencement Date shall in no event be deemed to occur any
date earlier than September 30, 1991 regardless of any Tenant Delay.
T. COMMENCEMENT DATE: If Landlord, for any reason whatsoever,
cannot Substantially Complete the Premises on the estimated completion date of
September 30, 1991, this Lease shall not be void or voidable, nor shall Landlord
be liable to Tenant for any loss or damage resulting therefrom if due to
circumstances beyond Landlord's control; but in such event the commencement and
termination dates of the Lease and all other dates affected thereby shall be
revised to conform to the date of Landlord's delivery of possession. The term
of the Lease shall not commence (the "Commencement Date") until the later of
September 30, 1991 or the date on which the Premises are Substantially Complete
as defined herein.
8. ACCEPTANCE OF PREMISES AND COVENANTS TO SURRENDER.
A. PUNCH LIST: As soon as Landlord reasonably believes that the
Premises are Substantially Complete, as defined in paragraph 7.A.8 hereof,
Landlord and Tenant shall together walk through and inspect the work and prepare
a written "punch list" of incomplete or defective construction. Landlord shall
use its best efforts to complete and/or repair any items on the "punch list"
within thirty (30) days after the parties have prepared the "punch list" or as
soon thereafter as practicable in the exercise of due diligence.
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<PAGE>
B. CORRECTION OF DEFECTS: Notwithstanding anything contrary in the
Lease, Tenant's acceptance of the Premises or submission of a "punch list" shall
not be deemed a waiver of Tenant's right to have defects in the Tenant
Improvements and the Premises repaired at Landlord's sole expense. Tenant shall
give notice to Landlord whenever any such defect becomes reasonably apparent,
and Landlord shall repair such defect as soon as practicable. Landlord also
hereby assigns to Tenant all warranties with respect to the Premises which would
reduce Tenant's maintenance obligations hereunder and shall cooperate with
Tenant to enforce all such warranties. Without limiting any other obligation of
Landlord hereunder, Landlord shall correct any defect or problem in the roof
membrane (except for routine maintenance items as set forth in
subparagraph 11.A) for a period of one (1) year after the Commencement Date.
Further, without limiting any obligation of Landlord under this Lease, Landlord
warrants that it will obtain an express one (1) year warranty from its
contractors and suppliers on all other items and will not waive the protection
of any statute or case law providing for a longer period to assert a claim for
defects in the Premises or any item therein.
C. SURRENDER: Tenant agrees on the last day of the Lease Term, or
promptly following any sooner termination, to surrender the Premises to Landlord
in the condition received by Tenant, reasonable wear and tear, acts of God,
casualties, condemnation, Hazardous Materials as defined in paragraph 18 hereof
(other than those stored, used, or disposed of by Tenant in or about the
Premises in violation of "Law" as defined in subparagraph 11.B.1), and
Alterations as defined in subparagraph 10.A made by Tenant which Landlord has
indicated that Tenant shall not be required to remove, excepted. Tenant shall
ascertain from Landlord within thirty (30) days before the end of the Lease Term
whether Landlord will require Tenant to remove any Alterations made by Tenant at
the Premises; provided that Landlord shall not require Tenant to remove any
Alteration which Landlord has previously indicated may remain at the Premises.
If Landlord shall so require, then Tenant shall remove such Alterations as
Landlord may designate and shall repair any damage to the Premises occasioned by
the removal before the expiration of the Lease Term or promptly following any
sooner termination at Tenant's sole cost and expense. On or before the end of
the Lease Term or promptly following any sooner termination, Tenant shall remove
all of its personal property and trade fixtures from the Premises, and all
property not so removed shall be deemed to be abandoned by Tenant.
9. USES PROHIBITED. Tenant shall not commit, or suffer to be committed,
any waste or nuisance upon the Premises, or allow any sale by auction upon the
Premises, or allow the Premises to be used for any unlawful purpose, or place
any loads upon the floor, walls, or ceiling which endanger the structure, or use
any machinery or apparatus which will vibrate or shake the Premises or the
Building so as to damage the Premises other than ordinary wear and tear or
otherwise in violation of applicable Law, or place any harmful liquids, waste
materials, or Hazardous Materials in the drainage system of, or upon or in the
soils surrounding, the Building in violation of applicable Law. No materials,
supplies, equipment, finished products or semi-finished products, raw materials
or articles of any nature or any waste materials, refuse, scrap or debris shall
be stored upon or permitted to remain on any portion of the Premises outside of
the Building except for trash
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<PAGE>
compactors, chemical storage cabinets, a screened, equipment enclosure and
accumulated pallets consolidated for disposal.
10. ALTERATIONS AND ADDITIONS.
A. CONSTRUCTION OF ALTERATIONS: Tenant may construct non-structural
alterations, additions and improvements ("Alterations") in the Premises without
Landlord's prior approval, if the cost of the item in question does not exceed
Twenty-Five Thousand Dollars ($25,000). If Tenant desires to make Alterations
costing more than Twenty-Five Thousand Dollars ($25,000) or structural
Alterations, Landlord's consent shall not be unreasonably withheld, and, if
Landlord does not notify Tenant in writing of its reasonable disapproval of such
Alteration within fourteen (14) days following Tenant's written request for
approval and delivery to Landlord of the proposed plans, then Landlord shall be
deemed to have approved the proposed Alteration. Upon the request of Tenant,
Landlord shall within the above-stated fourteen (14) day period advise Tenant in
writing as to whether Landlord shall require removal of any Alteration in
question upon the expiration or earlier termination of the Lease Term. After
having obtained Landlord's consent, Tenant agrees that it will not proceed to
make such Alterations until three (3) days from the receipt (or deemed receipt)
of Landlord's consent, in order that Landlord may post appropriate notices to
avoid any liability to contractors or material suppliers for payment for
Tenant's improvements. Tenant will at all times permit such notices to be
posted and to remain posted until the completion of work.
B. OWNERSHIP OF ALTERATIONS: All Alterations, trade fixtures and
personal property installed in the Premises at Tenant's expense ("Tenant's
Property") shall at all times remain Tenant's property and Tenant shall be
entitled to all depreciation, amortization and other tax benefits with respect
thereto. Except for Alterations which cannot be removed without structural
injury to the Premises, Tenant may remove Tenant's Property from the Premises at
any time, provided Tenant repairs any damage caused by such removal. Landlord
shall have no lien or other interest whatsoever in any item of Tenant's Property
located in the Premises or elsewhere, and Landlord hereby waives all such liens
and interests. Within ten (10) days following Tenant's request, Landlord shall
execute documents in reasonable form to evidence Landlord's waiver of any right,
title, lien or interest in Tenant's Property located in the Premises.
11. MAINTENANCE OF PREMISES.
A. TENANT MAINTENANCE: Subject to Landlord's obligations as set
forth in this Lease and to the amortization of capital items as set forth in
subparagraph 11.B, Tenant shall, at its sole cost, keep and maintain, repair and
replace, the Premises and appurtenances and every part hereof, including but not
limited to, the interior non-load bearing walls, the roof membrane, the
sidewalks, the parking areas, the plumbing, electrical and HVAC systems, and the
Tenant Improvements in good and sanitary order, condition, and repair.
Notwithstanding the foregoing, Landlord shall repair and maintain in good
condition, at Landlord's sole cost, the structural portions of the Premises at
all times during the Lease Term, including the foundation, exterior walls, load-
bearing walls, and the roof structure. Tenant shall provide Landlord with a
copy of a service contract between Tenant
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and a licensed air-conditioning and heating contractor which contract shall
provide for maintenance of all air conditioning and heating equipment at the
Premises at such intervals as may be reasonably required by the manufacturer of
such equipment. Subject to the obligations of Landlord hereunder and the
amortization of capital items as set forth in subparagraph 11.B, Tenant shall
pay the cost of all air-conditioning and heating equipment repairs or
replacements which are either excluded from such service contract or any
existing equipment warranties. Tenant shall be responsible for the preventive
maintenance of the roof membrane, which responsibility shall be deemed properly
discharged if (i) Tenant contracts with a licensed roof contractor who is
reasonably satisfactory to both Tenant and Landlord, at Tenant's sole cost, to
inspect the roof membrane at least every six months with the first inspection
due six (6) months after the Commencement Date and (ii) Tenant performs, at
Tenant's sole cost, all routine preventive maintenance recommendations made by
such contractor within a reasonable time after such recommendations are made.
Such preventive maintenance might include acts such as clearing storm gutters
and drains, removing debris from the roof membrane, trimming trees overhanging
the roof membrane, applying coating materials to seal roof penetrations,
repairing blisters, and other routine measures. Upon Landlord's advance written
request, Tenant shall provide to Landlord a copy of such preventive maintenance
contract and paid invoices for the recommended work for which Tenant is
responsible. Subject to Landlord's obligations hereunder and to the
amortization of capital items set forth below, Tenant agrees to water, maintain
and replace, when necessary, any shrubbery and landscaping.
B. EXCLUDED COSTS: Notwithstanding anything to the contrary in this
Lease, in no event shall Tenant have any obligation to perform or to pay
directly, or to reimburse Landlord for, all or any portion of the following
repairs, maintenance, improvements, replacements, premiums, claims, losses,
fees, charges, costs and expenses (collectively "Costs") nor shall any portion
of the Tenant Improvement Costs (as defined in paragraph 7) consist of the
following items, all of which shall be the responsibility of Landlord:
1. LOSSES CAUSED BY OTHERS: Costs occasioned by the act,
omission or violation of covenants, statutes, laws, orders, rules, underwriter's
requirements, regulations, private restrictions, building codes or ordinances
(collectively, "Laws"), a misrepresentation, or breach of this Lease, by
Landlord or its agents, employees, contractors, subcontractors, tenants, or
invitees.
2. CASUALTIES AND CONDEMNATIONS: Costs occasioned by fire,
acts of God, or other casualties or by the exercise of the power of eminent
domain, provided that Tenant will pay insurance deductibles but only to the
extent approved by Tenant in writing in accordance with subparagraph 12.D of
this Lease.
3. REIMBURSABLE EXPENSES: Costs for which Landlord has a right
of reimbursement from others or for which Landlord actually receives
reimbursement.
4. CONSTRUCTION DEFECTS AND COMPLIANCE WITH LAW: Costs
(i) relating to a failure of the Premises to conform to all CC&Rs, underwriter's
requirements or Laws as of the
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Commencement Date; or (ii) relating to construction defects; or (iii) required
to conform the Premises to the Final Tenant Improvement Plans.
5. HAZARDOUS MATERIALS: Except to the extent caused by the
disposal, release, emission or storage of the Hazardous Material in question by
Tenant, its agents, employees, invitees or contractors in violation of Law,
Costs incurred to investigate the presence of any Hazardous Materials, Costs to
respond to any claim of Hazardous Material contamination or damage, Costs to
remove any Hazardous Material from the Premises, judgments or other Costs
incurred in connection with any Hazardous Materials exposure or releases, or any
other Cost associated with a Hazardous Material.
6. CAPITAL IMPROVEMENTS: If Tenant's maintenance or repair
obligations as set forth in this Lease would require Tenant to perform or pay
for any item which would be properly be capitalized under generally accepted
accounting principles and which costs in excess of Ten Thousand Dollars
($10,000), then Landlord shall perform such repair or make such replacement
promptly after notification by Tenant and the cost of such item or improvement
shall be allocated as follows. Landlord and Tenant shall establish the useful
life of the item in question based upon generally accepted accounting
principles. Tenant shall pay a proportion of the cost equal to the actual cost
of such improvement or item paid by Landlord to the third party contractor
performing the maintenance or furnishing the replacement times a fraction, the
numerator of which is the number of months remaining in the initial Lease Term,
and the denominator of which is the useful life of the improvement in months.
Tenant shall make such payment to Landlord within five (5) days after written
demand by Landlord. Nothing contained in this paragraph 11.B.6 shall require
Landlord to remodel, refurbish or reconfigure the Premises except as may be
incidental to Landlord's performance of the maintenance and repair obligations
Landlord is required to perform hereunder.
7. PARKING LOT: Costs relating to the repaving or resurfacing
of the parking area if such repaving or resurfacing is required more frequently
than once every five (5) years.
12. INSURANCE.
A. TENANT'S USE: Tenant shall not use, or permit the Premises, or
any part thereof, to be used for any unlawful purpose and no use shall be made
or permitted to be made of the Premises, nor acts done, which will cause an
increase in premiums for the insurance to be maintained by Landlord (unless
Tenant agrees to pay for the cost of such increase) or a cancellation of any
insurance policy covering the Building. Tenant shall, at its sole cost and
expense, comply with any and all reasonable requirements pertaining to said
Premises of any insurance organization or company necessary for the maintenance
of reasonable fire and public liability insurance covering the Building,
excluding structural improvements or alterations not related to Tenant's
specific and particular use.
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B. LANDLORD'S INSURANCE: Landlord agrees to purchase and keep in
force fire and extended coverage insurance in so-called "all risk" form covering
the Premises and all of the Tenant Improvements paid for by Landlord in the
amount of their full replacement value. Tenant agrees to pay to the Landlord as
additional rent, on demand, the cost of such insurance as evidenced by insurance
billings to Landlord. Payment shall be due to Landlord on the later of:
(i) fifteen (15) days after written invoice to Tenant; or (ii) twenty (20) days
prior to the due date of such premiums. Tenant's obligation under this
paragraph will be prorated to reflect the commencement and termination dates of
this Lease. With respect to earthquake insurance, Landlord agrees to purchase
earthquake coverage and Tenant agrees to reimburse Landlord for the additional
cost of such insurance provided: (i) Tenant requests such coverage and in such
case the premium for such earthquake coverage shall be shared equally between
Landlord and Tenant and Tenant's share of such cost shall be payable in the
manner set forth above for casualty insurance; or (ii) such insurance is
required by Landlord's lender and is customarily required by institutional
lenders on comparable buildings in Santa Clara County, and in such case the
premium for such earthquake coverage shall be shared equally between Landlord
and Tenant and Tenant's share of such cost shall be payable in the manner set
forth above for casualty insurance. If the Project is located in a flood zone,
Landlord shall also maintain flood insurance insuring the Building and Tenant
Improvements paid for by Landlord for their full replacement value, and Tenant
shall pay for flood insurance premiums in the manner set forth herein.
C. TENANT'S INSURANCE: Tenant agrees to insure its personal
property and Alterations. Tenant shall name Landlord as an additional insured
under such commercial general liability policy, and shall deliver a copy of such
policy to Landlord within thirty (30) days after the Commencement Date and upon
any renewal of such policy. Tenant's commercial general liability policy shall
provide for thirty (30) days' prior written notice to Landlord of any
cancellation or termination.
D. INSURANCE DEDUCTIBLES: Tenant shall have the right to specify
the deductible of any insurance policy to be carried by Landlord under this
Lease and shall reimburse Landlord, in the manner set forth in
subparagraph 12.B, for the premiums payable with respect to insurance policies
for which Tenant is responsible under subparagraph 12.B containing the
deductible so specified by Tenant or on insurance policies for which Tenant
fails to specify a deductible amount within thirty (30) days following
Landlord's written demand for such deductible specification. In the event of
damage to the Premises covered by Landlord's "all risk" casualty policy (and not
caused by the negligence or willful misconduct of Landlord or Landlord's
employees, agents, contractors, subcontractors, or invitees), Tenant shall pay
the amount of any deductible under such policy if this Lease is not terminated
in connection with such casualty as provided in paragraph 27 hereof, provided
Tenant has approved in writing in advance the amount of such deductible. Tenant
shall in no event be required to pay for any flood or earthquake insurance
deductibles.
E. WAIVER: Notwithstanding anything to the contrary in this Lease,
Landlord and Tenant hereby waive any rights each may have against the other on
account of any loss or damage that is caused or results from a risk which is
actually insured
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against, which is required to be insured against under this Lease, or which
would normally be covered by a standard form of full replacement value "all risk
extended coverage" policy of casualty insurance, regardless of whether such loss
or damage is due to the negligence of Landlord or Tenant or of their respective
agents, employees, subtenants, contractors, assignees, invitees or any other
cause. Each party shall use its best efforts to obtain from their respective
insurance companies a waiver of any right of subrogation which said insurance
company may have against the Landlord or the Tenant, as the case may be. If
such insurance policy cannot be obtained with such waiver of subrogation, or if
such waiver of subrogation is only available at additional cost and the party
for whose benefit the waiver is not obtained does not pay such additional cost,
then the party obtaining such insurance shall immediately notify the other party
of that fact.
13. TAXES. Tenant shall be liable for all taxes levied against Tenant's
personal property and trade or business fixtures, and agrees to pay, as
additional rental, all real estate taxes and special assessment installments
levied with respect to the Premises. It is understood and agreed that Tenant's
obligation under this paragraph will be prorated to reflect the commencement and
termination dates of this Lease. Tenant shall pay such taxes on the later of:
(i) fifteen (15) days after written notice from Landlord (which notice shall
contain a copy of the tax bill in question); or (ii) ten (10) days before the
tax delinquency date. In any time during the term of this Lease a tax, excise
on rents, business license tax, or any other tax, however described, is levied
or assessed against Landlord, as a substitute or addition in whole or in part
for real estate taxes assessed or imposed on land or Buildings, Tenant shall pay
and discharge its share of such tax or excise on rents or other tax before it
becomes delinquent. In the event that a tax is placed, levied, or assessed
against Landlord and the taxing authority takes the position that the Tenant
cannot pay and discharge its prorata share of such tax on behalf of the
Landlord, then at the sole election of the Landlord, the Landlord may increase
the rental charged hereunder by the exact amount of such tax. Notwithstanding
the above, if property taxes increase during the lease term as a result of a
reassessment due to voluntary change of ownership, Tenant shall be responsible
for payment of the resulting property tax increase as follows: during the first
twelve months following change of ownership, Tenant shall be responsible for
payment of one third (1/3) of the tax increase; during the second twelve months,
Tenant shall be responsible for payment of two thirds (2/3) of the tax increase.
If the reassessment occurs as of a date other than the commencement of the tax
year, Tenant's liability for payment of the property tax increase described
herein shall be pro rated on the basis of a 365 day year for the purpose of
calculating the amounts payable by Tenant during the two years following the
reassessment. After the end of the second twelve month period, Tenant shall be
fully responsible for payment of the property tax increase. Notwithstanding
anything to the contrary herein, Tenant shall not be required to pay any portion
of any tax or assessment: (i) levied on Landlord's rental income, unless such
tax or assessment is imposed in lieu of real property taxes; (ii) in excess of
the amount which would be payable if such tax or assessment were paid in
installments over the longest possible term; (iii) imposed on land and
improvements other than the Premises; or (iv) attributable to Landlord's net
income, inheritance, gift, transfer, franchise or estate taxes. Tenant may in
good faith contest any real property taxes provided that Tenant indemnifies
Landlord from any loss or liability in connection therewith.
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14. UTILITIES. Tenant shall pay directly to the providing utility all
water, gas, heat, light, power, telephone and other utilities supplied to the
Premises. Landlord shall not be liable for a loss of or injury to property,
however occurring, through or in connection with or incidental to furnishing or
failure to furnish any of utilities to the Premises and Tenant shall not be
entitled to abatement or reduction of any portion of the rent so long as any
failure to provide and furnish the utilities to the Premises due to any cause
beyond the Landlord's reasonable control. Notwithstanding the foregoing, if
utilities are not available to the Premises for a period of fifteen (15) days or
more and such failure does not result from Tenant's failure to make the payments
required herein, Tenant shall be entitled to an abatement of rent to the extent
of the interference with Tenant's use of the Premises occasioned thereby. If
such interference is not corrected within one hundred eighty (180) days
following the interference or interruption, then Tenant shall be entitled to
terminate this Lease.
15. ABANDONMENT. Tenant shall not abandon the Premises at any time during
the Lease Term; and if Tenant shall abandon or surrender the Premises, or be
dispossessed by process of law, or otherwise, any personal property belonging to
Tenant and left on the Premises shall be deemed to be abandoned, at the option
of Landlord.
16. FREE FROM LIENS. Tenant shall keep the Premises free from any liens
arising out of any work performed, materials furnished, or obligations incurred
by Tenant; provided, however, that if Tenant, in good faith, elects to contest
such lien, Tenant shall furnish a bond or other security reasonably acceptable
to Landlord and Tenant shall not then be deemed in default under this Lease.
17. COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Tenant shall, at its sole
cost and expense, comply with the requirements of all municipal, state and
federal authorities now in force, or which may hereafter be in force, pertaining
to Tenant's specific and particular use of the Premises, and shall faithfully
observe in the use of the Premises all municipal ordinances and state and
federal statutes now in force or which may hereafter be in force. The judgement
of any court of competent jurisdiction, or the admission of Tenant in any action
or proceeding against Tenant, whether Landlord be a party thereto or not, that
Tenant has violated any such ordinance or statute in Tenant's use of the
Premises, shall be conclusive of that fact as between Landlord and Tenant. At
the Commencement Date, the Premises shall conform to all requirements of
covenants, conditions, restrictions and encumbrances ("CC&Rs"), all
underwriters' requirements, and all Laws applicable thereto. Tenant shall not
be required to construct or pay the cost of complying with any CC&Rs,
underwriters' requirements or Laws requiring construction of improvements in the
Premises which are properly capitalized under generally accepted accounting
principles, unless such compliance is necessitated solely because of Tenant's
particular and specific use of the Premises or Alterations to the Premises other
than the Tenant Improvements. Any structural requirements or Costs necessitated
by CC&R's, underwriters' requirements or Laws which are imposed on buildings or
real estate generally (as opposed to the Premises because of Tenant's specific
and particular use or Alteration to the Premises other than the Tenant
Improvements) shall be performed or paid by Landlord without reimbursement by
Tenant.
18. TOXIC WASTE AND ENVIRONMENTAL DAMAGE.
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A. TENANT'S RESPONSIBILITY: Tenant shall not bring, allow, or use
upon the Premises, or generate or create at or emit or dispose from the Premises
any chemicals, toxic or hazardous gaseous, liquid or solid materials or waste,
including without limitation, material or substance having characteristics of
ignitability, corrosivity, reactivity, or extraction procedure toxicity or
substances or materials which are listed on any of the Environmental Protection
Agency's lists of hazardous wastes or which are identified in Sections 66680
through 66685 of Title 22 of the California Administrative Code as the same may
be amended from time to time (which are referred to in this Lease as "Hazardous
Materials") in violation of Law. Tenant shall comply, at its sole cost, with
all laws pertaining to, and shall indemnify and hold Landlord harmless from any
claims, liabilities, costs or expenses incurred or suffered by Landlord arising
from such bringing, allowing, using, generating, creating, emitting or disposing
of any such Hazardous Materials by Tenant. Tenant's indemnification and hold
harmless obligations as hereinbefore specified include, without limitation,
(i) claims, liability, costs or expenses resulting from or based upon
administrative, judicial (civil or criminal) or other action, legal or
equitable, brought by any private or public person under common law or under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Resource Conservation and Recovery Act of 1980 ("RCRA") or any
other federal, state, county or municipal law, ordinance or regulation,
(ii) claims, liabilities, costs or expenses pertaining to the cleanup or
containment of wastes, the identification of the pollutants in the waste, the
identification of scope of any environmental contamination, the removal of
pollutants from soils, riverbeds or aquifers, the provision of an alternative
public drinking water source, or the long term monitoring of ground water and
surface waters, all to the extent required by applicable law, and (iii) all
costs of defending such claims. Tenant further agrees to properly close the
facility with regard to Hazardous Materials and obtain a Closure Certificate
from the local administering agency for any Hazardous Material used, generated,
emitted or disposed of by Tenant in or about the Premises if so required by Law
upon the expiration or earlier termination of the Lease.
B. NO RESPONSIBILITY: Notwithstanding the foregoing or anything in
this Lease, Tenant shall have no responsibility to Landlord, Landlord's
employees, contractors, officers, agents or partners or to any third party for
any Hazardous Material which was not released, stored, disposed of, emitted, or
discharged by Tenant, its agents, invitees, employees and contractors in or
about the Premises and which is or comes to be, present on or about the
Premises, or the soil or groundwater thereof, at any time. Landlord, at its
sole expense, shall promptly comply with all Laws, orders, injunctions,
judgments, mandates and directives of any applicable governmental authority
concerning the investigation, removal, monitoring or remediation of any
Hazardous Materials present on the Premises or the groundwater thereof, except
to the extent that the Hazardous Material in question was released, stored,
disposed of, emitted or discharged by Tenant or its employees, invitees, agents,
or contractors in or about the Premises. Landlord hereby waives all claims,
liabilities, costs, expenses or obligations, known or unknown, against Tenant
with respect to Hazardous Materials present on the Premises as of the
Commencement Date or which come to be present on the Premises after the
Commencement Date, except to the extent that the Hazardous Materials in question
were released, emitted, or discharged onto the Premises or Project by Tenant or
its employees, agents, contractors, subcontractors or invitees. In this regard,
Landlord acknowledges
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that it is aware of and hereby waives the provisions of California Civil Code
Section 1542 (or any similar or successor Law) which provides as follows:
"A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor, at the time of executing the
release, which if known by him must have materially affected the settlement
with the debtor."
C. LANDLORD'S REPRESENTATION AND INDEMNITY: Landlord hereby
represents and warrants to Tenant, that except as outlined in the Levine Fricke
report dated April 20, 1987, that to the best of Landlord's knowledge: (i) the
Premises and all operations conducted thereon prior to the Commencement Date are
in compliance with all Laws regarding Hazardous Materials ("Hazardous Material
Laws"), (ii) any handling, transportation, storage, treatment, disposal, release
or use of Hazardous Materials that has occurred on or about the Premises prior
to the Commencement Date has been in compliance with all Hazardous Materials
Laws, and (iii) no litigation has been brought or threatened, nor any
settlements reached with any governmental or private party, concerning the
actual or alleged presence of Hazardous Materials on or about the Premises, nor
has Landlord received any notice of any violation, or any alleged violation of
any Hazardous Materials Laws, pending claims or pending investigations with
respect to the presence of Hazardous Materials on or about the Premises. Except
to the extent that the Hazardous Material in question was released, emitted,
used, stored, manufactured, transported or discharged by Tenant, or its agents,
employees and contractors, Landlord shall indemnify, protect, defend and hold
harmless Tenant and its employees, officers, directors, successors and assigns
arising from or in connection with any claim, remediation obligation,
investigation obligation, liability, cause of action, penalty, attorneys' fee,
cost, expense or damage owing or alleged to be owing by Tenant to any third
party which relates to the removal investigation, monitoring or remediation of
any Hazardous Material present on or about the Premises or the soil, groundwater
or surface water thereof, in any of the foregoing cases without regard to
whether the Hazardous Materials were present on the Premises as of the
Commencement Date or whether the presence of the Hazardous Materials was caused
by Landlord. The foregoing indemnity shall not extend to any claim to the
extent such claim is based upon an interference with Tenant's business
activities resulting from the presence of such Hazardous Materials.
D. NOTIFICATION: Landlord and Tenant shall notify the other of the
existence of any reports, recommendations or studies prepared in connection with
any investigation for the presence of Hazardous Materials on or about the
Premises and shall give written notice to the other as soon as reasonably
practicable of (i) any communication received from any governmental authority
concerning any Hazardous Materials which relates to the Premises; and (ii) any
contamination of the Premises by Hazardous Materials which constitutes a
violation of any Hazardous Materials Laws.
E. ENVIRONMENTAL STUDIES: Tenant shall have the right, at Tenant's
expense, to conduct a baseline environmental study at the Project, including the
right to bore holes and take soils samples, if Tenant so elects, provided Tenant
obtains Landlord's advance written consent, which consent shall not be
unreasonably withheld.
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19. INDEMNITY. As a material part of the consideration to be rendered to
Landlord, Tenant hereby waives all claims against Landlord for damages to goods,
wares and merchandise, and all other personal property in, upon or about said
Premises and for injuries to persons in or about said Premises, from any cause
arising at any time, and Tenant will hold Landlord exempt and harmless from any
damage or injury to any person, or to the goods, wares and merchandise and all
other personal property of any person, arising from the use of the Premises by
Tenant, or from the failure of Tenant to keep the Premises in good condition and
repair, as herein provided. Further, in the event Landlord is made party to any
litigation due to the acts or omission of Tenant, Tenant will indemnify and hold
Landlord harmless from any such claim or liability including Landlord's costs
and expenses and reasonable attorney's fees incurred in defending such claims
except to the extent of the negligence or willful misconduct of Landlord or its
agents, employees, tenants, or contractors, subcontractors, or a breach of this
Lease by Landlord. Notwithstanding anything to the contrary in this Lease,
Tenant shall neither release Landlord from, nor indemnify or defend Landlord
with respect to: (i) the negligence or willful misconduct of Landlord, or its
agents, tenants, employees, contractors, subcontractors or invitees; (ii) a
breach of Landlord's obligations or representations under this Lease, or
(iii) any Hazardous Material which was not released, emitted, or discharged by
Tenant, its agents, employees and contractors and which is or comes to be,
present on or about the Premises, or the soil or groundwater thereof, at any
time. Landlord shall indemnify, defend and hold harmless Tenant from all
damages, costs, liabilities, judgments, actions, attorneys' fees, consultants'
fees, investigative cost, remediation expense, and all other costs and expenses
arising from (i) the negligence or willful misconduct of Landlord or its
employees, agents, contractors or invitees; or (ii) the breach of Landlord's
obligations or representations under this Lease.
20. ADVERTISEMENTS AND SIGNS. Tenant will not place or permit to be
placed, in, upon or about the said Premises any signs not approved by the city
or other governing authority. Any sign so placed on the Premises shall be so
placed upon the understanding and agreement that Tenant will remove the same
before the expiration or promptly following any earlier termination of the Lease
Term, and repair any damage or injury to the Premises caused thereby, and if not
so removed by Tenant then Landlord may have same so removed at Tenant's expense.
Landlord shall cooperate with and assist Tenant in acquiring permits for the
signage desired by Tenant; provided, however, that Landlord shall not be
required to incur additional out-of-pocket costs in connection therewith.
21. ATTORNEYS' FEES. In case suit should be brought for the possession of
the Premises, for the recovery of any sum due hereunder, or because of the
breach of any other covenant herein, the losing party shall pay to the
prevailing party a reasonable attorneys fee as part of its costs which shall be
deemed to have accrued on the commencement of such action and shall be
enforceable whether or not such action is prosecuted to judgement.
22. TENANT'S DEFAULT. The occurrence of any of the following shall
constitute a material default and breach of this Lease by Tenant: (a) Any
failure by Tenant to pay the rental or to make any other payment required to be
made by Tenant hereunder, where such failure continues for five (5) days after
receipt by Tenant of written notice of Landlord's failure to receive the payment
in question; (b) The abandonment of the Premises by Tenant; (c) A failure by
Tenant to observe and
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perform any other provision of this Lease to be observed or performed by Tenant,
where such failure continues for thirty (30) days after written notice thereof
by Landlord to Tenant; provided, however, that if the nature of such default is
such that the same cannot reasonably be cured within such thirty (30) day period
Tenant shall not be deemed to be in default if Tenant shall within such period
commence such cure and thereafter diligently prosecute the same to completion;
(d) The making by Tenant of any general assignment for the benefit of creditors;
the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt
or of a petition for reorganization or arrangement under any law relating to
bankruptcy (unless, in the case of a petition filed against Tenant, the same is
dismissed within sixty (60) days after the filing); the appointment of a trustee
or receiver to take possession of substantially all of Tenant's assets located
at the Premises or of Tenant's interest in this Lease, where possession is not
restored to Tenant within sixty (60) days; or the attachment, execution or other
judicial seizure of substantially all of Tenant's assets located at the Premises
or of Tenant's interest in this Lease, where such seizure is not discharged
within sixty (60) days. The notice requirements set forth herein are in lieu of
and not in addition to the notices required by California Code of Civil
Procedure Section 1161, provided that such notices are given in the manner
required by such statute.
A. REMEDIES. In the event of any such default by Tenant, then in
addition to any other remedies available to Landlord at law or in equity,
Landlord shall have the immediate option to terminate this Lease and all rights
of Tenant hereunder by giving written notice of such intention to terminate. In
the event that Landlord shall elect to so terminate this Lease then Landlord may
recover from Tenant: (a) the worth at the time of award of any unpaid rent
which had been earned at the time of such termination; plus (b) 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 Tenant proves could have been reasonably avoided; plus (c) 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
Tenant proves could be reasonably avoided; plus (d) any other amount necessary
to compensate Landlord for all the detriment proximately caused by Tenant's
failure to perform its obligations under this Lease or which in the ordinary
course of things would be likely to result therefrom. The term "rent", as used
herein, shall be deemed to be and to mean the minimum monthly installments of
rent and all other sums required to be paid by Tenant pursuant to the terms of
this Lease, all other such sums being deemed to be additional rent due
hereunder. As used in (a) and (b) above, the "worth at the time of award" is
computed by allowing interest at the rate of the discount rate of the Federal
Reserve Bank of San Francisco plus five (5%) percent per annum. As used in (c)
above, the "worth at the time of award" is computed by discounting such amount
at the discount rate of the Federal Reserve Bank of San Francisco at the time of
award plus one percent (1%).
B. RIGHT TO RE-ENTER. In the event of any such default by Tenant,
that results in the termination of the Lease, Landlord shall also have the right
to re-enter the Premises and remove all persons and property from the Premises;
such property may be removed and stored in a public warehouse or elsewhere at
the cost of and for the account of Tenant.
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C. ABANDONMENT. In the event of the abandonment of the Premises by
Tenant or in the event that Landlord shall elect to re-enter as provided in
paragraph 22.B above or shall take possession of the Premises pursuant to legal
proceeding or pursuant to any notice provided by law, then if Landlord does not
elect to terminate this Lease as provided in paragraph 22.A above, then the
provisions of California Civil Code Section 1951.4, as amended from time to
time, shall apply and Landlord may from time to time, recover all rental as it
becomes due.
D. NO TERMINATION. No re-entry or taking possession of the Premises
by Landlord pursuant to 22.B or 22.C of this Article 22 shall be construed as an
election to terminate this Lease unless a written notice of such intention be
given to Tenant or unless the termination thereof be decreed by a court of
competent jurisdiction.
23. SURRENDER OF LEASE. The voluntary or other surrender of this Lease by
Tenant, or a mutual cancellation thereof, shall not automatically effect a
merger of the Lease with Landlord's ownership of the Premises. Instead, at the
option of Landlord, Tenant's surrender may terminate all or any existing
sublease or subtenancies, or may operate as an assignment to Landlord of any or
all such subleases or subtenancies, thereby creating a direct relationship
between Landlord and any subtenants.
24. LANDLORD'S DEFAULT. In the event of Landlord's failure to perform any
of its covenants or agreements under this Lease, Tenant shall give Landlord
written notice of such failure and shall give thirty (30) days or such longer
time as may be reasonably required by Landlord to cure said failure in the
exercise of reasonable diligence provided Landlord commences the cure within
said thirty (30) day period and thereafter diligently prosecutes such cure to
completion prior to terminating this Lease on account of such default. If
Landlord so fails to perform its obligations under this Lease, then, in addition
to its other rights and remedies, Tenant shall have the right to cure Landlord's
default and to recover from Landlord the cost of the cure together with interest
thereon at the prime rate charged by Union Bank, main San Francisco branch, plus
two percent (2%) per annum from the date of the expenditure until the date of
the repayment.
25. NOTICES. All notices required or permitted to be given under this
Lease shall be personally delivered or delivered by reputable commercial
overnight courier to the parties at the following addresses, or such other
addresses as the parties shall designate by three (3) days' prior written notice
to the other party:
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If to Tenant before the Commencement Date:
Aehr Test Systems, Inc.
150 Constitution Drive
Menlo Park, California 94025
Attn: President
If to Tenant after the Commencement Date:
Aehr Test Systems, Inc.
1667 Plymouth Street
Mountain View, California 94043
Attn: President
If to Landlord:
The John A. & Susan Sobrato 1979 Revocable Trust
c/o Sobrato Development Company
10600 N. De Anza Boulevard, Suite 200
Cupertino, California 95014
Attn: John Sobrato, Jr.
Notices given by personal delivery shall be deemed effective upon signed
acknowledgment of receipt or, if delivered by courier, one (1) day after deposit
with the courier.
26. ENTRY BY LANDLORD. Upon forty-eight (48) hours advance written notice
to Tenant (except in the event of an emergency where no such prior notice shall
be required) and provided that Landlord does not unreasonably interfere with
Tenant's use of the Premises, Tenant shall permit Landlord and his agents to
enter upon the Premises at all reasonable times subject to any safety and/or
security regulations of Tenant for the purpose of inspecting the same,
maintaining the Premises, or making repairs or alterations as may be required to
fulfill Landlord's obligations hereunder without any rebate of rent or without
any liability to Tenant for any loss of occupation or quiet enjoyment of the
Premises thereby occasioned; and Tenant shall permit Landlord and his agents, at
any time within ninety (90) days prior to the expiration of this Lease, to place
upon said Premises any "For Sale" or "For Lease" signs and exhibit the Premises
to prospective tenants at reasonable hours upon reasonable prior notice.
27. DESTRUCTION OF PREMISES.
A. OBLIGATION TO RESTORE: In the event of damage or destruction to
the Building or Premises or any portion thereof by any casualty during the Lease
Term, Landlord shall forthwith repair the same to the condition the Building or
Premises were in immediately before the destruction, provided such casualty is
of a type required to be insured against by Landlord under the terms of this
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Lease or actually insured against by Landlord (herein collectively referred to
as an "Insured Casualty"). In the event of damage or destruction of the
Premises by a casualty of a type which is not required to be insured against by
Landlord under this Lease, and which is not actually insured against by Landlord
(herein referred to as an "Uninsured Casualty"), Landlord shall restore the
Premises to the same condition as they were in immediately before such
destruction and this Lease shall not terminate; provided, that if in the case of
such Uninsured Casualty the cost of restoration exceeds five percent (5%) of the
then replacement cost of the Building, Landlord may elect to terminate this
Lease by giving written notice to Tenant within fifteen (15) days after
determining the replacement cost and furnishing reasonable evidence thereof to
Tenant. If Landlord so elects to terminate this Lease, Tenant, within fifteen
(15) days after receiving Landlord's notice to terminate, can elect to pay to
Landlord at the time Tenant notifies Landlord of its election, the difference
between five percent (5%) of the replacement cost of the Building and the actual
cost of restoration, in which case Landlord shall restore the Premises and this
Lease shall not terminate. If Landlord so elects to terminate this Lease and
Tenant does not elect to contribute the cost of restoration as provided herein,
this Lease shall terminate. In all events Landlord shall not be required to
restore Tenant's Alterations or replace Tenant's fixtures or personal property
or Tenant Improvements which have become Tenant's property. Tenant shall be
entitled to a proportionate reduction of rent during the period of damage and
restoration, such proportionate reduction to be based upon the extent to which
the damage and making of repairs shall interfere with Tenant's use of the
Premises.
B. TENANT'S RIGHT TO TERMINATE: In the event of damage or
destruction to the Premises, Landlord shall furnish to Tenant a good faith
written estimate from Landlord's architect or construction consultant of the
time period needed to restore the Premises, within thirty (30) days after the
date of the damage or destruction in question. If such estimate indicates that
the repair or restoration of the Premises cannot be made within one hundred
eighty (180) days after the date of the damage or destruction, Tenant may, at
its option, terminate this Lease by giving written notice to Landlord of such
election within thirty (30) days after receipt of Landlord's estimate. Tenant
shall also have the right to terminate this Lease if the actual restoration of
the Premises or Other Space, as the case may be, is not effectuated within one
hundred eighty (180) days after the date of the casualty. Further, Tenant shall
have the right to terminate this Lease if the Building is damaged by any peril
within twelve (12) months of the last day of the Lease Term to such an extent
that more than thirty percent (30%) of the floor area of the Building is
rendered unusable by Tenant for a period of more than sixty (60) days. The
provision of Section 1932, Subdivision 2, and of Section 1933, Subdivision 4, of
the Civil Code of the State of California are waived by Tenant to the extent
inconsistent with the provisions of this Lease.
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<PAGE>
28. ASSIGNMENT OR SUBLEASE.
A. PERMITTED TRANSFERS: Tenant may, without Landlord's prior
written consent and without any participation by Landlord in assignment or
subletting proceeds, sublet the Premises or assign the Lease to the following
(herein called "Permitted Transferees"): (i) a subsidiary, affiliate, division
or corporation controlled by or under common control with Tenant; (ii) a
successor corporation related to Tenant by merger, consolidation, or non-
bankruptcy reorganization; or (iii) a purchaser of substantially all of Tenant's
assets located in the Premises. For the purpose of this Lease, sale of Tenant's
capital stock shall not be deemed an assignment, subletting, or any other
transfer of the Lease or the Premises.
B. CONSENT BY LANDLORD: In the event Tenant desires to assign this
Lease or any interest therein including, without limitation, a pledge, mortgage
or other hypothecation, or sublet the Premises or any part thereof except as set
forth above with respect to "Permitted Transferees," Tenant shall deliver to
Landlord copies of the proposed agreement, the financial statements of the
assignee or subtenant, and any additional information as reasonably required by
Landlord. Landlord shall then have a period of ten (10) days following receipt
of such notice within which to notify Tenant in writing that Landlord elects
(i) to permit Tenant to assign or sublet such space to the named assignee/
subtenant, or (ii) to refuse consent, provided Landlord shall not unreasonably
refuse such consent. If Landlord should fail to notify Tenant in writing of
such election within said 10-day period, Landlord shall be deemed to have
elected to permit the assignment or sublease in question. No assignment or
subletting by Tenant shall relieve Tenant of any obligation under this Lease.
Landlord's consent to the proposed assignment or sublease shall not be
unreasonably withheld or delayed, provided and upon condition that:
C. The proposed uses will not violate Laws;
D. The proposed assignee or subtenant has sufficient financial worth
to undertake the responsibility involved, and Landlord has been furnished with
reasonable proof thereof; and
E. The proposed assignment shall be in a form reasonably
satisfactory to Landlord.
F. ASSIGNMENT OR SUBLETTING CONSIDERATION: Any rent actually
received by Tenant under any sublease or assignment in excess of the rent
payable hereunder, after deducting the unamortized cost of the Tenant
Improvements paid by Tenant and Alterations installed at Tenant's expense, and
subletting and assignment costs incurred by Tenant in connection with the
assignment or sublease (including, without limitation, attorneys' fees,
brokerage commissions, and remodeling costs), any vacancy costs incurred by
Tenant, and Tenant's costs in performing under such assignment or sublease,
shall be paid by Tenant fifty percent (50%) to Landlord. Tenant's obligation to
pay such consideration shall constitute an obligation for additional rent
hereunder.
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<PAGE>
G. NO RELEASE: Any assignment except to a Permitted Transferee
shall be made only if, and shall not be effective until, the assignee shall
execute, acknowledge and deliver to Landlord an agreement, in form and substance
reasonably satisfactory to Landlord, whereby the assignee shall assume all of
the obligations of this Lease on the part of Tenant to be performed or observed
and shall be subject to all of the covenants, agreements, terms, provisions and
conditions contained in this Lease. Notwithstanding any sublease or assignment
and the acceptance of rent or additional rent by Landlord from any subtenant or
assignee, Tenant shall and will remain fully liable for the payment of the rent
and additional rent due, and to become due hereunder, for the performance of all
of the covenants, agreements, terms, provisions and conditions contained in this
Lease on the part of Tenant to be performed and for all acts and omissions of
any licensee, subtenant, assignee or any other person claiming under or through
any subtenant that shall be in violation of any of the obligations of this
Lease, and any such violation shall be deemed to be a violation by Tenant.
Tenant shall further indemnify, defend and hold Landlord harmless from and
against any and all losses, liabilities, damages, costs and expenses (including
reasonable attorney fees) resulting from any claims that may be made against
Landlord by any real estate brokers or other persons claiming a commission or
similar compensation in connection with the proposed assignment or sublease.
H. EFFECT OF DEFAULT: In the event of Tenant's default, Tenant
hereby assigns all rents due from any assignment or subletting to Landlord as
security for performance of its obligations under this Lease and Landlord may
collect such rents as Tenant's attorney-in-fact, except that Tenant may collect
such rents unless a default occurs as described in paragraph 22 above. The
termination of this Lease due to Tenant's default shall not automatically
terminate any assignment or sublease then in existence. At the election of
Landlord, the assignee or subtenant shall attorn to Landlord and Landlord shall
undertake the obligations of the Tenant under the sublease or assignment;
provided the Landlord shall not be liable for prepaid rent, security deposits or
other defaults of the Tenant to the subtenant or assignee.
29. CONDEMNATION. If any part of the Premises shall be taken for any
public or quasi-public use, under any statute or by right of eminent domain or
private purchase in lieu thereof, and a part thereof remains which is
susceptible of occupation hereunder, this Lease shall as to the part so taken,
terminate as of the date title shall vest in the condemnor or purchaser, and the
rent payable hereunder shall be adjusted so that Tenant shall be required to pay
for the remainder of the Lease Term only such portion of the rent as the value
of the part remaining after such taking bears to the value of the entire
Premises prior to such taking; but in such event Tenant shall have the option to
terminate this Lease as of the date when title to the part taken vests in the
condemnor or purchaser if the taking or condemnation of the Premises is such
that the remaining space unaffected by the taking or condemnation is not
reasonably suitable for Tenant's use or the conduct of Tenant's business. If a
part or all of the Premises be taken, all compensation awarded upon such taking
shall go to Landlord and the Tenant shall have no claim thereto; provided,
however, that nothing contained herein shall be deemed to waive or release
Tenant's interest in any separate award for (i) loss of or damage to Tenant's
trade fixtures, Alterations, or personal property; (ii) interruption of Tenant's
business; (iii) Tenant's loss of goodwill; (iv) Tenant's moving cost;
(v) Tenant's interest in any Tenant
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<PAGE>
Improvements; (vi) or any separate award made to Tenant for whatever purpose.
In the event that this Lease is not terminated by reason of the condemnation,
Landlord at its expense shall repair any damage to the Premises caused by such
condemnation. Tenant hereby waives the provisions of California Code of Civil
Procedures Section 1265.130.
30. EFFECTS OF CONVEYANCE. The term "Landlord" as used in this Lease,
means only the owner for the time being of the Premises, so that, in the event
of any sale of the Premises Landlord shall be and hereby is entirely freed and
relieved of all covenants and obligations of the Landlord hereunder accruing
after the date of the conveyance. Notwithstanding the foregoing, Landlord shall
not be relieved of its obligations under this Lease, unless and until Landlord
transfers the cash security deposit or original letter of credit to its
successor and the successor assumes in writing the obligations of Landlord
accruing on and after the effective date of the transfer.
31. SUBORDINATION.
A. SUBORDINATION TO FUTURE OBLIGATIONS: In the event Landlord
notifies Tenant in writing, this Lease shall be subordinate to any ground lease,
deed of trust, or other hypothecation for security now or hereafter placed upon
the Premises and to any and all advances made on the security thereof and to
renewals, modifications, replacements and extensions thereof. Tenant agrees to
promptly execute any reasonable documents which may be required to effectuate
such subordination. Notwithstanding such subordination, Tenant's right to quiet
possession of the Premises shall not be disturbed if Tenant is not in default.
Notwithstanding anything to the contrary in the Lease, subordination of Tenant's
leasehold interest to a mortgage, deed of trust, ground lease or instrument of
security, and Tenant's attornment to any party is conditioned upon (i) Tenant's
concurrent receipt from the lender or ground lessor in question of an express
written agreement in form reasonably satisfactory to Tenant providing for
recognition of all of the terms and conditions of this Lease and providing for
continuation of this Lease upon foreclosure of the deed of trust, mortgage or
security interest or termination of the ground lease; and (ii) the written
agreement by such successor to perform all of the obligations to be performed by
Landlord under the Lease on and after the date of the foreclosure or termination
of the ground lease.
B. EXISTING OBLIGATIONS: Landlord represents and warrants that the
Premises are not encumbered by a mortgage, loan, deed of trust or ground lease
as of the date of both parties' execution of this Lease, except for a deed of
trust in favor of Principal Mutual Life Insurance Company ("Lender"). Landlord
shall use its best efforts to furnish to Tenant, within fourteen (14) days of
the date of both parties' execution of this Lease, with a written agreement in
form satisfactory to Tenant providing for: (i) recognition by Lender of all of
the terms and conditions of this Lease and any Other Lease; and
(ii) continuation of this Lease upon foreclosure of Lender's security interest
in the Premises.
32. WAIVER. The waiver by Landlord or Tenant of any breach of any term,
covenant or condition herein contained shall not be deemed to be a waiver of
such term, covenant or condition or any subsequent breach of the same or any
other term, covenant or condition herein contained. The
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<PAGE>
subsequent acceptance of rent hereunder by Landlord (or the payment thereof by
Tenant) shall not be deemed to be a waiver of any preceding breach by Landlord
or Tenant of any term, covenant or condition of this Lease, other than the
failure of Tenant to pay the particular rental accepted by Landlord, regardless
of the party's knowledge of such preceding breach at the time of acceptance of
such preceding breach at the time of acceptance of such rent.
33. HOLDING OVER. Any holding over after the termination or expiration of
the Lease Term shall be construed to be a tenancy from day-to-day and Tenant
shall pay rent to Landlord at a rate equal to one thirtieth (1/30th) of the
greater of (i) one hundred fifty percent (150%) of the monthly rental
installment due in the month preceding the termination or expiration of the
Lease Term or (ii) the Fair Market Rental (as defined in paragraph 37). Any
holding over shall otherwise be on the terms and conditions herein specified,
except those provisions relating to the term and any options to extend or renew,
which terms are expressly waived during any hold over. Furthermore, no holding
over shall be deemed or construed to exercise any option to extend or renew this
Lease in lieu of full and timely exercise of any such option as required
hereunder.
34. SUCCESSORS AND ASSIGNS. The covenants and conditions herein contained
shall, subject to the provisions as to assignment, apply to and bind the heirs,
successors, executors, administrators and assigns of all the parties hereto.
35. ESTOPPEL CERTIFICATES. Each party shall at any time during the Lease
Term, upon not less than ten (10) business days prior written notice from the
other party, execute and deliver a statement in writing certifying that this
Lease is unmodified and in full force and effect (or, if modified, stating the
nature of such modification) and the date to which any rent and other charges
have been paid in advance, and acknowledging that there are not, to the party's
knowledge, any uncured defaults on the part of the other party hereunder or
specifying such defaults if they are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises or a purchaser of Tenant's assets or leasehold interest. Landlord's or
Tenant's failure to deliver such statement within such time shall be conclusive
upon the party not providing the statement that: (a) this Lease is in full
force and effect, without modification except as may be represented by the
requesting party; (b) there are not uncured defaults in the requesting party's
performance. Upon the advance written request of Landlord, Tenant shall furnish
Landlord with Tenant's most recent available financial statement, subject to the
following: (i) Landlord shall only require such statement in connection with
Landlord's proposed sale or refinance of the Premises; and (ii) Landlord and any
person or entity to whom such financial statements are provided shall agree in
writing to hold such statements in the strictest confidence.
36. OPTION TO EXTEND THE TERM. Landlord hereby grants to Tenant, upon
and subject to the terms and conditions set forth in this paragraph, the option
(the "Option") to extend the term of this Lease for an additional term (the
"Option Term"), which Option Term shall be a period of sixty (60) months. The
Option Term shall be exercised, if at all, by written notice to Landlord on or
before the date that is six (6) months prior to the expiration date of the
initial Lease Term. If Tenant exercises the Option, each of the terms,
covenants and conditions of this Lease except this paragraph
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<PAGE>
shall apply during the Option Term be, except that the rent payable by Tenant
during the Option Period shall be ninety-five percent (95%) of the fair market
monthly rent for the Premises (the "Fair Market Rent") as of the commencement of
the Option Period. The parties acknowledge that they have agreed to so set the
rent at ninety-five percent (95%) of the then Fair Market Rent in recognition of
and in consideration for the fact that Landlord shall not incur brokerage
commissions, vacancy costs, and costs for the installation of new tenant
improvements (including recarpeting and repainting), along with other savings,
if Tenant elects to extend the term of this Lease, and that such discount of the
full Fair Market Rent is a reasonable estimate of the savings to be so realized
by Landlord.
37. APPRAISAL. If the parties are unable to agree upon the Fair Market
Rent for the Premises for the Option Term at least ninety (90) days prior to the
commencement of such Option Term, then the Fair Market Rent shall be determined
by appraisal conducted pursuant to this paragraph 38. If it becomes necessary
to determine by appraisal the Fair Market Rent for the Premises for the purpose
of establishing the monthly rent pursuant to paragraph 37 or for purposes of any
other provision of this Lease, then such Fair Market Rent shall be determined by
three (3) real estate appraisers, all of whom shall be members of the American
Institute of Real Estate Appraisers with not less than five (5) years experience
appraising commercial and industrial real property located in Santa Clara
County, California, in accordance with the following procedures:
A. The party demanding an appraisal (the "Notifying Party") shall
notify the other party (the "Non-Notifying Party") thereof by delivering a
written demand for appraisal, which demand, to be effective, must give the name,
address and qualifications of an appraiser selected by the Notifying Party.
Within ten (10) days of receipt of said demand, the Non-Notifying Party shall
select its appraiser and notify the Notifying Party, in writing, of the name,
address and qualifications of an appraiser selected by it. Failure by the Non-
Notifying Party to select a qualified appraiser within said ten (10) day period
shall be deemed a waiver of its right to select a second appraiser on its own
behalf and the Notifying Party shall select a second appraiser on behalf of the
Non-Notifying Party within five (5) days after the expiration of said ten (10)
day period. Within ten (10) days from the date the second appraiser shall have
been appointed, the two (2) appraisers so selected shall appoint a third
appraiser. In the event the two appraisers fail to select a third qualified
appraiser, the third appraiser shall be appointed by the then Presiding Judge of
the Superior Court of the State of California for the County of Santa Clara or
the head of the most local chapter of the American Institute of Real Estate
Appraisers.
B. The three (3) appraisers so selected shall meet in Santa Clara
County, California, not later than twenty (20) days following the selection of
the third appraiser. At said meeting the appraisers so selected shall attempt
to determine the Fair Market Rent for the Premises for the Option Term in
question.
C. If the appraisers so selected are unable to complete their
determinations in one meeting, they may continue to consult at such times as
they deem necessary for a fifteen (15) day period from the date of the first
meeting, in an attempt to have at least two (2) of them agree. If at
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<PAGE>
the initial meeting or at any time during said fifteen (15) day period two (2)
or more of the appraisers so selected agree on the Fair Market Rent for the
Premises, such agreement shall be determinative and binding on the parties
hereto, and the agreeing appraisers shall forthwith notify both Landlord and
Tenant of the amount set by such agreement.
D. In the event two (2) or more appraisers do not so agree within
said fifteen (15) day period, then each appraiser shall, within five (5) days
after the expiration of said fifteen (15) day period, submit his or her
independent appraisal in simple letter form to Landlord and Tenant stating his
or her determination of the fair market rent for the Premises for the Option
Term. The parties shall then determine the Fair Market Rent for the Premises by
determining the average of the Fair Market Rent set by each of the appraisers;
provided, however, that (i) if the lowest appraisal is less than eighty-five
percent (85%) of the middle appraisal, then such lowest appraisal shall be
disregarded; and/or (ii) if the highest appraisal is greater than one hundred
fifteen percent (115%) of the middle appraisal, then such highest appraisal
shall be disregarded. If any appraisal is so disregarded, then the average
shall be determined by computing the average set by the other appraisals that
have not been disregarded.
E. Each party shall bear the fees and expenses of the appraiser
selected by or for it, and the fees and expenses of the third appraiser (or the
joint appraiser if one joint appraiser is used) shall be borne fifty percent
(50%) by Landlord and fifty percent (50%) by Tenant.
F. Any determination of Fair Market Rent of the Premises made
pursuant to any provision of this Lease, whether by agreement of the parties or
by appraisal pursuant to this paragraph, shall be based upon the following:
(i) that the Premises would be leased for sixty (60) months on the same terms as
contained in this Lease, particularly with regard to Tenant's obligation to pay
additional rent and its obligation to repair and maintain; (ii) the condition,
size, age and location of the Premises; and (iii) the Fair Market Rent for the
Premises shall not include any part of the rental value added to the Premises as
a consequence of construction of Alterations or improvements made by Tenant or
at Tenant's expense.
G. Tenant shall have the right to rescind its exercise of the Option
if it does not approve in writing the fair market rent determined by appraisal,
but in such case, Tenant shall pay the costs of the appraisals. In the event
Tenant rescinds its exercise of the Option, the Lease shall be automatically
extended for a period of one hundred twenty (120) days from the date of Tenant's
written rescission at the rent then payable under this Lease until the
expiration of the Lease Term, and thereafter at the rate established by
appraisal until the end of the one hundred twenty (120) day period.
38. QUIET ENJOYMENT. Tenant shall quietly have and hold the Premises for
the term and any extensions thereof without interference by Landlord or any
party claiming by or through Landlord.
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<PAGE>
39. BROKERS. Tenant represents it has not utilized or contacted a real
estate broker or finder with respect to this Lease other than Gordon Smith of
Coldwell Banker ("Broker"), Tenant and Landlord each agree to indemnify and hold
the other harmless against any claim, cost, liability or cause of action
asserted by any other broker or finder claiming through the acts or conduct of
the indemnifying party. Landlord shall pay any commission or fee owing to
Broker without contribution by Tenant.
40. AUTHORITY OF PARTIES.
A. CORPORATE AUTHORITY. If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation, in accordance with a duly adopted resolution of the Board of
Directors of said corporation or in accordance with the bylaws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms.
B. LANDLORD'S AUTHORITY: The individual(s) executing this Lease on
Landlord's behalf represent and warrant that they have the requisite authority
to sign this Lease and that this Lease is binding on Landlord. Landlord
represents that it owns the Premises and is duly empowered to sign this Lease,
and that the consent of no other party is required to make this Lease binding on
Landlord.
41. MISCELLANEOUS PROVISIONS.
A. RIGHTS AND REMEDIES: All rights and remedies hereunder are
cumulative and not alternative to the extent permitted by law and are in
addition to all other rights and remedies in law and in equity.
B. SEVERABILITY: If any term or provision of this Lease is held
unenforceable or invalid by a court of competent jurisdiction, the remainder of
the Lease shall not be invalidated thereby but shall be enforceable in
accordance with its terms, omitting the invalid or unenforceable term.
C. CHOICE OF LAW: This Lease shall be governed by and construed in
accordance with California law.
D. INTEREST: All sums due hereunder, including rent and additional
rent, if not paid within five (5) days after Tenant's receipt of written notice
from Landlord indicating that Landlord has failed to receive the payment in
question, shall bear interest at the prime rate charged by Union Bank, main San
Francisco branch, plus two percent (2%) per annum from time to time or, if
lower, at the maximum rate permitted under California law accruing from the date
due until the date paid.
E. TIME: Time is of the essence hereunder.
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<PAGE>
F. HEADINGS: The headings or titles to the paragraphs of this Lease
are not a part of this Lease and shall have no effect upon the construction or
interpretation of any part thereof.
G. ENTIRE AGREEMENT: This instrument contains all of the agreements
made between the parties hereto and may not be modified orally or in any other
manner than by an agreement in writing signed by all of the parties hereto or
their respective successors in interest.
H. PERFORMANCE BY LANDLORD: If Tenant defaults in its performance
of any obligation required under this Lease after expiration of the applicable
cure period, Landlord may, in its sole discretion, without further notice
perform such obligation, in which event Tenant shall pay Landlord as additional
rent all reasonable sums paid by Landlord in connection with such substitute
performance within ten (10) days following Landlord's written notice for such
payment.
I. REPRESENTATIONS: Tenant acknowledges that except as set forth
herein neither Landlord or its affiliates or agents have made any agreements,
representations, warranties or promises with respect to the Premises or the
Building.
J. RENT: All monetary sums due from Tenant to Landlord under this
Lease shall be deemed to be rent.
K. INTERFERENCE: If the Premises should become unsuitable for
Tenant's use as a consequence of the presence of any Hazardous Material which
does not result from Tenant's use, storage or disposal of such material in
violation of applicable Law ("Interfering Event"), which, in the case of the
foregoing Interfering Events persists for thirty (30) continuous business days,
then Tenant shall be entitled to an abatement of rent to the extent of the
interference with Tenant's use of the Premises occasioned thereby from the date
of the Interfering Event, and, if such interference cannot be corrected or the
damage resulting therefrom repaired so that the Premises or any Other Space
leased by Tenant from Landlord will be reasonably suitable for Tenant's intended
use within one hundred eighty (180) days following the occurrence of the
Interfering Event, then Tenant shall be entitled to terminate this Lease by
delivery of written notice to Landlord at any time after occurrence of the
Interfering Event.
L. APPROVALS: Whenever the Lease requires an approval, consent,
designation, determination or judgment by either Landlord or Tenant, such
approval, consent, designation, determination or judgment (including, without
limiting the generality of the foregoing, those required in connection with
assignment and subletting) shall not be unreasonably withheld or delayed and in
exercising any right or remedy hereunder, each party shall at all times act
reasonably and in good faith.
M. REASONABLE EXPENDITURES: Any expenditure by a party permitted or
required under the Lease, for which such party is entitled to demand and does
demand reimbursement from the other party, shall be limited to the fair market
value of the goods and services involved, shall be
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<PAGE>
reasonably incurred, and shall be substantiated by documentary evidence
available for inspection and review by the other party or its representative
during normal business hours.
N. EXHIBITS: All exhibits are incorporated herein by reference.
O. LIGHT AND VIEW: Landlord shall not construct any structure or
improvement or do any other act that will impede Tenant's light, air or view.
P. MEMORANDUM OF LEASE: At Tenant's option, a memorandum of this
Lease shall be recorded in a form acceptable to Tenant in the Official Records
of Santa Clara County, California. Landlord agrees to duly execute and
acknowledge such Memorandum.
IN WITNESS WHEREOF, Landlord and Tenant have executed these presents, the
day and year first above written.
LANDLORD: The JOHN A. & SUSAN R. TENANT: AEHR TEST SYSTEMS, INC.
SOBRATO 1979 REVOCABLE TRUST a California Corporation
BY: /s/ John A. Sobrato BY: /s/ Rhea J. Posedel
--------------------------- --------------------------------
ITS: Trustee ITS: President
--------------------------- --------------------------------
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<PAGE>
EXHIBIT "A"
Site Plan
<PAGE>
EXHIBIT "B"
Site Modifications
The parties agree that the following modifications shall be made to the
Premises, at the sole cost and expense of Landlord (and not as a part of the
Tenant Improvement Allowance):
1. Landlord shall extend the telephone conduit termination to the
interior of the Building.
2. Landlord shall install fire sprinklers in the Building as required by
law.
3. Landlord shall provide a water line to the Building.
4. Landlord shall provide a main electrical conduit to the Building.
<PAGE>
EXHIBIT 11.1
AEHR TEST SYSTEMS AND SUBSIDIARIES
COMPUTATIONS OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MAY 31, --------------------
------------------------------- FEB. 29, FEB. 28,
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Primary:
Weighted average common shares outstanding................... 4039 4319 4304 4306 4297
Weighted average common equivalent shares assuming conversion
of stock options under the treasury stock method........... -- -- 61 68 97
Common and common equivalent shares pursuant to Staff
Accounting Bulletin No. 83................................. 108 108 108 108 108
--------- --------- --------- --------- ---------
Shares used in per share calculations.......................... 4,147 4,427 4,473 4,482 4,502
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss).............................................. $ (4,250) $ (1,987) $ 1,400 $ 946 $ 1,380
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share.................................... $ (1.02) $ (0.45) $ 0.31 $ 0.21 $ 0.31
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The difference between primary and fully diluted earnings (loss) per share
is less than $0.01 for each period presented.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
1. Aehr Test Foreign Sales Corporation, incorporated in the Virgin Islands
2. Aehr Test Systems Japan K.K., incorporated in Japan
3. Aehr Test Systems GmbH, incorporated in Germany
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of Form S-1 (File
No. ) of our reports dated August 1, 1996 on our audits of the financial
statements and financial statement schedule of Aehr Test Systems and
Subsidiaries. We also consent to the reference to our firm under the caption
"Experts."
Sam Jose, California
June 10, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AEHR TEST
SYSTEMS - YEAR ENDED MAY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> MAY-31-1996 MAY-31-1997
<PERIOD-START> JUN-01-1995 JUN-01-1996
<PERIOD-END> MAY-31-1996 FEB-28-1997
<CASH> 2,481 2,081
<SECURITIES> 0 0
<RECEIVABLES> 10,806 7,732
<ALLOWANCES> (241) (258)
<INVENTORY> 7,921 10,821
<CURRENT-ASSETS> 21,226 21,327
<PP&E> 9,449 9,621
<DEPRECIATION> (8,067) (7,975)
<TOTAL-ASSETS> 23,749 23,895
<CURRENT-LIABILITIES> 16,427 15,758
<BONDS> 0 0
0 0
0 0
<COMMON> 8,137 8,128
<OTHER-SE> (1,348) 9
<TOTAL-LIABILITY-AND-EQUITY> 23,749 23,895
<SALES> 33,234 30,302
<TOTAL-REVENUES> 33,234 30,302
<CGS> 19,942 18,603
<TOTAL-COSTS> 19,942 18,603
<OTHER-EXPENSES> 10,756 9,213
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 446 471
<INCOME-PRETAX> 1,531 1,665
<INCOME-TAX> 130 288
<INCOME-CONTINUING> 1,400 1,380
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,400 1,380
<EPS-PRIMARY> .31 .31
<EPS-DILUTED> .31 .31
</TABLE>
