SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995 Commission File Number 0-11370
CERPROBE CORPORATION
--------------------
(Name of small business issuer in its charter)
Delaware 86-0312814
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 South Rockford Drive, Tempe, Arizona 85281
----------------------------------------------
(Address of principal executive offices)(Zip Code)
Issuer telephone number, including area code:
---------------------------------------------
(602) 967-7885
Securities registered under Section 12(b) of the Act:
-----------------------------------------------------
None
----
(Title of Class)
Securities registered under Section 12(g) of the Act:
Common Stock, Par Value $.05 Per Share
--------------------------------------
(Title of Class)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ].
The issuer's revenues for the fiscal year ended December 31, 1995 were
$26,098,637.
As of March 22, 1996, the aggregate market value of the voting stock held by
non-affiliates of the registrant, computed by reference to the last sale price
of such stock as of such date on the Nasdaq National Market, was $40,826,352.
Shares of Common Stock held by each officer and director and by each person who
owned 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily conclusive.
As of March 22, 1996, there were 4,281,553 shares of the registrant's Common
Stock outstanding.
Transitional Small Business Disclosure Format: Yes No X
--- ---
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Registration Statement on Form 8-A/A (No. 0-11370) and
Registration Statement on Form S-8 (No. 33-65200) are incorporated by reference
in Part IV hereof.
<PAGE>
TABLE OF CONTENTS
Page
Part I
Item 1. Description of Business............................................ 1
Item 2. Description of Properties.......................................... 10
Item 3. Legal Proceedings.................................................. 12
Item 4. Submission of Matters to a Vote of Security-Holders................ 12
Part II
Item 5. Market for Common Equity and Related Stockholder Matters........... 12
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 13
Item 7. Financial Statements............................................... 17
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................. 17
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act............... 17
Item 10. Executive Compensation............................................. 20
Item 11. Security Ownership of Certain Beneficial Owners
and Management.................................................. 28
Item 12. Certain Relationships and Related Transactions..................... 30
Part IV
Item 13. Exhibits, Lists and Reports on Form 8-K............................ 32
Signatures................................................................... 37
Financial Statements ........................................................F-1
i
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Cerprobe designs, manufactures, and markets high-performance
probing and interface products for use in the testing of integrated and hybrid
electronic circuits for the semiconductor industry. Cerprobe believes it is a
leading U.S. producer of probe cards. Cerprobe's probing and interface products
enable semiconductor manufacturers, such as Intel, Motorola, and IBM, among
others, to test the integrity of their integrated circuits during the batch
fabrication process used in manufacturing integrated circuits in wafer form.
Testing integrated circuits during the batch fabrication stage of the
manufacturing process permits semiconductor manufacturers to identify defective
products early in the manufacturing process, which improves overall product
quality and lowers manufacturing costs. Cerprobe markets its probing and
interface products worldwide to semiconductor manufacturers, both those who
manufacture integrated circuits for resale and those who manufacture integrated
circuits for inclusion in their own products.
Industry Background
During the past three decades, the demand for integrated
circuits has increased dramatically. The semiconductor has enabled the
electronics industry to decrease the size, improve the performance, and expand
the capabilities of electronic products, such as computers and cellular phones.
As the electronics industry has become more sophisticated, it has developed the
technology to reduce the size of components and to fabricate a complete
electronic circuit on a single substrate referred to in the industry as a
"chip." A number of components integrated on a single chip to form a circuit is
known as an "integrated circuit." Integrated circuits are widely used in the
automotive, computer, telecommunications, and consumer electronics industries.
Demand for products incorporating integrated circuits continues to increase as
semiconductor manufacturers have decreased the size and improved the performance
capabilities of integrated circuits. In addition, as a result of advances in
technology, the amount and complexity of the circuitry integrated within a
single chip has grown significantly. An interconnection of integrated circuits
and discrete electronic components on a substrate is a "hybrid circuit." Hybrid
circuits may contain as few as one and as many as 50 chips, potentially costing
thousands of dollars. Because one flaw in the substrate could cause the entire
assembly to be defective, it is important for hybrid circuit manufacturers to
identify defective substrates through testing.
Integrated circuits generally are manufactured using a batch
fabrication process, pursuant to which integrated circuits are fabricated by
repeating a complex series of process steps on a wafer substrate, which is
usually made of silicon and measures three to eight inches in diameter. A
finished wafer consists of many integrated circuits (each referred to as a
"die"), the number depending on the size of the circuits and the size of the
wafer.
Semiconductor manufacturers use probing equipment during the
design and manufacturing processes to verify design specifications, identify
defective integrated circuits, ensure conformance with quality standards, and
classify integrated circuits according to performance characteristics. Most
semiconductor manufacturers test integrated circuits by probing the dies in
wafer form to determine whether each individual integrated circuit meets design
specifications. Probing involves establishing temporary electrical contact
between the device under test ("DUT") and automatic test equipment ("ATE"). The
number of dies on any wafer meeting specifications varies depending upon the
complexity of the circuit and other manufacturing-related aspects. Semiconductor
manufacturers concerned with maintaining profit margins test each integrated
circuit two or three times before completion of the fabrication process. Testing
is performed during the wafer fabrication process ("in-line testing") and at the
completion of the wafer fabrication process ("end-of-line testing") to measure
electrical parameters which verify the reliability of the wafer fabrication
process, while functional testing is performed after the wafer fabrication
("wafer sort") to identify integrated circuits that do not conform to particular
electrical specifications. Semiconductor manufacturers use probe cards and ATE
interfaces primarily during the wafer sort, which occurs before the separation
and packaging of each individual integrated circuit. After probing, integrated
circuits that meet specifications are separated from the batch and bonded onto
plastic, ceramic, or other packages with extended leads. Integrated circuits
that do not meet specifications are discarded. Consequently, the testing of
integrated circuits in wafer form is important to avoid incurring the
significant expense of assembling dies that do not meet specifications.
Probe cards and ATE interfaces are also used for in-line
testing and are used for research and development and quality and process
control applications. In-line testing requires special equipment features such
as cleanroom compatibility, as tests are carried out during the manufacturing
process. This testing is done to verify the manufacturing process while wafers
are in an unfinished state where corrective action to the process can be taken.
Testing also provides integrated circuit manufacturers with valuable data used
to maintain process controls. Testing can alert manufacturers to flaws in the
fabrication process or the equipment used by identifying recurring defects.
Integrated circuit testing also enables semiconductor
manufacturers to generate reliable yield data. Yield is defined as the ratio of
the number of integrated circuits on a wafer that meet the specifications at the
end of the process compared to the number of integrated circuits on a wafer at
the beginning of the fabrication process. Yield data allows manufacturers to
measure the efficiency of their production process and adjust production
techniques accordingly. Yield data from testing also can enable manufacturers to
decrease raw materials and reduce costs if yields are higher than expected.
The Wafer Probing Process
Semiconductor manufacturers test integrated circuits by means
of a probing system, which transmits electrical signals to the integrated
circuits and analyzes the signals upon their return. The principal components of
a probing system include: (i) a probe card, which consists of a printed circuit
board containing numerous probes positioned to "touchdown" on or make electrical
contact with a series of metallized pads on the integrated circuits; (ii) a
prober, which moves the wafers into position enabling the probe card probes to
touchdown on the pads; (iii) automatic test equipment ("ATE"), which transmits
the electrical signals to the integrated circuits and evaluates signals upon
their return; and (iv) an ATE interface, which transmits the electrical signals
between the ATE and the probe card.
The probe card utilizes a number of probes designed to
separately contact or "probe" a series of electrical contact points (or "pads")
on the integrated circuit. Because the type and complexity of the integrated
circuit to be tested vary, the number and positioning of the probes and the size
of each probe card must be custom designed for the specific integrated circuits
being tested to ensure proper alignment. Each ATE interface generally must be
custom designed for each probe card. An ATE and a prober can be used to test
integrated circuits of various sizes, types, and degrees of complexity and
generally are not specific to the integrated circuit being tested.
During the probing process, the prober positions each
integrated circuit on a wafer so that the pads on the integrated circuit align
under and make contact with the probes on the probe card. The ATE transmits
electrical signals through the ATE interface to the probe card, then to the
metallized pads on the integrated circuit and then evaluates the signals it
receives from the probe card to determine whether a particular integrated
circuit meets design specifications. The probing process also determines the
performance capabilities of each integrated circuit.
The testing of integrated circuits can run from milliseconds to
over a minute depending on the complexity of the semiconductor device, as some
integrated circuits contain more than three million interconnects. Unlike most
of the equipment used in the semiconductor manufacturing process, which
typically has a long life cycle, probe cards have a short life span. Probe cards
for application specific integrated circuits ("ASICs") might be used once and
then discarded. The average life of a probe card typically ranges from 200,000
to 500,000 touchdowns. However, damage due to faulty test handling equipment or
operator error can render a probe card useless prior to expiration of its normal
useful life. Cerprobe estimates that about one-third of its probe cards become
obsolete within six months after sale.
The Market for Probe Card and ATE Interfaces
The Company sells its probe cards and ATE interfaces in the
United States, European, and Asian markets. The Japanese market is comprised of
semiconductor fabrication facilities located in Japan, which currently are
serviced by the Company's Japanese competitors.
Recent trends, including rapidly growing demand for
semiconductors and advances in semiconductor technology, have driven increased
demand for probing devices, such as probe cards and ATE interfaces. As demand
for semiconductors increases, semiconductor manufacturers typically require
additional probing devices to meet their growing capacity requirements.
Conversely, to the extent demand for semiconductors lessens, semiconductor
manufacturers are likely to reduce their demand for probing devices. Integrated
circuit technology is changing rapidly due to constantly increasing demands for
greater functionality and higher speeds. Advances in integrated circuit design
and process technologies have enabled manufacturers to produce smaller
integrated circuits with even greater circuit densities, levels of integration,
and complexity to meet these demands. Advances in semiconductor technology have
resulted in higher pin counts, more varied configurations, and increasingly
complex semiconductor devices. As a result of the increased complexity of
integrated circuits and shorter product lifecycles, demand for sophisticated
probing devices has increased.
These trends in the integrated circuit market have caused
corresponding trends in the probe card and ATE interface markets. Testing more
complex integrated circuits requires more sophisticated probe cards and ATE
interfaces. The increased sophistication of integrated circuits also has
resulted in increased testing time, which lowers integrated circuit production
rates. In addition, probe cards and ATE interfaces must have greater performance
capabilities in order to test the increasingly complex circuitry and higher pin
counts of integrated circuits. Probing device manufacturers also must have the
capability to handle increasingly varied integrated circuit configurations.
Integrated circuit manufacturers are putting added emphasis on greater accuracy
and testing speed and quicker turnaround times for probing devices.
Cerprobe Strategy
Cerprobe has become a leader in the domestic market for probe
cards and ATE interfaces by addressing many of the challenges associated with
the testing of complex integrated circuits through a combination of strengths,
including advanced technical capabilities, a broad line of high-quality
products, and close relationships with leading integrated circuit manufacturers.
Cerprobe's strategy is to increase its domestic market share and to continue
expanding into international markets. Cerprobe's implementation of this strategy
includes the following key elements:
o Focus on Technological Innovation. Cerprobe is focusing more
heavily on engineering and research and development to produce
a variety of high-performance custom-designed probe cards that
have the ability to test more complex integrated circuits and
to test at higher speeds. Cerprobe supports higher integrated
circuit production rates through the use of leading edge
materials and proprietary circuit design methods in its probe
cards and ATE interfaces. SEMATECH, the U.S. semiconductor
industry consortium which defines the standards for future
semiconductor products, recently awarded Cerprobe two research
and development contracts. Cerprobe currently is developing
new integrated circuit testing systems for the semiconductor
industry. The latest research and development contract calls
for Cerprobe to determine the best solutions for probing the
interior contact points of semiconductors. Demand for such
testing devices is driven by the continuing shrinkage of
semiconductors, which is leading to more complex integrated
circuits. Cerprobe intends to continue its emphasis on
engineering and research and development in an effort to
anticipate and address technological advances in semiconductor
processing.
o Maintain Strong Customer Relationships. Cerprobe maintains
long-standing relationships with many of its customers.
Cerprobe's development of products and product enhancements is
market driven. Engineering, sales, and management personnel
collaborate closely with customer counterparts to determine
customers' needs and specifications. Cerprobe's probing
devices are custom designed for testing specific semiconductor
devices. Cerprobe expects to continue to strengthen its
existing customer relationships by continuing to provide
quality products and high levels of service and support.
o Provide Quality Products and Service. Cerprobe believes it has
developed a reputation as a leader in providing high-quality
products and services. This high quality level is achieved
through rigorous inspection and testing of products, and the
application of sound Quality Management policies and
practices. ISO 9000, the internationally recognized standard
for Quality Management, sets the criterion for Cerprobe's
quality system and is being implemented at all manufacturing
sites. A cornerstone of the Quality Management system is
Cerprobe's advanced metrology tools that ensure precise
measurements of all key product parameters. As the size of
integrated circuits is driven smaller by advances in
integrated circuit technology, the accuracy of measurements
becomes increasingly important. Cerprobe's Quality and
Engineering departments work together to define measurement
needs and identify tools that can achieve the desired results.
Cerprobe believes that its size and production methods allow
it to provide its customers with high-quality products and
quick turnaround times.
o Expand to International Markets. Cerprobe intends to continue
expansion into international markets including Europe and
Asia. Cerprobe has begun to pursue these markets by
aggressively mounting a focused sales and marketing effort
directed at selected key semiconductor manufacturers abroad.
Cerprobe believes that its recent international successes are
in part due to its strategy of locating manufacturing plants
close to its customer sites. Cerprobe's international
expansion includes the location of a full-service
manufacturing plant in East Kilbride, Scotland and the opening
of facilities in Singapore.
o Expand Product Lines and Applications. Cerprobe intends to
capitalize on its market position and technical expertise to
further broaden existing product lines through internally
developed products and from time to time through acquisitions.
For example, Cerprobe's acquisition of Fresh Test Technology
Corporation enabled Cerprobe to offer an expanded product
line, including ATE interfaces and custom-designed printed
circuit boards. The acquisition of Fresh Test and the proposed
acquisition of CompuRoute, Inc. provides Cerprobe with greater
opportunities for product development. This strategy also
enables Cerprobe to offer its customers a total system
solution. See "Description of Business - Proposed
Acquisition."
Products
Cerprobe's probe cards generally range in price from $500 to
$10,000, but may cost more depending upon the complexity and performance
specifications of the probe cards. Cerprobe's interface assemblies range in
price from $1,000 to $65,000. Most probe cards are delivered within one to three
weeks of the receipt of a customer's order and appropriate specifications.
Probe Card Products
Probe card products continued to constitute the significant
majority of Cerprobe's business during 1995. A probe card used in the testing of
an integrated or hybrid circuit utilizes a number of probes designed to
separately contact or "probe" a series of metallized pads on the integrated or
hybrid circuit. Through the number and positioning of the probes, probe cards
are individually designed for the specific integrated or hybrid circuits being
tested. Probe cards are manufactured according to the customer's specifications,
which vary depending upon the type and complexity of the circuit to be tested.
The metallized pads on the circuit to be tested generally are
located on the periphery of the circuit. As the number of pads increases due to
the type and complexity of the circuit being tested, certain customers place
pads in the center as well as on the periphery of the circuit being tested. This
design is known as an "array."
There are four types of probe card technologies currently
available.
1. CerCardTM/epoxy ring technology uses probes that connect
directly to a printed circuit board. Probe cards using
this type of technology are capable of high-speed,
high-density probing. Cerprobe introduced the CerCardTM
in October 1990. Sales of the CerCardTM generated
approximately 68% of Cerprobe's revenues in 1995 as
compared to approximately 73% of Cerprobe's revenues in
1994. Cerprobe anticipates that the CerCardTM will
continue to account for a substantial portion of
Cerprobe's probe card business in the future.
2. Ceramic/metal blade technology uses a ceramic or metal
blade attached to a needle designed to make contact with
the pads. Probe cards using ceramic blade technology,
which was developed and patented by Cerprobe, are
capable of low-speed, low-density probing. With optional
features, the ceramic blade can be used for high-speed
probing. Cerprobe will continue to manufacture ceramic
blade probe cards; however, Cerprobe expects that
ceramic blade probe cards will account for a decreasing
portion of Cerprobe's probe card business in the future.
3. Buckle beam technology uses vertical probes that emerge
from a pattern that mirrors the pattern of the pads on
the integrated or hybrid circuit being tested. Probe
cards using this technology are capable of probing pads
in the center of an integrated or hybrid circuit using
an "array" design. This technology generally is used for
high-density, low-speed applications.
4. Membrane technology uses a thin film flexible circuit
with "bumps," rather than probes, designed to make
contact with the pads. Probe cards using this technology
were introduced in 1988 and are intended for high-speed,
high-density applications.
All of Cerprobe's probe card products utilize either
CerCardTM/epoxy ring or ceramic blade technology. Cerprobe estimates that
products utilizing these technologies account for approximately 90% of the world
market for integrated and hybrid circuit probe card products, that products
utilizing the metal technology account for approximately 10% of the world
market, and that products using the buckle beam and membrane technologies
constitute less than 1% of the available world market.
Cerprobe has invested over 15 years in the design of different
types of printed circuit boards, blades, and probes and the manufacturing
processes required to assemble these products into a finished probe card.
Because the signals carried by the probe card are very sophisticated and vary by
customer, Cerprobe manufactures many types of printed circuit boards, blades and
probes, each of which may be individually designed to meet the specifications of
each customer.
ATE Interface Products
An interface is used to carry signals from the ATE to the probe
card. An interface typically consists of two intricate multi-layer printed
circuit boards connected by either a system of cables varying in length from
less than one inch up to six feet or spring loaded contact pins. One end of the
interface connects to the ATE and the other to a probe card fixture mounted on a
prober that holds the probe card in a stationary position. Cerprobe's
computer-aided design system is used to design the interfaces, each of which has
hundreds of intricate signal lines. In each case, the integrity of the test is
highly dependent on maintaining the quality of the signal between the ATE and
the integrated or hybrid circuit being tested.
Cerprobe's interface product line transmits a "clean" signal
from the ATE to the probe card and carries a return signal back to the ATE after
the circuit processes the signal. Cerprobe's interface products are designed to
optimize the integrity of return signal data through the reduction of channel
crosstalk and the matching of delay times and impedance, thereby realizing
accurate circuit yields. Yield is the ratio of good circuits to total circuits
per processed wafer and is an important cost factor for Cerprobe's customers.
Because Cerprobe's interfaces provide reliable yield data by allowing for clear
signal transmission, interfaces can also be cost saving devices. Cerprobe's
interface products feature ease of mechanical installation in the prober and
facilitate access to the wafer during testing.
Generally, each combination of ATE and prober ordered by a
customer will require a different interface. Interface products range from small
single board cable type interfaces for less complex systems to high
speed/frequency digital or mixed signal (analog and digital) interfaces used in
testing more complex integrated circuits. Prices for interfaces range from
$1,000 to $65,000 per system.
Cerprobe also produces another interface product known as a
planarized "motherboard" ("PMB"), which is a modified probe card fixture
sometimes used in the manufacture, repair, and inspection of probe cards.
Customers of Cerprobe that maintain and inspect their probe cards will continue
to purchase PMBs even though their demand for other interface products may
decrease. In addition, motherboards are a necessary part of Cerprobe's
manufacturing operations.
Cerprobe sales of ATE interfaces have increased as a result of
the acquisition of Fresh Test Technology Corporation, a company engaged
primarily in the design, manufacture, and sale of interface products.
Research and Development
Cerprobe recently has expanded its engineering and research and
development efforts. Cerprobe has been successful in controlling expenditures
for research and development by collaborating with certain customers who pay
Cerprobe to develop new product innovations.
Cerprobe has been awarded two research and development
contracts with SEMATECH, a consortium of leading U.S. semiconductor
manufacturers and the U.S. government formed to promote technological innovation
in the U.S. semiconductor industry. In the first agreement with SEMATECH,
Cerprobe concentrated on the extension of present technology to include tighter
pitches (i.e., placing probes closer together) as well as developing higher
frequency testing characteristics. Advances in semiconductor technology have
resulted in the shrinkage of circuitry patterns (from 200 microns to 90 microns,
and smaller pad pitches) and increases in speed from 33 Megahertz to over 100
Megahertz. As semiconductors have become more sophisticated, the need to place
the pads in the middle of the integrated circuit as well as on the perimeter has
developed. An area array probe card makes it possible to test circuitry pads or
bumps no matter where they are located on the integrated circuit. The second
agreement with SEMATECH calls for Cerprobe to determine the best solution for
probing the interior contact points of semiconductors. Pursuant to this
agreement, as Cerprobe matches funds contributed by SEMATECH, Cerprobe retains
the rights to any technology developed through these research and development
efforts. Cerprobe also believes it gains an added benefit from the SEMATECH
relationship by being able to work with its semiconductor manufacturer partners
to anticipate and address technological advances in semiconductor processing and
testing.
Manufacturing
The manufacturing process for Cerprobe's products consists of
the assembly of the component parts of each of its products, which are
manufactured at Cerprobe's Tempe and Chandler, Arizona, San Jose, California,
Westborough, Massachusetts, Austin, Texas, and East Kilbride, Scotland
facilities. The raw materials used by Cerprobe in its manufacturing process
include ceramic, tungsten, and printed circuit boards, all of which are readily
available in the marketplace. The components purchased by Cerprobe from other
manufacturers are obtained from a variety of suppliers, some of which are
custom-designed in accordance with Cerprobe's specifications.
In August 1994, Cerprobe established and now operates a
manufacturing, repair, and sales facility in East Kilbride, Scotland. Cerprobe's
objective in establishing and operating this facility is to serve its existing
customers in Europe and to expand its sales efforts throughout Europe. To
conduct operations in Europe, Cerprobe has formed Cerprobe Europe, Limited in
the United Kingdom as a wholly-owned subsidiary of Cerprobe.
In June 1995, Cerprobe established an office in Singapore
through a joint venture. Cerprobe currently is working to complete a full
service manufacturing, repair, and sales facility in Singapore to serve the
Asian market. Cerprobe anticipates that the facility will become operational in
the second quarter of 1996.
Marketing and Sales
Since beginning operations, Cerprobe has developed an extensive
North American customer base. These customers represent the major merchant
manufacturers of integrated circuits (businesses that manufacture for resale in
the market), such as Motorola, Intel, National Semiconductor, and others. In
addition, a significant part of Cerprobe's revenues are derived from sales to
captive semiconductor operations (businesses that produce semiconductors for
their own use), such as IBM and AT&T. In 1995, only one of Cerprobe's customers,
Intel, accounted for more than 10% of Cerprobe's sales. These merchant
semiconductor manufacturers and captive semiconductor operations provide
Cerprobe with a well-balanced base consisting of customers whose products serve
communications, computer, automotive, and military/aerospace applications.
In addition to serving high-volume established manufacturers,
Cerprobe's products also are designed to meet the needs of emerging and leading
edge technology firms such as those offering ASICs and GaAs (Gallium Arsenide
devices). Cerprobe believes that these companies will become an increasingly
important part of the U.S.-based semiconductor industry.
Purchasers of probing products generally place a high value on
service. Technical features and product quality also are attributes expected by
Cerprobe's customers. Although the service needs of customers currently are
receiving a great deal of attention by all businesses, the unique needs of
purchasers of probing products dictate an unusually high level of responsiveness
in this area. The products produced by Cerprobe usually require a great deal of
customization in order to meet customer specifications. Response time, product
design specifications, and rapid delivery typically are critical factors in
customer satisfaction. In addition, the customer's evaluation of the design and
performance of completed probing products can be quite subjective. To facilitate
satisfaction of its customer's servicing needs, Cerprobe maintains five regional
service centers in various regions of the United States and a manufacturing,
repair, and sales facility in East Kilbride, Scotland. Cerprobe is also
establishing a manufacturing, repair, and sales facility in Singapore to provide
service to the Asian market.
In addition to its regional service facilities, Cerprobe
reaches its domestic customers with its sales personnel and regional
representatives. Like its regional service facilities, Cerprobe's sales
personnel are strategically located to facilitate rapid response to major market
centers and key customers. In September 1993, Cerprobe established a sales
office in Dallas, Texas to serve customers in that region. In February 1994,
Cerprobe expanded that facility to include repair operations. In July 1994,
Cerprobe established a sales office in Beaverton, Oregon, to serve customers in
that region. Cerprobe also has sales representatives in Colorado Springs,
Colorado and Boca Raton, Florida.
In both Europe and the Far East, Cerprobe has utilized a
network of independent distributors. Currently, Cerprobe's international
business represents approximately 11% of sales. Cerprobe, however, recognizes
the potential in these markets and is positioning itself to initiate a more
aggressive marketing and sales program in the international market in the
future. In particular, Cerprobe intends to expand its sales efforts throughout
Europe and has established and currently operates a manufacturing, repair, and
sales facility in East Kilbride, Scotland for the purpose of serving customers
in Europe. In continuing that effort, in June 1995, Cerprobe established a joint
venture in Singapore for the purpose of developing a full service manufacturing,
repair, and sales facility reaching markets in Southeast Asia. The Company
currently is negotiating Pioneer Status with the Singapore Economic Development
Agency, which, if granted, would provide certain tax exemptions with respect to
the Company's operations in Singapore. The Company anticipates that the
Singapore facility will commence operations in the second quarter of 1996.
Cerprobe's strategic marketing plan is aimed primarily at
increasing its share of the probe card market through continued expansion of
CerCardTM product sales both domestically and internationally. The CerCardTM
allows Cerprobe to service both the higher pin count probe card market and
customers who currently use epoxy ring probe card technology exclusively.
Cerprobe also is working with key customers in the development of products and
improvements that will enhance Cerprobe's existing product line.
Competition
Cerprobe encounters competition from a number of well
established domestic competitors in the integrated circuit probe card market,
including Wentworth Laboratories, Inc., Probe Technology, and Micro-Probe,
Incorporated, as well as numerous smaller competitors. Cerprobe's competitors
manufacture and market epoxy ring probe cards, which have been accepted in the
marketplace for over 20 years, and metal blade probe cards, which have been
accepted in the marketplace for over 15 years. Cerprobe estimates that epoxy
ring probe cards comprise approximately 90% of the domestic market and metal
blade probe cards comprise approximately 5% of the domestic market. Cerprobe
estimates that ceramic blade probe cards represent approximately 5% of the total
domestic market. Cerprobe believes that its CerCardTM product, which is a
technological improvement of the commonly used epoxy ring type probe card, will
continue to capture an increasing portion of the market currently using epoxy
ring probe cards. Cerprobe believes that it, and to a limited extent Wentworth
Laboratories, Inc. and Accuprobe, Inc., are the only current manufacturers of
ceramic blade probe cards. It is expected that competition will increase in the
future as integrated circuitry and probing technology become more sophisticated.
Manufacturers of integrated circuit probe cards compete primarily on the basis
of product performance, service, delivery time and price. Cerprobe believes that
it compares favorably with its competitors in these areas.
Hand-wired connections have been Cerprobe's principal
competition in interface circuitry. Historically, ATE end users have hand-wired
the connections between the ATE and the probe card. However, more recently, the
market in advanced interface circuitry is developing both domestically and
internationally, and increased competition has emerged from other probe card
manufacturers, ATE manufacturers, and other companies. Competition in interface
circuitry will be on the basis of performance specifications, service, and
price.
Competition in the international market is significant and
similar to that faced in the domestic market. Most of the probe cards sold
outside the United States use epoxy ring technology, built under license from
U.S. manufacturers. Cerprobe's competitive challenges in the international
market are expected to be similar to those experienced domestically.
Patents
Cerprobe received a patent in November 1991 for a new probing
technology which offers product features that are useful in testing TAB (Tape
Automated Bonding) mounted chips, multi-chip substrates, integrated circuits
with gold pads or solder bumps, and devices having multiple rows of test points
around or within the periphery of the chip. In addition, in January 1995,
Cerprobe received a patent for an enhanced version of Cerprobe's CerCardTM
product known as a Transmission Line Probe Assembly, which is capable of testing
at higher speeds than Cerprobe's current product line.
Cerprobe strives to improve existing technology and will pursue
patent protection for any new products it may develop in connection with such
efforts. However, there can be no assurance that future patents on new products
will be sought or issued or that Cerprobe's present patent position will cover
its development of new products. Cerprobe believes that its success will depend
primarily on the technological competence and creative skills of its personnel
rather than the protection of its existing patent or future patents.
Employees
Cerprobe has several key employees and the loss of any one of
them might have a temporary adverse effect on Cerprobe's business prospects.
Cerprobe maintains a key man life insurance policy on C. Zane Close, Cerprobe's
Chief Executive Officer, in the amount of $1,000,000. During 1995, a period
during which demand for Cerprobe's products increased significantly, Cerprobe's
total employment increased from 179 to 299 employees. There are no collective
bargaining agreements and Cerprobe considers its relations with its employees to
be good.
Raw Materials
The raw materials and components used by Cerprobe in the
manufacturing process are available from a broad supplier base. These raw
materials and components are readily available and no shortages occurred during
1995. Raw materials include ceramic, tungsten, single and multiple printed
circuit boards with a variety of machined mechanical parts, probe needles, and
metallized ceramic blades.
Government Regulations
Federal, state, and local provisions regulating the discharge
of materials into the environment have not had a material effect on Cerprobe's
business. Cerprobe has made certain leasehold improvements in order to comply
with Environmental Protection Agency and local regulations. Cerprobe believes
that it is in full compliance with these regulations. Cerprobe, however, is
unable to predict what effect, if any, the adoption of more stringent
regulations would have on its future operations.
Proposed Acquisition
On January 23, 1996, the Company signed a letter of intent to
acquire the stock of CompuRoute, Inc. and its affiliates ("CompuRoute").
CompuRoute is engaged in the design, manufacture, and sale of high performance
printed circuit boards used by customers in the semiconductor industry. See Note
16 to the Company's Consolidated Financial Statements. If the transactions
contemplated by the letter of intent are consummated, CompuRoute will become a
wholly owned subsidiary of the Company and CompuRoute's shareholders will
receive 920,000 shares of the Company's Common Stock, subject to certain
conditions and adjustments. The letter of intent also provides for the Company
to appoint Dr. George P. Shrime, the principal shareholder of CompuRoute, to its
Board of Directors. The letter of intent also contemplates that the Company will
purchase the land and building used by CompuRoute from Dr. Shrime in exchange
for 75,000 shares of the Company's Common Stock. There can be no assurance that
this transaction will be consummated, or, if consummated, that it will be
consummated on the same terms as are currently contained in the letter of
intent.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's principal executive offices and primary
manufacturing facility are located at 600 S. Rockford Drive, Tempe, Arizona. The
Company leases approximately 30,000 square feet of office and manufacturing
space at that location. The lease is for a term of five years and five months,
commencing on August 1, 1991, and ending on December 31, 1996. The lease
provides for an initial monthly base rent of $15,600 and incremental increases
in monthly rent from $18,600 in December 1993 up to $20,400 during the last year
of the lease. In 1995, the Company paid $228,780 in total pursuant to this
lease. The Company has the option to extend the lease for one successive period
of five years at a monthly rent subject to increase according to market rates
for comparable space in the same vicinity, subject to a minimum increase of 3%
annually.
In connection with the acquisition of Fresh Test Technology
Corporation, the Company assumed a lease for approximately 15,581 square feet of
office and manufacturing space in Chandler, Arizona. The term of the lease is
five years commencing on December 1, 1993 and expiring on November 30, 1998.
Monthly rent payments range from $10,362 during the first 12 months of the lease
to $10,767 during the last 12 months of the lease. The Company leased an
additional 5,470 square feet of office and warehouse space at the site in
Chandler, Arizona for a 14 month term commencing November 1, 1995 and ending
December 31, 1996. The monthly rental rate for this additional office space is
$3,555.50. In 1995, the Company paid $125,523 in total pursuant to these two
leases.
The Company leases approximately 33,000 square feet of office
space in San Jose, California for a manufacturing, repair and sales facility.
The lease provides for a term of seven years and one month commencing on August
1, 1995 and expiring on August 30, 2002. The lease provides for monthly rental
payments of $25,627. The Company has the option to extend the lease for one
additional five year term at a monthly rent subject to an increase according to
the market rates for comparable space. In 1995, the Company paid $78,077
pursuant to the terms of this lease.
The Company remains subject to a lease for approximately 9,056
square feet of office space in Santa Clara, California formerly used as a repair
and assembly center and sales office. The lease provides for a term of seven
years commencing August 1993. Monthly rent payments range from $9,493 in the
first 12 months of the lease to $11,047 in the last 12 months of the lease.
Pursuant to this lease, which was entered into in June 1993, and the terms of a
preexisting lease relating to a portion of this office space, the Company paid
$133,967 in 1995. The Company subleases approximately 4,000 square feet of this
space in exchange for $4,000 a month pursuant to a sublease and approximately
5,056 square feet in exchange for monthly payments of $5,600.
On November 4, 1994, the Company entered into a lease for a
manufacturing, repair and sales facility in East Kilbride, Scotland. The lease
provides for approximately 4,582 square feet of office and manufacturing space
in exchange for an annual rent of (pounds)15,750, payable quarterly in February,
May, August, and November of each year. The term of the lease is five years
commencing on August 28, 1994 and expiring on August 27, 1999. In 1995, the
Company paid $24,750 in total pursuant to this lease. Unless either party elects
to terminate the lease within six weeks of the scheduled expiration date, the
lease will continue from year-to-year until terminated by notice.
The Company leases approximately 4,800 square feet of office
and production space in Austin, Texas for the operation of a repair and assembly
center and sales office. The lease will expire on April 14, 2000. The lease
provides for monthly payments of rent increasing each year from $3,400 per month
during the first year of the lease to $3,986 per month during the last year of
the lease. In 1995, the Company paid $43,433 in total pursuant to this lease and
a preexisting lease for a portion of the same office space.
The Company leases approximately 2,400 square feet of office
space in Richardson, Texas, for the operation of a repair and assembly center
and sales office. The term of the lease is three years with a three-year
renewal. The lease provides for monthly payments of rent of $1,350. In 1995, the
Company paid $16,200 pursuant to this lease.
On June 30, 1995, the Company leased approximately 6,144 square
feet of office space in Westborough, Massachusetts for the operation of a repair
and assembly center and sales office. The lease provides for a term of five
years commencing on July 1, 1995. Monthly rent payments range from $7,680 in the
first 12 months of the lease to $8,192 in the last 12 months of the lease. In
1995, the Company paid $62,956 in total pursuant to this lease. The Company has
the option to extend the lease for one additional term of two years at a monthly
rent subject to an increase according to the market rates for comparable space
in the same vicinity.
The Company leases approximately 886 square feet of
manufacturing space in Singapore. The term of the lease is three years
commencing on September 3, 1995 and expiring on September 2, 1998. The lease
provides for monthly payments of rent of $5,854 (Singapore dollars). In 1995,
the Company paid $23,377 (Singapore dollars) pursuant to this lease. The Company
has the option to renew the lease for an additional three years at a revised
rental rate.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to, nor is any of its property the
subject of, any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
There were no matters submitted to a vote of the Company's
stockholders during the fourth quarter of 1995.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock began trading in the
over-the-counter market on the Nasdaq system on September 29, 1983 and commenced
trading on the Nasdaq National Market on August 10, 1995 under the symbol
"CRPB." On March 22, 1996, the last sale price for the Company's Common Stock
was $14.125. The following table sets forth the high and low last sale prices of
the Company's Common Stock for each quarter during the last two fiscal years, as
reported on the Nasdaq National Market.
High Low
---- ---
1994:
First Quarter.......................... 6 1/2 5
Second Quarter......................... 5 1/4 4 1/2
Third Quarter.......................... 5 3/4 5 1/2
Fourth Quarter......................... 4 3/4 4 1/4
1995:
First Quarter.......................... 6 5
Second Quarter......................... 8 1/4 5 1/2
Third Quarter(1)....................... 10 1/2 10
Fourth Quarter......................... 17 16 3/4
(1) Prior to August 10, 1995, prices represent high and low bid quotations
on Nasdaq. Bid quotations represent interdealer quotations, which
exclude retail markups or mark-downs and commissions and may not
necessarily represent actual transactions.
As of March 22, 1996, there were approximately 1,500 record holders of the
Company's Common Stock. On May 23, 1994, the Company paid a one-time dividend on
its Common Stock equal to $.03 per share.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
Over the past three years, the Company has succeeded in
restructuring and strengthening its internal management, stabilizing and
expanding its production environment, and positioning its key sales personnel.
As a result, significant growth has occurred, with sales increasing from over
$14 million in 1994 to $26 million in 1995. In addition, the Company believes it
is appropriately positioned for its current expansion strategy.
During 1995, the semiconductor equipment market grew by more
than 50% worldwide. Management believes the increase in domestic market share
resulted from the Company's expanded capacity in its existing facilities which
provided increased support to the Company's customers. The Company emphasized
customer support and engineering leadership.
The Company took steps in 1994 to expand its presence in the
international market by opening a full service manufacturing and repair facility
in Scotland to serve Europe. The Scotland facility is now fully operational. In
1995, the Company continued this expansion by opening an office in Singapore
pursuant to a joint venture agreement. Management believes that the fastest
growing region for the semiconductor industry is Southeast Asia and plans to
continue expanding into this area during 1996.
Besides increasing its market share, the Company also has
expanded its product line. Historically, the Company has produced high
performance probing and interface products for use in the testing of integrated
and hybrid circuits in the semiconductor industry. Through the acquisition of
Fresh Test Technology Corporation, the Company expanded its product line to
include the design and manufacture of interface assemblies. This acquisition was
completed on April 3, 1995 with the issuance of 712,500 shares of the Company's
Common Stock to the stockholders of Fresh Test Technology Corporation. The
acquisition allowed the combination of product lines and the consolidation of
engineering expertise.
In order to continue to broaden the Company's product line,
the Company has entered into a letter of intent to acquire CompuRoute, Inc. (and
certain affiliated companies) ("CompuRoute") located in Richardson, Texas for
approximately 920,000 shares of the Company's Common Stock. The letter of intent
also provides for the issuance of 75,000 shares of the Company's Common Stock to
CompuRoute's largest stockholder in exchange for certain real estate associated
with CompuRoute's operations. CompuRoute is a leading designer and fabricator of
printed circuit boards and assemblies used in the testing of semiconductors. The
acquisition of CompuRoute will expand the Company's current product line both
internally and externally and increase the Company's distribution network. This
transaction is subject to a number of conditions, however, including approval by
the stockholders of both companies, and there can be no assurance that it will
be completed.
In order to continue to be a leading performer in the
semiconductor industry, the Company intends to support an aggressive research
and development program. Recently, the Company was awarded two contracts by
SEMATECH, the consortium of government and semiconductor partners that oversees
the development of new standards for the industry. These contracts position the
Company as a technological leader in its industry. The Company anticipates an
added benefit from the ability to work with the Company's semiconductor
manufacturer partners in anticipating and addressing technology advances in
semiconductor processing and testing.
In January 1996, the Company completed a private placement of
$10 million of Series A Preferred Stock to a group of institutional investors.
The holders of the Series A Preferred Stock are entitled to certain liquidation
preferences, conversion rights, and other privileges as described in Exhibits
4(c) and 4(d) to the Annual Report on Form 10-KSB. See Note 16 to the Company's
Consolidated Financial Statements. This equity financing will allow the Company
to execute its strategy of rapid growth through internal expansion and strategic
alliances without the constraints of capital limitations.
Results of Operations -
1995 versus 1994
Net Sales
Net sales in 1995 were $26,098,637, an increase of 83% over
net sales of $14,251,485 in 1994. This increase in net sales reflects a
continuation of higher order rates for the Company's probe card products,
especially CercardTM, and the contribution from the 1995 acquisition of Fresh
Test Technology Corporation. Approximately $4,000,000 of 1995 net sales resulted
from interface product sales.
International net sales in 1995 were $2,965,171 compared to
$691,295 in 1994, an increase of 329%.
Gross Margin
The gross margin in 1995 was $12,392,202, an increase of 105%
from the gross margin of $6,037,519 in 1994. Gross margin as a percentage of
sales increased from 42% in 1994 to 47% in 1995. The increase in gross margin is
primarily a result of fixed manufacturing costs being spread over a larger sales
base. Although growth in the semiconductor industry positively impacted sales,
price competition in the market place continued to prevent the Company from
increasing product prices.
The Company believes its ability to continue to increase its
manufacturing capacity and inventory levels to meet customer demand and maintain
satisfactory delivery schedules will be important competitive factors. As a
result of increasing fixed costs and operating expenses related to expanding its
manufacturing capacity and increasing inventory levels, the Company's operating
results may be adversely affected if net sales do not sufficiently maintain
their present level to offset the increased costs.
Engineering and Product Development Expenses
Engineering and product development expenses increased 69% to
$706,680 in 1995 from $417,198 in 1994. Engineering and product development
expenses as a percentage of sales were 2.7% in 1995 compared to 2.9% in 1994.
This increase represents a controlled expansion of research and development
efforts to pursue the development of new integrated circuit testing systems for
the future. This effort will support the Company's strategy to maintain its
position as an industry leader.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to
$7,502,598, or 29% of net sales in 1995, from $3,693,401, or 26% of net sales in
1994. The increase in selling, general and administrative expenses resulted
primarily from the increase in fixed general and administrative costs due to the
Company's continued facility expansion and the acquisition of Fresh Test
Technology Corporation.
Other Income (Expense)
Total other income (expense) was $31,050 in 1995 compared to
($3,576) in 1994. Other income (expense) primarily results from interest income
on cash balances and interest expense on debentures and financed property and
equipment. The Company expects a decrease in interest expense in 1996 due to the
anticipated conversion of the Company's outstanding Convertible Subordinated
Debentures on or prior to March 29, 1996 and December 15, 1996.
Income Taxes
The Company's effective tax rate was 43% in 1995 versus 37%
in 1994. The effective tax rate on United States income is 38%; on a
consolidated basis, however, the effective tax rate is 43% due to nondeductible
tax losses generated by the Scotland subsidiary.
Net Income
Net income for 1995 was $2,402,247, an increase of
$1,189,424, or 98% over net income of $1,212,823 in 1994. This increase is
primarily due to the increase in net sales and gross margin.
Results of Operations -
1994 versus 1993
The Company's net sales in 1994 increased 27.1% from 1993,
primarily as a result of increased sales of its CerCardTM product line. The
significant sales increase in the CerCardTM product line was due primarily to an
increase in market share and continued strength in the semiconductor industry.
The gross margin increased $1,594,000 from the comparable
figure in the prior year. Gross margin as a percentage of sales increased from
approximately 40% in 1993 to approximately 42% in 1994. The increase in gross
margin resulted primarily from the increase in net sales and the positive effect
of fixed costs being spread over a larger revenue base. Although the strength in
the semiconductor industry positively impacted sales, price competition in the
market place continued to prevent the Company from raising prices for its
products.
Engineering and product development expenses increased by
$81,539, or approximately 24%, from the prior period, reflecting a continued
stabilization of these expenses since the significant reduction from 1990 to
1991. This effort to maintain engineering and product development expenses at
lower than historical levels reflected the Company's strategy to focus
engineering activity on improvements in current technology rather than the
development and implementation of new products. During 1994, the Company
continued tight controls over research and development spending.
Although the Company experienced a substantial increase in
net sales and an increase in the gross margin, the Company's net income
decreased from $1,502,358 in 1993 to $1,212,823 in 1994. The decrease in net
income was primarily due to an increase in income taxes of $620,521 and a loss
from start-up operations with respect to its newly established facility in East
Kilbride, Scotland, equal to approximately $437,000. Interest expense in 1994
was approximately $115,000, a slight decrease from the $132,000 of interest
expense in 1993.
Liquidity and Capital Resources
Working capital increased to $4,771,459 at December 31, 1995
from $3,571,999 at December 31, 1994. The Company's current ratio decreased from
4.0 at December 31, 1994 to 2.5 at December 31, 1995 primarily as a result of
capital expenditures of $1,960,775, and an increase in accounts payable and
accrued expenses of $1,101,238.
The ratio of total debt to net worth was .40 at December 31,
1995 compared to .42 at December 31, 1994. On June 12, 1995, the Company signed
a Loan Agreement with First Interstate Bank of Arizona. The Loan Agreement
provides up to $750,000 in revolving credit for accounts receivable financing.
At December 31, 1995, no amounts were outstanding under this agreement. See Note
5 to the Company's Consolidated Financial Statements.
Net cash provided by operations was $1,645,564 in 1995 versus
$1,538,766 in 1994. The increase resulted from increases in net income,
depreciation and amortization expense, and inventories offset by an increase in
accounts payable and accrued expenses. Net cash used in investing activities was
$2,000,411 in 1995 versus $1,354,644 in 1994. The increase of $645,767 primarily
resulted from increased capital expenditures. Net cash used in financing
activities was $95,099 in 1995 verus net cash provided by financing activities
of $32,613 in 1994.
Cash and cash equivalents were $263,681 at December 31, 1995
compared to $738,319 at December 31, 1994. In January 1996, the Company
completed a private placement of $10 million of Series A Preferred Stock to a
group of institutional investors pursuant to Regulation S promulgated under the
Securities Act of 1933. See Note 16 to the Company's Consolidated Financial
Statements. The Company intends to use the proceeds from the private placement
to fund the start-up costs associated with the Company's expansion into the Asia
Pacific region. The Company anticipates that its current cash and cash
equivalents combined with future cash flows from operating activities and its
available sources of credit should be sufficient to support the Company's
operations for at least the next year.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board
issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" (SFAS No. 121). SFAS No. 121 becomes
effective for fiscal years beginning after December 15, 1995. The Company is
currently assessing the impact of SFAS No. 121 on its financial statements.
In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123).
SFAS No. 123 is effective for transactions entered into in fiscal years
beginning after December 15, 1995. The Company is currently assessing the impact
of SFAS No. 123 on its financial statements.
Inflation and Changing Prices
The Company is impacted by inflationary trends and business
trends within the semiconductor industry and by the general condition of the
national and international semiconductor markets. Market price pressures are
exerted on American semiconductor manufacturers by a global marketplace and
global competition. Such pressures mandate that semiconductor manufacturers
closely scrutinize the prices they pay for goods and services purchased from the
Company and other suppliers. Accordingly, the price structure for the Company's
products must be competitive. Although continued strength in the semiconductor
industry continued to have a positive impact on the Company's sales during 1995,
significant competition continued to prevent the Company from raising prices on
its products.
Changes in the Company's supplier prices did not have a
significant impact on revenues or income from operations during 1995 or 1994.
As a result of the Company's operation of the manufacturing,
repair and sales facility in Scotland, the Company's foreign transactions may be
denominated in currencies other than the U.S. dollar. Such transactions may
expose the Company to exchange rate fluctuations for the period of time from
inception of the transaction until it is settled. There can be no assurance that
fluctuations in the currency exchange rate in the future will not have an
adverse impact on the Company's foreign operations.
In addition, the Company may purchase a substantial portion
of its raw materials and equipment from foreign suppliers and will incur labor
costs in a foreign currency. The foreign manufacture and sale of products and
the purchase of raw materials and equipment from foreign suppliers may be
adversely affected by political and economic conditions abroad. Protective trade
legislation in either the United States or foreign countries, such as a change
in the current tariff structures, export compliance laws or other trade
policies, could adversely affect the Company's ability to manufacture or sell
its products in foreign markets and purchase materials or equipment from foreign
suppliers. In countries in which the Company conducts business in local
currency, currency exchange fluctuations could adversely affect the Company's
net sales or costs.
ITEM 7. FINANCIAL STATEMENTS
The Independent Auditors' Report and Financial Statements of
the Company are set forth on pages F-1 to F-19 of this report and are
incorporated by reference herein.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors and Executive Officers
The following table sets forth certain information regarding
the Company's directors and executive officers.
Name Age Position(s) with the Company
- ---- --- ----------------------------
Ross J. Mangano 50 Chairman of the Board of Directors
C. Zane Close 46 President, Chief Executive
Officer and Director
Kenneth W. Miller 64 Secretary, Treasurer and
Director
Donald F. Walter 63 Director
William A. Fresh 67 Director
Michael K. Bonham 57 Vice President-Sales and
Marketing
Eswar Subramanian 38 Vice President-Engineering
Henry Wong 36 Vice President-Production
Robert K. Bench(1) 47 Chief Financial Officer
Roseann L. Tavarozzi 41 Vice President-Finance
- -----------
(1 )Mr. Bench has informed the Company that, following the expiration of his
employment agreement with the Company on April 3, 1996, he does not intend to
remain with the Company.
Ross J. Mangano has served as the Chairman of the Board of
Directors of the Company since February 1993, and as a director of the Company
since February 1988. Mr. Mangano has been employed by Oliver Estate, Inc., an
Indiana-based management company, since 1971 and has served as vice president-
investments for Oliver Estate, Inc. since 1980. Mr. Mangano also is an
investment analyst for Oliver Estate, Inc. Since December 1993, Mr. Mangano has
been a member of the board of directors of Cole Taylor Financial Group, a
publicly-held bank holding company based in Wheeling, Illinois.
C. Zane Close joined the Company in July 1990 as its President
and Chief Executive Officer and has also served as a director of the Company
since that time. From February 1985 to September 1989, Mr. Close served as vice
president of operations and thereafter, until July 1990, as vice president and
general manager of Probe Technology Corporation, a California corporation that
develops, manufactures and markets probing devices for use in the testing of
integrated and hybrid circuits.
Kenneth W. Miller has served as the Treasurer of the Company
since June 1994, as the Secretary of the Company since October 1991 and as a
director of the Company since 1979. Since January 1993, Mr. Miller has served as
a business consultant to various companies involved in the high tech industry.
From April 1991 until October 1991, Mr. Miller was the marketing director of
Scrantom Engineering, Inc., a manufacturer of hybrid circuits and ceramic
circuit boards located in Costa Mesa, California. From September 1988 until
April 1991, Mr. Miller served as the marketing director of Advanced Packaging
Systems, a manufacturer of high density ceramic and polymer thin film
interconnect products. From 1981 to September 1988, Mr. Miller served as the
president of Interamics, a San Diego-based company that manufactured ceramic
packages for integrated circuits and hybrid substrates. From January 1977 to the
time he joined Interamics, Mr. Miller was vice president and general manager of
a division of Siltec Corporation, a San Francisco-based manufacturer of silicon
wafers and ceramic packages.
Donald F. Walter has served as a director of the Company since
May 1, 1991. Since 1982, Mr. Walter has been a financial consultant and is the
principal of Walter & Keenan Financial Consulting Co., a financial consulting
firm located in Niles, Michigan. Since 1982, Mr. Walter has served as a director
of National Standard Co., a public company based in Niles, Michigan that
manufactures specialty wire products. Since 1988, Mr. Walter has served as a
director of Metro BanCorp, a publicly-owned bank based in Indianapolis, Indiana.
William A. Fresh has served as a director of the Company since
April 7, 1995. Mr. Fresh co-founded Fresh Test Technology Corporation, a
company recently acquired by the Company ("Fresh Test"), and Fresh Quest
Corporation, a designer and manufacturer of probe and interface test technology
for the semi-conductor industry. He served as Chairman of the Board and Chief
Executive Officer of Fresh Test from January 1986 through March 1995 and has
served as the Chairman of the Board and Chief Executive Officer of Fresh Quest
Corporation since January 1992. Mr. Fresh also has served as the Chairman of the
Board and Chief Executive Officer of Magellan Technology, a public holding
company, Orem Tek Development Corp., a real estate development company, and
Satellite Images System Corporation, a medical information processing company,
since May 1990, May 1991 and February 1992, respectively, and as Chairman of the
Board of EFI Electronics, a publicly-held power conditioning company, and Fresh
Technology Company, a PC-based software company, since February 1991 and May
1991, respectively.
Michael K. Bonham joined the Company in July 1990 as its Vice
President of Sales and Marketing. From October 1988 to June 1990, Mr. Bonham was
marketing manager of Tektronix, Incorporated, a manufacturer of electronic test
measurement equipment, IC Probe and Curve Tracer Group. From September 1984 to
October 1988, Mr. Bonham was major account manager and consulting sales engineer
for the Semiconductor Cast Systems division of Tektronix.
Eswar Subramanian joined the Company in July 1990 as its Vice
President of Engineering. Immediately prior to joining the Company, Mr.
Subramanian was director of development at Probe Technology Corporation, where
he was responsible for the development and establishment of new probing
technology and its production operations. From November 1984 to April 1990, Mr.
Subramanian was engineering manager at Probe Technology Corporation and was
responsible for the design, development, manufacture and engineering of probing
products.
Henry Wong joined the Company in July 1990 and has served as
Vice President of Production since July 1991. Prior to joining the Company, Mr.
Wong was chief technologist of probe card production at Probe Technology
Corporation, where he was involved in the manufacture and design of probe cards
as well as production operations and research and development. Prior to his
affiliation with Probe Technology Corporation in 1983, Mr. Wong worked with
Rucker and Kolls, a California manufacturer of probe cards.
Robert K. Bench joined the Company in April 1995 as its Chief
Financial Officer. From April 1991 through March 1995, Mr. Bench served as Vice
President and General Manager of Fresh Technology Group, a private holding
company, and as Vice President and Chief Operating Officer of Fresh Test
Technology Corporation. From March 1986 to March 1991, he served as Vice
President of Finance and Chief Financial Officer of Clyde Digital, a software
manufacturing and marketing company. Mr. Bench is a certified public accountant.
Roseann L. Tavarozzi has served as Vice President-Finance of
the Company since April 1995. From March 1994 through March 1995, Ms. Tavarozzi
served as Vice President and Chief Financial Officer. Prior to joining the
Company, Ms. Tavarozzi was the corporate controller for Quorum International,
Ltd., an international distributor of security products based in Phoenix,
Arizona. From May 1989 until April 1992, Ms. Tavarozzi was the controller-mid
continent for Core-Mark International, Inc., an international distributor of
consumable products. Ms. Tavarozzi is a certified public accountant.
Upon the resignation of John W. Tarzwell as a director of the
Company on May 1, 1991, the Board of Directors of the Company appointed Donald
F. Walter to fill the vacancy. In connection with the issuance of the Company's
Convertible Subordinated Debentures (see "Transactions with Management"), the
Company agreed with one of the holders of the Convertible Subordinated
Debentures to appoint Mr. Walter to the Board and thereafter to nominate Mr.
Walter as a director so long as $250,000 in principal amount of the Convertible
Subordinated Debentures held by such holder and his affiliates remains
outstanding. As of the date of this report, such holder and his affiliates held
$485,000 in outstanding principal amount of the Convertible Subordinated
Debentures. In addition, the employment agreement between the Company and Mr.
Close provides that the Company will cause Mr. Close to be nominated to the
Board of Directors so long as Mr. Close is employed by the Company. The
stockholders of the Company, however, have no obligation to vote for Mr. Walter
or Mr. Close and may withhold or distribute votes in their discretion. The
Company knows of no other arrangements or understandings between any director or
executive officer and any other person pursuant to which he has been selected as
a director or executive officer.
Compliance with Section 16 of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's directors and officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC"). Officers, directors and greater than 10% stockholders are required
by SEC regulations to furnish the Company with copies of all Section 16(a) forms
filed with the SEC.
Based solely on the Company's review of the copies of such
forms received by it during the fiscal year ended December 31, 1995, and written
representations that no other reports were required, the Company believes that,
except as described below, each person who, at any time during such fiscal year,
was a director, officer or beneficial owner of more than 10% of the Company's
Common Stock complied with all Section 16(a) filing requirements during such
fiscal year or prior fiscal years. A Form 4 required to be filed by Robert K.
Bench, Chief Financial Officer, with respect to the sale of 30,000 shares and a
grant of employee stock options to acquire 25,000 shares, respectively, in
August 1995, was not filed until March 6, 1996. A Form 4 required to be filed by
Henry Wong, Vice President-Production, with respect to the sale of 5,823 shares
and the grant of employee stock options to acquire 25,000 shares, respectively,
in August 1995 was not filed until March 6, 1996. A Form 4 required to be filed
by Roseann L. Tavarozzi, Vice President-Finance, with respect to the grant of
employee stock options to acquire 15,000 shares in August 1995 was not filed
until March 6, 1996. A Form 4 required to be filed by William Fresh, a director,
in August 1995 with respect to the transfer of 30,000 shares was not filed until
on or about March 28, 1996.
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
Summary of Cash and Other Compensation
The following table sets forth information concerning the
compensation for the fiscal years ended December 31, 1995, 1994 and 1993 earned
by the Company's Chief Executive Officer and the Company's three most highly
compensated executive officers whose aggregate cash compensation exceeded
$100,000 for services rendered in all capacities to the Company and its
subsidiaries for the last fiscal year (the "Named Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
-----------------------------
Annual Compensation Awards Payouts
---------------------------------------- ------------------- --------
Other Restricted All
Name and Annual Stock LTIP Other
Principal Compensation Award(s) Options Payouts Compen-
Position Year Salary($) Bonus($) ($) (4) $ /SARs(#) ($) sation($)
-------- ------- ------- -------- ------- - -------- --- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C. Zane Close, 1995(1) 135,000 35,000 -
President and 1994(2) 116,252 13,000 - 60,000
Chief Executive 1993(3) 108,567 29,600 -
Officer
Eswar 1995(1) 108,000 25,000 -
Subramanian, Vice 1994(2) 98,067 12,000 - 35,000
President - 1993(3) 90,067 23,700 -
Engineering
Michael K. 1995(1) 108,000 25,000 -
Bonham, Vice 1994(2) 100,033 12,000 - 50,000
President - 1993(3) 90,067 23,700 -
Sales and
Marketing
Henry Wong, Vice 1995(1) 100,000 15,750 - 25,000
President - 1994(2) 87,018 5,000 - 20,000
Production 1993(3) 80,073 5,000 -
</TABLE>
- ----------------
(1) Includes $34,346, $44,863, $32,462, and $15,000 in salary and/or bonus
earned by Messrs. Close, Subramanian, Bonham and Wong, respectively, in
1995 but deferred to a future year.
(2) Includes $26,242, $23,662, $16,223, and $14,567 in salary and/or bonus
earned by Messrs. Close, Subramanian, Bonham and Wong, respectively, in
1994 but deferred to a future year.
(3) Includes $26,324, $21,840, $21,735 and $19,515 in salary and/or bonus
earned by Messrs. Close, Subramanian, Bonham and Wong, respectively, in
1993 but deferred to a future year.
(4) Other annual compensation did not exceed the lesser of
$50,000 or 10% of the total salary and bonus for any of the
Named Officers except as noted.
Option Grants
The following table provides information on stock options granted to
the Company's Named Officers during the fiscal year ended December 31, 1995.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Individual Grants
----------------------------------------------
Potential Realizable
Value at Assumed
Number of Annual Rates of Stock
Securities % of Total Price Appreciation for
Underlying Options Exercise Option Term(2)
Options Granted Price Expiration --------------------
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ---- ----------- ----------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Henry Wong 25,000(1) 12.14% $10.50 2000 $72,524 $160,259
</TABLE>
- ------------------
(1) The option agreement provides that the options vest and become
exercisable one-fifth in 1995, one-fifth in 1996, one-fifth in 1997,
one-fifth in 1998 and one-fifth in 1999.
(2) Calculated from a base price equal to the exercise price of each
option, which was the fair market value of the Common Stock on the date
of grant. The amounts represent only certain assumed rates of
appreciation.
Option Exercises and Holdings
The following table provides information on options exercised
in the last fiscal year by the Company's Named Officers and the value of each
such Officer's unexercised options at December 31, 1995.
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUE AS OF DECEMBER 31, 1995
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at Fiscal Year-End (#) at Fiscal Year-End ($)(2)
Acquired on Value ---------------------------- ---------------------------
Name Exercise (#) Realized ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
C. Zane Close 60,000 $175,000 40,000 20,000 $470,000 $235,000
Eswar 30,000 $236,250 23,334 11,666 $274,175 $137,076
Subramanian
Michael K. 30,000 $236,250 23,334 16,666 $391,675 $195,826
Bonham
Henry Wong -0- -0- 18,334 26,666 $191,675 $218,326
</TABLE>
- ---------------------
(1) Calculated based on the market price at exercise multiplied by the
number of options exercised less the total exercise price of the
options exercised.
(2) Calculated based on $17.50, which was the closing sale price of the
Common Stock as quoted on the Nasdaq National Market on December 29,
1995, multiplied by the number of applicable shares in-the-money less
the total exercise price.
Employment Agreements and Other Arrangements
On July 16, 1990, C. Zane Close, President and Chief Executive
Officer, Michael K. Bonham, Vice President-Sales and Marketing, Eswar
Subramanian, Vice President-Engineering and Henry Wong, then a key employee,
entered into two year employment agreements (one year with respect to Mr. Wong)
with the Company (each of which is subject to automatic renewal for succeeding
terms of one year unless either party gives notice at least 90 days prior to the
expiration of any term of its intention not to renew) pursuant to which Messrs.
Close, Bonham, Subramanian and Wong were to receive $95,000, $80,000, $80,000
and $57,000, respectively, in annual base salary during the term of their
employment. Each of the employment agreements provides for additional increases
in the base salary and bonuses as may be determined by the Company's Board of
Directors in its sole discretion. Each of the agreements may be terminated with
or without cause by the Company upon 90 days written notice to the employee and
each employee may terminate his obligations under the agreement by giving the
Company at least 90 days notice of his intent to terminate. In addition, the
employment agreements provided for relocation expenses in the amount of up to
$10,000 and for certain temporary living expenses for each of the above-named
individuals. The employment agreements also provided for the grant of options to
each of the above-named individuals as follows. Pursuant to his option
agreement, Mr. Close was granted the right to purchase 40,000 shares at $.50 per
share commencing July 16, 1990, 40,000 shares at $1.00 per share commencing July
15, 1991, 5,000 shares at $1.50 per share commencing July 15, 1991, 35,000
shares at $1.50 per share commencing July 15, 1992, 10,000 shares at $2.00 per
share commencing July 15, 1992, and 45,000 shares at $2.00 per share commencing
July 15, 1993. Pursuant to their employment agreements, Messrs. Subramanian and
Bonham were each granted the right to purchase 30,000 shares at $.50 per share
commencing July 16, 1990, 30,000 shares at $1.00 per share commencing July 15,
1991, 30,000 shares at $1.50 per share commencing July 15, 1992, and 30,000
shares at $2.00 per share commencing July 15, 1993. Pursuant to his employment
agreement, Mr. Wong was granted the right to purchase 25,000 shares at $.50 per
share commencing July 16, 1990. In addition, Mr. Wong was granted an option to
purchase 25,000 shares at an exercise price of $.9375 per share, one third of
which became exercisable July 12, 1991. All of the options described above
granted to Messrs. Close, Bonham, Subramanian, and Wong provided for expiration
on July 15, 1995.
The Company also has entered into employment agreements with
Robert K. Bench, its Chief Financial Officer, Harold D. Higgins and Stephen
Fresh. These employment agreements provide for an annual base salary of
$100,000, $67,000 and $60,000 for Messrs. Bench, Higgins and Fresh,
respectively, for a one year term that commenced April 3, 1995. Each of the
employment agreements also contains a covenant not to compete pursuant to which
Messrs. Bench, Higgins and Fresh may not, during the term of the respective
agreement and for a period of 12 months, 90 days and 12 months, respectively,
following termination, engage or cause others to engage in the design,
manufacture or sale of probe cards and interface hardware products used by the
semi-conductor industry in the United States and all other countries in which
the Company conducts business. Each of the employment agreements may be
terminated at will and each of the employees may terminate his employment upon
45 days prior written notice. If the Company terminates an agreement for cause,
or any of Messrs. Bench, Higgins or Fresh terminates his employment, such
employee will not be entitled to receive any compensation relating to any period
after the termination. If the Company terminates an employee without cause, such
employee will be entitled to his base salary for the remaining term of the
agreement.
Pursuant to an agreement dated as of May 1, 1991, amended as
of March 8, 1993, between the Company and John W. Tarzwell and his wife, Mr.
Tarzwell agreed to resign as a director, an officer and an employee of the
Company effective May 1, 1991. In connection with Mr. Tarzwell's resignation,
the Company agreed to pay Mr. Tarzwell $3,125 per month beginning May 15, 1991
and ending April 15, 1994. In addition, the Company agreed to provide Mr.
Tarzwell and his wife medical insurance coverage similar to the coverage
provided by the Company to employees of the Company, life insurance or
comparable coverage providing death benefits of up to $47,500, the use of a
Company-leased automobile until March 30, 1992 and reimbursement for all accrued
and unpaid vacation pay due Mr. Tarzwell as of April 30, 1991. Mr. Tarzwell
agreed to keep confidential all information with respect to the Company, its
businesses and affairs and to refrain from disclosing or using such information
for his benefit or the benefit of any other person for a period of four years.
Further, Mr. Tarzwell agreed to vote all of the Company's stock owned by Mr.
Tarzwell in favor of all issues that receive the recommendation of the Company's
Board of Directors. In January 1994, the Company's Board of Directors agreed to
extend the agreement with Mr. Tarzwell on a month-to-month basis, subject to a
30-day notice of termination.
Director Compensation
Each outside director of the Company receives $1,500 each
quarter and a fee of $500 for each meeting of the Board of Directors attended.
Outside directors also are reimbursed for expenses incurred in attending
meetings. Directors do not receive additional compensation for committee
participation or special assignments.
Employee Benefit Plans
In 1983, the Board of Directors and the Company's stockholders
adopted an incentive stock option plan in order to provide for the grant of
options to employees to purchase shares of Common Stock that qualified as
"incentive stock options" under Section 422A of the Internal Revenue Code of
1954, as amended. The incentive stock option plan originally provided for the
issuance of options to purchase a total of 100,000 shares of the Company's
Common Stock. On January 7, 1984, the Board of Directors approved, and on May 5,
1984, the stockholders ratified, the reservation of an additional 120,000 shares
of Common Stock for issuance upon the exercise of options under the incentive
stock option plan.
On February 2, 1987, the Board of Directors approved, and on
May 2, 1987, the stockholders ratified, a Plan of Modification to the incentive
stock option plan in order to allow the Company certain tax deductions which
were not allowed under the incentive stock option plan. The Plan of Modification
converted the incentive stock option plan to a non-qualified stock option plan
(the "Non-Qualified Plan") and effected a re-grant of all previously issued
options under the incentive stock option plan. The original vesting schedules
for previously granted options were not affected by the re-grant. On April 22,
1988, the Board of Directors approved the reservation of an additional 150,000
shares of Common Stock for issuance upon the exercise of options under the
Non-Qualified Plan, thereby increasing the total number of shares subject to the
Non-Qualified Plan to 370,000.
On April 3, 1989, the Board of Directors approved, and on May
6, 1989, the stockholders ratified, the adoption of an incentive stock option
plan (the "ISO Plan") to provide for the grant of options to key executive,
managerial or supervisory employees or other employees who are deemed by the
Board of Directors to have performed extraordinary services to the Company,
which options will qualify for the tax benefits accorded "incentive stock
options" as defined in Section 422A of the Internal Revenue Code of 1986, as
amended (the "Code"). The Board of Directors also approved an amendment to the
Company's Non-Qualified Plan on April 3, 1989 to provide that the Company's
directors who are not employees of the Company, and thus not eligible to receive
incentive stock options under the ISO Plan ("Unaffiliated Directors"), would be
eligible to receive options under the Non-Qualified Plan.
In connection with the adoption of the ISO Plan, all existing
options under the Non-Qualified Plan granted prior to April 3, 1989 were
permitted to be exchanged for incentive stock options under the ISO Plan at the
option of the holder. Subsequent to the adoption of the ISO Plan, the number of
shares reserved for issuance under the Non-Qualified Plan was reduced from
370,000 to 150,000. In July 1990, however, the number of shares reserved for
issuance under the Non-Qualified Plan was increased to 565,000 in order to grant
options to Messrs. Close, Subramanian, Bonham and Wong in connection with their
employment by the Company and in May 1991, the number of shares reserved for
issuance under the Non-Qualified Plan was again increased to 685,000. A maximum
of 500,000 shares of the Company's Common Stock was reserved for issuance upon
exercise of options granted under the ISO Plan.
The Non-Qualified Plan and the ISO Plan together are
referred to herein as the "Stock Option Plans."
The purpose of the Stock Option Plans is to aid the Company in
attracting and retaining directors and employees and to provide such persons
with an incentive to purchase a proprietary interest in the Company in order to
create an increased personal interest in the Company's continued success and
progress, thereby motivating them to exert their best efforts on behalf of the
Company. The Stock Option Plans are administered by the Board of Directors,
which has the sole authority and discretion to select employees to participate
in the Stock Option Plans, to grant options under the Stock Option Plans, to
specify the terms and conditions of the options (within the limitations of the
Stock Option Plans), and otherwise to interpret and construe the terms and
provisions of the Stock Option Plans and any agreements governing options
granted under the Stock Option Plans. The Stock Option Plans authorize the Board
of Directors to delegate its administrative authority and discretion under the
Stock Option Plans to the Compensation Committee of the Board of Directors.
The exercise price of any options granted under the ISO Plan
may not be less than 100% of the fair market value of shares of the Company's
Common Stock at the time the option is granted (or, for incentive stock options
granted to a person who, at the time of the grant, is the beneficial owner of
more than 10% of the combined voting power of all classes of voting stock then
outstanding of the Company or any parent or subsidiary of the Company (a "10%
Beneficial Owner"), not less than 110% of the fair market value of the Common
Stock at the date of grant). All options granted under the ISO Plan expire ten
years from the date of grant (five years in the case of a 10% Beneficial Owner),
unless an earlier expiration date is provided in the option agreement. The term
of each option granted under the Non-Qualified Plan is fixed by the Board of
Directors or the Compensation Committee at the date of grant. Options granted
under the Stock Option Plans are non-transferable by the optionholder, otherwise
than by will or the laws of descent and distribution, and are exercisable during
the optionholder's lifetime only by the optionholder, or in the event of the
death of the optionholder, by a person who acquires the right to exercise the
option by the laws of descent and distribution.
Only key executive, managerial or supervisory employees of the
Company, including directors who also are full time employees, and other
employees who are deemed by the Board of Directors to have performed
extraordinary services to the Company, are eligible to receive options granted
under the ISO Plan. Although all employees of the Company are eligible to
receive options under the Non-Qualified Plan, the Board of Directors intends to
grant options under the Non-Qualified Plan primarily to the Company's
Unaffiliated Directors.
The Stock Option Plans authorize the Board of Directors to
amend the Stock Option Plans without stockholder approval whenever the Board of
Directors deems an amendment proper and in the best interests of the Company.
However, the Board of Directors may not amend the ISO Plan or otherwise take any
action with respect to the ISO Plan which would prevent any option granted under
the ISO Plan from qualifying as an "incentive stock option" within the meaning
of Section 422A of the Code. Moreover, the Board of Directors may not, without
stockholder approval, increase the aggregate number of shares of the Company's
Common Stock which are subject to the ISO Plan, reduce the exercise price at
which options may be granted under the ISO Plan or at which any outstanding
option may be exercised, or extend the term of the ISO Plan. Unless previously
terminated by the Board of Directors, the ISO Plan will terminate on April 3,
1999.
As a result of the adoption of the ISO Plan on April 3, 1989,
all options granted under the Non-Qualified Plan prior to April 3, 1989 (which
had not previously been canceled) were permitted to be exchanged for options
under the ISO Plan at the option of the holder; provided, however, that no
options granted under the ISO Plan in exchange for options previously granted
under the Non-Qualified Plan were permitted to be issued at a price that is less
than 100% of the fair market value of the Company's Common Stock at the time of
the exchange and re-grant (or, for incentive stock options granted to a 10%
Beneficial Owner, not less than 110% of the fair market value of the Common
Stock at the date of the exchange and re-grant). Such options generally are
exercisable over a three year period, with one-third exercisable on the date of
grant and an additional one-third to become exercisable on each anniversary of
the date of grant. For certain information regarding the exercise of options by
Named Officers, see the table entitled "Aggregated Option Exercises In Last
Fiscal Year And Option Value As Of December 31, 1995."
As of March 22, 1996 there were outstanding options to acquire
379,631 shares of the Company's Common Stock under the Stock Option Plans.
1995 Stock Option Plan
On May 9, 1995, the Board of Directors adopted the 1995 Stock
Option Plan (the "1995 Plan") and on June 27, 1995, the Company's stockholders
approved the 1995 Plan, which is divided into two programs: the Discretionary
Grant Program and the Automatic Grant Program. The Discretionary Grant Program
provides for the grant of options to acquire Common Stock of the Company
("Options"), the direct grant of Common Stock ("Stock Awards"), the grant of
stock appreciation rights ("SARs"), or the grant of other cash awards ("Cash
Awards") (Stock Awards, SARs, and Cash Awards are collectively referred to
herein as "Awards"). Options and Awards under the 1995 Plan may be issued to key
personnel, directors, consultants, and other independent contractors who provide
valuable services to the Company and its subsidiaries (collectively, "Eligible
Persons"). The Options issued may be incentive stock options or nonqualified
stock options. The Company believes that the Discretionary Grant Program
represents an important factor in attracting and retaining executive officers
and other key employees and constitutes a significant part of its compensation
program, providing them with an opportunity to acquire a proprietary interest in
the Company and giving them an additional incentive to use their best efforts
for the long-term success of the Company. The Automatic Option Program provides
for the automatic grant of options to acquire the Common Stock of the Company
("Automatic Options"). Automatic Options are granted to non-employee members of
the Company's Board of Directors. The Company believes that the Automatic Option
Program promotes the interests of the Company by providing such directors the
opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Company and an increased personal interest in the
Company's continued success and progress.
Shares Subject to the 1995 Plan
A maximum of 500,000 shares of Common Stock of the Company may
be issued under the 1995 Plan. If any Option or SAR terminates or expires
without having been exercised in full, stock not issued under such Option or SAR
will again be available for the purposes of the 1995 Plan. If any change is made
in the stock subject to the 1995 Plan, or subject to any Option or SAR granted
under the 1995 Plan (through merger, consolidation, reorganization,
recapitalization, stock dividend, split-up, combination of shares, exchange of
shares, change in corporate structure, or otherwise), the 1995 Plan provides
that appropriate adjustments will be made as to the maximum number of shares
subject to the 1995 Plan, and the number of shares and exercise price per share
of stock subject to outstanding Options. There were outstanding Options to
acquire 143,000 shares of the Company's Common Stock under the 1995 Plan as of
March 22, 1996.
Eligibility and Administration
Options and Awards may be granted only to persons ("Eligible
Persons") who at the time of grant are either (i) key personnel (including
officers and directors) of the Company, or (ii) consultants and independent
contractors who provide valuable services to the Company. Options that are
incentive stock options may be granted only to key personnel of the Company who
are also employees of the Company.
The Eligible Persons under the Discretionary Grant Program are
divided into two groups, and there is a separate administrator (each a "Plan
Administrator") for each group. One group consists of Eligible Persons who are
executive officers and directors of the Company and all persons who own 10% or
more of the Company's issued and outstanding stock. The power to administer the
1995 Plan with respect to those persons rests exclusively with a committee
("Senior Committee") comprised of two or more disinterested directors who are
appointed by the Board of Directors. The power to administer the 1995 Plan with
respect to the remaining Eligible Persons is vested with the Board of Directors
of the Company or with a committee of two or more directors appointed by the
Board of Directors. Each Plan Administrator determines (i) which of the Eligible
Persons in its group will be granted Options and Awards; (ii) the amount and
timing of the grant of such Options and Awards; and (iii) such other terms and
conditions as may be imposed by the Plan Administrator consistent with the 1995
Plan.
To the extent that granted Options are incentive stock
options, the terms and conditions of those Options must be consistent with the
qualification requirements set forth in the Internal Revenue Code.
Exercise of Options
The expiration date, maximum number of shares purchasable, and
the other provisions of the Options are established at the time of grant,
provided that no options may be granted for terms of more than 10 years. Options
vest and thereby become exercisable in whole or in one or more installments at
such time as may be determined by the Plan Administrator upon the grant of the
Options. However, a Plan Administrator has the discretion to provide for the
automatic acceleration of the vesting of any Options or Awards granted under the
Discretionary Grant Program in the event of a "Change in Control." The
definition of "Change in Control" includes the following events: (i) the
acquisition of beneficial ownership by certain persons, acting alone or in
concert with others, of 40% or more of the Company's outstanding Common Stock
pursuant to a tender offer which the Board of Directors recommends that the
Company's stockholders not accept, or (ii) the change in the composition of the
Board of Directors occurs such that those individuals who were elected to the
Board of Directors at the last stockholders' meeting at which there was not a
contested election for Board membership subsequently ceased to comprise a
majority of the Board of Directors by reason of a contested election.
The exercise prices of Options will be determined by a Plan
Administrator, but if an Option is intended to be an incentive stock option may
not be less than 100% (110% if the Option is granted to a stockholder who at the
time the Option is granted owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company) of the fair market
value of the Common Stock at the time of the grant. To exercise an Option, the
optionholder will be required to deliver to the Company full payment of the
exercise price for the shares as to which the Option is being exercised.
Generally, Options can be exercised by delivery of cash, bank cashier's check,
or shares of Common Stock of the Company.
Termination of Employment or Services
Options granted under the 1995 Plan are nontransferable other
than by will or by the laws of descent and distribution upon the death of the
optionholder and, during the lifetime of the optionholder, are exercisable only
by such optionholder. In the event of the death or termination of the employment
or services of the participant (but never later than the expiration of the term
of the Option), Options may be exercised within 90 days thereafter. If
termination is by reason of permanent disability, however, Options may be
exercised by the optionholder or the optionholder's estate or successor by
bequest or inheritance during the period ending 180 days after the
optionholder's retirement (but not later than the expiration of the term of the
Option). Termination of employment at any time for cause immediately terminates
all Options held by the terminated employee.
Awards
A Plan Administrator also may grant Awards to Eligible Persons
under the 1995 Plan. Awards may be granted in the form of SARs, Stock Awards, or
Cash Awards.
Awards granted in the form of SARs entitle the recipient to
receive a payment equal to the appreciation in market value of a stated number
of shares of Common Stock from the price on the date the SAR was granted or
became effective to the market value of the Common Stock on the date first
exercised or surrendered. The Plan Administrators may, consistent with the 1995
Plan, determine such terms, conditions, restrictions and/or limitations, if any,
on any SARs.
Awards granted in the form of Stock Awards entitle the
recipient to receive shares of the Company's Common Stock directly. Awards
granted in the form of cash entitle the recipient to receive direct payments of
cash depending on the market value or the appreciation of the Common Stock or
other securities of the Company. The Plan Administrators may determine such
other terms, conditions, or limitations, if any, on any Awards.
The 1995 Plan states that it is not intended to be the
exclusive means by which the Company may issue options or warrants to acquire
its Common Stock, stock awards, or any other type of award. To the extent
permitted by applicable law, the Company may issue any other options, warrants,
or awards other than pursuant to the 1995 Plan without stockholder approval.
Terms and Conditions of Automatic Options
Each year at the meeting of the Board of Directors held
immediately after the annual meeting of stockholders, each non-employee Board
member will be granted an Automatic Option to acquire 2,000 shares of Common
Stock ("Annual Automatic Option"). Each non-employee Board member serving on the
date the 1995 Plan was approved by the Company's stockholders received an
automatic grant of options to acquire 2,000 shares of Common Stock on that date
(the "Initial Existing Director Grant"). New non-employee members of the Board
of Directors will receive an Automatic Option to acquire 20,000 shares of Common
Stock ("Initial Automatic Option") on the date of their first appointment or
election to the Board. Each Automatic Option shall become exercisable and vest
in a series of three equal and successive annual installments, with each annual
installment to become exercisable on the day before the Company's annual meeting
of stockholders occurring in the applicable year. A non-employee member of the
Board is not eligible to receive an Annual Automatic Option if the grant date is
within 30 days of such non-employee member receiving an Initial Automatic
Option.
The exercise price per share of Common Stock subject to each
Automatic Option is equal to 100% of the fair market value per share on the date
of the grant of the Automatic Option. Each Automatic Option expires on the tenth
anniversary of the date on which an Automatic Option grant was made.
Non-employee Board members also may be eligible to receive Options or Awards
under the Discretionary Grant Program or option grants or direct stock issuances
under any other plans of the Company. Cessation of service on the Board
terminates any Automatic Options for shares that were not vested at the time of
such cessation. Automatic Options are nontransferable other than by will or the
laws of descent and distribution on the death of optionholder and, during the
lifetime of the optionholder, are exercisable only by such optionholder.
Duration and Modification
The 1995 Plan will remain in force until May 9, 2005. The
Board of Directors of the Company may at any time suspend, amend, or terminate
the 1995 Plan, except that without approval by the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock of the Company
present in person or by proxy at a meeting of stockholders of the Company
convened for such purpose, the Board of Directors may not (i) increase, except
in the case of certain organic changes to the Company, the maximum number of
shares of Common Stock subject to the 1995 Plan, (ii) reduce the exercise price
at which Options may be granted or the exercise price for which any outstanding
Options may be exercised, (iii) extend the term of the 1995 Plan, (iv) change
the class of persons eligible to receive Options or Awards under the 1995 Plan,
or (v) materially increase the benefits accruing to participants under the 1995
Plan. Notwithstanding the foregoing, the Board of Directors may amend the 1995
Plan from time to time as it deems necessary in order to meet the requirements
of any amendments to Rule 16b-3 under the Securities Exchange Act of 1934
without the consent of the stockholders of the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of March 22, 1996 by (i)
each director and each nominee for director; (ii) each Named Officer set forth
in the Summary Compensation Table under the section entitled "Executive
Compensation"; (iii) all directors, executive officers, and key employees of the
Company as a group; and (iv) each person known by the Company to be the
beneficial owner of more than 5% of the Common Stock. The information as to
beneficial ownership is based upon statements furnished to the Company by such
persons.
Name and Address Amount and Nature Percent of
of Beneficial Owner(1) of Beneficial Ownership(2) Class(3)
- ---------------------- -------------------------- --------
William A. Fresh 344,297(4) 8.0%
L. Jack Rothe, et al., Trustees 382,500 8.9%
112 W. Jefferson Blvd.
Suite 613
South Bend, IN 46601
Ross J. Mangano 261,634(5) 6.1%
Judd C. Leighton 260,000(6) 5.7%
112 W. Jefferson Blvd.
Suite 603
South Bend, IN 46601
Mary Morris Leighton 260,000(7) 5.7%
112 W. Jefferson Blvd.
Suite 603
South Bend, IN 46601
Kenneth W. Miller 193,070(8) 4.5%
C. Zane Close 41,600(9) 1.0%
Donald F. Walter 16,334(10) *
Michael K. Bonham 90,034(11) 2.1%
Eswar Subramanian 89,234(12) 2.1%
Henry Wong 65,011(13) 1.5%
All executive officers and directors
as a group (eight persons) 1,166,303(14) 25.9%
- ------------
*Less than 1%.
(1) Each director, nominee and officer of the Company may be reached
through the Company at 600 South Rockford Drive, Tempe, Arizona 85281.
(2) Unless otherwise indicated, and subject to community property laws
where applicable, all shares are owned of record by the persons named
and the beneficial ownership consists of sole voting power and sole
investment power.
(3) The percentages shown include the shares of Common Stock actually owned
as of March 22, 1996 and the shares of Common Stock that the identified
person or group had the right to acquire within 60 days of March 22,
1996 pursuant to the exercise of stock options or conversion of
securities. In calculating the percentage of ownership, all shares of
Common Stock that the identified person or group had the right to
acquire within 60 days of March 22, 1996 upon the exercise of stock
options or conversion of securities are deemed to be outstanding for
the purpose of computing the percentage of the shares of Common Stock
owned by such person or group, but are not deemed to be outstanding for
the purpose of computing the percentage of the shares of Common Stock
owned by any other person.
(4) Includes 162,700 shares held by WAF Investment Company, a company 100%
owned by Mr. Fresh and his wife, and 78,477 shares held by Orem Tek
Development Corp., a company 100% owned by Mr. Fresh, and reflects
2,000 shares which Mr. Fresh has the right to acquire at an exercise
price of $8.25 per share pursuant to the exercise of options granted in
June 1995.
(5) Includes 20,000 shares in the name of Nat & Co. voted pursuant to a
power of attorney, 51,300 shares in the name of Oliver & Company voted
pursuant to a power of attorney, 165,000 shares in the name of Millie
M. Cunningham voted pursuant to a power of attorney, 10,000 shares
which Mr. Mangano has the right to acquire at an exercise price of
$1.00 per share pursuant to the exercise of options granted in
September 1992, 13,334 shares which Mr. Mangano has the right to
acquire at an exercise price of $5.75 per share pursuant to the
exercise of options granted in September 1994, and 2,000 shares which
Mr. Mangano has the right to acquire at an exercise price of $8.25 per
share pursuant to the exercise of options granted in June 1995.
(6) Includes 200,000 shares with respect to which Judd C. Leighton has the
right to acquire sole voting and investment power pursuant to the
conversion of $200,000 in principal amount of the Company's 12 1/2%
Convertible Subordinated Debentures due December 15, 1996, which are
convertible at any time prior to maturity into shares of Common Stock
at the rate of $1.00 per share, and 60,000 shares with respect to which
Mr. Leighton has the right to acquire shared voting and investment
power pursuant to the conversion of $60,000 in principal amount of the
Company's 12 1/2% Convertible Subordinated Debentures due December 15,
1996, held by Leighton-Oare Foundation, Inc., a corporation for which
Mr. Leighton and his wife, Mary Morris Leighton, serve as directors.
(7) Includes 200,000 shares with respect to which Mary Morris Leighton has
the right to acquire sole voting and investment power pursuant to the
conversion of $200,000 in principal amount of the Company's 12 1/2%
Convertible Subordinated Debentures due December 15, 1996, which are
convertible at any time prior to maturity into shares of Common Stock
at the rate of $1.00 per share, and 60,000 shares with respect to which
Mrs. Leighton has the right to acquire shared voting and investment
power pursuant to the conversion of $60,000 in principal amount of the
Company's 12 1/2% Convertible Subordinated Debentures due December 15,
1996 held by Leighton-Oare Foundation, Inc., a corporation for which
Mrs. Leighton and her husband, Judd C. Leighton, serve as directors.
(8) Includes 127,736 shares held by U.S. Trust Company of California, N.A.,
as trustee for the Kenneth W. Miller Charitable Remainder Unitrust. Mr.
Miller may be deemed to have shared voting and investment power with
respect to these shares. Also includes 30,000 shares which Mr. Miller
has the right to acquire at an exercise price of $.50 per share
pursuant to the exercise of options granted in July 1990, 10,000 shares
which Mr. Miller has the right to acquire at an exercise price of $1.00
per share pursuant to the exercise of options granted in September
1992, 13,334 shares which Mr. Miller has the right to acquire at an
exercise price of $5.75 per share pursuant to the exercise of options
granted in September 1994, and 2,000 shares which Mr. Miller has the
right to acquire at an exercise price of $8.25 per share pursuant to
the exercise of options granted in June 1995.
(9) Includes 40,000 shares which Mr. Close has the right to acquire at an
exercise price of $5.75 per share pursuant to the exercise of options
granted in September 1994.
(10) Includes 13,334 shares which Mr. Walter has the right to acquire at an
exercise price of $5.75 per share pursuant to the exercise of options
granted in September 1994 and 2,000 shares which Mr. Walter has the
right to acquire at an exercise price of $8.25 per share pursuant to
the exercise of options granted in June 1995.
(11) Includes 33,334 shares which Mr. Bonham has the right to acquire at an
exercise price of $5.75 pursuant to the exercise of options granted in
September 1994.
(12) Includes 23,334 shares which Mr. Subramanian has the right to acquire
at an exercise price of $5.75 per share pursuant to the exercise of
options granted in September 1994.
(13) Includes 5,000 shares which Mr. Wong has the right to acquire at an
exercise price of $10.50 per share pursuant to the exercise of options
granted in August 1995 and 2,000 shares which Mr. Wong's spouse has the
right to acquire at an exercise price of $10.50 per share pursuant to
the exercise of options granted in August 1995.
(14) Includes 223,004 shares of Common Stock that members of the group had
the right to acquire as of March 22, 1996 or within 60 days of March
22, 1996 pursuant to the exercise of stock options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March and April of 1991, the Company issued $1,000,000 in
principal amount of Convertible Subordinated Debentures, $600,000 of which was
issued with a maturity date of December 15, 1996 bearing interest at 12 1/2% per
annum, payable semi-annually on the 15th day of each June and December, and
$400,000 of which was issued with a maturity date of March 29, 1996 bearing
interest at the rate of 11% per annum, payable quarterly on the first day of
each January, April, July and October. All of the Debentures provided for
conversion at the option of the holder into shares of Common Stock at the rate
of $1.00 per share, subject to certain adjustments. In addition, the holders of
the Debentures were granted certain rights of first refusal with respect to the
issuance of additional debt, Common Stock or other securities convertible into
Common Stock of the Company. The Debentures also provided for certain demand and
piggyback registration rights with respect to the shares of Common Stock
acquired upon conversion of the Debentures, pursuant to which the Company will
incur the cost of registration of the Common Stock acquired by the holders of
Debentures upon conversion.
Kenneth W. Miller and Donald F. Walter, directors of the Company,
Henry Wong, a Vice President of the Company, and James F. Keenan, a member of
the group that nominated Mr. Walter, purchased $20,000, $10,000, $80,000 and
$10,000, respectively, in principal amount of the 12 1/2% Convertible
Subordinated Debentures due December 15, 1996. Troon & Co., a nominee of L. Jack
Rothe (formerly Robert O. Kuehl), et al., Trustees, purchased $400,000 of the
11% Convertible Subordinated Debentures due March 29, 1996. As the result of the
possible affiliation between Ross J. Mangano, a director of the Company, and L.
Jack Rothe, et al., Trustees, the issuance of Debentures to Troon & Co. may have
constituted a "business combination" with an "interested stockholder" under
Section 203 of the Delaware General Corporation Law. Accordingly, the Debenture
issued to Troon & Co. was issued in accordance with the terms of the proposal to
permit the Company to issue Debentures to interested stockholders approved by
the stockholders of the Company at the 1990 Annual Meeting of Stockholders.
To assist the Company in meeting the minimum stockholders' equity
requirement for listing on the National Association of Securities Dealers
Automated Quotation System ("Nasdaq"), Mr. Miller converted $10,000 in principal
amount of the Debentures into 10,000 shares of Common Stock, Mr. Walter
converted $5,000 in principal amount of the Debentures into 5,000 shares of
Common Stock, Mr. Wong converted $40,000 in principal amount of the Debentures
into 40,000 shares of Common Stock, Mr. Keenan converted $5,000 in principal
amount of the Debentures into 5,000 shares of Common Stock and Troon & Co.
converted $300,000 in principal amount of the Debentures into 300,000 shares of
Common Stock. The principal amounts of the Debentures described above were
converted into shares of Common Stock at the rate of $1.00 per share. On the
date the Debentures were converted, the bid price for the Company's Common Stock
was $1 3/8 and the asked price was $1 3/4. To compensate such Debenture holders
for the loss of interest on that portion of the Debentures converted into shares
of Common Stock, the Company agreed to increase the interest rate payable on the
principal amount of the Debentures outstanding after such conversion held by
such Debenture holders to 25% per annum. In addition, in September 1993, Mr.
Walter converted an additional $5,000 in principal amount of the Debentures into
5,000 shares of Common Stock at the rate of $1.00 per share. On the date these
Debentures were converted, the bid price for the Company's Common Stock was $5
3/4 and the asked price was $6 1/4. On September 12, 1994, Mr. Wong converted an
additional $40,000 in principal amount of Debentures into 40,000 shares of
Common Stock at the rate of $1.00 per share. On that date, the bid price for the
Company's Common Stock was $5.75 and the asked price was $6.50. As a result of
the conversions described above, $115,000 in principal amount of the Debentures
currently bears interest at the rate of 25% per annum. The Company anticipates
that the entire outstanding principal amount of the Debentures will be converted
into shares of Common Stock on or prior to March 29, 1996 and December 15, 1996,
respectively.
PART IV
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
The following Financial Statements of the Company are
filed with this report:
Description Page
Independent Auditors' Report ................................ F-1
Consolidated Balance Sheets, December 31, 1995 and 1994...... F-2
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993........................... F-3
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1995, 1994 and 1993..................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993........................... F-5
Notes to Financial Statements................................ F-7
2. Exhibits
Exhibit
Number Description
2(a) Agreement of Merger and Plan of Reorganization dated February 21,
1995, as amended by that certain Amendment of Agreement of Merger
and Plan of Reorganization dated March 31, 1995, by and among Fresh
Test Acquisition, Inc., the Company, Fresh Technology Corporation,
and William A. Fresh, Robert K. Bench, Harold D. Higgins, WAF
Investment Company and Orem Tek Development Corp. filed as Exhibit 2
to the Company's Current Report on Form 8-K filed with the
Commission on or about April 4, 1995 and incorporated herein by
reference.
3(a) Certificate of Incorporation of the Company dated March 14, 1987, as
filed with the Secretary of State of Delaware and filed as Exhibit
4(a) to the Company's Form 10-Q for the period ended June 30, 1987
and incorporated herein by reference.
3(b) Bylaws of the Company dated March 14, 1987, filed as Exhibit 4(b) to
the Company's Form 10-Q for the period ended June 30, 1987 and
incorporated herein by reference.
4(a) Specimen Stock Certificate filed as Exhibit 4(c) to the Company's
Form S-18 Registration Statement (No. 2-85679) and incorporated
herein by reference.
4(b) Specimen Convertible Subordinated Debenture filed as Exhibit 4(b) to
the Company's Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference.
4(c) Specimen Series A Preferred Stock Certificate.
4(d) Certificate of Designations of Series A Preferred Stock dated
January 11, 1996, as filed with the Secretary of State of Delaware.
10(a) Non-Qualified Stock Option Plan adopted by the Company's Board of
Directors on June 25, 1983, as amended, and Form of Qualified Stock
Option Agreement filed as Exhibits 4(a) and 4(c) to the Company's
Form S-8 Registration Statement (No. 33-65200) and incorporated
herein by reference.
10(b) Incentive Stock Option Plan adopted by the Company's Board of
Directors on April 3, 1989, filed as Exhibit 10(k) to the Company's
Form 10-K for the year ended December 31, 1989 and incorporated
herein by reference and Form of Incentive Stock Option Agreement
filed as Exhibit 4(d) to the Company's Form S-8 Registration
Statement (No. 33-65200) and incorporated herein by reference.
10(c) Lease Agreement between the Company and Jerome A. Reynolds dated
July 4, 1991 filed as Exhibit 10(b) to the Company's Form 10-K for
the year ended December 31, 1991 and incorporated herein by
reference.
10(d) Lease Agreement between the Company and Kou-ping Cheng dated June
11, 1993 filed as Exhibit 10(u) to the Company's Form 10-KSB for the
year ended December 31, 1993 and incorporated herein by reference.
10(e) Lease Agreement between the Company and NPF Management, Inc. dated
March 15, 1993 filed as Exhibit 10(p) to the Company's Form 10-K for
the year ended December 31, 1992 and incorporated herein by
reference.
10(f) Lease Modification between the Company and PDJ Corporation dated
February 10, 1994 to Lease Agreement between the Company and NPF
Management, Inc. dated March 15, 1993 filed as Exhibit 10(v) to the
Company's Form 10-KSB for the year ended December 31, 1993 and
incorporated herein by reference.
10(g) Lease Agreement between the Company and John J. Hollowell dated
October 30, 1990 filed as Exhibit 10(m) to the Company's Form 10-K
for the year ended December 31, 1990 and incorporated herein by
reference.
10(h) Office Lease Agreement between the Company and Robert B. Hopgood,
Jr. dated November 13, 1990 filed as Exhibit 10(n) to the Company's
Form 10-K for the year ended December 31, 1990 and incorporated
herein by reference.
10(i) Addendum dated March 1, 1992 between the Company and Robert B.
Hopgood, Jr. to Office Lease Agreement between the Company and
Robert B. Hopgood, Jr. dated November 13, 1990 filed as Exhibit
10(j) to the Company's Form 10-K for the year ended December 31,
1991 and incorporated herein by reference.
10(j) Second Addendum dated January 1, 1994 between the Company and Robert
B. Hopgood, Jr. to Office Lease Agreement between the Company and
Robert B. Hopgood, Jr. dated November 13, 1990 filed as Exhibit
10(j) to the Company's Form 10-K for the year ended December 31,
1991 and incorporated herein by reference.
10(k) Lease Agreement between the Company and Renner Plaza Properties
dated September 8, 1993 filed as Exhibit 10(w) to the Company's Form
10-KSB for the year ended December 31, 1993 and incorporated herein
by reference.
10(l) Lease Agreement between the Company and Aetna Life Insurance Company
dated December 30, 1994 filed as Exhibit 10(l) to the Company's Form
10-KSB for the year ended December 31, 1994 and incorporated herein
by reference.
10(m) Lease between Scottish Enterprise and Cerprobe Europe Limited dated
November 4, 1994 filed as Exhibit 10(m) to the Company's Form 10-KSB
for the year ended December 31, 1994 and incorporated herein by
reference.
10(n) Rental Agreement between the Company and Gentra Capital Corporation
dated as of July 6, 1994 filed as Exhibit 10(n) to the Company's
Form 10-KSB for the year ended December 31, 1994 and incorporated
herein by reference.
10(o) Agreement dated May 2, 1991 between the Company and John W. Tarzwell
and Margaret L. Tarzwell filed as Exhibit 10(d) to the Company's
Form 10-K for the year ended December 31, 1991 and incorporated
herein by reference.
10(p) Amendment No. 1 dated March 8, 1993 to Agreement dated May 2, 1991
between the Company and John W. Tarzwell and Margaret L. Tarzwell
filed as Exhibit 10(s) to the Company's Form 10-KSB for the year
ended December 31, 1993 and incorporated herein by reference.
10(q) Asset Purchase Agreement dated July 10, 1991 between the Company and
Alpha Test Corporation filed as Exhibit 10(c) to the Company's Form
10-K for the year ended December 31, 1991 and incorporated herein by
reference.
10(r) Employment Contract dated July 16, 1990 between the Company and Carl
Zane Close filed as Exhibit 10(p) to the Company's Form 10-K for the
year ended December 31, 1990 and incorporated herein by reference.
10(s) Employment Contract dated July 17, 1990 between the Company and
Michael K. Bonham filed as Exhibit 10(q) to the Company's Form 10-K
for the year ended December 31, 1990 and incorporated herein by
reference.
10(t) Employment Contract dated July 16, 1990 between the Company and
Eswar Subramanian filed as Exhibit 10(r) to the Company's Form 10-K
for the year ended December 31, 1990 and incorporated herein by
reference.
10(u) Employment Contract dated July 16, 1990 between the Company and
Henry Wong filed as Exhibit 10(s) to the Company's Form 10-K for the
year ended December 31, 1990 and incorporated herein by reference.
10(v) Manufacturing Licensing Agreement between the Company and Intertrade
Scientific, Inc. dated August 30, 1993 filed as Exhibit 10(x) to the
Company's Form 10-KSB for the year ended December 31, 1993 and
incorporated herein by reference.
10(w) Manufacturing Licensing Agreement between the Company and ESJ
Corporation dated January 21, 1994 filed as Exhibit 10(y) to the
Company's Form 10-KSB for the year ended December 31, 1993 and
incorporated herein by reference.
10(x) Loan Agreement between the Company and First Interstate Bank of
Arizona, N.A. dated June 6, 1994 and related Promissory Note filed
as Exhibit 10(x) to the Company's Form 10-KSB for the year ended
December 31, 1994 and incorporated herein by reference.
10(y) Master Lease Agreement between the Company and First Interstate Bank
of Arizona, N.A. dated as of June 6, 1994 filed as Exhibit 10(y) to
the Company's Form 10-KSB for the year ended December 31, 1994 and
incorporated herein by reference.
10(z) Master Lease Agreement between the Company and PFC, Inc. dated
August 9, 1994 filed as Exhibit 10(z) to the Company's Form 10-KSB
for the year ended December 31, 1994 and incorporated herein by
reference.
10(aa) Commitment of Norwest Equipment Finance, Inc. to the Company dated
December 14, 1994 filed as Exhibit 10(aa) to the Company's Form
10-KSB for the year ended December 31, 1994 and incorporated herein
by reference.
10(bb) Agreement between Cerprobe Europe, Limited and Lanarkshire
Development Agency dated August 15, 1994, as amended, filed as
Exhibit 10(bb) to the Company's Form 10-KSB for the year ended
December 31, 1994 and incorporated herein by reference.
10(cc) Lease Agreement between the Company and Realtec Properties I, L.P.
dated July 17, 1995 filed as Exhibit 1 to the Company's Form 10-QSB
for the quarter ended June 30, 1995 and incorporated herein by
reference.
10(dd) Lease Agreement between the Company and East Point Realty Trust
dated June 30, 1995 filed as Exhibit 2 to the Company's Form 10-QSB
for the quarter ended June 30, 1995 and incorporated herein by
reference.
10(ee) Amendment to Loan Agreement between the Company and First Interstate
Bank of Arizona, N.A. dated April 30, 1995 and related Promissory
Note filed as Exhibit 3 to the Company's Form 10-QSB for the quarter
ended June 30, 1995 and incorporated herein by reference.
10(ff) Amendment to Master Lease Agreement between the Company and First
Interstate Bank of Arizona, N.A. dated April 30, 1995 filed as
Exhibit 4 to the Company's Form 10-QSB for the quarter ended June
30, 1995 and incorporated herein by reference.
10(gg) Letter of Intent between the Company and Technology Parks PTE LTD
dated June 23, 1995 filed as Exhibit 5 to the Company's Form 10-QSB
for the quarter ended June 30, 1995 and incorporated herein by
reference.
10(hh) Employment Agreement between the Company and Robert K. Bench dated
March 31, 1995.
10(ii) Security Agreement between the Company and Zions Credit Corporation
dated December 27, 1995.
10(jj) Assignment of Lease between Fresh Test Technology, Inc. and the
Company dated August 31, 1995.
10(kk) Lease Agreement between Fresh Test Technology, Inc. and Mission West
Properties dated September 21, 1993.
10(ll) The Company's 1995 Stock Option Plan.
11 Schedule of Computation of Net Income per Share.
21 List of Subsidiaries filed as Exhibit 21 to the Company's Form
10-KSB for the year ended December 31, 1994 and incorporated herein
by reference.
23 Independent Auditors' Consent.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-KA3 on or about October
1, 1995, which amended the Company's Current Report on Form 8-K filed on April
4, 1995.
There were no other Current Reports on Form 8-K filed during the last
quarter of 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CERPROBE CORPORATION
/s/ C. Zane Close
-----------------
C. Zane Close
President, Chief Executive
Officer and Director
Dated: March 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/Ross J. Mangano Chairman of the Board of March 27, 1996
- -------------------- Directors and Director
Ross J. Mangano
/s/C. Zane Close President, Chief Executive March 27, 1996
- -------------------- Officer, and Director
C. Zane Close (Principal Executive
Officer)
/s/Robert K. Bench Chief Financial Officer March 27, 1996
- -------------------- (Principal Financial
Robert K. Bench and Accounting Officer)
/s/Kenneth W. Miller Director and Treasurer March 27, 1996
- --------------------
Kenneth W. Miller
/s/Donald F. Walter Director March 27, 1996
- --------------------
Donald F. Walter
/s/William A. Fresh Director March 27, 1996
- --------------------
William A. Fresh
<PAGE>
CERPROBE CORPORATION
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report............................................... F-1
Consolidated Balance Sheets, December 31, 1995 and 1994.................... F-2
Consolidated Statements of Income for the years ended December
31, 1995, 1994 and 1993.................................................... F-3
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1995, 1994
and 1993 ..................................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993........................................... F-6
Notes To Consolidated Financial Statements................................. F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Cerprobe Corporation:
We have audited the accompanying consolidated balance sheets of Cerprobe
Corporation and subsidiary as of December 31, 1995 and 1994 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cerprobe Corporation
and subsidiary as of December 31, 1995 and 1994 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Phoenix, Arizona
February 2, 1996
<PAGE>
<TABLE>
CERPROBE CORPORATION
Consolidated Balance Sheets
December 31, 1995 and 1994
<CAPTION>
Assets 1995 1994
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 263,681 738,319
Accounts receivable, net of allowance of $173,000 in
1995 and $23,000 in 1994 (note 5) 4,377,041 2,201,712
Inventories (notes 2 and 5) 2,802,081 1,693,198
Prepaid expenses 111,673 52,571
Income taxes receivable 163,464 --
Deferred income taxes (note 7) 270,599 93,974
------------ ------------
Total current assets 7,988,539 4,779,774
------------ ------------
Property and equipment, net (notes 3 and 5) 4,667,786 2,146,080
Goodwill, net of amortization of $197,109 1,923,396 --
Patents and technology, net of amortization of $16,826 74,013 --
Other assets 313,716 89,519
------------ ------------
Total assets $ 14,967,450 7,015,373
============ ============
Liabilities and Stockholders' Equity 1995 1994
------------ ------------
Current liabilities:
Accounts payable $ 1,499,853 443,559
Accrued expenses (note 4) 788,599 663,904
Convertible subordinated debentures (note 5) 595,000 --
Current portion of note payable (note 5) 123,743 --
Current portion of capital leases (note 10) 209,885 100,312
------------ ------------
Total current liabilities 3,217,080 1,207,775
Convertible subordinated debentures (note 5) -- 595,000
Note payable, less current portion (note 5) 408,376 --
Capital leases, less current portion (note 10) 572,830 195,716
Deferred income taxes (note 7) 66,123 --
Other liabilities 46,801 93,928
------------ ------------
Total liabilities 4,311,210 2,092,419
------------ ------------
Commitments and contingencies (notes 8 and 10)
Stockholders' equity (notes 6 and 16):
Preferred stock, $.05 par value; authorized 10,000,000
shares; none issued -- --
Common stock, $.05 par value; authorized, 10,000,000
shares; issued and outstanding, 4,095,851 shares in
1995 and 3,223,351 shares in 1994 204,792 161,167
Additional paid-in capital 7,239,410 3,685,432
Retained earnings 3,466,464 1,064,217
Unearned compensation (241,872) --
Foreign currency translation adjustment (12,554) 12,138
------------ ------------
Total stockholders' equity 10,656,240 4,922,954
------------ ------------
Total liabilities and stockholders' equity $ 14,967,450 7,015,373
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
CERPROBE CORPORATION
Consolidated Statements of Income
Years ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 26,098,637 14,251,485 11,211,511
Costs of goods sold 13,706,435 8,213,966 6,767,505
------------ ------------ ------------
Gross margin 12,392,202 6,037,519 4,444,006
------------ ------------ ------------
Expenses:
Engineering and product development 706,680 417,198 335,659
Selling, general and administrative 7,502,598 3,693,401 2,398,243
------------ ------------ ------------
Total expenses 8,209,278 4,110,599 2,733,902
------------ ------------ ------------
Operating income 4,182,924 1,926,920 1,710,104
------------ ------------ ------------
Other income (expense):
Interest income 44,697 18,882 1,471
Interest expense (153,758) (115,254) (131,887)
Other income 140,111 92,796 12,670
------------ ------------ ------------
Total other income (expense) 31,050 (3,576) (117,746)
------------ ------------ ------------
Income before income taxes 4,213,974 1,923,344 1,592,358
Income taxes (1,811,727) (710,521) (90,000)
------------ ------------ ------------
Net income $ 2,402,247 1,212,823 1,502,358
============ ============ ============
Income per common and common equivalent share:
Primary net income per share $ 0.59 0.36 0.41
============ ============ ============
Weighted average number of common and common
equivalent shares outstanding 4,071,233 3,387,220 3,687,740
============ ============ ============
Fully diluted net income per share $ 0.49 0.30 0.35
============ ============ ============
Weighted average number of common and common
equivalent shares outstanding 4,862,137 4,006,801 4,348,872
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
CERPROBE CORPORATION
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1995, 1994 and 1993
<CAPTION>
Number of
Common Foreign
Shares Additional Retained Currency Total
Issued and Common Paid-in Earnings Unearned Translation Stockholders'
Outstanding Stock Capital (Deficit) Compensation Adjustment Equity
--------- -------- --------- ----------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 2,619,518 $130,975 2,733,997 (1,561,487) -- -- 1,303,485
Conversion of subordinated
debentures, net of $6,143
costs 5,000 250 (1,393 -- -- -- (1,143)
Stock options exercised 351,500 17,575 241,041 -- -- -- 258,616
Net income -- -- -- 1,502,358 -- -- 1,502,358
--------- -------- --------- ----------- --------- -------- -----------
Balance, December 31, 1993 2,976,018 148,800 2,973,645 (59,129) -- -- 3,063,316
Conversion of subordinated
debentures 40,000 2,000 38,000 -- -- -- 40,000
Stock options exercised 207,333 10,367 191,326 -- -- -- 201,693
Tax benefit of disqualifying
dispositions -- -- 482,461 -- -- -- 482,461
Cash dividends paid ($.03 a
share) -- -- -- (89,477) -- -- (89,477)
Translation adjustment -- -- -- -- -- 12,138 12,138
Net income -- -- -- 1,212,823 -- -- 1,212,823
--------- -------- --------- ----------- --------- -------- -----------
Balance, December 31, 1994 3,223,351 161,167 3,685,432 1,064,217 -- 12,138 4,922,954
Issuance of stock options at
less than fair market value -- -- 387,000 -- (387,000) -- --
Compensation expense related
to stock options -- -- -- -- 145,128 -- 145,128
Stock options exercised 160,000 8,000 199,464 -- -- -- 207,464
Tax benefit of disqualifying
dispositions -- -- 340,170 -- -- -- 340,170
Issuance of common stock for
acquisition 712,500 35,625 2,627,344 -- -- -- 2,662,969
Translation adjustment -- -- -- -- -- (24,692) (24,692)
Net income -- -- -- 2,402,247 -- -- 2,402,247
--------- -------- --------- ----------- --------- -------- -----------
Balance, December 31, 1995 4,095,851 $204,792 7,239,410 3,466,464 (241,872) (12,554) 10,656,240
========= ======== ========= =========== ========= ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
CERPROBE CORPORATION
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net income $ 2,402,247 1,212,823 1,502,358
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,125,584 458,436 306,708
Tax benefit from stock options exercised 340,170 482,461 --
Loss (gain) on sale of equipment 4,787 (50) --
Deferred income taxes (110,502) (93,974) --
Provision for losses on accounts receivable 12,000 24,000 (8,373)
Provision for obsolete inventory 80,000 67,200 30,000
Compensation expense 145,128 -- --
Changes in operating assets and liabilities:
Accounts receivable (1,444,689) (907,762) (273,552)
Inventories (1,038,216) (51,285) (434,984)
Prepaid expenses and other assets (389,988) (59,418) (49,828)
Income taxes receivable (163,464) -- --
Accounts payable and accrued expenses 1,101,238 (15,786) 78,881
Accrued income taxes (376,442) 331,765 44,677
Other liabilities (42,289) 90,356 (18,456)
----------- ----------- -----------
Net cash provided by operating
activities 1,645,564 1,538,766 1,177,431
----------- ----------- -----------
Investing activities:
Capital expenditures (1,960,775) (1,354,694) (500,938)
Costs incurred in Fresh Test acquisition (402,865) -- --
Cash acquired in purchase of Fresh Test 321,167 -- --
Proceeds from sale of equipment 42,062 50 --
----------- ----------- -----------
Net cash used in investing
activities (2,000,411) (1,354,644) (500,938)
----------- ----------- -----------
Financing activities:
Dividends paid -- (89,477) --
Net payments under line of credit agreement -- -- (155,614)
Principal payments on note payable and
capital leases (302,563) (79,603) (274,466)
Net proceeds from issuance of common stock 207,464 201,693 252,473
----------- ----------- -----------
Net cash provided by (used in)
financing activities (95,099) 32,613 (177,607)
----------- ----------- -----------
Effect of exchange rates on cash (24,692) 12,138 --
Net increase (decrease) in cash and cash
equiva-lents (474,638) 228,873 498,886
Cash and cash equivalents, beginning of year 738,319 509,446 10,560
----------- ----------- -----------
Cash and cash equivalents, end of year $ 263,681 738,319 509,446
=========== =========== ===========
</TABLE>
<PAGE>
CERPROBE CORPORATION
Consolidated Statements of Cash Flows, Continued
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
---------- ------- -------
Supplemental schedule of noncash investing and
financing activities:
Conversion of subordinated debentures $ -- 40,000 5,000
========== ======= =======
Equipment acquired under capital leases
and issuance of note payable $1,056,817 195,293 161,072
========== ======= =======
Supplemental disclosures of cash flow informa
tion:
Interest paid $ 153,690 115,873 133,539
========== ======= =======
Income taxes paid (refunded) $1,679,876 (9,731) 65,323
========== ======= =======
Issuance of stock for purchase of Fresh
Test Technology (note 12) 2,662,969 -- --
========== ======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
CERPROBE CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 1995, 1994 and 1993
(1) Summary of Significant Accounting Policies
Cerprobe Corporation (the Company) designs, manufactures, and markets
high-performance probing and interface products for use in the testing of
integrated and hybrid electronic circuits for the semiconductor industry.
The Company markets its products worldwide to semiconductor
manufacturers.
The following are the significant accounting and financial policies used
in the preparation of these consolidated financial statements of the
Company:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. The Company's subsidiary, Cerprobe
Europe, Limited, was established in February 1994 in Scotland. All
significant intercompany transactions have been eliminated in
consolidation.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements
in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in banks and cash
invested in short-term securities with original maturities of three
months or less.
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 and depreciated by the
straight-line method over the following estimated useful lives:
Manufacturing tools and equipment 3-7 years
Office furniture and equipment 3-7 years
Computer software 3 years
Leasehold improvements Life of lease
Goodwill
Goodwill represents the amount by which the cost of businesses purchased
exceeds the fair value of the net assets acquired. Goodwill is amortized
over a period of eight years using the straight-line method. The Company
continually evaluates whether events and circumstances have occurred that
indicate the remaining estimated useful life of goodwill may warrant
revision or that the remaining balance may not be recoverable. When
factors indicate that the asset should be evaluated for possible
impairment, the Company uses an estimate of the undiscounted net cash
flows over the remaining life of the asset in measuring whether the asset
is recoverable.
Patents and Technology
Patents and technology are stated at fair market value at the date of
acquisition less accumulated amortization and are amortized over a period
of five years using the straight-line method. Research and development
costs and any costs associated with internally developed patents,
formulas or other proprietary technology are expensed in the year
incurred.
Income Taxes
Effective January 1, 1993, the Company adopted the asset and liability
method of accounting for income taxes prescribed by Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes." Under the asset and liability method of SFAS No. 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under SFAS
109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date.
Foreign Currency Translation
The financial statements of the Company's Scotland subsidiary are
translated into United States dollars in accordance with SFAS No. 52,
Foreign Currency Translation. Assets and liabilities of the Scotland
subsidiary are translated into United States dollars at current exchange
rates. Income and expense items are translated at the average exchange
rate for the year. The resulting translation adjustments are recorded
directly as a separate component of stockholders' equity.
Revenue Recognition
The Company records revenue when goods are shipped.
Net Income Per Share
Primary net income per common and common equivalent share is computed
using the weighted average number of common shares outstanding during
each year and includes shares issuable upon exercise of stock options and
warrants when the effect of such issuance is dilutive. The calculation of
fully diluted net income per common and common equivalent share assumes
that the convertible subordinated debentures were converted into common
stock at the beginning of the year, when dilutive.
Reclassifications
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform to the 1995 presentation.
(2) Inventories
Inventories consist of the following:
1995 1994
----------- -----------
Raw materials $ 1,655,974 777,199
Work-in-process 1,229,107 967,999
Reserve for obsolete inventories (83,000) (52,000)
----------- -----------
$ 2,802,081 1,693,198
=========== ===========
(3) Property and Equipment
Property and equipment consist of
the following:
1995 1994
----------- -----------
Manufacturing tools and equipment $ 4,825,724 3,056,849
Office furniture and equipment 1,722,312 839,521
Leasehold improvements 759,843 439,894
Construction in progress 398,838 41,620
Computer software 39,775 39,775
Accumulated depreciation and
amortization (3,078,706) (2,271,579)
----------- -----------
$ 4,667,786 2,146,080
=========== ===========
(4) Accrued Expenses
Accrued expenses consist of the
following:
1995 1994
----------- -----------
Accrued payroll and related taxes $ 482,866 204,297
Accrued income taxes -- 376,442
Other accrued expenses 305,733 83,165
----------- -----------
$ 788,599 663,904
=========== ===========
(5) Convertible Subordinated Debentures and Note Payable
On March 29, 1991, the Company issued $600,000 of 12.5% convertible
subordinated debentures due December 15, 1996. The debentures are
convertible into 600,000 shares of common stock, subject to adjustment.
In addition, the Company issued $400,000 of 11% convertible subordinated
debentures due March 29, 1996. The 11% debentures are convertible into
400,000 shares of common stock, subject to adjustment. Interest on the
debentures is due either semi-annually or quarterly. Of the $1,000,000
debentures sold, $510,000 were acquired by officers and directors of the
Company or by investment groups controlled by directors of the Company.
The Company reserved 1,000,000 shares of its common stock for possible
conversion of the debentures. In connection with the conversion of a
portion of the debentures in 1993, the interest rate on $115,000 of the
remaining debentures increased to 25%.
In September 1994, September 1993 and October 1992, $40,000, $5,000 and
$360,000, respectively, in principal amount of the Company's convertible
subordinated debentures were converted to common stock.
The Company has a bank line of credit available at the lesser of 80% of
eligible receivables, as defined, or $750,000 until April 30, 1996.
Interest on outstanding balances is at prime plus .75%, and the line of
credit is collateralized by accounts receivable, inventory and equipment.
The non-use fee under the line of credit is .00375%. At December 31,
1995, no amounts were outstanding under the line of credit and $750,000
was available.
The Company has a note payable for the purchase of equipment which
accrues interest at 9.4%. Monthly payments of $13,185 including interest
are due through December 1999. At December 31, 1995, $532,119 was
outstanding under the note.
Long-term debt consists of the following:
1995 1994
---------- ----------
Convertible subordinated debentures $ 595,000 595,000
Note payable 532,119 --
---------- ----------
1,127,119 595,000
Less current maturities 718,743 --
---------- ----------
Long-term debt $ 408,376 595,000
========== ==========
Annual maturities of long-term debt are as follows:
1996 $ 718,743
1997 127,650
1998 140,177
1999 140,549
----------
$1,127,119
===========
(6) Stockholders' Equity
The Company has an incentive stock option plan, a nonqualified stock
option plan, and a combination stock option plan. In accordance with the
plans, options are to be granted at no less than 100% of the fair market
value of the shares at the date of grant. The options become exercisable
on a basis as established by the Company's Compensation Advisory
Committee and are exercisable for a period of 5 to 10 years.
A total of 500,000, 685,000 and 500,000 shares of the Company's common
stock are reserved for issuance under the incentive stock option plan,
the nonqualified stock option plan, and the combination stock plan,
respectively.
<TABLE>
<CAPTION>
Changes in options are summarized as follows:
Option Price Available
Per Share Outstanding Exercisable for Grant
---------------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
At January 1, 1993 $ 0.500-- 2.060 835,000 607,334 350,000
Granted 6.750 30,500 (30,500)
Became exercisable 0.563-- 6.750 -- 165,115
Exercised 0.500 1.000 (351,500) (351,500)
Canceled 0.563 (1,000) (1,000) 1,000
---------------- --------- ---------- ---------
At December 31, 1993 0.500-- 6.750 513,000 419,949 320,500
Granted 5.750 260,000 (260,000)
Became exercisable 0.938-- 6.750 194,505
Exercised 0.563-- 1.000 (207,333) (207,333)
Canceled 0.938 (3,334) (3,334) 3,334
---------------- --------- ---------- ---------
At December 31, 1994 0.500-- 6.750 562,333 403,787 63,834
Combination stock option
plan 500,000
Granted 5.500-- 12.875 206,000 (206,000)
Became exercisable 5.500-- 12.875 139,103
Exercised 0.500-- 5.500 (160,000) (160,000)
Canceled 6.750 (10,000) (10,000) 10,000
---------------- --------- ---------- ---------
At December 31, 1995 $ 0.500-- 12.875 598,333 372,890 367,834
================ ========= ========== =========
</TABLE>
The Company extended the exercise date on 72,000 options issued under the
nonqualified stock option plan. As a result, compensation expense of
$387,000 will be recognized over the revised period of the options
through July 1997. Compensation expense related to these options was
$145,128 during the year ended December 31, 1995.
(7) Income Taxes
The components of the provision for income taxes are as follows:
1995 1994 1993
----------- ----------- -----------
Federal $ 1,391,499 495,000 43,000
State 420,228 215,521 47,000
----------- ----------- -----------
$ 1,811,727 710,521 90,000
=========== =========== ===========
Current $ 1,922,229 804,495 90,000
Deferred (110,502) (93,974) --
----------- ----------- -----------
$ 1,811,727 710,521 90,000
=========== =========== ===========
A reconciliation of the difference between the provision for income taxes
and the income taxes at the statutory United States federal income tax
rate is as follows:
1995 1994 1993
----------- ----------- -----------
Computed expected provision $ 1,433,000 654,000 541,400
Change in beginning of the year
valuation allowance (36,000) (258,000) --
State income taxes, net 253,000 142,000 107,000
Foreign losses not benefited 199,000 149,000 --
Benefit of loss carryforward -- -- (566,000)
Other (37,273) 23,521 7,600
----------- ----------- -----------
$ 1,811,727 710,521 90,000
=========== =========== ===========
The components of the Company's deferred tax asset and deferred tax
liability are as follows:
1995 1994
--------- ---------
Deferred tax assets:
Foreign loss carryforwards $ 348,000 149,000
Reserves and accruals not currently deductible 270,598 93,974
Deferred compensation 48,785 74,000
--------- ---------
Total gross deferred tax assets 667,383 316,974
Less valuation allowance (348,000) (185,000)
--------- ---------
Net deferred tax asset 319,383 131,974
Deferred tax liabilities:
Difference between book and tax basis of property
114,907 38,000
--------- ---------
Net deferred tax asset $ 204,476 93,974
========= =========
The valuation allowance at December 31, 1995 and 1994 is primarily
related to foreign losses for which there is no assurance of realizing a
tax benefit. A valuation allowance has not been provided for the other
deferred tax assets since realization of the deferred tax assets is
considered more likely than not.
During 1995 and 1994, tax benefits were recorded for the exercise of
stock options under the nonqualified stock option plan. The benefits of
approximately $340,000 and $482,000 were recorded directly to additional
paid-in capital.
(8) Research and Development Arrangements
The Company has been awarded two research and development contracts by
Sematech, the consortium of U.S. semiconductor manufacturers and the
government. Pursuant to the contracts, Sematech will reimburse the
Company 50% and 20% of the costs incurred under the first and second
project, respectively, up to a fixed amount. The remaining costs will be
charged to research and development by the Company. The contracts allow
the sharing of proprietary technology upon completion. For the year ended
December 31, 1995, the Company had incurred costs of $273,249 and was
reimbursed by Sematech for $74,196.
(9) Related Party Transactions
Effective May 1, 1991, the Company entered into an agreement with a
former director and officer of the Company, whereby this officer left the
employ of the Company and agreed not to compete with the Company for a
two-year period. The agreement required the Company to pay $3,125 a month
from May 1, 1991 through April 30, 1993 and to provide certain other
benefits to this individual. This agreement was extended for an
additional year, through April 30, 1994, and is presently on a
month-to-month basis.
(10) Commitments
The Company leases certain equipment under capital leases. These assets
have been capitalized at the present value of the future minimum lease
payments and are included with manufacturing tools, office furniture and
equipment at a cost of $1,043,082 and $485,983 with related accumulated
amortization of $266,014 and $177,183 at December 31, 1995 and 1994,
respectively. In addition, the Company is obligated under certain
noncancelable operating leases for the Company's manufacturing and office
space. Certain operating lease agreements provide for annual rent
escalations and renewal options.
The following is a schedule of the minimum future lease payments for the
years ending December 31:
Rentals
receivable
Capital Operating under
leases leases subleases
---------- --------- -------
1996 $ 269,967 1,047,776 116,100
1997 224,954 804,993 115,700
1998 204,691 799,707 75,300
1999 162,406 665,585 78,900
2000 61,160 528,705 47,600
Thereafter -- 542,944 --
---------- --------- -------
Total minimum future lease payments
923,178 $4,389,710 433,600
========== =======
Less amounts representing interest
(at rates ranging from 7.5% to 10%) 140,463
----------
Present value of net minimum future
lease payments $ 782,715
==========
Amortization expense applicable to assets under capital leases is charged
to depreciation and amortization expense.
Rental expense for the years ended December 31, 1995, 1994 and 1993 was
$723,396, $446,422 and $361,871, respectively.
The Company has a bank lease line of credit for $1,000,000 for equipment
leasing. The non-use fee under the lease line is .0075%. At December 31,
1995, $497,835 was outstanding under the lease line and $502,165 was
available.
(11) Business Segment
The Company is engaged in one business segment, the development,
manufacturing and marketing for industrial use of equipment to test
integrated and hybrid circuits. For the years ended December 31, 1995,
1994 and 1993, 11%, 5% and 6%, respectively, of the Company's sales were
outside of the United States. At December 31, 1995 and 1994, the Company
had approximately $964,000 and $568,000 of assets located in Scotland.
Sales to individual customers totaling 10% or more of net sales were
$4,899,290 (one customer), $5,318,000 (three customers) and $2,412,000
(two customers) for the years ended December 31, 1995, 1994 and 1993,
respectively.
(12) Acquisition
On April 3, 1995, the Company acquired all of the outstanding stock of
Fresh Test Technology Corporation (Fresh Test), a probe card
manufacturer, for 712,500 shares of the Company's common stock. The
acquisition has been accounted for by the purchase method of accounting
and, accordingly, the purchase price has been allocated to the assets
purchased and the liabilities assumed based upon the fair values at the
date of acquisition. The excess of the purchase price over the fair
values of the net assets acquired was $2,120,505 and has been recorded as
goodwill, which is being amortized on a straight-line basis over eight
years. The purchase price of $2,662,969 plus acquisition costs of
$402,865 was allocated as follows:
Working capital $ 460,515
Property and equipment 462,611
Other assets 43,311
Patents and technology 90,840
Goodwill 2,120,505
Other liabilities 111,948
The operating results of Fresh Test have been included in the
consolidated statement of income from the date of acquisition. The
following summary, prepared on a pro forma basis, presents the results of
operations as if the acquisition had occurred January 1, 1994:
Year ended December 31,
-------------------------
1994 1995
----------- ----------
(unaudited)
Net sales $18,712,171 27,601,795
Net income 998,856 2,543,690
Primary net income per share 0.24 0.62
Fully diluted net income per share 0.21 0.52
The pro forma results are not necessarily indicative of what the actual
consolidated results of operations might have been if the acquisition had
been effective at the beginning of 1994 or a projection of future
results.
(13) 401(k) Plan
On April 1, 1993, the Company established the Cerprobe Corporation 401(k)
Plan (the Plan). Employees who have reached 18 years of age and who have
completed one year of service for the Company are eligible to participate
in the Plan. Participants may elect to defer up to 15% of their salary.
Any contribution by the Company is at its discretion. In 1993 and 1995
the Company accrued 25% of the participants' contributions or
approximately $28,000 and $90,000, respectively, as contributions to the
Plan. No matching Company contribution was made for 1994. The
participants are fully vested in their contributions and become fully
vested in the Company's contributions after three years of service.
(14) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires that the Company disclose
estimated fair values for its financial instruments. The following
summary presents a description of the methodologies and assumptions used
to determine such amounts.
The carrying amount of cash and cash equivalents approximates fair value
because their maturity is generally less than three months. The carrying
amount of accounts receivables, accounts payable and accrued expenses
approximates fair value as they are expected to be collected or paid
within 90 days of year-end. The fair value of notes payable, capital
lease obligations and other long-term obligations approximate the terms
in the marketplace at which they could be replaced. Therefore, the fair
value approximates the carrying value of these financial instruments.
(15) Supplemental Financial Information
A summary of additions and deductions related to the allowances for
accounts receivable and inventories for the years ended December 31,
1995, 1994 and 1993 follows:
Balance at Balance at
beginning end of
of year Additions Deductions year
-------- ------- ------- -------
Allowance for doubtful accounts:
Year ended December 31, 1995 $ 23,000 151,094 (1,094) 173,000
Year ended December 31, 1994 $ 10,000 24,000 (11,000) 23,000
Year ended December 31, 1993 $ 20,000 (8,373) (1,627) 10,000
Allowance for obsolescence of
inventories:
Year ended December 31, 1995 $ 52,000 110,600 (79,600) 83,000
Year ended December 31, 1994 $ 48,500 67,200 (63,700) 52,000
Year ended December 31, 1993 $ 67,600 30,000 (49,100) 48,500
(16) Subsequent Events
Convertible Preferred Stock
On January 18, 1996, the Company issued approximately 800,000 shares of
convertible preferred stock for $10,000,000. Net proceeds from the
private placement, after deducting expenses, were $9,400,000. The
preferred stock has a liquidation preference of 6% which is payable in
stock or cash. The preferred stock is convertible into common stock at
the option of the holder in increments of 25% of the shares held by the
holder beginning March 3, 1996 through June 1, 1996. Automatic conversion
occurs at the end of two years. The preferred stock converts at the
lesser of 110% of the fixed strike price of $16.55 or 90% of the average
five day closing price prior to the conversion date. The Company may call
the preferred stock at any time in minimum amounts of $2,000,000 at a
price of 125% of par beginning July 18, 1996 or upon a merger, buyout or
acquisition.
Additionally, the Company issued 52,000 warrants which are exercisable at
the fixed strike price of $16.55 and expire in four years.
Fully diluted net income per share would have been $0.42 for the year
ended December 31, 1995 if the convertible preferred stock and warrants
had been issued on January 1, 1995.
Acquisition
On January 23, 1996, the Company signed a letter of intent to acquire the
stock of CompuRoute, Inc., a manufacturer of printed circuit boards, and
its affiliates. As consideration for the acquisition, the Company plans
to issue 995,000 shares of common stock. The Company anticipates
recording the acquisition under the pooling-of-interests method of
accounting.
(17) Quarterly Data (Unaudited)
The following table presents selected unaudited quarterly operating
results for the eight quarters ended December 31, 1995. The Company
believes that all necessary adjustments have been included in the amounts
stated below to present fairly the related quarterly results.
Quarter Ended
-------------------------------------------------
1995 December 31 September 30 June 30 March 31
---- ---------- --------- --------- ---------
Net sales $8,130,183 6,834,260 6,171,529 4,962,665
---------- --------- --------- ---------
Gross margin 3,814,490 3,282,633 3,023,215 2,271,864
Net income 710,705 512,158 614,649 564,735
Primary net income per share 0.16 0.12 0.15 0.16
Weighted average number of
common equivalent shares
outstanding 4,365,151 4,405,372 4,194,089 3,446,342
Fully diluted net income per
share $ 0.14 0.10 0.13 0.14
Weighted average number of
common equivalent shares
outstanding 5,004,326 4,992,874 4,858,662 4,041,342
1994
----
Net sales $4,140,349 3,376,850 3,395,927 3,338,359
Gross margin 2,090,645 1,010,416 1,497,706 1,438,752
Net income 421,032 45,958 373,429 372,404
Primary net income per share 0.12 0.01 0.11 0.11
Weighted average number of
common equivalent shares
outstanding 3,411,984 3,377,319 3,373,325 3,379,923
Fully diluted net income per
share $ 0.11 0.01 0.09 0.09
Weighted average number of
common equivalent shares
outstanding 4,001,907 4,006,327 3,992,620 4,006,032
INCORPORATED UNDER THE LAWS OF
DELAWARE
Number 001 -5- Shares
SEE RESTRICTIVE LEGEND ON REVERSE SIDE
CERPROBE CORPORATION
The Corporation is authorized to issue 1,000
shares of Series A Preferred Stock, par value $.05 each
THIS CERTIFIES THAT WOOD GUNDY (LONDON) LIMITED
is the registered holder of ***FIVE*** Shares of the Series A Preferred Stock of
CerProbe Corporation transferable only on the books of the Corporation by the
holder hereof in person or by Attorney upon surrender of this Certificate
properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to
be signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this 16th day of January, 1996.
CERPROBE CORPORATION
CORPORATE * SEAL * 1967
DELAWARE
SECRETARY PRESIDENT
Countersigned by:
American Securities Transfer, Inc.
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES COMMISSION OF ANY STATE UNDER ANY STATE SECURITIES
LAW. THEY ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER
REGULATION S ("REGULATION S") PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN
REGULATION S) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO
AN AVAILABLE EXEMPTION OR SAFE HARBOR FROM THE REGISTRATION REQUIREMENTS OF
THOSE LAWS.
THE ISSUER WILL FURNISH, WITHOUT CHARGE, TO THE HOLDER OF THIS
CERTIFICATE, UPON REQUEST, THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF THIS SERIES A PREFERRED STOCK
AND EACH OTHER CLASS AND SERIES OF STOCK OF THE CORPORATION, IF ANY, AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -as tenants in common UNIF GIFT MIN ACT-.....Custodian..
TEN ENT -as tenants by the entireties (Cust) (Minor)
JT TEN -as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act...........................
in common (State)
Additional abbreviations may also be used though not in the above list.
- --------------------------------------------------------------------------------
For Value Received,_______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------------
- -----------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------
of the Preferred Stock represented by the within Certificate,
and do hereby irrevocably constitute and appoint
________________________________________________________________attorney-in-fact
to transfer the said stock on the books of the within-named Corporation, with
full power of substitution in the premises.
Dated_______________________
________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
Signature(s) Guaranteed:
________________________
The signature(s) should be guaranteed by an eligible guarantor institution
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions with
membership in an approved signature guarantee Medallion Program), pursuant to
S.E.C. Rule 17Ad-15.
CERTIFICATE OF DESIGNATIONS OF
SERIES A PREFERRED STOCK
OF
CERPROBE CORPORATION
It is hereby certified that:
1. The name of the Corporation (hereinafter called the "Corporation")
is CerProbe Corporation, a Delaware corporation.
2. The certificate of incorporation of the Corporation authorizes the
issuance of Ten Million (10,000,000) shares of preferred stock of a par value of
Five Cents ($.05) per share and expressly vests in the Board of Directors of the
Corporation the authority provided therein to issue any or all of said shares in
one or more series and by resolution or resolutions to establish the relative
rights, preferences and limitations of each series to be issued.
3. The Board of Directors of the Corporation, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a Series A issue of Preferred Stock:
RESOLVED, that One Thousand (1,000) of the Ten Million (10,000,000)
authorized shares of Preferred Stock of the Corporation shall be designated
Series A Preferred Stock, $.05 par value per share, and shall possess the rights
and privileges set forth below:
Section 1. Designation and Amount. The shares of such Series shall be
designated as "Series A Preferred Stock" (the "Series A Preferred Stock") and
the number of shares constituting the Series A Preferred Stock shall be 1,000.
Such number of shares may be increased or decreased by resolution of the Board
of Directors; provided, that no decrease shall reduce the number of shares of
Series A Preferred Stock to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants, if any, to acquire shares of Series A
Preferred Stock or upon the conversion of any outstanding securities issued by
the Corporation convertible into Series A Preferred Stock.
Section 2. Rank. The Series A Preferred Stock shall rank: (i) on parity
with all of the Corporation's Series A Preferred Stock, (ii) junior to any other
class or series of capital stock of the Corporation hereafter created
specifically ranking by its terms senior to the Series A Preferred Stock
(collectively, the "Senior Securities"); (iii) prior to all of the Corporation's
Common Stock, par value $.05 per share ("Common Stock"); (iv) prior to any class
or series of capital stock of the Corporation hereafter created specifically
ranking by its terms junior to any Series A Preferred Stock of whatever
subdivision (collectively, with the Common Stock, "Junior Securities"); (v) on
parity with any class or series of capital stock of the Corporation hereafter
Page 1 of 12
<PAGE>
created specifically ranking by its terms on parity with the Series A Preferred
Stock ("Parity Securities"), in each case as to distributions of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary (all such distributions being referred to collectively as
"Distributions").
Section 3. Dividends. The Series A Preferred Stock will bear no
dividends, and the holders of the Series A Preferred Stock ("Holders") shall not
be entitled to receive any dividends on the Series A Preferred Stock.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the Holders of
shares of Series A Preferred Stock shall be entitled to receive, immediately
after any distributions to Senior Securities required by the Corporation's
Certificate of Incorporation or any certificate of designations of preferences,
and prior and in preference to any distribution to Junior Securities but in
parity with any distribution of Parity Securities, an amount per share equal to
the sum of (i) $10,000 for each outstanding share of Series A Preferred Stock
(the "Original Series A Issue Price"), and (ii) an amount equal to 6% of the
Original Series A Issue Price per annum for the period that has passed since the
date of issuance by the Corporation of any Series A Preferred Stock (such amount
being referred to herein as the "Premium"). If upon the occurrence of such
event, and after payment in full of the preferential amounts with respect to the
Senior Securities, the assets and funds thus distributed among the Holders of
the Series A Preferred Stock and the Parity Securities shall be insufficient to
permit the payment to such Holders of the full preferential amounts due to the
Holders of the Series A Preferred Stock and the Parity Securities, respectively,
then the entire assets and funds of the Corporation legally available for
distribution shall be distributed among the Holders of the Series A Preferred
Stock and the Parity Securities, pro rata, based on the respective liquidation
amounts to which each such series of stock is entitled by the Corporation's
Certificate of Incorporation and any certificate of designations of preferences.
(b) CerProbe Corporation will give the Holders of the
Series A Preferred Stock thirty (30) business days notice of any sale,
conveyance or disposition of all or substantially all of the assets of the
Corporation and the Holders of the Series A Preferred Stock will have the right
during the thirty (30) business day period to convert (notwithstanding the 45
day, 75 day, 105 day and 135 day holding requirements set forth in Section 5(a)
hereof), or continue to hold the Series A Preferred Stock; provided, however,
that, (i) the Holders may not convert anytime on or before the fortieth (40th)
day following the Last Closing Date (as hereinafter defined); and (ii) a
consolidation or merger of the Corporation with or into any other corporation or
corporations shall not be treated as a liquidation, dissolution or winding up
within the meaning of this Section 4, but instead shall be treated pursuant to
Section 5 hereof.
Section 5. Conversion. The record Holders of Series A Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
Page 2 of 12
<PAGE>
(a) Right to Convert. Each record Holder of Series A
Preferred Stock shall be entitled (at the times and in the amounts set forth
below), and, subject to the Corporation's rights of redemption set forth in
Section 6(a), Section 6(b) and Section 6(c) hereof, at the office of the
transfer agent for the Series A Preferred Stock (currently American Securities
Transfer, Inc. and any successor thereto, the "Transfer Agent"), to convert
portions of the Series A Preferred Stock held by such Holder (but only in
multiples of $10,000) into that number of fully-paid and non-assessable shares
of Common Stock at the Conversion Rate, as defined below. Each record Holder of
Series A Preferred Stock shall be entitled to convert up to one-fourth (1/4) of
the shares of Series A Preferred Stock held by such Holder beginning 45 days
following the Last Closing Date, an additional one-fourth (1/4) of the shares of
Series A Preferred Stock held by such Holder beginning 75 days following the
Last Closing Date, an additional one-fourth (1/4) of the shares of Series A
Preferred Stock held by such Holder beginning 105 days following the Last
Closing Date, and may convert any remaining Series A Preferred Stock beginning
135 days following the Last Closing Date, at the office of the Transfer Agent
for the Series A Preferred Stock, into that number of fully-paid and
non-assessable shares of Common Stock of the Corporation calculated in
accordance with the following formula (the "Conversion Rate"):
Number of shares of Common Stock issuable upon conversion of one share of Series
A Preferred Stock
= (.06) (N/365) (10,000) + 10,000
------------------------------
Conversion Price
where,
o N = the number of days between (i) the date that, in connection with
the consummation of the initial sale of the shares of Series A
Preferred Stock from the Corporation, the escrow agent first had in its
possession funds representing full payment for the shares of Series A
Preferred Stock for which conversion is being elected , and (ii) the
applicable Date of Conversion for the shares of Series A Preferred
Stock for which conversion is being elected, and
o Conversion Price = the lesser of (x) $16.55 (being 110% of the
average Closing Price, as that term is defined below, for the five
trading days ending on December 22, 1995, which average Closing Price
was $15.05) (the "Fixed Conversion Price"), or (y) X times the average
Closing Price, as that term is defined below, of the Corporation's
Common Stock for the five (5) trading days immediately preceding the
Date of Conversion, where X shall equal .90 + (1- (the average Closing
Price of the Corporation's Common Stock for the five (5) trading days
immediately preceding the Date of Conversion, divided by the average
Closing Price of the Corporation's Common Stock for the fifteen (15)
trading days immediately preceding the Date of Conversion); provided
that, in no event shall X be less than .90 or greater than 1.0.
Page 3 of 12
<PAGE>
For purposes hereof, the term "Closing Price" shall mean the closing
price on the over-the-counter market as reported by NASDAQ, or if then traded on
a national securities exchange or the National Market System, the mean of the
high and low prices on the principal national securities exchange or the
National Market System on which it is so traded.
For purposes hereof, the term "Last Closing Date" shall be the date of
the last Closing of the sale and purchase of the Series A Preferred Stock.
(b) Mechanics of Conversion. In order to convert
Series A Preferred Stock into full shares of Common Stock, the Holder shall (i)
fax, prior to Midnight, Mountain Standard Time (the "Conversion Notice
Deadline") on the Date of Conversion specified on the Notice of Conversion, a
copy of the fully executed notice of conversion in the form attached hereto
("Notice of Conversion") to the Transfer Agent with a copy to the Corporation
(at its principal executive office), which notice shall specify the number of
shares of Series A Preferred Stock to be converted and shall contain a
calculation of the Conversion Rate (together with a copy of the first page of
each certificate to be converted), and (ii) surrender the original certificate
or certificates therefor, duly endorsed, and the original Notice of Conversion,
no later than 12 Midnight Mountain Standard Time, the next business day, to a
common courier for either overnight or 2-day delivery to the office of the
Transfer Agent for the Series A Preferred Stock; provided, however, that neither
the Corporation nor the Transfer Agent shall be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless
either the certificates evidencing such Series A Preferred Stock are delivered
to the Transfer Agent as provided above, or the Holder notifies the Transfer
Agent (with a copy of such notice to the Corporation) that such certificates
have been lost, stolen or destroyed and executes and delivers to the Corporation
an agreement in form and content satisfactory to the Corporation to indemnify
the Corporation from any loss incurred by it in connection with such
certificates.
(i) Lost or Stolen Certificates. Upon
receipt by the Corporation of evidence of the loss, theft, destruction or
mutilation of a certificate or certificates ("Stock Certificates") representing
shares of Series A Preferred Stock, and (in the case of loss, theft or
destruction) of indemnity or security in form and content satisfactory to the
Corporation, and upon surrender and cancellation of the Stock Certificate(s), if
mutilated, the Corporation shall execute and deliver new Stock Certificate(s) of
like tenor and date.
(ii) Issuance of Common Stock. The
Corporation shall use its best commercially practicable efforts to issue and
deliver, within three (3) business days after receipt by the Transfer Agent of
such certificates, or after receipt of such agreement and indemnification, as
provided for herein, to such Holder of Series A Preferred Stock at the address
of the Holder on the books of the Corporation, a certificate or certificates for
the number of shares of Common Stock to which the Holder shall be entitled as
aforesaid.
(iii) No Fractional Shares. No fractional
shares of Common Stock shall be issued upon conversion of this Series A
Preferred Stock. If any conversion of
Page 4 of 12
<PAGE>
the Series A Preferred Stock would create a fractional share of Common Stock or
a right to acquire a fractional share of Common Stock, such fractional share
shall be disregarded and the number of shares of Common Stock issuable upon
conversion shall be rounded to the nearest whole share. In the case of a dispute
as to the calculation of the Conversion Rate, the Corporation's calculation
shall be deemed conclusive absent manifest error.
(iv) Date of Conversion. The date on which
conversion occurs (the "Date of Conversion") shall be deemed to be the date set
forth in such Notice of Conversion, provided (i) that the advance copy of the
Notice of Conversion is faxed to the Transfer Agent, with a copy to the
Corporation, before midnight, Mountain Standard Time, on the Date of Conversion,
and (ii) that the original Stock Certificates representing the shares of Series
A Preferred Stock to be converted are surrendered by depositing such
certificates by either overnight courier or 2-day courier, as provided above,
and received by the Transfer Agent within five (5) business days thereafter. The
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date. If the original Stock
Certificates representing the Series A Preferred Stock to be converted are not
received by the Transfer Agent, with a copy to the Corporation, within five (5)
business days after the Date of Conversion or if the facsimile of the Notice of
Conversion is not received by the Transfer Agent, with a copy to the
Corporation, prior to the Conversion Notice Deadline, the Notice of Conversion,
without further act or action being required by the Corporation, shall be null
and void.
(v) Converted Shares No Longer Outstanding.
Following conversion of shares of Series A Preferred Stock, such shares of
Series A Preferred Stock shall be canceled, shall return to the status of
authorized but unissued Preferred Stock of no designated series, and shall not
be issuable by the Corporation as Series A Preferred Stock.
(c) Reservation of Stock Issuable Upon Conversion.
The Corporation shall from time to time reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Series A Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all then outstanding Series A Preferred Stock; and if at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of Series A
Preferred Stock, the Corporation will take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
(d) Automatic Conversion. Subject to the
Corporation's rights of redemption set forth in Section 6(a), Section 6(b) and
Section (c) hereof, each share of Series A Preferred Stock outstanding on
December 29, 1997 automatically, without the necessity of any action by either
the Holder of the Series A Preferred Stock or the Corporation, shall be
converted into Common Stock on such date at the Conversion Price then in effect
(calculated
Page 5 of 12
<PAGE>
in accordance with the formula in Section 5(a) above), and December 29, 1997
shall be deemed the Date of Conversion with respect to such conversion.
(e) Adjustment to Conversion Rate.
(i) If, prior to the conversion of all of
the Series A Preferred Stock, the number of outstanding shares of Common Stock
is increased by a stock split, stock dividend, or other similar event, the
Conversion Rate shall be proportionately adjusted, or if the number of
outstanding shares of Common Stock is decreased by a combination or
reclassification of shares, or other similar event, the Conversion Rate shall be
proportionately adjusted.
(ii) If, prior to the conversion of all
Series A Preferred Stock, there shall be any merger, consolidation, exchange of
shares, recapitalization, reorganization, or other similar event, as a result of
which shares of Common Stock of the Corporation shall be changed into the same
or a different number of shares of the same or another class or classes of stock
or securities of the Corporation or another entity, or other property, then the
Holders of Series A Preferred Stock shall thereafter have the right to purchase
and receive upon conversion of Series A Preferred Stock, upon the basis and upon
the terms and conditions specified herein and in lieu of the shares of Common
Stock immediately theretofore issuable upon conversion, such shares of stock
and/or securities or other property as may be issued or payable with respect to
or in exchange for the number of shares of Common Stock immediately theretofore
purchasable and receivable upon the conversion of Series A Preferred Stock held
by such Holders had such merger, consolidation, exchange of share,
recapitalization or reorganization not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the Holders of the Series A Preferred Stock to the end that the provisions
hereof (including, without limitation, provisions for adjustment of the
Conversion Rate and of the number of shares issuable upon conversion of the
Series A Preferred Stock) shall thereafter be applicable, as nearly as may be
practicable in relation to any shares of stock or securities thereafter
deliverable upon the exercise hereof. So long as shares of the Series A
Preferred Stock are issued and outstanding, the Corporation shall not effect any
transaction described in this subsection 5(e) unless the resulting successor or
acquiring entity (if not the Corporation) assumes by written instrument the
obligation to deliver to the Holders of the Series A Preferred Stock such shares
of stock and/or securities or other property as, in accordance with the
foregoing provisions, the Holders of the Series A Preferred Stock may be
entitled to receive upon conversion of the Series A Preferred Stock.
(iii) If any adjustment under this Section
5(e) would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon conversion shall be rounded
to the nearest whole share.
Page 6 of 12
<PAGE>
Section 6. Cash Redemption by Corporation.
(a) Corporation's Right to Redeem Upon Receipt of
Notice of Conversion. The Corporation shall have the unconditional right, in its
sole discretion, upon receipt of a Notice of Conversion pursuant to Section 5,
to redeem in whole or in part any Series A Preferred Stock submitted for
conversion, immediately prior to conversion. If the Corporation elects to redeem
some, but not all, of the Series A Preferred Stock submitted for conversion, the
Corporation shall redeem from among the Series A Preferred Stock submitted by
the various Holders thereof for conversion on the applicable date, a pro-rata
amount from each Holder so submitting Series A Preferred Stock for conversion.
The Corporation shall effect each such redemption by giving notice ("Notice of
Redemption Upon Receipt of Notice of Conversion") of its election to redeem, by
facsimile by the close of business on the second business day following receipt
of a Notice of Conversion from a Holder, with a copy by 2- day courier, to (A)
the Holders of Series A Preferred Stock selected for redemption, at the address
and facsimile number of such Holder appearing in the Corporation's register for
the Series A Preferred Stock and (B) the Transfer Agent. Such Notice of
Redemption Upon Receipt of Notice of Conversion shall indicate the number of
shares of Holder's Series A Preferred Stock that have been selected for
redemption, the Date of Redemption Upon Receipt of Notice of Conversion (as
defined below) and the applicable Redemption Price Upon Receipt of Notice of
Conversion (as defined below). If the Notice of Redemption Upon Receipt of
Notice of Conversion is not received within the times specified above or does
not meet the conditions specified above, the Notice of Redemption Upon Receipt
of Notice of Conversion shall become null and void (unless otherwise agreed in
writing by the Holder). The Corporation shall not be entitled to send any Notice
of Redemption Upon Receipt of Notice of Conversion and begin the redemption
procedure unless it has (i) the full amount of the Redemption Price Upon Receipt
of Notice of Conversion, in cash, available in a demand or other immediately
available account in a bank or similar financial institution, or (ii)
immediately available credit facilities, in the full amount of the Redemption
Price Upon Receipt of Notice of Conversion, with a bank or similar financial
institution on the date the Notice of Redemption Upon Receipt of Notice of
Conversion is sent to the applicable Holder.
The Redemption Price Upon Receipt of Notice of Conversion per share of
Series A Preferred Stock shall equal the Closing Price on the Date of Conversion
for such shares, multiplied by the number of shares of Common Stock that would
otherwise have been issuable had the shares of Series A Preferred Stock redeemed
been converted on the Date of Conversion as to such shares. For the purposes of
the above, "Closing Price" and "Date of Conversion" shall have the meanings set
forth in Section 5. The "Date of Redemption Upon Notice of Conversion" shall be
deemed to be the Date of Conversion (as that term is defined in Section 5(b)
above).
The Redemption Price Upon Receipt of Notice of Conversion shall be paid
to the Holder of Series A Preferred Stock redeemed within 10 business days of
the delivery of the Notice of Redemption Upon Receipt of Notice of Conversion to
such Holder; provided,
Page 7 of 12
<PAGE>
however, that the Corporation shall not be obligated to deliver any portion of
the Redemption Price Upon Receipt of Notice of Conversion unless either the
certificates evidencing the Series A Preferred Stock redeemed are delivered to
the Transfer Agent as provided in Section 5(b), or the Holder notifies the
Transfer Agent that such certificates have been lost, stolen or destroyed and
executes an agreement, in form and content, satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
certificates. Notwithstanding the foregoing, in the event that the certificates
evidencing the Series A Preferred Stock redeemed are not delivered to the
Transfer Agent as provided in Section 5(b), the redemption of the Series A
Preferred Stock pursuant to this Section 6(a) shall still be deemed effective as
of the Date of Redemption Upon Receipt of Notice of Conversion.
(b) Corporation's Right to Redeem at its Election.
Commencing 6 months after the Last Closing Date, the Corporation shall have the
unconditional right, in its sole discretion, to redeem, at any time and from
time to time, any or all of the Series A Preferred Stock; provided that, the
Corporation shall only be entitled to redeem shares of Series A Preferred Stock
with an aggregate Stated Value (as defined below) of at least Five Hundred
Thousand Dollars ($500,000) on the first such redemption. If the Corporation
elects to redeem some, but not all, of the Series A Preferred Stock, the
Corporation shall redeem a pro-rata amount from each Holder of Series A
Preferred Stock. The Corporation shall effect each such redemption by giving at
least 30 days prior written notice ("Notice of Redemption At Corporation's
Election") to (A) the Holders of Series A Preferred Stock selected for
redemption, at the address and facsimile number of such Holder appearing in the
Corporation's register for the Series A Preferred Stock, and (B) the Transfer
Agent, which Notice of Redemption At Corporation's Election shall be deemed to
have been delivered three (3) business days after the Corporation's mailing (by
overnight courier, with a copy by facsimile) of such Notice of Redemption At
Corporation's Election. Such Notice of Redemption At Corporation's Election
shall indicate the number of shares of Holder's Series A Preferred Stock that
have been selected for redemption, the date which such redemption is to become
effective ( the "Date of Redemption At Corporation's Election") and the
applicable Redemption Price At Corporation's Election, as defined below. The
Corporation shall not be entitled to send any Notice of Redemption At
Corporation's Election and begin the redemption procedure unless it has (x) the
full amount of the Redemption Price At Corporation's Election, in cash,
available in a demand or other immediately available account in a bank or
similar financial institution, or (y) immediately available credit facilities,
in the full amount of the Redemption At Corporation's Election, with a bank or
similar financial institution on the date the Notice of Redemption At
Corporation's Election is delivered to the applicable Holder.
For purposes hereof, "Stated Value" shall mean the Original Series A
Issue Price of the shares of Series A Preferred Stock redeemed pursuant to this
Section 6(b), as defined in Section 4(a), together with the accrued but unpaid
Premium (as defined in Section 4(a)) on such shares of Series A Preferred Stock,
as of the Date of Redemption At Corporation's Election.
Page 8 of 12
<PAGE>
The Redemption Price At Corporation's Election shall be calculated as
125% of Stated Value of the shares of Series A Preferred Stock redeemed pursuant
to this Section 6(b).
The Redemption Price At Corporation's Election shall be paid to the
Holder of Series A Preferred Stock redeemed within 10 business days of the Date
of Redemption At Corporation's Election; provided, however, that the Corporation
shall not be obligated to deliver any portion of the Redemption Price At
Corporation's Election unless either the certificates evidencing the Series A
Preferred Stock redeemed are delivered to the Transfer Agent prior to the 10th
business day following the Date of Redemption At Corporation's Election, or the
Holder notifies the Transfer Agent that such certificates have been lost, stolen
or destroyed and executes an agreement, in form and content, satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates. Notwithstanding the foregoing, in the event
that the certificates evidencing the Series A Preferred Stock redeemed are not
delivered to the Transfer Agent prior to the 10th business day following the
Date of Redemption At Corporation's Election, the redemption of the Series A
Preferred Stock pursuant to this Section 6(b) shall still be deemed effective as
of the Date of Redemption At Corporation's Election and the Redemption Price At
Corporation's Election shall be paid to the Holder of Series A Preferred Stock
redeemed within 5 business days of the date the certificates evidencing the
Series A Preferred Stock redeemed are actually delivered to the Transfer Agent.
(c) Corporation's Intention to Redeem.
Notwithstanding anything contained in this Certificate of Designations to the
contrary, the Corporation intends to exercise its discretion to redeem shares of
Series A Preferred Stock pursuant to Section 6(a) above in the event that the
exercise of conversion rights by the Holders of the Preferred Stock pursuant to
Section 5(a) above or in the event of automatic conversion pursuant to Section
5(d) above would result in the issuance of greater than 800,000 shares of Common
Stock in the aggregate pursuant to this Certificate of Designations, unless the
Corporation has received an opinion from counsel that the issuance of such
greater number of shares is in compliance with applicable Nasdaq requirements.
Section 7. Advance Notice of Intent to Redeem Upon Conversion
(a) Holder's Right to Elect to Receive Notice of Cash
Redemption by Corporation. Holders of Series A Preferred Stock shall have the
right to require Corporation to provide advance notice stating whether
Corporation will elect to redeem Holder's shares in cash, pursuant to
Corporation's redemption rights discussed in Section 6(a).
(b) Mechanics of Holder's Election Notice. Holders of
Series A Preferred Stock shall send notice ("Election Notice") to Corporation
and such other person(s) as the Corporation may designate, by facsimile, stating
Holder's intention to require Corporation to disclose that if Holder were to
exercise his, her or its right of conversion (pursuant to Section 5) whether
Corporation would elect to redeem Holder's Series A Preferred Stock for cash in
lieu of issuing Common Stock. Corporation is required to disclose to Holder
Page 9 of 12
<PAGE>
what action Corporation would take over the subsequent 10 day period, including
the date Corporation receives such Election Notice.
(c) Corporation's Response. Corporation must respond
by the close of business on the second business day following receipt of
Holder's Election Notice (1) via facsimile, and (2) via overnight courier. If
Corporation does not respond to Holder within two (2) business days via
facsimile and overnight courier, Corporation shall be required to issue to
Holder Common Stock upon Holder's conversion of Holder's Series A Preferred
Stock within the subsequent 10 day period.
Section 8. Voting Rights. Except as otherwise required by the General
Corporation Law of the State of Delaware ("Delaware Law"), the Holders of the
Series A Preferred Stock shall have no voting power whatsoever, and no holder of
Series A Preferred Stock shall vote or otherwise participate in any proceeding
in which actions shall be taken by the Corporation or the stockholders thereof
or be entitled to notification as to any meeting of the stockholders.
To the extent that under Delaware Law the vote of the Holders of the
Series A Preferred Stock, voting separately as a class, is required to authorize
a given action of the Corporation, the affirmative vote or consent of the
Holders of at least a majority of the shares of the Series A Preferred Stock
represented at a duly held meeting at which a quorum is present or by written
consent of a majority of the shares of Series A Preferred Stock (except as
otherwise may be required under Delaware Law) shall constitute the approval of
such action by the class. To the extent that under Delaware Law the Holders of
the Series A Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series A Preferred
Stock shall be entitled to one vote. Holders of the Series A Preferred Stock
shall be entitled to notice of all stockholder meetings or written consents with
respect to which they would be entitled to vote, which notice would be provided
pursuant to the Corporation's by-laws and applicable statutes.
Section 9. Protective Provision. So long as shares of Series A
Preferred Stock are outstanding, the Corporation shall not, without first
obtaining the approval (by vote or written consent, as provided by Delaware Law)
of the Holders of at least 66 2/3% of the then issued and outstanding shares of
Series A Preferred Stock, alter or change the rights, preferences or privileges
of the shares of Series A Preferred Stock so as to affect adversely the Series A
Preferred Stock. In the event Holders of 66 2/3% of the then outstanding shares
of Series A Preferred Stock agree to allow the Corporation to alter or change
the rights, preferences or privileges of the shares of Series A Preferred Stock
so as to affect adversely the Series A Preferred Stock, then the Corporation
will deliver notice of such approved change to the Holders of the Series A
Preferred Stock that did not agree to such alteration or change (the "Dissenting
Holders") and Dissenting Holders shall have the right for a period of 30 days to
convert pursuant to the terms of this Certificate of Designations prior to such
alteration or change (notwithstanding the 45 day, 75 day, 105 day and 135 day
holding requirements set forth in Section 5(a) hereof), or continue to hold
their shares of Series A Preferred Stock; provided, however, that the Holders
may not convert anytime on or before the fortieth (40th) day following the Last
Closing Date.
Page 10 of 12
<PAGE>
Section 10. Status of Redeemed or Converted Stock. In the event any
shares of Series A Preferred Stock shall be redeemed or converted pursuant to
Section 5 or Section 6 hereof, the shares so converted or redeemed shall be
canceled, shall return to the status of authorized but unissued Preferred Stock
of no designated series, and shall not be issuable by the Corporation as Series
A Preferred Stock.
Section 11. Preference Rights. Nothing contained herein shall be
construed to prevent the Board of Directors of the Corporation from issuing one
or more series of Preferred Stock with dividend and/or liquidation preferences
senior to, equal to or junior to the dividend and liquidation preferences of the
Series A Preferred Stock.
FURTHER RESOLVED, that the statements contained in the foregoing
resolutions creating and designating the said Series A Preferred Stock and
fixing the relative rights, preferences and limitations thereof shall, upon the
effective date of said Series, be deemed to be included in and be a part of the
Certificate of Incorporation of the Corporation pursuant to the provisions of
the Delaware Law.
IN WITNESS WHEREOF, CerProbe Corporation has caused this Certificate of
Designations, Preferences and Rights of Series A Preferred Stock to be duly
executed by its President this 11 day of January, 1996.
CERPROBE CORPORATION
By:______________________________________
C. Zane Close, President
Page 11 of 12
<PAGE>
NOTICE OF CONVERSION*
(To be Executed by the Registered Holder
of Series A Preferred Stock of CerProbe Corporation
in order to Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert ___________ shares of
Series A Preferred Stock of CerProbe Corporation (the "Corporation"),
represented by stock certificate No(s). ______________________________________
(the "Preferred Stock Certificates") into shares of common stock ("Common
Stock") of the Corporation according to the conditions of the Certificate of
Designations of Series A Preferred Stock, as of the date written below. If
shares of Common Stock are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates. No fee will be charged by
the Corporation to the Holder for any conversion, except for transfer taxes, if
any.
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the Series A Preferred Stock shall be made in compliance with
Regulation S, pursuant to registration of the Common Stock under the Securities
Act of 1933, as amended (the "Act") or pursuant to an exemption from
registration under the Act.
Date of Conversion: __________________________
Applicable Conversion Price: _________________
Signature: ___________________________________
Name: ________________________________________
Address: _____________________________________
Fax Number: __________________________________
* No shares of Common Stock will be issued until the original Series A Preferred
Stock Certificate(s) to be converted and the Notice of Conversion are received
by the Transfer Agent pursuant to the provisions of the Certificates of
Designations of Series A Preferred Stock.
Page 12 of 12
EMPLOYMENT AGREEMENT
This Agreement is made and entered into as of the 31st day of
March, 1995, by and between CERPROBE CORPORATION, a Delaware corporation
("Employer"), and ROBERT K. BENCH ("Employee").
RECITALS
A. Employer is in the business of the design, manufacture, and
sale of probe cards for use in the semiconductor industry and for semiconductor
testing and the design, manufacture and sale of test and interface hardware
products, including, without limitation, performance boards, prober and handler
interfaces, including complete interface systems (digital, mixed signal and
analog), used by the semiconductor industry (the "Business").
B. Employer desires to employ Employee, and Employee desires
to accept such employment, on the terms and conditions set forth in this
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and
the mutual covenants set forth in this Agreement, the parties hereto hereby
agree as follows:
1. Employment. Employer hereby employs Employee and Employee
hereby accepts such employment, to perform such duties and services for and on
behalf of Employer as may, from time to time, be determined by the President of
Employer. Employee shall devote Employee's full and undivided business time,
attention and efforts to Employer's business and to the performance of
Employee's duties under this Agreement, and shall fully and faithfully perform
all duties assigned to Employee under this Agreement, consistent with Employee's
position hereunder, to the best of Employee's abilities. Employee agrees to
serve in such capacity as Employee and Employer may mutually agree.
2. Compensation. Employee shall be entitled to receive a per
annum salary of One Hundred Thousand Dollars ($100,000) ("Base Salary") as full
compensation for all the services rendered by Employee during the term of
Employee's employment hereunder. Employee shall be entitled to receive the Base
Salary in fifty-two (52) equal payments; payments to be made every week
commencing on April 13, 1995, or pursuant to such other payment schedule
consistent with Employer's compensation policy as from time to time in effect
(less all applicable deductions for all taxes, including federal, state, and
FICA; insurance; pension plans; etc.).
3. Other Benefits. In addition to Employee's Base Salary,
during the term of Employee's employment hereunder, Employee shall be entitled
to the following:
(a) Pension Plans. Participation in such pension,
profit sharing and deferred compensation plans and programs, if any, as may be
provided from time to time by Employer to such other comparable level employees
of Employer.
<PAGE>
(b) Medical and Dental Benefits. Participation in
such group medical, accident and dental plans, if any, as may be provided from
time to time by Employer to such other comparable level employees of Employer.
(c) Vacation. Receive not less than three (3) weeks
paid vacation during the term of this Agreement. Vacation shall be taken at such
times as determined by Employee and approved by Employer. Vacation benefits will
be consistent with Employer's vacation policy as from time to time in effect.
(d) Reimbursement. Reimbursement within thirty (30)
days of the submittal of an approved expense report, for all ordinary and
necessary out-of-pocket business expenses incurred by Employee in connection
with the business of Employer and Employee's duties under this Agreement. The
term "business expenses" shall include any item of expense that is reasonable,
ordinary or necessary in relation to Employee's duties hereunder. To obtain
reimbursement, Employee shall submit to Employer receipts, bills or sales slips
for the expenses incurred.
(e) Other Benefits. Such other fringe benefits, such
as life and disability insurance, as Employer may make generally available on a
nondiscriminatory basis to all other employees of Employer.
4. Term of Employment.
(a) Employment Term. The term of Employee's
employment hereunder shall commence on April 3, 1995, and shall terminate twelve
(12) months thereafter, unless earlier terminated in accordance with the terms
of this Agreement.
(b) Termination. Notwithstanding anything contained
in this Agreement to the contrary, Employee's employment hereunder is entirely
at will, and may be terminated by Employer with or without cause, subject only
to the payment obligations of Employer as hereafter set forth. In the event
Employer terminates Employee's employment hereunder for Cause (as hereafter
defined), Employee's employment hereunder shall immediately terminate on the
effective date of such termination as established by Employer, and Employee
shall only receive Base Salary and any other benefits under this Agreement
prorated through the effective date of Employee's termination.
For purposes of this Agreement, "Cause" means: (i) "Total and
Permanent Incapacity" (as hereinafter defined) of Employee; (ii) the failure or
inability (not as a consequence of any illness, accident or other disability, as
confirmed by competent medical evidence) of Employee to perform Employee's
duties hereunder for a period of thirty (30) days in a manner reasonably
satisfactory to Employer's Board of Directors, provided the decision of the
Board of Directors is not arbitrary or capricious, and is not made in bad faith
and further that the failure or inability is not as a consequence of any
illness, accident or other disability as confirmed by competent medical
evidence; or (iii) "Serious Misconduct" (as hereinafter defined) of Employee.
"Total and Permanent Incapacity" means such physical or mental condition of
Employee, including alcoholism, which renders Employee incapable of performing
Employee's duties hereunder for a period in excess of sixty (60) days. In the
event Employee is a Qualified Individual with a Disability,
2
<PAGE>
as defined in the American with Disabilities Act, Employer shall not terminate
Employee's employment hereunder if Employee is able to perform the essential
functions of the Employee's job with or without reasonable accommodation from
Employer. "Serious Misconduct" means embezzlement or misappropriation of
corporate funds; other acts of Dishonesty (as hereinafter defined); activities
harmful to the reputation of Employer (other than as a consequence of good faith
decisions made by Employee in the normal performance of Employee's duties
hereunder); the conviction of or the plea by Employee to any criminal felony
offense or any criminal offense regarding dishonesty or moral turpitude; the
refusal to perform the duties assigned to Employee pursuant to this Agreement
(unless such duties shall be unlawful); or the breach of any of the terms or
conditions contained in this Agreement or any other Agreement between Employee
and Employer. "Dishonesty" shall include, but shall not be limited to, the
furnishing of any information, reports, documents or certificates by Employee to
Employer which Employee knew, believed or should have known to be false or
misleading or omitted to state a material fact necessary to be stated therein in
order to make any of the statements, or information therein not misleading.
In the event Employer terminates Employee's employment
hereunder, for reasons other than for Cause, Employee's employment hereunder
shall immediately terminate on the effective date of such termination as
established by Employer, and Employee shall only receive (i) Base Salary for the
remaining period of the term of this Agreement, payable on the dates such Base
Salary shall otherwise have been payable hereunder, and (ii) any other fringe
benefits under this Agreement prorated through the effective date of Employee's
termination.
Notwithstanding anything contained in this Agreement to the
contrary, Employee may resign and terminate Employee's employment hereunder,
with or without cause, subject to the requirement that Employee shall provide
Employer with not less than forty-five (45) days' prior written notice. In such
event, Employee shall not receive any Base Salary or any other benefits under
this Agreement after the effective date of Employee's resignation.
(c) Death. In the event of the death of Employee
during the term of this Agreement, this Agreement and Employee's employment
hereunder shall terminate as of the date of the death of Employee, and
Employee's estate or personal representative shall be entitled to receive Base
Salary and other fringe benefits prorated for the period of Employee's
employment to the date of death, payable within sixty (60) days after the date
of death.
(d) Suspension. Employer shall have the right to
suspend Employee with full pay for any period of time the Board of Directors of
Employer deems, in its sole discretion, necessary or appropriate to investigate
Employee's conduct in connection with Section 4(b) hereof.
5. Noncompetition. During the period of Employee's employment
hereunder, and for a period of twelve (12) months from and after the date of
termination of Employee's employment hereunder (or such lesser period to the
maximum extent permitted by applicable law), neither Employee nor any person or
entity controlled (directly or indirectly) by Employee, whether as employer,
employee, proprietor, partner, stockholder (other than the holder of less than
five percent (5%) of the stock of a corporation the securities of which are
traded on a national securities exchange or in the over-the-counter market),
director, officer, consultant, agent or otherwise, shall within, into or from
the Restricted Territory (as defined below) engage or cause others to engage in
the Business unless first authorized in writing by Employer, which authorization
may be withheld
3
<PAGE>
in the sole and absolute discretion of Employer. For purposes of this Agreement,
the term "Restricted Territory" shall mean the United States of America, and all
other countries in which the Employer conducts the Business on the date hereof.
If Employee violates Employee's obligations contained in this Section 5, then
the time periods hereunder shall be extended by the period of time equal to that
period beginning when the activities constituting such violation commenced and
ending when the activities constituting such violation terminated.
6. Nonsolicitation. During the period of Employee's employment
hereunder, and for a period of twelve (12) months from and after the date of
termination of Employee's employment hereunder (or such lesser period to the
maximum extent permitted by applicable law), neither Employee nor any person or
entity controlled (directly or indirectly) by Employee whether as employer,
employee, proprietor, partner, stockholder (other than the holder of less than
five percent (5%) of the stock of a corporation the securities of which are
traded on a national securities exchange or in the over-the-counter market),
director, officer, consultant, agent or otherwise, shall solicit (a) in respect
of the Business, any person or other entity that is, or was within the previous
twelve (12) month period immediately prior to the date of termination of
Employee's employment hereunder, a customer or supplier of Employer, or (b) any
person who, on such date, is an employee of Employer, for employment, or as an
independent contractor with any person or entity, unless first authorized in
writing by Employer, which authorization may be withheld in Employer's sole and
absolute discretion. If Employee violates Employee's obligations contained in
this Section 6, then the time periods hereunder shall be extended by a period of
time equal to that period beginning when the activities constituting such
violation commenced and ending when the activities constituting such violation
terminated.
7. Trade Secrets and Other Confidential Information. From and
after the date hereof, Employee shall not communicate or divulge to, or use for
the benefit of, any person, firm or corporation other than Employer and/or
Employer's subsidiary, Fresh Test Technology Corporation ("Fresh Test"), and its
or their agents and representatives, any of the trade secrets, methods,
formulas, business and/or marketing plans, processes or any other proprietary or
confidential information with respect to Employer, Fresh Test, its or their
business, financial condition, business operations or methods, or business
prospects. The preceding sentence shall not apply to information which (a) is,
was or becomes generally known or available to the public or the industry other
than as a result of a disclosure by Employee in violation of this Agreement, or
(b) is required to be disclosed by law. Employee shall advise Employer, in
writing, of any request, including a subpoena or similar legal inquiry, to
disclose any such confidential information, such that Employer and/or Fresh Test
can seek appropriate legal relief.
8. Return of Employer Property. Immediately upon the
expiration of this Agreement or the termination of Employee's employment with
Employer, whichever shall later occur, Employee shall return to Employer any and
all property of Employer, including, but not limited to, all documents,
agreements, schedules, statements, customer lists, supplier lists, plans,
designs, parts and equipment, that is in the possession or control (direct or
indirect) of Employee. Notwithstanding the foregoing, Employee shall immediately
return to Employer all such property described in this Section 8 upon
termination of this Agreement at any time for Cause.
9. Survival/Remedies/Severability. Employee specifically
acknowledges that (a) Employer currently has operating facilities located in the
Restricted Territory; (b) Employer receives
4
<PAGE>
much of its business from and throughout the Restricted Territory; (c) Employer
has plans to expand its operations throughout the Restricted Territory; and (d)
the geographic restrictions contained in Section 5 hereof, and the length of
time restrictions in Sections 5, 6 and 7 hereof are each necessary and
reasonable and were negotiated with Employer. The restrictions and obligations
set forth in Sections 5, 6, 7 and 8 hereof shall survive the expiration or
termination of this Agreement. The parties hereto hereby acknowledge and agree
that the restrictions and obligations set forth in Sections 5, 6, 7 and 8 hereof
are reasonable and necessary, and that any violation thereof would result in
substantial and irreparable injury to Employer, and that Employer may not have
an adequate remedy at law with respect to any such violation. Accordingly,
Employee agrees that, in the event of any actual or threatened violation
thereof, Employer shall have the right and privilege to obtain, in addition to
any other remedies that may be available, equitable relief, including temporary
and permanent injunctive relief, to cease or prevent any actual or threatened
violation of any provision hereof. Each and every provision set forth in
Sections 5, 6, 7 and 8 hereof is independent and severable from the others, and
no restriction will be rendered unenforceable by virtue of the fact that, for
any reason, any other or others of them may be unenforceable in whole or in
part. If any provision in Sections 5, 6, 7 or 8 hereof is unenforceable for any
reason whatsoever, that provision will be appropriately limited and reformed to
the maximum extent provided by applicable law. If the scope of any restriction
contained herein is too broad to permit enforcement to its full extent, then
such restriction shall be enforced to the maximum extent permitted by law so as
to be judged reasonable and enforceable, and the parties agree that such scope
may be modified by an arbitrator or judge in any proceeding to enforce this
Agreement. This includes, without limitation, altering or enforcing only
portions of the limits on activity restrictions, the geographic scope, and the
duration of the restrictions unless to do so would be contrary to law or public
policy.
10. Miscellaneous.
(a) Third-Party Beneficiary. Fresh Test shall at all
times be and remain a third-party beneficiary under this Agreement and all
documents, instruments and agreements made and entered into pursuant hereto.
(b) Notices. All notices required or permitted to be
given hereunder shall be in writing and shall be deemed given when delivered in
person, or three (3) business days after being placed in the hands of a courier
service (e.g., DHL or Federal Express) prepaid or faxed provided that a
confirming copy is delivered forthwith as herein provided, addressed as follows:
If to Employer:
CerProbe Corporation
600 S. Rockford Drive
Tempe, Arizona 85281
Attention: C. Zane Close
FAX: 602-967-4636
5
<PAGE>
If to Employee:
Robert K. Bench
2632 E. El Moro Avenue
Mesa, Arizona 85204
and/or to such other respective addresses and/or addressees as may be designated
by notice given in accordance with the provisions of this Section.
(c) Entire Agreement. This Agreement constitutes the
entire agreement between the parties and shall be binding upon and inure to the
benefit of the parties hereto and their respective legal representatives,
successors and permitted assigns. Except as set forth herein, the provisions of
this Agreement supersede any and all other agreements or understandings, whether
oral or written, between Employer and Employee, with respect to Employee's
employment by Employer. Any amendments, or alternative or supplementary
provisions to this Agreement must be made in writing and duly executed by an
authorized representative or agent of each of the parties hereto.
(d) Non-Waiver. The failure in any one or more
instances of a party to insist upon performance of any of the terms, covenants
or conditions of this Agreement, to exercise any right or privilege in this
Agreement conferred, or the waiver by said party of any breach of any of the
terms, covenants or conditions of this Agreement, shall not be construed as a
subsequent waiver of any such terms, covenants, conditions, rights or
privileges, but the same shall continue and remain in full force and effect as
if no such forbearance or waiver had occurred. No waiver shall be effective
unless it is in writing and signed by an authorized representative of the
waiving party. A breach of any representation, warranty or covenant shall not be
affected by the fact that a more general or more specific representation,
warranty or covenant was not also breached.
(e) Counterparts. This Agreement may be executed in
multiple count- erparts, each of which shall be deemed to be an original, and
all such counterparts shall constitute but one instrument.
(f) APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED
AND CONTROLLED AS TO VALIDITY, ENFORCEMENT, INTERPRETATION, CONSTRUCTION, EFFECT
AND IN ALL OTHER RESPECTS BY THE INTERNAL LAWS OF THE STATE OF ARIZONA
APPLICABLE TO CONTRACTS MADE IN THAT STATE.
(g) Construction. The parties hereto acknowledge and
agree that each party has participated in the drafting of this Agreement and
that this document has been reviewed by the respective legal counsel for the
parties hereto and that the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be applied
to the interpretation of this Agreement. No inference in favor of, or against,
any party shall be drawn from the fact that one party has drafted any portion
hereof.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
EMPLOYER: EMPLOYEE:
CerProbe Corporation
By: _____________________ __________________________________
Robert K. Bench
Its:_____________________
7
Note No: 7092
Date: December 27, 1995
Schedule No: 1
Schedule Date: December 27, 1995
SECURITY AGREEMENT AND PROMISSORY NOTE
This Security Agreement and Promissory Note (the "Agreement") is entered into
this 27th day of December, 1995 between Cerprobe Corporation (hereinafter
referred to as "Borrower") and Zions Credit Corporation (hereinafter referred to
as "Lender").
1. PROMISE TO PAY, TERMS AND PLACE OF PAYMENT. Borrower promises to
pay to the order of Lender the sum of $13,185.32 per month
commencing December 28, 1995, and on the 28th day of each
consecutive month thereafter for a period of 48 months. The first
months payment(s) in the total amount of $13,185.32 are payable at
the time of execution of this Agreement. In addition, Borrower
shall make a payment of $-0- on the date the final installment
described above is due. All payments shall be made to P. O. Box
26536, Salt Lake City, Utah 84126-0536 or at such other locations
Lender may designate. Total amount financed hereunder is
$533,823.05.
2. GRANT OF SECURITY INTEREST; DESCRIPTION OF COLLATERAL. Borrower
grants to Lender a security interest in the property described
below, together with all presently owned and hereafter acquired
attachments, accessories, and additions thereto and replacements
and proceeds thereof, including any amounts payable under any
insurance policy or eminent domain proceedings (all hereinafter
collectively referred to as the "Collateral").
3. OBLIGATIONS SECURED. Each item of collateral shall secure not only
the specific obligation referred to in section one above, but also
all other present and future obligations of Borrower to Lender of
every kind and nature whatsoever.
4. USE AND LOCATION OF COLLATERAL. Borrower warrants and agrees with
Lender that the Collateral will be used primarily for business,
commercial or agricultural purposes.
[X] if this line is checked, the Collateral is being acquired by
Borrower with the proceeds of the obligation described in Section
one and therefore is a purchase money security interest as defined
in the uniform commercial code as adopted by the State of Utah.
Collateral description and location:
SEE ATTACHED SCHEDULE "A" FOR EQUIPMENT DESCRIPTION & LOCATION
5. LATE CHARGES. Any installment not paid when due shall bear a late
charge equal to 5% of the amount of the installment.
6. LOCATION OF COLLATERAL. Borrower and Lender agree that the
Collateral shall remain personal property of the Borrower and
shall not become part of or attached to any real estate. Borrower
agrees to keep the Collateral at the location set forth in
Paragraph 4, and will notify Lender promptly in writing of any
change in the location of the Collateral within such State, but
will not remove the Collateral from such State without the prior
written consent of Lender.
7. BORROWER'S WARRANTIES AND REPRESENTATIONS. Borrower warrants and
represents;
(a) The Borrower is justly indebted to Lender for the full
amount of the foregoing indebtedness;
(b) That except for the security interest granted hereby, the
Collateral is free from and will be kept free from all
liens, claims, security interests and encumbrances;
(c) That no financing statement covering the Collateral or
any proceeds thereof is on file in favor of anyone other
than Lender.
(d) That all information supplied and statements made by
Borrower in any financial, credit or accounting statement
or application for credit submitted by or on behalf of
Borrower prior to, contemporaneously with or subsequent
to the execution of this agreement with respect to this
transaction are and shall be true, correct, valid and
genuine; and
(e) That Borrower has full authority to enter into this
agreement and in so doing it is not violating its charter
or by-laws, any law or regulation or agreement with third
parties, and it has taken all such action as may be
necessary or appropriate to make this Agreement binding
upon it.
8. BORROWER'S AGREEMENTS. Borrower agrees:
(a) To defend at Borrower's own cost and expense, including
attorneys' fees any action, proceeding, or claim
affecting the Collateral;
(b) To pay reasonable attorneys' fees and other expenses
incurred by Lender in enforcing its rights under this
Agreement;
(c) To pay promptly all taxes, assessments, license fees and
other public or private charges when levied or assessed
against the Collateral or this Agreement, and this
obligation shall survive the termination of this
Agreement;
(d) That if a certificate of title be required or permitted
by law, Borrower shall obtain such certificate with
respect to the Collateral showing the security interest
of Lender thereon and in any event do everything
necessary or expedient to preserve or perfect the
security interest of Lender;
(e) That Borrower will not misuse, fail to keep in good
repair, or without the prior written consent of Lender,
and notwithstanding Lender's claim to proceeds, sell,
rent, lend, encumber or transfer any of the Collateral;
Page 1 of 4
<PAGE>
(f) That Lender may enter upon Borrower's premises or
wherever the Collateral may be located at any reasonable
time to inspect the Collateral and Borrower's books and
records pertaining to the Collateral and Borrower shall
assist Lender in making such inspection;
(g) That the security interest granted by Borrower to Lender
shall continue effective irrespective of the payment of
the amount in Paragraph one, so long as there are any
obligations of any kind, including obligations under
guaranties or assignments, owed by Borrower to Lender,
provided, however, upon any assignment of this Security
Agreement and Promissory Note the Assignee shall
thereafter be deemed, for the purpose of this Paragraph,
the Lender under this Security Agreement; and
(h) At request of Lender, to execute any documents or do any
other act necessary to effectuate the purposes and
provisions of this Agreement.
9. INSURANCE AND RISK OF LOSS. All risk of loss of, damage to or
destruction of the Collateral (including theft thereof) shall at
all times be on Borrower. Borrower will procure forthwith and
maintain public liability insurance, fire insurance, property
damage, and physical damage insurance with extended or combined
additional coverage on the Collateral for the full insurable value
thereof for the life of this Agreement plus such other insurance
as Lender may specify, and promptly deliver each policy or
certificates evidencing the existence of such insurance to Lender
with a standard long form endorsement attached showing loss
payable to Lender or assigns as respective interests may appear.
Lender's acceptance of policies in lesser amounts or risks shall
not be a waiver of Borrower's foregoing obligation if any item of
Collateral is damaged, but not beyond repair, Borrower at its own
cost and expense shall repair such Collateral so that it will be
in the same or better condition as it was before the damage
occurred. In the event any item of Collateral is replaced for any
reason it must be with the prior written consent of Lender. All
such items replacing any original item of Collateral shall become
immediately subject to the lien of this Security Agreement as if
Borrower owned the items at the time of executing this Agreement.
Borrower agrees to execute any documents or UCC financing
statements which Lender may require in order to perfect the
security interest in the replacement Collateral. Borrower hereby
irrevocably authorizes Lender to make, settle and adjust claims
under any insurance policies and to endorse Borrower's name on any
check or other items of payment for the proceeds thereof.
10. EVENTS OF DEFAULT; ACCELERATION. The following are events of
default under this Agreement.
(a) Any of Borrower's obligations to Lender under this
Agreement or any other agreement with Lender are not paid
promptly when due;
(b) Borrower breaches any warranty or provision hereof, or of
any note or of any other instrument or agreement
delivered by Borrower to Lender in connection with this
or any other transaction;
(c) Borrower dies, becomes insolvent or ceases to do business
as a going concern;
(d) Borrower shall make any representation herein or in any
other documents or material delivered to Lender which
shall prove to be incorrect in any material respect at
the time made;
(e) Any of the Collateral is lost or destroyed;
(f) A petition in bankruptcy or for arrangement or
reorganization be filed by or against Borrower or
Borrower admits its inability to pay its debts as they
mature;
(g) Any property of Borrower is attached or a receiver is
appointed for Borrower, or a judgment is obtained against
Borrower the execution of which is not effectively stayed
within thirty (30) days;
(h) Lender in good faith believes the prospect of payment or
performance is impaired or in good faith believes the
Collateral is insecure; and
(i) Any guarantor, surety, or endorser for Borrower defaults
in any obligation or liability to Lender or any guaranty
obtained in connection with this transaction is
terminated or breached or any guarantor commits an Event
of Default pursuant to (a), (b), (c), (f), or (g) above.
Upon the occurrence of an Event of Default, the indebtedness
herein described and all other debts then owing by Borrower to
Lender under this or any other present or future agreement shall
at the election of Lender, become immediately due and payable.
After an event of default as defined above, interest shall accrue
at a rate per annum equal to 21%.
11. PREPAYMENT. Borrower may prepay in full, but not in part, the
unpaid principal balance together with all accrued unpaid interest
and any and all other sums due hereunder. The payoff amount will
be calculated by Lender using the Rule of 78's including a penalty
of 2% of the total amount financed hereunder.
12. LENDER'S REMEDIES AFTER DEFAULT; CONSENT TO ENTER PREMISES. Upon
the occurrence of an Event of Default and at any time thereafter,
LENDER SHALL HAVE ALL THE RIGHTS AND REMEDIES OF A LENDER UNDER
THE UNIFORM COMMERCIAL CODE AND ANY OTHER APPLICABLE LAWS.
INCLUDING THE RIGHT TO ANY DEFICIENCY remaining after disposition
of the Collateral for which Borrower shall remain fully liable.
LENDER, BY ITSELF OR ITS AGENT, MAY WITHOUT NOTICE TO BORROWER AND
WITHOUT JUDICIAL PROCESS OF ANY KIND, ENTER INTO ANY PREMISES OR
UPON ANY LAND where the Collateral may be located and disassemble,
render unusable and/or repossess all or any item of the
Collateral, disconnecting and separating all Collateral from any
other property. Borrower expressly waives all further rights to
possession of the Collateral after an Event of Default and all
claims for injuries suffered through loss caused by such entering
and/or repossession. Lender may require Borrower to assemble the
Collateral and return it to Lender at a place to be designated by
Lender which is reasonably convenient to both parties. Lender will
give Borrower reasonable notice of the time and place of a public
sale of the Collateral or of the time after which any private sale
or any other intended disposition of the Collateral is to be made.
Unless otherwise provided by law, the requirement of reasonable
notice shall be met if such notice is mailed, postage prepaid, to
the address of Borrower shown herein at least five days before the
time of the sale or disposition. Expenses of retaking, holding,
preparing for sale, selling and other costs of disposition
including reasonable attorney's fees and other
Page 2 of 4
<PAGE>
legal fees shall be the responsibility of Borrower and shall be
included as part of the obligation of Borrower under this
Agreement. The rights and remedies provided Lender are cumulative
and may be exercised in such order or combination as Lender may
elect.
13. WAIVER OF DEFAULTS; AGREEMENT INCLUSIVE. Lender may in its sole
discretion waive any Event of Default. Any such waiver in a
particular instance or any particular default shall not be a
waiver of other defaults or the same kind of default at another
time. No modification or change in this Agreement or any related
note, instrument or agreement shall bind Lender unless such waiver
or modification is in writing and signed by Lender.
14. FINANCING STATEMENTS. If permitted by law, Borrower authorizes
Lender to file such financing statements with respect to the
Collateral which Lender may determine are necessary to perfect
Lender's interest in the Collateral. Borrower hereby appoints
Lender as Borrower's attorney-in-fact to execute on Borrower's
behalf any such financing statements.
15. ASSIGNMENT. Lender may assign this Agreement and any indebtedness
secured hereby and upon such assignment or transfer the assignee
or holder shall be entitled to all rights, powers, privileges and
remedies of Lender to the extent assigned or transferred. The
obligations of Borrower shall not be subject as against any such
assignee or transferee, to any defense, set-off or counterclaim
available to the Borrower against Lender and any such defense,
set-off or counterclaim may be asserted only against Lender. Any
assignee from Lender shall have the same right of off-set as is
available to Lender.
16. ARBITRATION DISCLOSURES.
(i) Arbitration is usually final and binding on the
parties and subject to only very limited review by a
court.
(ii) The parties are waiving their right to litigate in
court, including their right to a jury trial.
(iii) Pre-arbitration discovery is generally more limited
and different from court proceedings.
(iv) Arbitrators' awards are not required to include
factual findings or legal reasoning and any party's
right to appeal or to seek modification of rulings by
arbitrators is strictly limited.
(v) A panel of arbitrators might include an arbitrator
who is or was affiliated with the banking industry.
ARBITRATION PROCEDURES:
(a) Any controversy or claim between or among the parties,
including but not limited to those arising out of or
relating to this Agreement or any agreements or
instruments relating hereto or delivered in connection
herewith, AND including but not limited to a claim based
on or arising from an alleged tort, shall at the request
of any party be determined by arbitration in accordance
with the Commercial Arbitration Rules of the American
Arbitration Association. The arbitration proceedings
shall be conducted in Salt Lake City, Utah. The
arbitrator(s) shall have the qualifications set forth in
subparagraph (c) hereto. All statutes of limitations
which would otherwise be applicable in a judicial action
brought by a party shall apply to any arbitration or
reference proceeding hereunder.
(b) In any judicial action or proceeding arising out of or
relating to this Agreement or any agreements or
instruments relating hereto or delivered in connection
herewith, including but not limited to a claim based on
or arising from an alleged tort, if the controversy or
claim is not submitted to arbitration as provided and
limited in subparagraph (a) hereto, all decisions of fact
and law shall be determined by a reference in accordance
with Rule 53 of the Federal Rules of Civil Procedure or
Rule 53 of the Utah Rules of Civil Procedure or other
comparable, applicable reference procedure. The parties
shall designate to the court the referee(s) selected
under the auspices of the American Arbitration
Association in the same manner as arbitrators are
selected in Association-sponsored arbitration
proceedings. The referee(s) shall have the qualifications
set forth in subparagraph (c) hereto.
(c) The arbitrator(s) or referee(s) shall be selected in
accordance with the rules of the American Arbitration
Association from panels maintained by the Association. A
single arbitrator or referee shall be knowledgeable in
the subject matter of the dispute. Where three
arbitrators or referees conduct an arbitration or
reference proceeding, the claim shall be decided by a
majority vote of the three arbitrators or referees, at
least one of whom must be knowledgeable in the subject
matter of the dispute and at least one of whom must be a
practicing attorney. The arbitrator(s) or referee(s)
shall award recovery of all costs and fees (including
attorneys' fees, administrative fees, arbitrators' fees,
and court costs). The arbitrator(s) or referee(s) also
may grant provisional or ancillary remedies such as, for
example, injunctive relief, attachment, or the
appointment of a receiver, either during the pendency of
the arbitration or reference proceeding or as part of the
arbitration or reference award.
(d) Judgment upon an arbitration or reference award may be
entered in any court having jurisdiction, subject to the
following limitation: the arbitration or reference award
is binding upon the parties only if the amount does not
exceed Four Million Dollars ($4,000,000.00); if the award
exceeds that limit, either party may commence legal
action for a court trial de novo: Such legal action must
be filed within thirty (30) days following the date of
the arbitration or reference award; if such legal action
is not filed within that time period, the amount of the
arbitration or reference award shall be binding. The
computation of the total amount of an arbitration or
reference award shall include amounts awarded for
arbitration fees, attorneys' fees, and all other related
costs.
(e) At the Bank's option, foreclosure under a deed of trust
or mortgagee may be accomplished either by exercise of a
power of sale under the deed of trust or mortgage or by
judicial foreclosure. The institution and maintenance of
an action for judicial relief or pursuit of a provisional
or ancillary remedy shall not constitute a waiver of the
right of any party, including the plaintiff, to submit
the controversy or claim to arbitration if any other
party contests such action for judicial relief.
(f) Notwithstanding the applicability of other law to any
other provision of this Agreement, the Federal
Arbitration Act, 9 U.S.C. s 1 et seg., shall apply to the
construction and interpretation of this arbitration
paragraph.
17. STATEMENTS. Borrower shall furnish Lender within ninety (90) days
after the end of each fiscal year of Borrower, a balance sheet and
profit and loss statement as of the end of such fiscal year and a
balance sheet and profit and loss statement as of the end of each
quarter, all prepared in accordance with generally accepted
accounting principles and such other information respecting the
financial condition and operations of Borrower as Lender may from
time to time reasonably request.
18. ADDITIONAL FEES. Borrower agrees to pay Lender's reasonable fees,
costs and expenses for the preparation of all documents, filing,
and recording fees and an origination fee which fees shall be
disclosed to Borrower prior to the execution of this agreement.
Page 3 of 4
<PAGE>
Borrower further agrees to pay all costs incurred by Lender in
enforcing or protecting Lender's rights under this Agreement
including but not limited to all reasonable attorneys' fees and
court costs and the costs of storing any of the Collateral. All
such additional fees shall be additional indebtedness secured
hereby.
19. MISCELLANEOUS. Lender may fill in any blanks including but not
limited to serial numbers and the date of the first payment. Any
provisions hereof contrary to, prohibited by or invalid under
applicable laws or regulations shall be inapplicable and deemed
omitted herefrom, but shall not invalidate the remaining
provisions hereof. BORROWER ACKNOWLEDGES RECEIPT OF A TRUE COPY OF
THIS AGREEMENT. If Borrower is a corporation, this Security
Agreement is executed pursuant to authority of its Board of
Directors. "Borrower" and "Lender" as used in this Agreement
include the heirs, executors or administrations, successors or
assigns to those parties. If more than one Borrower executes this
Agreement, their obligations under this Agreement shall be joint
and several. Borrower waives all rights to trial by jury in any
litigations arising herefrom or in relations hereto. This
Agreement may not be altered, modified or terminated in any manner
except by a writing duly signed by the parties hereto. This
Agreement shall be governed by and constituted in accordance with
the laws of the state of Utah except as modified by Section 18.
20. ADDITIONAL TERMS.
None
Dated December 27, 1995.
By execution hereof, the signer hereby certifies that he has read this
Agreement, including the reverse side of all pages, and that he is duly
authorized to execute this Agreement on behalf of the Borrower.
Cerprobe Corporation
--------------------
Borrower
- --------------------------- By /s/ Pauline Hostetler
------------------------------
Witness Title: Controller
------------------------------
Print Name: Pauline Hostetler
------------------------------
State of Arizona )
)ss
County of Maricopa )
Subscribed and sworn to before me this 27 day of December, 1995.
/s/ Laura M. Back
------------------------------
Notary Public
My Commission Expires July 14, 1997
------------------------------
Residing at
ZIONS CREDIT CORPORATION
------------------------
Lender
By /s/ Norman Weldon
- -----------------------
Norman Weldon
Title: Vice President
- ------------------------
If Borrower is a partnership, enter:
Partner's names Home Address
- --------------- ------------
Rev: 04/19/93
Page 4 of 4
<PAGE>
SCHEDULE "A"
Page 1 of 2
This schedule is attached to and forms a part of the Security Agreement and
Promissory Note No. 7092 Schedule No. 1 dated December 27, 1995 between Cerprobe
Corporation, as Borrower and Zions Credit Corporation, as Lender.
DESCRIPTION OF EQUIPMENT
Equipment Location: 600 South Rockford Drive, Tempe, AZ 85281
Infinisys
- ---------
1- S1000e/1205A/163A/771A System s/n #S526S03UT
1- 128MB ECC Ram Expansion
1- Intelligent SCSI Controler s/n #082295
1- Solaris 2.3 software
1- Answerbook system admin.
1- Matrix 3000VA
1- Powerchute plus unix.
1- 14" white ASCII/ANSI/PC Terminal s/n #082295
1- 520 EPC 101 Keyboard
ESI Technologies
- ----------------
1- EMISMFG EMIS Manufacturing software package 40
user license
1- EMISSFDC EMIS Shop floor data collection 8 user
license
Tri Star Computer
- -----------------
6- 740-ECT 1SA Combo Enet ISA Combo Twisted Pair & Coax s/n #SO10250, S010255,
S010264, S010276, S010292
6- Ewsunic 21" #2182 Monitor s/n #M01188, M011888,
M011890, M011891, M011892
6- Tri-Cad 133 MHZ mini tower area 590aTPB P54C Triton M/B s/n #MB13012,
MB13015, MB13079, MB13082, MB13084
1- Intel P54C 133 Mhz CPU
1- Wakefield #628-65ABT1
1- Fan, CPU, 40mmX10MM, w. M&P CON
1- Chenbro A6601 Mini Tower Case
1- SI-Asonic 200 Watt P/S
6- PCI Option Package
2- SIMM, 72 Pin,k 16 meg, 60ns serial #'s RM17356, RM17357, RM17358, RM17359,
RM17360, RM17361, RM17362, RM17363, RM17364
1- DFI Sha-1500 P PCI SCSI Cntrl. s/n #'s CC10825,
CC10826, CC10829, CC10830
1- 1.08g SCSI Quantum QM31080FBS s/n #'s HD10849,
HD12031, HD12037, HD12038
1- No removable ND brackets
1- TFAC 2.5" 1.44 MB 1-D s/n # FD12768, FD12769,
FD12774, FD12775, FD12786
1- Floppy cable
1- SCSI Hard Drive cable s/n #'s 396251-1 396251-2,
396251-4, 396251-5, 396261-6
Tri Star Computer cont.
- -----------------------
1- Tri-Cad 312OP-2Meg Pci Dram s/n #'s CG12523,
CG12524, CG12526, CG12539, CG12546
1- 104 KYBO, Win95 compatible s/n #'s KB11693,
KB11714, KB12191, KB12192, KB12193
1- Logi Tech Mouseman 3 bin s/n #MS12183, MS12896,
MS12965, MS12968, MS13125
1- Microsoft DOS 6.22 3'5" Disk s/n #SW17365,
SW17366, SW17368, SW17393, SW17394
1- Microsoft wind for Wkgrps 3.11 s/n #'S SW16969,
SW16970, SW16998, SW16999, SW17013
6- Accel Graphics AG300 PCI 7.5MB PCI 7.5MB for pro/e systems s/n #'s CG12630K
CG12631, CG12635, CG12637, CG12638
6- Tri-Star mouse pad
6- Windows NT v3.51 on CD workstation version, s/n #'s SW17281, SW17282,
SW17285, S217286, SW17287, SW17268
6- Toshiba 3601 4X SCST CD-Rom quad SCSI 600KR/s
150MS Access mfg. part no. 3601 s/n #'s 10209,
CD11893, CD11894, CD11895, CD11896, CD11897
6- Tri-Star Pro/E PC
Osage Computer Group
- --------------------
1- 64 MB ECC memory expansion
1- Two 1.05G drives for SS1000
1- SBUS Fast SCSI-2/BFFRD ETH CRD s/n #122283
Parametic Technology Corporation
- --------------------------------
1- Advanced Designer Package - Floating
1- Basic Library
1- Pro/Libraryaccess - Floating
1- Pro PDM Server
Leica, Inc.
- -----------
1- LEICA MZ6 optics carrier
1- Binocular Tube 10-50 DEG
1- Binocular Tube 45DEG
4- WF25X/9.5M HP Eyepiece
1- 0.8X Achromain OBJ, FWD-112MM
1- Wild Discussion Tube
1- KL 1500 120V
1- Continuous Ringlight 58MM
1- U-STD CS&Fine Drive
1- Continuous Ringlight 58MM
<PAGE>
SCHEDULE "A"
Page 2 of 2
Leica, Inc. cont.
- -----------------
20- KTVG-73 (stereo4. KT-STD, 10X EP, E-ARM)
20- Coupler
5- SVB-73(Stereo4, S-STD, 10X EP, E-Arm)
1- Leica MZ6 Optics Carrier
1- 10-50 Deg ERGO Bino
1- Binocular Tube 450EG.
4- WF 25x/9.5M HP Eyepiece
1- 0.8X Achro main OBJ. FWD-112MM
1- Wild Discussion Tube
1- KL 1500 120V
1- Continuous Ringlight 58MM
1- U-STD. CS & Fine Drive
Tovar Industries, Inc.
- ----------------------
60- A1-E1-076 (chairs)
60- T100A 30"x30/36 x 72, TSR 14 x 15 x 72 UL7408-
15, TLS 12 x 72
Rucker & Kolls, Inc.
- --------------------
4- Model 260A Build Station
4- Microscope Support Assy, X-Y Positioner
5- Reflector, F/C
DYNA
- ----
1- Dynamite Workstation 31/2
1- Coolant Pump DM2400
1- Coolant Tank DM2400
1- Coolant Collection Hood
1- Touch Probe, DM2400/2800
1- Collect 1/8"
1- Collect 3/16"
1- Collect 1/4"
1- Collect 3/8"
Together with all present and future accessories, attachments, or improvements
thereto and replacements or substitutions therefor and proceeds thereof.
Cerprobe Corporation
- --------------------
Borrower
By: /s/ Pauline Hostetler
- --------------------------
Title: Controller
- --------------------------
ASSIGNMENT OF LEASE
THIS ASSIGNMENT OF LEASE, dated as of this 31st day of August, 1995
("the Assignment"), between
FRESH TEST TECHNOLOGY, INC.
a Utah corporation
("Assignor")
and
CERPROBE CORPORATION,
an Arizona corporation
("Assignee")
is made with reference to the following facts:
1. Assignor is the Lessee under that certain lease dated September 21, 1993, and
amended by Amendments to Lease dated September 21, 1993, and November 23, 1993
("the Lease"), between Fresh Test Technology, Inc., as Lessee, and Mission West
Properties, a California corporation, as Lessor.
NOW, THEREFORE, ASSIGNOR AND ASSIGNEE AGREE AS FOLLOWS:
1. Assignment. Assignor hereby assigns to Assignee all of Assignor's rights and
interests as Lessee under the Lease.
2. Acceptance of Assignment. Assignee hereby accepts the foregoing assignment
and assumes and agrees to be bound by all the terms, conditions, and provisions
of the Lease.
3. Indemnification by Assignee. Assignee will defend, indemnify, and hold
harmless Assignor from and against any and all loss, liability, claims, demands,
damages, costs, or other expenses (including, without limitation, reasonable
attorneys' fees) arising from or relating to any breach or default or obligation
of the Lessee under the Lease occurring (or relating to events occurring) on or
after the effective date of this Assignment.
4. Indemnity of Assignor. Assignor will defend, indemnify, and hold harmless
Assignee from and against all loss, liability, claims, demands, damages, costs,
or other expenses (including, without limitation, reasonable attorneys' fees)
arising from or relating to any breach or default or obligation of the Lessee
under the Lease occurring (or relating to events occurring) before the effective
date of this Assignment.
5. Effective Date. The Assignment will become effective as of August 30, 1995.
This Assignment of Lease has been executed as of the date first above
set forth in Phoenix, Arizona.
ASSIGNOR: ASSIGNEE:
Fresh Test Technology, Inc., Cerprobe Corporation, an Arizona
a Utah corporation corporation
By: _____________________ By: _____________________
By: _____________________ By: _____________________
ACCEPTED BY:
LESSOR:
Mission West Properties, a California corporation
By: ____________________
By: ____________________
ADDENDUM TO STANDARD INDUSTRIAL LEASE MULTI-TENANT
THIS AMENDMENT TO LEASE dated as of September 1, 1995 is entered into
by and between Mission West Properties, a California corporation ("Lessor"), and
Cerprobe Corporation, an Arizona corporation, successor in interest to Fresh
Test Technology, Inc., a Utah corporation ("Lessee"), with reference to the
following facts:
A. Lessor and Lessee entered into a standard industrial lease dated
September 21, 1993, and modified by Amendments to Lease dated September 21, 1993
and November 23, 1995 ("the Lease"), which affects certain leasable space
designated as 15,581 square feet of office and warehouse space located at 531 E.
Elliot Road, Suite 120, Chandler, Arizona 85225. The Lease also affects certain
leasable space designated as 5,470 square feet of office and warehouse space
located at 561 E. Elliot Road, Suite 195, Chandler, Arizona, hereinafter
referred to as the "Expansion Space".
B. The Lease is in full force and effect, and neither Lessor nor Lessee
have actual knowledge of any default or breach by the other under the Lease.
C. Lessor and Lessee desire to amend the Lease as provided in this
Amendment.
ARTICLE 1 - Amendments
1.1 The lease term for the expansion space shall be extended for an
additional fourteen (14) months beginning November 1, 1995 and ending December
31, 1996 ("extended term").
1.2 The monthly base rent payable for the expansion space during the
extended term shall be $3,555.50 (equivalent to $.65 per square foot). Lessee
shall also pay monthly estimated common area maintenance expenses, applicable
sales taxes, and any other sums which may be due under the terms of the Lease.
ARTICLE 2 - General Provisions
2.1 The effective date of this Amendment shall be September 1, 1995.
2.2 The Lease, as amended by this Amendment, is hereby confirmed. All
other terms and conditions of the Lease shall remain in full force and effect.
IN WITNESS WHEREOF, this Amendment has been executed as of the date
first above set forth.
LESSEE: LESSOR:
Cerprobe Corporation, an Arizona Mission West Properties, a
corporation California corporation
By: _____________________________
By: _____________________________
By: _____________________________
By: _____________________________
STANDARD INDUSTRIAL LEASE - MULTI-TENANT
American Industrial Real Estate Association
1. Parties. This Lease, dated, for reference purposes only, September 21, 1993,
is made by and between Mission West Properties, a California corporation (herein
called "Lessor") and Fresh Test Technology, Inc., a Utah corporation (herein
called "Lessee").
2. Premises, Parking and Common Areas.
2.1 Premises. Lessor hereby leases to Lessee and Lessee leases from
Lessor for the term, at the rental, and upon all of the condition set forth
herein, real property situated in the County of Maricopa, State of Arizona
commonly known as 531 E. Elliot Road, Suite 120, Chandler, AZ 85225 and
described as 15,581 square feet of office and manufacturing space, located in
Building "A" of Arizona Corporate Center, herein referred to as the "Premises",
as may be outlined on an Exhibit attached hereto, including rights to the Common
Areas as hereinafter specified but not including any rights to the roof of the
Premises or to any Building in the Industrial Center. The Premises are a portion
of a building, herein referred to as the "Building." The Premises, the Building,
the Common Areas, the land upon which the same are located, along with all other
buildings and improvements thereon, are herein collectively referred to as the
"Industrial Center."
2.2 Vehicle Parking. Lessee shall be entitled to 47 vehicle parking
spaces, unreserved and unassigned, on those portions of the Common Areas
designated by Lessor for parking. Lessee shall not use more parking spaces than
said number. Said parking spaces shall be used only for parking by vehicles no
larger than full size passenger automobiles or pick-up trucks, herein called
"Permitted Size Vehicles." Vehicles other than Permitted Size Vehicles are
herein referred to as "Oversized Vehicles." See Addendum for Paragraph 2.2
(continued).
2.2.1 Lessee shall not permit or allow any vehicles that
belong to or are controlled by Lessee or Lessee's employees, suppliers,
shippers, customers, or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
2.2.2 If Lessee permits or allows any of the prohibited
activities described in paragraph 2.2 of this Lease, then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove or tow away the vehicle involved and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.3 Common Areas - Definition. The term "Common Areas" is defined as
all areas and facilities outside the Premises and within the exterior boundary
line of the Industrial Center that are provided and designated by the Lessor
from time to time for the general non- exclusive use of Lessor, Lessee and of
other lessees of the Industrial Center and their respective employees,
suppliers, shippers, customers and invitees, including parking areas, loading
and unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways and landscaped areas.
2.4 Common Areas - Lessee's Rights. Lessor hereby grants to Lessee for
the benefit of Lessee and its employees, suppliers, shippers, customers and
invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.5 Common Areas - Rules and Regulations. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and management
of the Common Areas and shall have the right, from time to time, to establish,
modify, amend and enforce reasonable rules and regulations with respect thereto.
Lessee agrees to abide by and conform to all such rules and regulations, and to
cause its employees, suppliers, shippers, customers and invitees to so abide and
conform. Lessor shall not be responsible to Lessee for the non-compliance with
said rules and regulations by other lessees of the Industrial Center.
2.6 Common Areas - Changes. Lessor shall have the right in Lessor's
sole discretion from time to time:
(a) To make changes to the Common Areas including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas and walkways, (b) To close
temporarily any of the Common Areas for maintenance purposes so long as
reasonable access to the Premises remains available, (c) To designate other land
outside the boundaries of the Industrial Center to be a part of the Common
Areas, (d) To add additional buildings and improvements to the Common Areas, (e)
To use the Common Areas while engaged in making additional improvements, repairs
or alterations to the Industrial Center, or any portion thereof, (f) To do and
perform such other acts and make such other changes in, to or with respect to
the Common Areas and Industrial Center as Lessor may, in the exercise of sound
business judgment, deem to be appropriate.
2.6.1 Lessor shall at all times provide the parking facilities
required by applicable law and in no event shall the number of parking spaces
that Lessee is entitled to under paragraph 2.2 be reduced unless agreed to by
both parties.
3. Term.
3.1 Term. The terms of this Lease shall be for sixty (60) months
commencing on December 1, 1993 and ending on November 30, 1998 unless sooner
terminated pursuant to any provision hereof. See Addendum for 3.1 (continued)
3.2 Delay in Possession. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee hereunder
or extend the term hereof, but in such case, Lessee shall not be obligated to
pay rent or perform any other obligation of Lessee under the terms of this
Lease, except as may be otherwise provided in this Lease, until possession of
the Premises is tendered to Lessee, provided, however, that if Lessor shall not
have delivered possession of the Premises within sixty (60) days from said
commencement date, Lessee may, at Lessee's option, by notice in writing to
Lessor within ten (10) days thereafter, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder, provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect.
3.3 Early Possession. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not advance the termination date, and Lessee shall
pay rent for such period at the initial monthly rates set forth below.
Initials _______
-------
4. Rent.
4.1(a) Base Rent. Lessee shall pay to Lessor, as Base Rent for the
Premises, without any offset or deduction, except as may be otherwise expressly
provided in this Lease, on the first day of each month of the term hereof,
monthly payments in advance of $11,954.07 (Rent - $10,362.37, Rental Tax -
$569.93, C.A.M. - $1,012.77). Lessee shall pay Lessor upon execution hereof
$11,945.07 as sums due for December 1 through 31, 1993. Rent for any period
during the term hereof which is for less than one month shall be a pro rata
portion of the Base Rent. Rent shall be payable in lawful money of the United
States to Lessor at the address stated herein or to such other persons or at
such other places as Lessor may designate in writing. See Addendum for Paragraph
4.1(b).
4.2 Operating Expenses. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined, of
all Operating Expenses, as hereinafter defined, during each calendar year of the
term of this Lease, in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease,
as 23.74 percent.
(b) "Operating Expenses" is defined, for purposes of this
Lease, as all costs incurred by Lessor, if any, for
(i) The operation, repair and maintenance, in neat,
clean, good order and condition, of the following
(aa) The Common Areas, including parking
areas, loading and unloading areas,
trash areas, roadways, sidewalks,
walkways, parkways, driveways,
landscaped areas, striping, bumpers,
irrigation systems, Common Area
lighting facilities and fences and
gates.
(bb) Trash disposal services.
(cc) Tenant directories.
(dd) Fire detection systems including
sprinkler system maintenance and
repair. (ee) Security services.
(ff) Any other service to be provided by
Lessor that is elsewhere in this
Lease stated to be an "Operating
Expense."
(ii) The cost of water, gas and electricity to service
the Common Areas.
(c) The inclusion of the improvements, facilities and services
set forth in paragraph 4.2(b)(i) of the definition of Operating Expenses shall
not be deemed to impose an obligation upon Lessor to either have said
improvements or facilities or to provide those services unless the Industrial
Center already has the same, Lessor already provides the services, or Lessor has
agreed elsewhere in this Lease to provide the same or some of them.
(d) Lessee's Share of Operating Expenses shall be payable by
Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time of Lessee's Share of annual
Operating Expenses and the same shall be payable monthly or quarterly, as Lessor
shall designate, during each twelve month period of the Lease term, on the same
day as the Base Rent is due hereunder. In the event that Lessee pays Lessor's
estimate of Lessee's Share of Operating Expenses as aforesaid, Lessor shall
deliver to Lessee, within sixty (60) days after the expiration of each calendar
year a reasonably detailed statement showing Lessee's Share of the actual
Operating Expenses incurred during the preceding year. If Lessee's payments
under this paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessee shall be entitled to credit the amount of
such overpayment against Lessee's Share of Operating Expenses next falling due.
If Lessee's payments under this paragraph during said preceding year were less
than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor
the amount of the deficiency within ten (10) days after delivery by Lessor to
Lessee of said statement. See Addendum for Paragraph 4.2(b)(iii) and 4.2(e).
5. Security Deposit. Lessee shall deposit with lessor upon execution hereof $
_______, a security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default or for the payment of any other sum to which Lessor
may become obligated by reason of Lessee's default, or to compensate Lessor for
any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies
all or any portion of said deposit, Lessee shall within ten (10) days after
written demand therefor deposit cash with Lessor in an amount sufficient to
restore said deposit to the full amount then required of Lessee. If the monthly
rent shall, from time to time, increase during the term of this Lease, Lessee
shall, at the time of such increase, deposit with Lessor additional money as a
security deposit so that the total amount of the security deposit held by Lessor
shall at all times bear the same proportion to the then current Base Rent as the
initial security deposit bears to the initial Base Rent set forth in paragraph
4. Lessor shall not be required to keep said security deposit separate from its
general accounts. If Lessee performs all of Lessee's obligations hereunder, said
deposit, or so much thereof as has not theretofore been applied by Lessor, shall
be returned, without payment of interest or other increment for its use, to
Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest hereunder) at the expiration of the term hereof, and after Lessee has
vacated the Premises. No trust relationship is created herein between Lessor and
Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for general
office use and the manufacturing, research and development, and assembly of
electronic equipment or any other use which is reasonably comparable and for no
other purpose.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to the
use for which Lessee will occupy the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation. In the event Lessee does not give to Lessor
written notice of the violation of this warranty within six months from the date
that the Lease term commences, the correction of same shall be the obligation of
the Lessee at Lessee's sole cost. The warranty contained in this paragraph
6.2(a) shall be of no force or effect if, prior to the date of this Lease,
Lessee was an owner or occupant of the Premises and, in such event, Lessee shall
correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at
Lessee's expense, promptly comply with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements of any fire insurance underwriters or rating bureaus, now in effect
or which may hereafter come into effect, whether or not they reflect a change in
policy from that now existing, during the term or any part of the term hereof,
relating in any manner to the Premisses and the occupation and use by Lessee of
the Premises and of the Common Areas. Lessee shall not use nor permit the use of
the Premises or the Common Areas in any manner that will tend to create waste or
a nuisance or shall tend to disturb other occupants of the Industrial Center.
POO0FD55
Initials _______
-------
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee clean and free
of debris on the Lease commencement date (unless Lessee is already in
possession) and Lessor warrants to Lessee that the plumbing, lighting, air
conditioning, heating, and loading doors in the Premises shall be in good
operating condition on the Lease commencement date. In the event that it is
determined that this warranty has been violated, then it shall be the obligation
of Lessor, after receipt of written notice from Lessee setting forth with
specificity the nature of the violation, to promptly, at Lessor's sole cost,
rectify such violation. Lessee's failure to give such written notice to Lessor
within thirty (30) days after the Lease commencement date shall cause the
conclusive presumption that Lessor has complied with all of Lessor's obligations
hereunder. The warranty contained in this paragraph 6.3(a) shall be of no force
or effect if prior to the date of this Lease, Lessee was an owner or occupant of
the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises in their condition existing as of the Lease commencement
date or the date that Lessee takes possession of the Premises, whichever is
earlier, subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use of the Premisses,
and any covenants or restrictions of record, and accepts this Lease subject
thereto and to all matters disclosed thereby and by any exhibits attached
hereto. Lessee acknowledges that neither Lessor nor Lessor's agent has made any
representation or warranty as to the present or future suitability of the
Premises for the conduct of Lessee's business.
7. Maintenance, Repairs, Alterations and Common Area Services.
7.1 Lessor's Obligations. Subject to the provision of paragraphs 4.2
(Operating Expenses). 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or
Destruction) and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee's employees, suppliers, shippers, customers, or
invitees, in which event Lessee shall repair the damage, Lessor as an Operating
Expense, subject to reimbursement pursuant to paragraph 4.2 shall keep in good
condition and repair the foundations, exterior walls, structural condition of
interior bearing walls, and roof of the Premises, as well as the parking lots,
walkways, driveways, landscaping, fences, signs and utility installations of the
Common Areas and all parts thereof, as well as providing the services for which
there is already an Operating Expense pursuant to paragraph 4.2. Lessor shall
not, however, be obligated to paint the exterior or interior surface of exterior
walls, nor shall Lessor be required to maintain, repair or replace windows,
doors or plate glass of the Premises. Lessor shall have no obligation to make
repairs under this paragraph 7.1 until a reasonable time after receipt of
written notice from Lessee of the need for such repairs. Lessee expressly waives
the benefits of any statute now or hereafter in effect which would otherwise
afford Lessee the right to make repairs at Lessor's expense or to terminate this
Lease because of lessor's failure to keep he Premises in good order, condition
and repair. Lessor shall not be liable for damages or loss of any kind or nature
by reason of Lessor's failure to furnish any Common Area Services when such
failure is caused by accident, breakage, repairs, strikes, lockout, or other
labor disturbances or disputes of any character, or by any other cause beyond
the reasonable control of Lessor.
7.2 Lessee's Obligations.
(a) Subject to the provisions of paragraph 6 (Use). 7.1
(Lessor's Obligations), and 9 (Damage or Destruction). Lessee, at Lessee's
expense, shall keep in good order, condition and repair the Premises and every
part thereof (whether or not the damaged portion of the Premises or the means of
repairing the same are reasonably or readily accessable to Lessee) including,
without limiting the generality of the foregoing, all plumbing, heating,
ventilating and air conditioning systems (Lessee shall procure and maintain, at
Lessee's expense, a ventilating and air conditioning system maintenance
contract), electrical and lighting facilities and equipment within the Premises,
fixtures, interior walls and interior surfaces of exterior walls, ceilings,
windows, doors, plate glass, and skylights located within the Premises. Lessor
reserves the right to procure and maintain the ventilating and air conditioning
system maintenance contract and if Lessor so elects, Lessee shall reimburse
Lessor, upon demand, for the cost thereof.
(b) If Lessee fails to perform Lessee's obligations under this
paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter upon
the Premises after ten (10) days' prior written notice to Lessee (except in the
case of emergency, in which no notice shall be required), perform such
obligations on Lessee's behalf and put the Premises in good order, condition and
repair, and the cost thereof together with interest thereon at the maximum rate
then allowable by law shall be due and payable as additional rent to Lessor
together with Lessee's next Base Rent installment.
(c) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received, ordinary wear and tear excepted, clean and free of debris. Any
damage or deterioration of the Premises shall not be deemed ordinary wear and
tear if the same could have been prevented by good maintenance practices. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, alterations, furnishings and equipment.
Notwithstanding anything to the contrary otherwise stated in this Lease. Lessee
shall leave the air lines, power panels, electrical distribution systems,
lighting fixtures, space heaters, air conditioning, plumbing and fencing on the
Premises in good operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent
make any alterations, improvements, additions or Utility Installations in, on or
about the Premises, or the Industrial Center except for nonstructural
alterations to the Premises not exceeding $2,500 in cumulative costs during the
term of this Lease. In any event, whether or not in excess of $2,500 in
cumulative cost, Lessee shall make no change or alteration to the exterior of
the Premises nor the exterior of the Building nor the Industrial Center without
Lessor's prior written consent. As used in this paragraph 7.3 the term "Utility
Installation" shall mean carpeting, window coverings, air lines, power panels,
electrical distribution systems, lighting fixtures, space heaters, air
conditioning, plumbing and fencing. Lessor may require that Lessee remove any or
all of said alterations, improvements, additions or Utility Installations at the
expiration of the term, and restore the Premises and the Industrial Center to
their prior condition Lessor may require Lessee to provide Lessor, at Lessee's
sole cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor. Lessor may, at any time
during the term of this Lease, require that Lessee remove any or all of the
same.
(b) Any alterations, improvements, additions or Utility Installations
in or about the Premises or the Industrial Center that Lessee shall desire to
make and which requires the consent of the Lessor shall be presented to Lessor
in written form, with proposed plans. If Lessor shall give its consent, the
consent shall be deemed conditioned upon Lessee acquiring a permit to do so from
appropriate governmental agencies, the furnishing of a copy thereof to Lessor
prior to the commencement of the work and the compliance by Lessee of all
conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, or the Industrial Center, or any
interest therein. Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises and Lessor shall have the
right to post notices of non-responsibility in or on the Premises or the
Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises of the Industrial Center, upon the
condition that if Lessor shall require, Lessee shall furnish to Lessor a surety
bond satisfactory to Lessor in an amount equal to such contested lien claim or
demand indemnifying Lessor against liability for the same and holding the
Premises and the Industrial Center free from the effect of such lien or claim.
In addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs
in participating in such action if Lessor shall decide it is to Lessor's
interest to do so.
(d) All alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made on the Premises, shall be the property of Lessor and shall
remain upon and be surrendered with the Premises at the expiration of the Lease
term, unless Lessor requires their removal pursuant to paragraph 7.3(a).
Notwithstanding the provisions of this paragraph 7.3(d), Lessee's machinery and
equipment, other than that which is affixed to the Premises, so that it cannot
be removed without material damage to the Premises, and other than Utility
Installations, shall remain the property of Lessee and may be removed by Lessee
subject to the provisions of paragraph 7.2.
7.4 Utility Additions. Lessor reserves the right to install new or
additional utility facilities throughout the Building and the Common Areas for
the benefit of Lessor or Lessee, or any other lessee of the Industrial Center,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, security systems, communication systems, and fire protection and
detection systems, so long as such installations do not unreasonably interfere
with Lessee's use of the Premises.
8. Insurance; Indemnity.
8.1(a) Liability Insurance - Lessee. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Combined
Single Limit Bodily Injury and Property Damage insurance insuring Lessee and
Lessor against any liability arising out of the use, occupancy or maintenance of
the Premises and the Industrial Center. Such insurance shall be in an amount not
less than $1 Million per occurrence. The policy shall insure performance by
Lessee of the indemnity provisions of this paragraph 8. The limits of said
insurance shall not, however, limit the liability of Lessee hereunder. See
Addendum for paragraph 8.1(b)
8.2 Liability Insurance - Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Property Damage Insurance, insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Industrial Center in an amount not less than $1 Million per occurrence.
8.3 Property Insurance. Lessor shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or damage
to the Industrial Center improvements, but not Lessee's personal property,
fixtures, equipment or tenant improvements, in an amount not to exceed the full
replacement value thereof, as the same may exist from time to time, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises) special extended perils
("all risk", as such term is used in the insurance industry), plate glass
insurance and such other insurance as Lessor deems advisable. In addition,
Lessor shall obtain and keep in force, during the term of this Lease, a policy
of rental value insurance covering a period of one year, with loss payable to
Lessor, which insurance shall cover all Operating Expenses of said period.
8.4 Payment of Premium Increase.
(a) After the term of this Lease has commenced, Lessee shall
not be responsible for paying Lessee's Share of any increase in the property
insurance premium for the Industrial Center specified by Lessor's insurance
carrier as being caused by the use, acts or omissions of any other lessee of the
Industrial Center, or by the nature of such other lessee's occupancy which
create an extraordinary or unusual risk.
(b) Lessee, however, shall pay the entirety of any increase in
the property insurance premium for the Industrial Center over what it was
immediately prior to the commencement of the term of this Lease if the increase
is specified by Lessor's insurance carrier as being caused by the nature of
Lessee's occupancy or any act or omission of Lessee.
(c) Lessee shall pay to Lessor, during the term hereof, in
addition to the rent, Lessee's Share (as defined in paragraph 4.2[a]) of the
amount of any increase in premiums for the insurance required under Paragraphs
8.2 and 8.3 above such premiums paid during the Base Period, as hereinafter
defined, whether such premium increase shall be the result of the nature of
Lessee's occupancy, any act or omission of Lessee, requirements of the holder of
a mortgage or deed of trust covering the Premises, increased valuation of the
Premises, or general rate increases. In the event that the Premises have been
occupied previously, the words "Base Period" shall mean the last twelve months
of the prior occupancy. In the event that the Premises have never been occupied
previously, the premiums during the "Base Period" shall be deemed to be the
lowest premiums reasonably obtainable for said insurance assuming the most
nominal use of the Premises. Provided, however, in lieu of the Base Period, the
parties may insert a dollar amount at the end of this sentence which figure
shall be considered as the insurance premium for the Base Period. $6,351,000. In
no event, however, shall Lessee be responsible for any portion of the premium
cost attributable to liability insurance coverage in excess of $1 Million
procured under paragraph 8.2.
(d) Lessee shall pay any such premium increases to Lessor
within 30 days after receipt by Lessee of a copy of the premium statement or
other satisfactory evidence of the amount due. If the insurance policies
maintained hereunder cover other improvements in addition to the Premises,
Lessor shall also deliver to Lessee a statement of the amount of such increase
attributable to the Premises and showing in reasonable detail, the manner in
which such amount was computed. If the term of this Lease shall not expire
concurrently with the expiration of the period covered by such insurance,
Lessee's liability for premium increases shall be prorated on an annual basis.
8.5 Insurance Policies. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least 13 plus, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best's Insurance Guide." Lessee shall
not do or permit to be done anything which shall invalidate the insurance
policies carried by Lessor. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
commencement date of this Lease. No such policy shall be cancelable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to
the expiration of such policies, furnish Lessor with renewals or "binders'
thereof.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entitlement of recovery against the other for
loss or damage arising out of or incident to the perils insured against which
perils occur in, on or about the Premises, whether due to the negligence of
Lessor or Lessee or their agents, employees, contractors and/or invitees. Lessee
and Lessor shall, upon obtaining the policies of insurance required hereunder,
give notice to the insurance carrier or carriers that the foregoing mutual
waiver of subrogation is contained in this Lease.
Initials _______
-------
8.7 Indemnify. Lessee shall indemnify and hold harmless, Lessor from
and against any and all claims arising from Lessee's use of the Industrial
Center, or from the conduct of Lessee's business or from any activity, work or
things done, permitted or suffered by Lessee in or about the Premises or
elsewhere and shall further indemnify and hold harmless Lessor from and against
any and all claims arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, or employees, and from and against all costs, attorney's fees,
expenses and liabilities incurred in the defense of any such claim or any action
or proceeding brought thereon, and in case any action or proceeding be brought
against Lessor by reason of any such claim, Lessee upon notice from Lessor shall
defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor
and Lessor shall cooperate with Lessee in such defense. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property of Lessee or injury to persons, in, upon or about the Industrial Center
arising from any cause and Lessee hereby waives all claims in respect thereof
against Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises or the Industrial Center, nor shall Lessor be liable for injury to
the person of Lessee. Lessee's employees, agents or contractors, whether such
damage or injury is caused by or results from fire, steam, electricity, gas
water or rain, or from the breakage, leakage, obstruction or other defects of
pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether said damage or injury results from
conditions arising upon the Premises or upon other portions of the Industrial
Center, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee Lessor shall not be liable for any damages arising from any act or
neglect of any other lessee, occupant or user of the Industrial Center, nor from
the failure of Lessor to enforce the provisions of any other lease of the
Industrial Center, or the Rules and Regulations of the Industrial Center.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is less than fifty
percent of the then replacement cost of the Premises.
(b) "Premises Total Destruction" shall mean the Premises are
damaged or destroyed to the extent that the cost of repair is fifty percent or
more of the then replacement cost of the Premises.
(c) "Premises Building Partial Damage shall mean the Building
of which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent of the then replacement cost of the
Building.
(d) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is fifty percent or more of the then replacement cost of
the Building.
(e) "Industrial Center Buildings" shall mean all of the
buildings on the Industrial Center site.
(f) "Industrial Center Buildings Total Destruction" shall mean
if the Industrial Center Buildings are damaged or destroyed to the extent that
the cost of repair is fifty percent or more of the then replacement cost of the
Industrial Center Buildings.
(g) "Insured Loss" shall mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8. The fact that an Insured Loss has a deductible amount shall not
make the loss an uninsured loss.
(h) "Replacement Cost" shall mean the amount of money
necessary to be spent in order to repair or rebuild the damaged area to the
condition that existed immediately prior to the damage occurring excluding all
improvements made by lessees.
9.2 Premises Partial Damage; Premises Building Partial Damage.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4
and 9.5, if at any time during the term of this Lease there is damage which is
an Insured Loss and which falls into the classification of either Premises
Partial Damage and Premises Building Partial Damage, then Lessor shall, at
Lessor's expense, repair such damage to the Premises, but not Lessee's fixtures,
equipment or tenant improvements, as soon as reasonably possible and this Lease
shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs
9.4(a) and 9.5, if at any time during the term of this Lease there is damage
which is not an Insured Loss and which falls within the classification of
Premises Partial Damage or Premises Building Partial Damage, unless caused by a
negligent or willful act of Lessee (in which event Lessee shall make the repairs
at Lessee's expense), which damage prevents Lessee from using the Premises,
Lessor may at Lessor's option either (i) repair such damage as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after the date of the occurrence of such damage of Lessor's
intention to cancel and terminate this Lease as of the date of the occurrence of
such damage. In the event Lessor elects to give such notice of Lessor's
intention to cancel and terminate this Lease, Lessee shall have the right within
ten (10) days after the receipt of such notice to give written notice to Lessor
of Lessee's intention to repair such damage at Lessee's expense, without
reimbursement from Lessor, in which event this Lease shall continue in full
force and effect, and Lessee shall proceed to make such repairs as soon as
reasonably possible. If Lessee does not give such notice within such 10-day
period this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage.
9.3 Premises Total Destruction; Premises Building Total Destruction;
Industrial Center Buildings Total Destruction.
(a) Subject to the provisions of paragraphs 9.4 and 9.5, if at
any time during the term of this Lease there is damage, whether or not it is an
Insured Loss, and which falls into the classifications of either (i) Premises
Total Destruction, or (ii) Premises Building Total Destruction, or (iii)
Industrial Center Buildings Total Destruction, then Lessor may at Lessor's
option either (i) repair such damage or destruction, but not Lessee's fixtures,
equipment or tenant improvements, as soon as reasonably possible at Lessor's
expense, and this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after the date of occurrence of
such damage of Lessor's intention to cancel and terminate this Lease, in which
case this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage.
9.4 Damage Near End of Term.
(a) Subject to paragraph 9.4(b), if at any time during the
last six months of the term of this Lease there is substantial damage, whether
or not an Insured Loss, which falls within the classification of Premises
Partial Damage, Lessor may at Lessor's option cancel and terminate this Lease as
of the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee
has an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such option,
if it is to be exercised at all, no later than twenty (20) days after the
occurrence of an Insured Loss falling within the classification of Premises
Partial Damage during the last six months of the term of this Lease. If Lessee
duly exercises such option during said twenty (20) day period, Lessor shall, at
Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements, as soon as reasonably possible and this Lease shall
continued in full force and effect. If Lessee fails to exercise such option
during said twenty (20) day period, then Lessor may at Lessor's option terminate
and cancel this Lease as of the expiration of said twenty (20) day period by
giving written notice to Lessee of Lessor's election to do so within ten (10)
days after the expiration of said twenty (20) day period, notwithstanding any
term or provision in the grant of option to the contrary.
9.5 Abatement of Rent; Lessee's Remedies.
(a) In the event Lessor repairs or restores Premises pursuant
to the provisions of this paragraph 9, the rent payable hereunder for the period
during which such damage, repair or restoration continues shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of rent, if any, Lessee shall have no claim against Lessor
for any damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this paragraph 9 and shall not commence such
repair or restoration within ninety (90) days after such obligation shall
accrue. Lessee may at Lessee's option cancel and terminate this Lease by giving
Lessor written notice of Lessee's election to dos so at any time prior to the
commencement of such repair or restoration. In such event this Lease shall
terminate as of the date of such notice.
9.6 Termination - Advance Payments. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 Payment of Tax Increase. Lessor shall pay the real property tax,
as defined in paragraph 10.3, applicable to the Industrial Center, provided,
however, that Lessee shall pay, in addition to rent, Lessee's Share (as defined
in paragraph 4.2[a]) of the amount, if any, by which real property taxes
applicable to the Premises increase over the fiscal real estate tax year 1993.
Such payment shall be made by Lessee within thirty (30) days after receipt of
Lessor's written statement setting forth the amount of such increase and the
computation thereof. If the term of this Lease shall not expire concurrently
with the expiration of the tax fiscal year, Lessee's liability for increased
taxes for the last partial lease year shall be prorated on an annual basis.
10.2 Additional Improvements. Lessee shall not be responsible for
paying Lessee's Share of any increase in real property tax specified in the tax
assessor's records and work sheets as being caused by additional improvements
placed upon the Industrial Center by other lessees or by Lessor for the
exclusive enjoyment of such other lessees. Lessee shall, however, pay to Lessor
at the time that Operating Expenses are payable under paragraph 4.2(c) the
entirety of any increase in real property tax if assessed solely by reason of
additional improvements placed upon the Premises by Lessee or at Lessee's
request.
10.3 Definition of "Real Property Tax." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
estate taxes) imposed on the Industrial Center or any portion thereof by any
authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Industrial Center or in any portion
thereof, as against Lessor's right to rent or other income therefrom, and as
against Lessor's business of leasing the Industrial Center. The term "real
property tax" shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, partially or totally, any tax, fee, levy, assessment or charge
hereinabove included within the definition of "real property tax," or (ii) the
nature of which was hereinbefore included within the definition of "real
property tax," or (iii) which is imposed for a service or right not charged
prior to June 1, 1978, or, if previously charged, has been increased since June
1, 1978, or (iv) which is imposed as a result of a transfer, either partial or
total, of Lessor's interest in the Industrial Center or which is added to a tax
or charge hereinbefore included within the definition of real property tax by
reason of such transfer, or (v) which is imposed by reason of this transaction,
any modifications or changes hereto, or any transfers thereof.
10.4 Joint Assessment. If the Industrial Center is not separately
assessed, Lessee's Share of the real property tax liability shall be an
equitable proportion of the real property taxes for all of the land and
improvements included within the tax parcel assessed, such proportion to be
determined by Lessor from the respective valuations assigned in the assessor's
work sheets or such other information as may be reasonably available, Lessor's
reasonable determination thereof, in good faith, shall be conclusive.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and all
other personal property to be assessed and billed separately from the real
property of Lessor.
(b) If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessee shall pay to Lessor the taxes
attributable to Lessee within ten (10) days after receipt of a written statement
setting forth the taxes applicable to Lessee's property.
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon if any such services are not separately metered to the
Premises. Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building or the Industrial Center.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease without the need for notice to Lessee under paragraph 13.1.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting form the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate,"
provided that before such assignment shall be effective said assignee shall
assume, in full, the obligations of Lessee under this Lease. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if after such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 Terms and Conditions of Assignment. Regardless of Lessor's
consent, no assignment shall release Lessee of Lessee's obligations hereunder or
alter the primary liability of Lessee to pay the Base Rent and Lessee's Share of
Operating Expenses and to perform all other obligations to be performed by
Lessee hereunder. Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment. Neither a delay in the
approval or disapproval of such assignment nor the acceptance of rent shall
constitute a waiver or estoppel of Lessor's right to exercise its remedies for
the breach of any of the terms or conditions of this paragraph 12 of this Lease.
Consent to one assignment shall not be deemed consent to any subsequent
assignment. In the event of default by any assignee of Lessee or any successor
of Lessee, in the performance of any of the terms hereof, Lessor may proceed
directly against Lessee without the necessity of exhausting remedies against
said assignee. Lessor may consent to subsequent assignments of this Lease or
amendments or modifications to this Lease with assignees of Lessee, without
notifying Lessee, or any successor of Lessee, and without obtaining its or their
consent thereto and such actions shall not relieve Lessee of liability under
this Lease.
12.4 Terms and Conditions Applicable to Subletting. Regardless of
Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessor of all or any part of the Premises and shall be included in
subleases:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease heretofore
or hereafter made by Lessee, and Lessor may collect such rent and income and
apply same toward Lessee's obligations under this Lease, provided, however, that
subject to paragraph 12.4(1) until a default shall occur in the performance of
Lessee's obligations under this Lease, Lessee may receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a default
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents due and to become due under the sublease. Lessee agrees that
such sublessee shall have the right to rely upon any such statement and request
from Lessor, and that such sublessee shall pay such rents to Lessor without any
obligations or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary, Lessee
shall have no right or claim against such sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective
unless and until it has been approved in writing by Lessor. In entering into any
sublease, Lessee shall use only such form of sublease as is satisfactory to
Lessor, and once approved by Lessor, such sublease shall not be changed or
modified without Lessor's prior written consent. Any sublessee shall, by reason
of entering into a sublease under this Lease, be deemed, for the benefit of
Lessor, to have assumed and agreed to conform and comply with each and every
obligation herein to be performed by Lessee other than such obligations as are
contrary to or inconsistent with provisions contained in a sublease to which
Lessor has expressly consented in writing.
(c) If Lessee's obligations under this Lease have been
guaranteed by third parties, then as sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to such
sublease and the terms thereof.
(d) The consent by Lessor to any subletting shall not release
Lessee from its obligations or alter the primary liability of Lessee to pay the
rent and perform and comply with all of the obligations of Lessee to be
performed under this Lease.
(e) The consent by Lessor to any subletting shall not
constitute a consent to any subsequent subletting by Lessee or to any assignment
or subletting by the sublessee. However, Lessor may consent to subsequent
sublettings and assignments of the sublease or any amendments or modifications
thereto without notifying Lessee or anyone else liable on the Lease or sublease
and without obtaining their consent and such action shall not relieve such
persons from liability.
(f) In the event of any default under this Lease, Lessor may
proceed directly against Lessee, any guarantors or any one else responsible for
the performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) In the event Lessee shall default in the performance of
its obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of Lessee under such sublease from
the time of the exercise of said option to the termination of such sublease,
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to Lessee or for any other prior defaults of
Lessee under such sublease.
(h) Each and every consent required of Lessee under a sublease
shall also require the consent of Lessor.
(i) No sublessee shall further assign or sublet all or any
part of the Premises without Lessor's prior written consent.
(j) Lessor's written consent to any subletting of the Premises
by Lessee shall not constitute an acknowledgement that no default then exists
under this Lease of the obligations to be performed by Lessee nor shall such
consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(k) With respect to any subletting to which Lessor has
consented, Lessor agrees to deliver a copy of any notice of default by Lessee to
the sublessee. Such sublessee shall have the right to cure a default of Lessee
within ten (10) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by sublessee.
See Addendum for Paragraph 12.4(l)
12.5 Attorneys Fees. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
13. Default; Remedies.
13.1 Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(c) Except as otherwise provided in this Lease, the failure by
Lessee to observe or perform any of the covenants, conditions or provisions of
this Lease to be observed or performed by Lessee, other than described in
paragraph (b) above, where such failure shall continue for a period of thirty
(30) days after written notice thereof from Lessor to Lessee, provided, however,
that if the nature of Lessee's noncompliance is such that more than thirty (30)
days are reasonably required for its cure, then Lessee shall not be deemed to be
in default if Lessee commenced such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion. To the extent
permitted by law, such thirty (30) day notice shall constitute the sole and
exclusive notice required to be given to Lessee under applicable Unlawful
Detainer statutes.
(d) (i) The making by Lessee of any general arrangement or
general assignment for the benefit of creditors, (ii) Lessee becomes a "debtor"
as defined in 11 U.S.C. ss. 101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed within sixty (60)
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days, or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(d) is contrary to
any applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given
to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, was materially false.
13.2 Remedies. In the event of any material default by Lessee, Lessor
may at any time thereafter, with or without notice or demand and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such default.
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event, Lessor shall be entitled to recover from Lessee all damages incurred
by Lessor by reason of Lessee's default including, but not limited to, the cost
of recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's fees,
and any real estate commission actually paid, the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided,
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have vacated or
abandoned the Premises. In such event Lessor shall be entitled to enforce all of
Lessor's rights and remedies under this Lease, including the right to recover
the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located. Unpaid installment of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing specifying wherein Lessor has failed to perform such obligation,
provided however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such thirty (30) day period and
thereafter diligently prosecutes the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, Lessee's Share of Operating Expenses or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Industrial Center. Accordingly, if any installment of
Base Rent, Operating Expenses, or any other sum due from Lessee shall not be
received by Lessor or Lessor's designee within ten (10) days after such amount
shall be due, then, without any requirement for notice to Lessee. Lessee shall
pay to Lessor a late charge equal to 6% of such overdue amount. The parties
hereby agree that such late charge represents a fair and reasonable estimate of
the costs Lessor will incur by reason of late payment by Lessee. Acceptance of
such late charge by Lessor shall in no event constitute a waiver of Lessee's
default with respect to such overpayment amount, nor prevent Lessor from
exercising any of the other rights granted hereunder. In the event that a late
charge is payable hereunder, whether or not collected for three (3) consecutive
installments of any of the aforesaid monetary obligations of Lessee, then Base
Rent shall automatically become due and payable quarterly in advance, rather
than monthly, notwithstanding paragraph 4.1 or any other provision of this Lease
to the contrary.
14. Condemnation. If the Premises or any portion thereof the Industrial Center
are taken under the power of eminent domain or sold under the threat of the
exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs. If more than ten
percent of the floor area of the Premises, or more than twenty-five percent of
that portion of the Common Areas designated as parking for the Industrial Center
is taken by condemnation, Lessee may at Lessee's option, to be exercised in
writing only within ten (10) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken possession) terminate the Lease
as of the date the condemning authority takes such possession. If Lessee does
not terminate this Lease in accordance with the foregoing this Lease shall
remain in full force and effect as to the portion of the premises remaining,
except that the rent shall be reduced in the proportion that the floor area of
the Premises taken bears to the total floor area of the Premises. No reduction
of rent shall occur if the only area taken is that which does not have the
Premises located thereon. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages, provided, however, that Lessee
shall be entitled to any award for loss of or damage to Lessee's trade fixtures
and removable personal property. In the event that this Lease is not terminated
by reason of such condemnation, Lessor shall to the extent of severance damages
received by Lessor in connection with such condemnation, repair any damage to
the Premises caused by such condemnation except to the extent that Lessee has
been reimbursed therefor by the condemning authority. Lessee shall pay any
amount in excess of such severance damages required to complete such repair.
15. Broker's Fee.
(a) Upon execution of this Lease by both parties, Lessor shall pay to
Lee and Associates, licensed real estate broker(s) a fee as set forth in a
separate agreement between Lessor and said broker(s).
(b) Lessor further agrees that if Lessee exercises any Option, as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or if Lessee remains in possession of the Premises after
the expiration of the term of this Lease after having failed to exercise an
Option, or if said broker(s) are the procuring cause of any other lease or sale
entered into between the parties pertaining to the Premises and/or any adjacent
property in which Lessor has an interest, then as to any of said transactions.
Lessor shall pay said broker(s) a fee in accordance with the schedule of said
broker(s) in effect at the time of execution of this Lease.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also
on behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interests in this Lease whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this paragraph 15 said broker shall be third party
beneficiary of the provisions of this paragraph 15.
16. Estoppel Certificate.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease as so modified, is in full force and effect and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Premises or of the business
of requesting party.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect
without modification except as may be represented by the requesting party (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance, or sell the Industrial
Center, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a lessee's interest
in a ground lease of the Industrial Center, and except as expressly provided in
paragraph 15, in the event of any transfer of such title or interest Lessor
herein named (and in case of any subsequent transfers then the grantor) shall be
relieved from and after the date of such transfer of all liability as respects
Lessor's obligations thereafter to be performed, provided that any funds in the
hands of Lessor or the then grantor at the time of such transfer, in which
Lessee has an interest, shall be delivered to the grantee. The obligations
contained in this Lease to be performed by Lessor shall, subject as aforesaid,
be binding on Lessor's successors and assigns, only during their respective
periods of ownership.
18. Severability. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. Additional Rent. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expenses and insurance and tax expenses payable shall be deemed to be rent.
22. Incorporation of Prior Agreements, Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Industrial Center and Lessee acknowledges that
Lessee assumes all responsibility regarding the Occupational Safety Health Act,
the legal use and adaptability of the Premises and the compliance thereof with
all applicable laws and regulations in effect during the term of this Lease
except as otherwise specifically stated in this Lease.
23. Notices. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or to Lessor at the address noted below the signature of the respective parties,
as the case may be. Either party may by notice to the other specify a different
address for notice purposes except that upon Lessee's taking possession of the
Premises the Premises shall constitute Lessee's address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
Initials _______
-------
24. Waivers. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee or any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short term" memorandum of this
Lease for recording purposes. See Addendum for Paragraph 25 (continued).
26. Holding Over. If Lessee, with Lessor's consent remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee but all Options, if any, granted
under the terms of this Lease shall be deemed terminated and be of no further
effect during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Industrial Center is located and any litigation concerning this Lease
between the parties hereto shall be initiated in the county in which the
Industrial Center is located.
30. Subordination.
(a) This Lease, and any Option granted hereby, at Lessor's option,
shall be subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation or security now or hereafter placed upon the Industrial Center and
to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease or any Option granted herein
prior to the lien or any mortgage, deed of trust or ground lease, as the case
may be. Lessor's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31. Attorney's Fees. If either party or the broker(s) named herein bring an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the court.
The provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. Lessor's Access. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
Industrial Center as Lessor may deem necessary or desirable. Lessor may at any
time place on or about the Premises or the Building any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs. All activities of
Lessor pursuant to this paragraph shall be without abatement of rent, nor shall
Lessor have any liability to Lessee for the same.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease. Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent.
34. Signs. Lessee shall not place any sign upon the Premises or the Industrial
Center without Lessor's prior written consent. Under no circumstances shall
Lessee place a sign on any roof of the Industrial Center.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraph 33 hereof, wherever in this Lease the consent
of one party is required to an act of the other party such consent shall not be
unreasonably withheld or delayed.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Industrial Center.
39. Options.
39.1 Definition. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor, (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Industrial Center or other property of
Lessor or the right of first offer to lease other space within the Industrial
Center or other property of Lessor, (3) the right or option to purchase the
Premises or the Industrial Center, or the right of first refusal to purchase the
Premises or the Industrial Center, or the right of first offer to purchase the
Premises or the Industrial Center, or the right or option to purchase other
property of Lessor, or the right of first refusal to purchase other property of
Lessor or the right of first offer to purchase other property of Lessor.
39.2 Options Personal. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily by or to any
person or entity other than Lessee provided however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner either by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple
options to extend or renew this Lease, a later option cannot be exercised unless
the prior option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary (i) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the noncompliance
alleged in said notice of default is cured, or (ii) during the period of time
commencing on the date after a monetary obligation to Lessor is due from Lessee
and unpaid (without any necessity for notice thereof to Lessee) and continuing
until the obligation is paid or (iii) at any time after an event of default
described in paragraphs 13.1(a), 13.1(d) or 13.1(e) (without any necessity of
Lessor to give notice of said default to Lessee), or (iv) in the event that
Lessor has given to Lessee three or more notices of default under paragraph
13.1(b) or paragraph 13.1(c) whether or not the defaults are cured, during the
12 month period of time immediately prior to the time that Lessee attempts to
exercise the subject Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option
shall terminate and be of no further force or effect notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during the
term of this Lease (i) Lessee fails to pay to Lessor any obligations of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(c) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessee commits a default described in paragraph 13.1(a), 13.1(d) or
13.1(e) (without any necessity of Lessor to give notice of such default to
Lessee) or (iv) Lessor gives to Lessee three notices of such default under
paragraph 13.1(b), or paragraph 13.1(c), whether or not the defaults are cured.
40. Security Measures. Lessee hereby acknowledges that Lessor shall have no
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Industrial Center. Lessee assumes all
responsibility for the protection of Lessee, its agents and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Industrial Center or any part thereof
in which event the cost thereof shall be included within the definition of
Operating Expenses, as set forth in paragraph 4.2(b).
41. Easements. Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements rights dedications, Maps, and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
42. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment under protest and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
43. Authority. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.
45. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease. This Lease shall become
binding upon Lessor and Lessee only when fully executed by Lessor and Lessee.
Initials _______
-------
46. Addendum. Attached hereto is an addendum or addenda containing paragraphs
2.2 (continued)
3.1 (continued)
4.1(b)
4.2(b)(iii)
4.2(e)
8.1(b)
12.4(1)
25 (continued)
50
51
51.1
51.2
51.3
51.4
52
53
53.1
53.2
54
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR
APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO. THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS
TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
Mission West Properties, Fresh Test Technology, Inc.,
a California corporation a Utah corporation
By: ________________________________ By: ___________________________________
Harve Filuk, Vice President Robert K. Bench, President/C.O.O.
By:_________________________________ By: ___________________________________
Executed on ________________________ Executed on ___________________________
(Corporate Seal) (Corporate Seal)
ADDRESS FOR NOTICES AND RENT ADDRESS
6815 Flanders Drive, Suite 250 _______________________________________
San Diego, CA 92121-2905 _______________________________________
American Industrial Real Estate Association, Los Angeles, CA (213)687-8777
Initials _______
-------
ADDENDUM TO STANDARD INDUSTRIAL LEASE - MULTI-TENANT
2.2(continued). Of the 47 parking spaces Lessee is entitled, six(6) shall be
covered parking spaces with specific locations to be determined by Lessor.
3.1(continued). Definition of Commencement Date. The Commencement Date is
defined as the earlier of the dates (i) Lessee initially occupies the Premises,
or (ii) the general contractor supervising the tenant improvements in its sole
discretion determines that the tenant improvements have been substantially
completed for the Premise, and Lessor notifies Lessee of same in writing.
4.1(b). The monthly rent payable during the term of this lease shall be as
follows:
Months 1 through 12: $10,362.37
Months 2 through 24: $10,362.37
Months 25 through 36: $11,064.52
Months 37 through 48: $10,064.82
Months 49 through 60: $10,766.97
Lessee shall also pay monthly estimated common area maintenance expenses of
$.065 per square foot and applicable sales tax.
4.2(b)(iii). The costs of any capital improvements made to the Buildings or the
parking facilities appurtenant thereto which are incurred by Lessor to (i)
reduce Operating Expenses or (ii) to comply with governmental rules and
regulations made applicable to the Buildings after the date on which this Lease
is entered into, provided that with respect to all said costs incurred by
Lessor, the proportionate share thereof to be paid by Lessee each month under
this article shall not in any event exceed the same proportionate share of the
reduction in the operating expenses each month which results from making such
capital improvements.
4.2(e). Lessee's share of controllable operating expenses shall not in any year
exceed ten percent (10%) above the prior year's controllable operating expenses.
Controllable expenses shall mean all expenses identified in the lease as an
operating expense but shall not include real estate taxes, insurance, common
area utilities, or any other fees and costs imposed on the Industrial Center as
a result of any governmental action.
8.1(b). Not more frequently than each three (3) years, if, in the opinion of
Lessor's lender or of an insurance broker retained by Lessor, the amount of
public liability insurance coverage at that time is not adequate, Lessee shall
increase the insurance coverage as required by either Lessor's lender or
Lessor's insurance broker within ten (10) days after receipt of Lessor's written
request that Lessee do so.
12.4(1). With respect to any sublease entered into by Lessee with Lessor's
consent as herein provided, if the rent paid by the subtenant to Lessee for each
square foot leased by such subtenant exceeds the rent being paid by Lessee to
Lessor for each square foot, then Lessor shall be entitled to 50% of such excess
(i.e., the amount of which the rent under such sublease exceeds the rent under
this Lease for each square foot leased by such subtenant); and Lessee shall pay
Lessor's said percentage share of such excess with respect to rent payable under
the sublease to Lessor within ten (10) days after accept by Lessee of the same.
25(continued). Upon expiration or earlier termination of this Lease, Lessee,
without necessity of any demand, shall execute and deliver to Lessor, a
quitclaim deed in recordable form and acceptable to Lessor, declaring that its
purpose is to extinguish all right, title, and interest of Lessee under this
Lease.
50. Lessee shall be responsible for all costs incurred, and any delay in
occupancy which may occur as a result of processing any applications or
complying with requirements relating to Lessee's use of hazardous materials on
the Premises. Lessor shall reasonably cooperate with Lessee to avoid or minimize
such costs or delay in occupancy, provided such cooperation can be given without
Lessor incurring any cost or obligation.
51. Lessee shall at all times and in all respects comply with all federal, state
and local laws, ordinances and regulations, including, but not limited to, the
Federal Water Pollution Control Act (33 U.S.C. ss.1251, et seq.), Resource
Conservation & Recovery Act (42 U.S.C. ss.6901, et seq.), Safe Drinking Water
Act (42 U.S.C. ss.3000f, et seq.), Toxic Substances Control Act (15 U.S.C.
ss.2601, et seq.), the Clean Air Act (42 U.S.C. ss.7401 et seq.), Comprehensive
Environmental Response of Compensation and Liability Act (42 U.S.C. ss.9601, et
seq.), and other comparable state laws ("Hazardous Materials Laws"), relating to
industrial hygiene, environmental protection or the use, analysis, generation,
manufacture, storage, disposal or transportation of any oil, flammable
explosives, asbestos, urea formaldehyde, radioactive materials or waste, or
other hazardous, toxic, contaminated or polluting materials, substances or
wastes, including, without limitation, any "hazardous substances," "hazardous
wastes," "hazardous materials" or "toxic substances" under any such laws,
ordinances or regulations (collectively, "Hazardous Materials").
51.1 Lessee shall, at its own expense, procure, maintain in effect and
comply with all conditions of any and all permits, licenses, and other
governmental and regulatory approvals required for Lessee's use of the Premises,
including, without limitation, discharge of (approximately treated) materials or
wastes into or through any sanitary sewer serving the Premises. Except as
discharged into the sanitary sewer in strict accordance and conformity with all
applicable Hazardous Materials Laws, Lessee shall cause any and all Hazardous
Materials removed from the Premises to be removed and transported solely by duly
licensed haulers to duly licensed facilities for final disposal of such
materials and wastes. Lessee shall in all respects handle, treat, deal with and
manage any and all Hazardous Materials in, on, under or about the Premises in
total conformity with all applicable Hazardous Materials Laws and prudent
industry practices regarding management of such Hazardous Materials. Upon
expiration or earlier termination of the lease term, Lessee shall cause all
Hazardous Materials to be removed from the Premises and transported for use,
storage or disposal in accordance with and compliance with all applicable
Hazardous Materials Laws. Lessee shall not take any remedial action in response
to the presence of any Hazardous Materials in or about the Premises or any
building, nor enter into any settlement agreement, consent decree or other
compromise in respect to any claims relating to any Hazardous Materials in any
way connected with the Premises or any building, without first notifying Lessor
of Lessee's intention to do so and affording Lessor ample opportunity to appear,
intervene or otherwise appropriately assert and protect Lessor's interest with
respect thereto.
51.2 Lessee shall immediately notify Lessor in writing of: (i) any
enforcement, cleanup, removal or other governmental or regulatory action
instituted, completed or threatened pursuant to any Hazardous Materials Laws;
(ii) any claim made or threatened by any person against Lessee, the Premises or
any building relating to damage, contribution, cost recovery compensation, loss
or injury resulting from or claimed to result from any Hazardous Materials; and
(iii) any reports made to any environmental agency arising out of or in
connection with any Hazardous Materials in or removed from the Premises or any
building, including any complaints, notices, warnings or asserted violations in
connection therewith. Lessee shall also supply to Lessor as promptly as
possible, and in any event within five (5) business days after Lessee first
receives or sends the same with copies of all claims, reports, complaints,
notices, warnings or asserted violations, relating in any way to the Premises,
any building or Lessee's use thereof. Lessee shall promptly deliver to Lessor
copies of hazardous waste manifests reflecting the legal and proper disposal of
all Hazardous Materials removed from the Premises.
Initials _______
-------
51.3 Lessee shall indemnify, defend (by counsel reasonably acceptable
to Lessor), protect, and hold Lessor and each of Lessor's partners, employees,
agents, attorneys, successors and assigns, free and harmless from and against
any and all claims, liabilities, penalties, forfeitures, losses or expenses
(including attorneys' fees), or death of or injury to any person or damage to
any property whatsoever, arising from or caused in whole or in part, directly or
indirectly, by (i) the presence in, on, under or about the Premises or any
building, or discharge in or from the Premises or any building, of any Hazardous
Materials; (ii) Lessee's use, analysis, storage, transportation, disposal,
release, threatened release, discharge or generation of Hazardous Materials to,
in, on, under, about or from the Premises or any building; (iii) Lessee's
failure to comply with any Hazardous Materials Law. Lessee's obligations
hereunder shall include without limitation, and whether foreseeable or
unforeseeable, all costs of any required or necessary repair, cleanup or
detoxification or decontamination of the Premises or any building, or the
preparation and implementation of any closure, remedial action or other required
plans in connection therewith, and shall survive the expiration or earlier
termination of the lease term. For purposes of the release and indemnity
provisions hereof, any acts or omissions of Lessee, or by employees, agents,
subtenants, assignees, contractors or subcontractors of Lessee or others acting
for or on behalf of Lessee (whether or not they are negligent, intentional,
willful or unlawful) shall be strictly attributable to Lessee.
51.4 If at any time it reasonably appears to Lessor that Lessee is not
maintaining sufficient insurance or other means of financial capacity to enable
Lessee to fulfill its obligations to Lessor hereunder, whether or not then
accrued, liquidated, conditional or contingent, Lessee shall procure and
thereafter maintain in full force and effect such insurance or other form of
financial assurance, with or from companies or persons and in forms reasonably
acceptable to Lessor, as Lessor may from time to time reasonably request.
52. Rent Calculations.
TOTAL EXISTING SHELL
----- -------- -----
15,580 SF 7,891 SF 7,690 SF
Years 1 - 2 $.67 $.66
Year 3 $.72 $.70
Year 4 $.72 $.57
Year 5 $.77 $.61
53. Tenant Improvement Allowance. Lessor shall construct tenant improvements in
accordance with the plans and specifications by Miller/Rausch dated August 25,
1993 and revised September 9, 1993. Lessor shall enter into a contract with
Willmeng Construction in the amount of $223,590.80 to construct the
aforementioned improvements. Lessor and Lessee acknowledge that the contract
amount of $223,590.80 is exclusive of City of Chandler development fees and
permits and also acknowledge that the contract amount may be increased or
decreased as a result of change orders to the contract, such change orders to be
approved by Lessor and Lessee.
Lessor's maximum contribution towards the tenant improvement costs and all fees
and expenses related thereto shall be $120,000.00. Lessee shall contribute the
balance of the tenant improvement costs and all related fees and expenses,
currently in the approximate amount of $103,590.80. Lessee's tenant improvement
contribution shall be paid to Lessor upon execution of the lease agreement.
53.1 Tenant Improvement Cost Savings or Cost Increases. If tenant
improvement costs are less than the estimated total of $223,590.80, the amount
of the savings shall be credited equally to Lessor and Lessee. Lessee shall pay
all tenant improvement costs, fees and permits related thereto in excess of
Lessor's $120,000.00 contribution. All change orders shall be approved by Lessor
and Lessee. Should the change orders result in a net increase to the original
contract estimate of $223,590.80, Lessee shall upon execution of the change
order, fund to Lessor the contracted amount of the change order.
53.2 Reduction of Tenant Improvement Costs and Reduction of Rent (Shell
Space). For each $1.00 per square foot of reduction of Lessor's portion of
tenant improvement costs up to a maximum of $3.55 per square foot ($27,318.00),
Lessor shall reduce the monthly rent as outlined in Paragraph 52 on the shell
space at the rate of $.036 per square foot, per month. For example, if a
$15,380.00 total reduction is achieved, Lessee's contribution shall be reduced
by $7,690.00 and Lessor's contribution shall be reduced by $7,690.00 and the
rental rate on the shell space shall be reduced by $.036 per square foot, per
month.
54. Right of First Refusal. Lessor shall grant to Lessee a right of first
refusal on the contiguous premises, Suite 145, consisting of 10,350 square feet
of office and warehouse space currently occupied by Data-Cal Corporation. This
option shall be contingent upon Data-Cal Corporation relinquishing at the end of
their lease term all rights and options to extend their occupancy of Suite 145.
Should Suite 145 be available, the rent payable shall be fair market rent and
all other terms and conditions under this lease shall apply.
Initials _______
-------
CERPROBE CORPORATION
1995 STOCK OPTION PLAN
ARTICLE I
General
1.1 Purpose of Plan; Term
(a) Adoption. On May 9, 1995, the Board of Directors (the
"Board") of Cerprobe Corporation, a Delaware corporation (the "Company"),
adopted this stock option plan to be known as the 1995 Stock Option Plan (the
"Plan").
(b) Defined Terms. All initially capitalized terms used hereby
shall have the meaning set forth in Article V hereto.
(c) General Purpose. The Plan shall be divided into two
programs: the Discretionary Grant Program and the Automatic Grant Program.
(i) Discretionary Grant Plan. The purpose of the
Discretionary Grant Program is to further the interests of the Company and its
stockholders by encouraging key persons associated with the Company (or Parent
or Subsidiary Corporations) to acquire shares of the Company's Stock, thereby
acquiring a proprietary interest in its business and an increased personal
interest in its continued success and progress. Such purpose shall be
accomplished by providing for the discretionary granting of options to acquire
the Company's Stock ("Discretionary Options"), the direct granting of the
Company's Stock ("Stock Awards"), the granting of stock appreciation rights
("SARs"), or the granting of other cash awards ("Cash Awards") (Stock Awards,
SARs and Cash Awards shall be collectively referred to herein as "Awards").
(ii) Automatic Grant Program. The purpose of the
Automatic Grant Program is to promote the interests of the Company by providing
non-employee members of the Company's Board of Directors (the "Board") the
opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Company and to thereby have an increased personal
interest in its continued success and progress. Such purpose shall be
accomplished by providing for the automatic grant of options to acquire the
Company's Stock ("Automatic Options").
(d) Character of Options. Discretionary Options granted under
this Plan to employees of the Company (or Parent or Subsidiary Corporations)
that are intended to qualify as an "incentive stock option" as defined in Code
ss. 422 ("Incentive Stock Option") will be specified in the applicable stock
option agreement. All other Options granted under this Plan will be nonqualified
options.
(e) Rule 16b-3 Plan. With respect to persons subject to
Section 16 of the Securities Exchange Act of 1934, as amended ("1934 Act"), to
the extent that the Board delegates it administration rights under the
Discretionary Grant Program to the Senior Committee, as described in Section
1.3(a) hereof, the Plan is thereafter intended to comply with all applicable
conditions of Rule 16b-3 (and all subsequent revisions thereof) promulgated
under the 1934 Act. In such instance, to the extent any provision of the Plan or
action by a Plan Administrator fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by such Plan
Administrator. In addition, the
A-1
<PAGE>
Board may amend the Plan from time to time as it deems necessary in order to
meet the requirements of any amendments to Rule 16b-3 without the consent of the
shareholders of the Company.
(f) Duration of Plan. The term of the Plan is 10 years
commencing on the date of adoption of the Plan by the Board as specified in
Section 1.1(a) hereof. No Option or Award shall be granted under the Plan unless
granted within 10 years of the adoption of the Plan by the Board, but Options or
Awards outstanding on that date shall not be terminated or otherwise affected by
virtue of the Plan's expiration.
1.2 Stock and Maximum Number of Shares Subject to Plan.
(a) Description of Stock and Maximum Shares Allocated. The
stock subject to the provisions of the Plan and issuable upon the grant of Stock
Awards or upon the exercise of SARs or Options granted under the Plan is shares
of the Company's common stock, $.05 par value per share (the "Stock"), which may
be either unissued or treasury shares, as the Board may from time to time
determine. Subject to adjustment as provided in Section 4.1 hereof, the
aggregate number of shares of Stock covered by the Plan and issuable thereunder
shall be 500,000 shares of Stock.
(b) Calculation of Available Shares. For purposes of
calculating the maximum number of shares of Stock which may be issued under the
Plan: (i) the shares issued (including the shares, if any, withheld for tax
withholding requirements) upon exercise of an Option shall be counted and (ii)
the shares issued (including the shares, if any, withheld for tax withholding
requirements) as a result of a grant of a Stock Award or an exercise of an SAR
shall be counted.
(c) Restoration of Unpurchased Shares. If an Option or SAR
expires or terminates for any reason prior to its exercise in full and before
the term of the Plan expires, the shares of Stock subject to, but not issued
under, such Option or SAR shall, without further action or by or on behalf of
the Company, again be available under the Plan.
1.3 Approval; Amendments.
(a) Approval by Stockholders. The Plan shall be submitted to
the stockholders of the Company for their approval at a regular or special
meeting to be held within 12 months after the adoption of the Plan by the Board.
Stockholder approval shall be evidenced by the affirmative vote of the holders
of a majority of the shares of the Company's Common Stock present in person or
by proxy and voting at the meeting. The Automatic Grant Program shall not
commence until the date such stockholder approval has been obtained ("Effective
Date"). The Discretionary Grant Program may commence immediately, but if the
Plan is submitted to stockholders for their approval and they decline to approve
the Plan or if the Plan is not approved by the stockholders within 12 months
after its adoption by the Board, the Plan and all Discretionary Options and
Awards made under the Discretionary Grant Program shall automatically terminate
to the same extent and with the same effect as though the Plan had never been
adopted. If the Plan is approved by shareholders, all Discretionary Options or
Awards granted under the Discretionary Grant Program to Eligible Persons who are
Affiliates shall be deemed made on the Effective Date.
(b) Amendments to Plan. The Board may, without action on the
part of the Company's stockholders, make such amendments to, changes in and
additions to the Plan as it may, from time to time, deem necessary or
appropriate and in the best interests of the Company; provided, the Board
A-2
<PAGE>
may not, without the consent of the applicable Optionholder, take any action
which disqualifies any Discretionary Option previously granted under the Plan
for treatment as an Incentive Stock Option or which adversely affects or impairs
the rights of the Optionholder of any Discretionary Option outstanding under the
Plan, and further provided that, except as provided in Article IV hereof, the
Board may not, without the approval of the Company's stockholders, (i) increase
the aggregate number of shares of Stock subject to the Plan, (ii) reduce the
exercise price at which Discretionary Options may be granted or the exercise
price at which any outstanding Discretionary Option may be exercised, (iii)
extend the term of the Plan, (iv) change the class of persons eligible to
receive Discretionary Options or Awards under the Plan, or (v) materially
increase the benefits accruing to participants under the Plan. Notwithstanding
the foregoing, Discretionary Options or Awards may be granted under this Plan to
purchase shares of Stock in excess of the number of shares then available for
issuance under the Plan if (A) an amendment to increase the maximum number of
shares issuable under the Plan is adopted by the Board prior to the initial
grant of any such Option or Award and within one year thereafter such amendment
is approved by the Company's stockholders and (B) each such Discretionary Option
or Award granted is not to become exercisable or vested, in whole or in part, at
any time prior to the obtaining of such stockholder approval.
ARTICLE II
Discretionary Grant Program
2.1 Participants; Administration.
(a) Eligibility and Participation. Discretionary Options and
Awards may be granted only to persons ("Eligible Persons") who at the time of
grant are (i) key personnel (including officers and directors) of the Company or
parent or subsidiaries of the Company, or (ii) consultants or independent
contractors who provide valuable services to the Company or parent or
subsidiaries of the Company; provided that (1) if a Senior Committee is formed
pursuant to Section 2.1(b) hereof, the members of that Senior Committee shall be
ineligible, during their tenure on the Senior Committee, to be granted
Discretionary Options or Awards under the Plan or to be granted or awarded
equity securities of the Company pursuant to any other plan of the Company or
its affiliates except pursuant to the Automatic Grant Program or as otherwise
allowed by Rule 16b-3(c)(2)(i) promulgated under the 1934 Act, and (2) Incentive
Stock Options may only be granted to key personnel of the Company (and its
Parent or Subsidiary) who are also employees of the Company (or its Parent
Corporation or Subsidiary Corporation). A Plan Administrator shall have full
authority to determine which Eligible Persons in its administered group are to
receive Discretionary Option grants under the Plan, the number of shares to be
covered by each such grant, whether or not the granted Discretionary Option is
to be an Incentive Stock Option, the time or times at which each such
Discretionary Option is to become exercisable, and the maximum term for which
the Discretionary Option is to be outstanding. A Plan Administrator shall also
have full authority to determine which Eligible Persons in such group are to
receive Awards under the Discretionary Grant Program and the conditions relating
to such Award.
(b) General Administration. The Eligible Persons under the
Discretionary Grant Program shall be divided into two groups and there shall be
a separate administrator for each group. One group will be comprised of Eligible
Persons that are Affiliates. For purposes of this Plan, the term "Affiliates"
shall mean all "executive officers" (as that term is defined in Rule 16a-1(f)
promulgated under the 1934 Act) and directors of the Company and all persons who
own ten percent or more of the Company's issued and outstanding Stock.
Initially, the power to administer the Discretionary Grant Program with respect
to Eligible Persons that are Affiliates shall be vested with the Board. At any
time, however, the Board may vest the power to administer the Discretionary
Grant Program with respect to
A-3
<PAGE>
Persons that are Affiliates exclusively with a committee (the "Senior
Committee") comprised of two or more Disinterested Directors which are appointed
by the Board. The administration of all Eligible Persons that are not Affiliates
("Non-Affiliates") shall be vested exclusively with the Board. The Board,
however, may at any time appoint a committee (the "Employee Committee") of two
or more persons who are members of the Board and delegate to such Employee
Committee the power to administer the Discretionary Grant Program with respect
to the Non-Affiliates. Members of the Senior Committee and Employee Committee
shall serve for such period of time as the Board may determine and shall be
subject to removal by the Board at any time. The Board may at any time terminate
all or a portion of the functions of the Senior Committee and/or the Employee
Committee and reassume all or a portion of powers and authority previously
delegated to such Committee.
(c) Plan Administrators. The Board, the Employee Committee,
and/or the Senior Committee, whichever is applicable, shall be each referred to
herein as a "Plan Administrator." Each Plan Administrator shall have the
authority and discretion, with respect to its administered group, to select
which Eligible Persons shall participate in the Discretionary Grant Program, to
grant Discretionary Options or Awards under the Discretionary Grant Program, to
establish such rules and regulations as they may deem appropriate with respect
to the proper administration of the Discretionary Grant Program and to make such
determinations under, and issue such interpretations of, the Discretionary Grant
Program and any outstanding Discretionary Option or Award as they may deem
necessary or advisable. Unless otherwise required by law, decisions among the
members of a Plan Administrator shall be by majority vote. Decisions of a Plan
Administrator shall be final and binding on all parties who have an interest in
the Discretionary Grant Program or any outstanding Discretionary Option or
Award.
(d) Guidelines for Participation. In designating and selecting
Eligible Persons for participation in the Discretionary Grant Program, a Plan
Administrator shall consult with and give consideration to the recommendations
and criticisms submitted by appropriate managerial and executive officers of the
Company. A Plan Administrator also shall take into account the duties and
responsibilities of the Eligible Persons, their past, present and potential
contributions to the success of the Company and such other factors as a Plan
Administrator shall deem relevant in connection with accomplishing the purpose
of the Plan.
2.2 Terms and Conditions of Options
(a) Allotment of Shares. A Plan Administrator shall determine
the number of shares of Stock to be optioned from time to time and the number of
shares to be optioned to any Eligible Person (the "Optioned Shares"). The grant
of a Discretionary Option to a person shall neither entitle such person to, nor
disqualify such person from, participation in any other grant of Options or
Stock Awards under this Plan or any other stock option plan of the Company.
(b) Exercise Price. Upon the grant of any Discretionary
Option, a Plan Administrator shall specify the option price per share. In no
event may the option price per share specified by a Plan Administrator be less
than 85 percent of the fair market value per share of the Stock on the date the
Discretionary Option is granted; provided, however, that if the Discretionary
Option is intended to qualify as an Incentive Stock Option under the Code, the
option price per share may not be less than 100 percent of the fair market value
per share of the stock on the date the Discretionary Option is granted (110
percent if the Discretionary Option is granted to a shareholder who at the time
the Discretionary Option is granted owns or is deemed to own stock possessing
more than 10 percent of the total combined voting power of all classes of stock
of the Company or of any Parent Corporation or Subsidiary Corporation). The
determination of the fair market value of the Stock shall be made in accordance
with the valuation provisions of Section 4.5 hereof.
A-4
<PAGE>
(c) Individual Stock Option Agreements. Discretionary Options
granted under the Plan shall be evidenced by option agreements in such form and
content as a Plan Administrator from time to time approves, which agreements
shall substantially comply with and be subject to the terms of the Plan,
including the terms and conditions of this Section 2.2. As determined by a Plan
Administrator, each option agreement shall state (i) the total number of shares
to which it pertains, (ii) the exercise price for the shares covered by the
Option, (iii) the time at which the Options vest and become exercisable and (iv)
the Option's scheduled expiration date. The option agreements may contain such
other provisions or conditions as a Plan Administrator deems necessary or
appropriate to effectuate the sense and purpose of the Plan, including covenants
by the Optionholder not to compete and remedies for the Company in the event of
the breach of any such covenant.
(d) Option Period. No Discretionary Option granted under the
Plan that is intended to be an Incentive Stock Option shall be exercisable for a
period in excess of 10 years from the date of its grant (five years if the
Discretionary Option is granted to a shareholder who at the time the
Discretionary Option is granted owns or is deemed to own stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
the Company or of its parent or any subsidiary corporation), subject to earlier
termination in the event of termination of employment, retirement or death of
the Optionholder. A Discretionary Option may be exercised in full or in part at
any time or from time to time during the term of the Discretionary Option or
provide for its exercise in stated installments at stated times during the
Option's term.
(e) Vesting; Limitations. The time at which the Optioned
Shares vest with respect to an Optionholder shall be in the discretion of that
Optionholder's Plan Administrator; provided, however, that no Affiliate may
exercise a Discretionary Option within six months of the date of grant.
Notwithstanding the foregoing, to the extent a Discretionary Option is intended
to qualify as an Incentive Stock Option, the aggregate fair market value
(determined as of the respective date or dates of grant) of the Stock for which
one or more Options granted to any person under this Plan (or any other option
plan of the Company or its parent or subsidiary corporations) may for the first
time become exercisable as Incentive Stock Options during any one calendar year
shall not exceed the sum of $100,000 (referred to herein as the "$100,000
Limitation"). To the extent that any person holds two or more Options which
become exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability as an Incentive Stock Option shall be applied
on the basis of the order in which such Options are granted.
(f) No Fractional Shares. Options shall be exercisable only
for whole shares; no fractional shares will be issuable upon exercise of any
Discretionary Option granted under the Plan.
(g) Method of Exercise. In order to exercise a Discretionary
Option with respect to any vested Optioned Shares, an Optionholder (or in the
case of an exercise after an Optionholder's death, such Optionholder's executor,
administrator, heir or legatee, as the case may be) must take the following
action:
(i) execute and deliver to the Company a written
notice of exercise signed in writing by the person exercising the Discretionary
Option specifying the number of shares of Stock with respect to which the
Discretionary Option is being exercised;
A-5
<PAGE>
(ii) pay the aggregate Option Price in one of the
alternate forms as set forth in Section 2.2(h) below; and
(iii) furnish appropriate documentation that the
person or persons exercising the Discretionary Option (if other than the
Optionholder) has the right to exercise such Option.
As soon after the Exercise Date as practical, the Company shall mail or deliver
to or on behalf of the Optionholder (or any other person or persons exercising
this Discretionary Option in accordance herewith) a certificate or certificates
representing the Stock for which the Discretionary Option has been exercised in
accordance with the provisions of this Plan. In no event may any Discretionary
Option be exercised for any fractional shares.
(h) Payment Price. The aggregate Option Price shall be payable
in one of the alternative forms specified below:
(i) Full payment in cash or check made payable to the
Company's order; or
(ii) Full payment in shares of Stock held for the
requisite period necessary to avoid a charge to the Company's reported earnings
and valued at fair market value on the Exercise Date (as determined in
accordance with Section 4.5 hereof); or
(iii) If a cashless exercise program has been
implemented by the Board, full payment through a sale and remittance procedure
pursuant to which the Optionholder (A) shall provide irrevocable written
instructions to a designated brokerage firm to effect the immediate sale of the
Optioned Shares to be purchased and remit to the Company, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the Optioned Shares to be purchased and (B)
shall concurrently provide written directives to the Company to deliver the
certificates for the Optioned Shares to be purchased directly to such brokerage
firm in order to complete the sale transaction.
(i) Rights of a Stockholder. An Optionholder shall have no
rights as a stockholder with respect to shares covered by his Discretionary
Option until the date a stock certificate is issued to him. No adjustment will
be made for dividends or other rights for which the record date is prior to the
date such stock certificate is issued.
(j) Repurchase Right. The Plan Administrator may, in its sole
discretion, set forth other terms and conditions upon which the Company (or its
assigns) shall have the right to repurchase shares of Stock acquired by an
Optionholder pursuant to a Discretionary Option. Any repurchase right of the
Company shall be exercisable by the Company (or its assignees) upon such terms
and conditions as the Plan Administrator may specify in the Stock Repurchase
Agreement evidencing such right. The Plan Administrator may also in its
discretion establish as a term and condition of one or more Discretionary
Options granted under the Plan that the Company shall have a right of first
refusal with respect to any proposed sale or other disposition by the
Optionholder of any shares of Stock issued upon the exercise of such
Discretionary Options. Any such right of first refusal shall be exercisable by
the Company (or its assigns) in accordance with the terms and conditions set
forth in the Stock Repurchase Agreement.
A-6
<PAGE>
(k) Termination of Service. If any Optionholder ceases to be
in Service to the Company for a reason other than death, such Optionholder (or
such Optionholder's successors in the case of the Optionholder's death) may,
within 30 days after the date of termination of such Service, but in no event
after the Discretionary Option's stated expiration date, exercise some or all of
the Discretionary Options that the Optionholder was entitled to exercise on the
date the Optionholder's Service terminated; provided, that (i) if the
Optionholder's Service is terminated by the Company in its good faith judgment,
for (A) commission of a crime by the Optionholder or for reasons involving moral
turpitude; (B) an act by the Optionholder which tends to bring the Company into
disrepute; or (C) negligent, fraudulent or willful misconduct by the
Optionholder, or (ii) if after the Service of the Optionholder is terminated,
the Optionholder commits acts detrimental to the Company's interests, then the
Discretionary Option shall thereafter be void for all purposes. Notwithstanding
the foregoing, if any Optionholder ceases to be in Service to the Company by
reason of permanent disability within the meaning of section 22(e)(3) of the
Code (as determined by the applicable Plan Administrator), the Optionholder
shall have 180 days after the date of termination of Service, but in no event
after the stated expiration date of the Optionholder's Discretionary Options, to
exercise Discretionary Options that the Optionholder was entitled to exercise on
the date the Optionholder's Service terminated as a result of disability.
(l) Nonassignability. No Discretionary Option granted under
the Plan or any of the rights and privileges conferred thereby shall be
assignable or transferable by an Optionholder other than by will or the laws of
descent and distribution, and such Discretionary Option shall be exercisable
during the Optionholder's lifetime only by the Optionholder.
(m) Death of Optionholder. If an Optionholder dies while in
the Company's Service, the Optionholder's vested Discretionary Options on the
date of death shall be exercisable within 90 days of such death or until the
stated expiration date of the Optionholder's Option, whichever occurs first, by
the person or persons ("successors") to whom the Optionholder's rights pass
under a will or by the laws of descent and distribution. A Discretionary Option
may be exercised and payment of the option price made in full by the successors
only after written notice to the Company specifying the number of shares to be
purchased. Such notice shall state that the Option Price is being paid in full
in the manner specified in Section 2.2(g) hereof. As soon as practicable after
receipt by the Company of such notice and of payment in full of the Option
Price, a certificate or certificates representing the Optioned Shares shall be
registered in the name or names specified by the successors in the written
notice of exercise and shall be delivered to the successors.
(n) Other Plan Provisions Still Applicable. If a Discretionary
Option is exercised upon the termination of Service or death of an Optionholder
under this Section 2.2, the other provisions of the Plan shall still be
applicable to such exercise, including the requirement that the Optionholder or
its successor may be required to enter into a Stock Repurchase Agreement.
(o) Definition of "Service". For purposes of this Plan, unless
it is evidenced otherwise in the option agreement with the Optionholder, the
Optionholder shall be deemed to be in "Service" to the Company so long as such
individual renders continuous services on a periodic basis to the Company (or to
any Parent or Subsidiary Corporation) in the capacity of an employee, director,
or an independent consultant or advisor. In the discretion of a Plan
Administrator, an Optionholder shall be considered to be rendering continuous
services to the Company even if the type of services change, e.g., from employee
to independent consultant. The Optionholder shall be considered to be an
employee for so long as such individual remains in the employ of the Company or
one or more of its Parent or Subsidiary Corporations.
A-7
<PAGE>
2.3 Terms and Conditions of Stock Awards
(a) Eligibility. All Eligible Persons shall be eligible to
receive Stock Awards. The Plan Administrator of each administered group shall
determine the number of shares of Stock to be awarded from time to time to any
Eligible Person in such group. The grant of a Stock Award to a person shall
neither entitle such person to, nor disqualify such person from participation
in, any other grant of options or awards by the Company, whether under this Plan
or under any other stock option or award plan of the Company.
(b) Award for Services Rendered. Stock Awards shall be granted
in recognition of an Eligible Person's past services to the Company the value of
which services must exceed the value of any compensation previously received by
such Eligible Person for such past services as may be determined by the
applicable Plan Administrator. The grantee of any such Stock Award shall not be
required to pay any consideration to the Company upon receipt of such Stock
Award, except as may be required to satisfy applicable employment taxes and
income tax withholding requirements.
(c) Conditions to Award. All Stock Awards shall be subject to
such terms, conditions, restrictions, or limitations as the applicable Plan
Administrator deems appropriate, including, by way of illustration but not by
way of limitation, restrictions on transferability, requirements of continued
employment, individual performance or the financial performance of the Company,
or payment by the recipient of any applicable employment or withholding taxes.
Such Plan Administrator may modify or accelerate the termination of the
restrictions applicable to any Stock Award under the circumstances as it deems
appropriate. Notwithstanding the foregoing, any Stock received by an affiliate
pursuant to a Stock Award must be held for a period of six months after the
grant of such Stock Award.
(d) Award Agreements. A Plan Administrator may require as a
condition to a Stock Award that the recipient of such Stock Award enter into an
award agreement in such form and content as that Plan Administrator from time to
time approves.
2.4 Terms and Conditions of SARs
(a) Eligibility. All Eligible persons shall be eligible to
receive SARs. The Plan Administrator of each administered group shall determine
the SARs to be awarded from time to time to any Eligible Person in such group.
The grant of an SAR to a person shall neither entitle such person to, nor
disqualify such person from participation in, any other grant of options or
awards by the Company, whether under this Plan or under any other stock option
or award plan of the Company.
(b) Award of SARs. Concurrently with or subsequent to the
grant of any Discretionary Option to purchase one or more shares of Stock, a
Plan Administrator may award to the Optionholder with respect to each share of
Stock, a related SAR permitting the Optionholder to be paid the appreciation on
the Stock underlying the Discretionary Option in lieu of exercising the Option.
In addition, a Plan Administrator may award to any Eligible Person an SAR
permitting the Eligible Person to be paid the appreciation on a designated
number of shares of the Stock, whether or not such Shares are actually issued.
(c) Conditions to SAR. All SARs shall be subject to such
terms, conditions, restrictions or limitations as the applicable Plan
Administrator deems appropriate, including, by way of illustration but not by
way of limitation, restrictions of transferability, requirements of continued
A-8
<PAGE>
employment, individual performance, financial performance of the Company, or
payment by the recipient of any applicable employment or withholding taxes. Such
Plan Administrator may modify or accelerate the termination of the restrictions
applicable to any SAR under the circumstances as it deems appropriate.
(d) SAR Agreements. A Plan Administrator may require as a
condition to the grant of an SAR that the recipient of such SAR enter into an
SAR agreement in such form and content as that Plan Administrator from time to
time approves.
(e) Exercise. An Eligible Person who has been granted a SAR
may exercise such SAR subject to the conditions specified in the SAR agreement
by the Plan Administrator.
(f) Amount of Payment. The amount of payment to which the
grantee of an SAR shall be entitled upon the exercise of each SAR shall be equal
to the amount, if any, by which the fair market value of the specified shares of
Stock on the exercise date exceeds the fair market value of the specified shares
of Stock on the date the Discretionary Option related to the SAR was granted or
became effective, or, if the SAR is not related to any Option, on the date the
SAR was granted or became effective.
(g) Form of Payment. The SAR may be paid in either cash or
Stock, as determined in the discretion of the applicable Plan Administrator and
set forth in the SAR agreement. If the payment is in Stock, the number of shares
to be paid to the participant shall be determined by dividing the amount of the
payment determined pursuant to Section 2.4(f) by the fair market value of a
share of Stock on the exercise date of such SAR. As soon as practical after
exercise, the Company shall deliver to the SAR grantee a certificate or
certificates for such shares of Stock.
(h) Termination of Employment; Death. Sections 2.2(k) and (m),
applicable to Options, shall apply equally to SARs.
(i) Nonassignability. No SAR granted under the Plan or any of
the rights and privileges conferred thereby shall be assignable or transferable
by a grantee other than by will or the laws of descent and distribution, and
such SAR shall be exercisable during the grantee's lifetime only by the grantee.
2.5 Other Cash Awards
(a) In General. The Plan Administrator of each administered
group shall have the discretion to make other awards of cash to Eligible Persons
in such group ("Cash Awards"). Such Cash Awards may relate to existing Options
or to the appreciation in the value of the Stock or other Company securities.
(b) Conditions to Award. All Cash Awards shall be subject to
such terms, conditions, restrictions or limitations as the applicable Plan
Administrator deems appropriate, and such Plan Administrator may require as a
condition to such Cash Award that the recipient of such Cash Award enter into an
award agreement in such form and content as the Plan Administrator from time to
time approves.
A-9
<PAGE>
ARTICLE III
Automatic Grant Program
3.1 Eligible Persons under the Automatic Grant Program. The persons
eligible to participate in the Automatic Grant Program shall be limited to
non-employee Board members ("Eligible Persons"). Persons who are eligible under
the Automatic Grant Program may also be eligible to receive Discretionary
Options or Awards under the Discretionary Grant Program or option grants or
direct stock issuances under other plans of the Company.
3.2 Terms and Conditions of Automatic Option Grants.
(a) Amount and Date of Grant. During the term of this Plan,
Automatic Grants shall be made to each Eligible Person ("Optionholder") as
follows:
(i) Annual Grants. Each year on the Annual Grant Date
an Automatic Option to acquire 2,000 shares of Stock shall be granted to each
Eligible Person for so long as there are shares of Stock available under Section
1.2 hereof. The "Annual Grant Date" shall be the date of the Company's annual
stockholders meeting commencing as of the next annual meeting occurring after
the annual meeting held on the Effective Date. Any Person that was granted an
Automatic Option under Section 3.2(a)(ii) hereof within 30 days of an Annual
Grant Date shall be ineligible to receive an Automatic Option grant pursuant to
this Section 3.2(a)(i) on such Annual Grant Date.
(ii) Initial New Director Grants. On the Initial
Grant Date, every new member of the Board who is an Eligible Person and has not
previously received an Automatic Option grant under this Section 3.2(a)(ii)
shall be granted an Automatic Option to acquire 20,000 shares of Stock
("Optioned Shares") as long as there are shares of Stock available under Section
1.2 hereof. The "Initial Grant Date" shall be the date that an Eligible Person
is first appointed or elected to the Board. Any Eligible Person that was granted
an Automatic Option on the Effective Date pursuant to Section 3.2(a)(iii) shall
be ineligible to receive an Automatic Option grant pursuant to this Section
3.2(a)(ii).
(iii) Initial Existing Director Grants. On the
Effective Date, each Eligible Person shall be granted an Automatic Option to
acquire 2,000 shares of Stock.
(b) Exercise Price. The exercise price per share of Stock
subject to each Automatic Option Grant shall be equal to 100 percent of the fair
market value per share of the Stock on the date the Automatic Option was granted
as determined in accordance with the valuation provisions of Section 4.5 hereof
(the "Option Price").
(c) Vesting. Each Automatic Option Grant shall become
exercisable and vest in a series of three equal and successive yearly
installments, with each annual installment to become exercisable on the day
before the Company's annual stockholders' meeting occurring in the applicable
year. Each installment of an Automatic Option shall only vest and become
exercisable if the Optionholder has not ceased serving as a Board member as of
such installment date.
(d) Method of Exercise. In order to exercise an Automatic
Option with respect to any vested Optioned Shares, an Optionholder (or in the
case of an exercise after an Optionholder's death, such Optionholder's executor,
administrator, heir or legatee, as the case may be) must take the following
action:
A-10
<PAGE>
(i) execute and deliver to the Company a written
notice of exercise signed in writing by the person exercising the Automatic
Option specifying the number of shares of Stock with respect to which the
Automatic Option is being exercised;
(ii) pay the aggregate Option Price in one of the
alternate forms as set forth in Section 3.2(e) below; and
(iii) furnish appropriate documentation that the
person or persons exercising the Automatic Option (if other than the
Optionholder) has the right to exercise such Option.
As soon after the Exercise Date, as practical, the Company shall mail or deliver
to or on behalf of the Optionholder (or any other person or persons exercising
this Automatic Option in accordance herewith) a certificate or certificates
representing the Stock for which the Automatic Option has been exercised in
accordance with the provisions of this Plan. In no event may any Automatic
Option be exercised for any fractional shares.
(e) Payment Price. The aggregate Option Price shall be payable
in one of the alternative forms specified below:
(i) full payment in cash or check made payable to the
Company's order; or
(ii) full payment in shares of Stock held for the
requisite period necessary to avoid a charge to the Company's reported earnings
and valued at fair market value on the Exercise Date (as determined in
accordance with Section 4.5 hereof); or
(iii) if a cashless exercise program has been
implemented by the Board, full payment through a sale and remittance procedure
pursuant to which the Optionholder (A) shall provide irrevocable written
instructions to a designated brokerage firm to effect the immediate sale of the
Optioned Shares to be purchased and remit to the Company, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the Optioned Shares to be purchased and (B)
shall concurrently provide written directives to the Company to deliver the
certificates for the Optioned Shares to be purchased directly to such brokerage
firm in order to complete the sale transaction.
(f) Term of Option. Each Automatic Option shall expire on the
tenth anniversary of the date on which an Automatic Option Grant was made
("Expiration Date"). Except as provided in Section 4.4 hereof, should an
Optionholder's service as a Board member cease prior to the Expiration Date for
any reason while an Automatic Option remains outstanding and unexercised, then
the Automatic Option term shall immediately terminate and the Automatic Option
shall cease to be outstanding in accordance with the following provisions:
(i) The Automatic Option shall immediately terminate
and cease to be outstanding for any shares of Stock which were not vested at the
time of Optionholder's cessation of Board service.
(ii) Should an Optionholder cease, for any reason
other than death, to serve as a member of the Board, then the Optionholder shall
have 30 days measured from the date of such cessation of Board service in which
to exercise the Options which vested prior to the time of such cessation of
Board service. In no event, however, may any Automatic Option be exercised after
the Expiration Date of such Option.
A-11
<PAGE>
(iii) Should an Optionholder die while serving as a
Board member or within 30 days after cessation of Board service, then the
personal representative of the Optionholder's estate (or the person or persons
to whom the Automatic Option is transferred pursuant to the Optionholder's will
or in accordance with the laws of descent and distribution) shall have a 90 day
period measured from the date of the Optionholder's cessation of Board service
in which to exercise the Options which vested prior to the time of such
cessation of Board service. In no event, however, may any Automatic Option be
exercised after the Expiration Date of such Option.
(g) Rights of a Stockholder. An Optionholder shall have no
rights as a stockholder with respect to shares covered by his Automatic Option
until the date a stock certificate is issued to him. No adjustment will be made
for dividends or other rights for which the record date is prior to the date
such stock certificate is issued.
(h) Limited Transferability. Each Automatic Option shall be
exercisable only by Optionholder during Optionholder's lifetime and shall be
neither transferable nor assignable, other than by will or by the laws of
descent and distribution following Optionholder's death.
ARTICLE IV
Miscellaneous
4.1 Capital Adjustments. The aggregate number of shares of Stock
subject to the Plan (and the number of shares covered by outstanding Options and
Awards and the price per share stated in such Options and Awards) shall be
proportionately adjusted for any increase or decrease in the number of
outstanding shares of Stock of the Company resulting from a subdivision or
consolidation of shares or any other capital adjustment or the payment of a
stock dividend or any other increase or decrease in the number of such shares
effected without the Company's receipt of consideration therefor in money,
services or property.
4.2 Mergers, Etc. If the Company is the surviving corporation in any
merger or consolidation, any Option or Award granted under the Plan shall
pertain to and apply to the securities to which a holder of the number of shares
of Stock subject to the Option or Award would have been entitled prior to the
merger or consolidation. A dissolution or liquidation of the Company shall cause
every Option or Award outstanding hereunder to terminate.
4.3 Corporate Transaction. In the event of stockholder approval of a
Corporate Transaction, (a) all unvested Automatic Options shall automatically
accelerate and immediately vest so that each outstanding Option shall, one week
prior to the specified effective date for the Corporate Transaction, become
fully exercisable for all of the Optioned Shares and (b) the Plan Administrator
shall have the discretion and authority, exercisable at any time, to provide for
the automatic acceleration of one or more of the outstanding Discretionary
Options or Awards granted by it under the Plan. Upon the consummation of the
Corporate Transaction, all Options shall, to the extent not previously
exercised, terminate and cease to be outstanding.
A-12
<PAGE>
4.4 Change in Control.
(a) Automatic Grant Program. In the event of a Change in
Control, all unvested Automatic Options shall automatically accelerate and
immediately vest so that each outstanding Automatic Option shall, immediately
prior to the effective date of such Change in Control, become fully exercisable
for all of the Optioned Shares. Thereafter, each Automatic Option shall remain
exercisable until the Expiration Date of such Option.
(b) Discretionary Grant Program. In the event of a Change in
Control, a Plan Administrator shall have the discretion and authority,
exercisable at any time, whether before or after the Change in Control, to
provide for the automatic acceleration of one or more outstanding Discretionary
Options or Awards granted by it under the Plan upon the occurrence of such
Change in Control. A Plan Administrator may also impose limitations upon the
automatic acceleration of such Options or Awards to the extent it deems
appropriate. Any Options or Awards accelerated upon a Change in Control will
remain fully exercisable until the expiration or sooner termination of the
Option term.
(c) Incentive Stock Option Limits. The exercisability of any
Discretionary Options which are intended to qualify as Incentive Stock Options
and which are accelerated by the Plan Administrator in connection with a pending
Corporation Transaction or Change in Control shall, except as otherwise provided
in the discretion of the Plan Administrator and the Optionholder, remain subject
to the $100,000 Limitation and vest as quickly as possible without violating the
$100,000 Limitation.
4.5 Calculation of Fair Market Value of Stock. The fair market value of
a share of Stock on any relevant date shall be determined in accordance with the
following provisions:
(i) If the Stock is not at the time listed or
admitted to trading on any stock exchange but is traded in the over-the-counter
market, the fair market value shall be the mean between the highest bid and
lowest asked prices (or, if such information is available, the closing selling
price) per share of Stock on the date in question in the over-the-counter
market, as such prices are reported by the National Association of Securities
Dealers through its NASDAQ system or any successor system. If there are no
reported bid and asked prices (or closing selling price) for the Stock on the
date in question, then the mean between the highest bid price and lowest asked
price (or the closing selling price) on the last preceding date for which such
quotations exist shall be determinative of fair market value.
(ii) If the Stock is at the time listed or admitted
to trading on any stock exchange, then the fair market value shall be the
closing selling price per share of Stock on the date in question on the stock
exchange determined by the Board to be the primary market for the Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange. If there is no reported sale of Stock on such exchange on the date in
question, then the fair market value shall be the closing selling price on the
exchange on the last preceding date for which such quotation exists.
(iii) If the Stock at the time is neither listed nor
admitted to trading on any stock exchange nor traded in the over-the-counter
market, then the fair market value shall be determined by the Board after taking
into account such factors as the Board shall deem appropriate, including one or
more independent professional appraisals.
4.6 Use of Proceeds. The proceeds received by the Company from the sale
of Stock pursuant to the exercise of Options or Awards hereunder, if any, shall
be used for general corporate purposes.
A-13
<PAGE>
4.7 Cancellation of Options. Each Plan Administrator shall have the
authority to effect, at any time and from time to time, with the consent of the
affected Optionholders, the cancellation of any or all outstanding Discretionary
Options granted under the Plan by that Plan Administrator and to grant in
substitution therefore new Discretionary Options under the Plan covering the
same or different numbers of shares of Stock as long as such new Discretionary
Options have an exercise price per share of Stock no less than the minimum
exercise price as set forth in Section 2.2(b) hereof on the new grant date.
4.8 Regulatory Approvals. The implementation of the Plan, the granting
of any Option or Award hereunder, and the issuance of Stock upon the exercise of
any such Option or Award shall be subject to the procurement by the Company of
all approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the Options or Awards granted under it and the Stock issued
pursuant to it.
4.9 Indemnification. In addition to such other rights of
indemnification as they may have, the members of a Plan Administrator shall be
indemnified and held harmless by the Company, to the extent permitted under
applicable law, for, from and against all costs and expenses reasonably incurred
by them in connection with any action, legal proceeding to which any member
thereof may be a party by reason of any action taken, failure to act under or in
connection with the Plan or any rights granted thereunder and against all
amounts paid by them in settlement thereof or paid by them in satisfaction of a
judgment of any such action, suit or proceeding, except a judgment based upon a
finding of bad faith.
4.10 Plan Not Exclusive. This Plan is not intended to be the exclusive
means by which the Company may issue options or warrants to acquire its Stock,
stock awards or any other type of award. To the extent permitted by applicable
law, any such other option, warrants or awards may be issued by the Company
other than pursuant to this Plan without shareholder approval.
4.11 Company Rights. The grants of Options shall in no way affect the
right of the Company to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
4.12 Privilege of Stock Ownership. An Optionholder shall not have any
of the rights of a stockholder with respect to Optioned Shares until such
individual shall have exercised the Option and paid the Option Price for the
Optioned Shares.
4.13 Assignment. The right to acquire Stock or other assets under the
Plan may not be assigned, encumbered or otherwise transferred by any
Optionholder except as specifically provided herein. The provisions of the Plan
shall inure to the benefit of, and be binding upon, the Company and its
successors or assigns, and the Optionholders, the legal representatives of their
respective estates, their respective heirs or legatees and their permitted
assignees.
4.14 Securities Restrictions
(a) Legend on Certificates. All certificates representing
shares of Stock issued upon exercise of Options or Awards granted under the Plan
shall be endorsed with a legend reading as follows:
The shares of Common Stock evidenced by this
certificate have been issued to the registered
owner in reliance upon written representations
that these shares have been purchased solely for
A-14
<PAGE>
investment. These shares may not be sold,
transferred or assigned unless in the opinion of
the Company and its legal counsel such sale,
transfer or assignment will not be in violation of
the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
(b) Private Offering for Investment Only. The Options and
Awards are and shall be made available only to a limited number of present and
future key executives and key employees who have knowledge of the Company's
financial condition, management and its affairs. The Plan is not intended to
provide additional capital for the Company, but to encourage ownership of Stock
among the Company's key personnel. By the act of accepting an Option or Award,
each grantee agrees (i) that, any shares of Stock acquired will be solely for
investment not with any intention to resell or redistribute those shares and
(ii) such intention will be confirmed by an appropriate certificate at the time
the Stock is acquired. The neglect or failure to execute such a certificate,
however, shall not limit or negate the foregoing agreement.
(c) Registration Statement. If a Registration Statement
covering the shares of Stock issuable upon exercise of options granted under the
Plan as filed under the Securities Exchange Act of 1933, as amended, and as
declared effective by the Securities Exchange Commission, the provisions of
Sections 4.1(a) and (b) shall terminate during the period of time that such
Registration Statement, as periodically amended, remains effective.
4.15 Tax Withholding.
(a) General. The Company's obligation to deliver Stock upon
the exercise of Options under the Plan shall be subject to the satisfaction of
all applicable federal, state and local income tax withholding requirements.
(b) Shares to Pay for Withholding. The Board may, in its
discretion and in accordance with the provisions of this Section 4.15(b) and
such supplemental rules as it may from time to time adopt (including the
applicable safe-harbor provisions of SEC Rule 16b-3), provide any or all
Optionholders with the right to use shares of Stock in satisfaction of all or
part of the federal, state and local income tax liabilities incurred by such
Optionholders in connection with the exercise of their Options ("Taxes"). Such
right may be provided to any such Optionholder in either or both of the
following formats:
(i) Stock Withholding. The Optionholder of an Option
may be provided with the election to have the Company withhold, from the Stock
otherwise issuable upon the exercise of such Option, a portion of those shares
of Stock with an aggregate fair market value equal to the percentage of the
applicable Taxes (not to exceed 100 percent) designated by the Optionholder.
(ii) Stock Delivery. The Board may, in its
discretion, provide the Optionholder with the election to deliver to the
Company, at the time the Option is exercised, one or more shares of Stock
previously acquired by such individual (other than pursuant to the transaction
triggering the Taxes) with an aggregate fair market value equal to the
percentage of the taxes incurred in connection with such Option exercise (not to
exceed 100 percent) designated by the Optionholder.
A-15
<PAGE>
ARTICLE V
Definitions
The following capitalized terms used in this Plan shall have the
meaning described below:
"Affiliates" shall mean all "executive officers" (as that term is
defined in Rule 16a-1(f) promulgated under the 1934 Act) and directors of the
Company and all persons who own ten percent or more of the Company's issued and
outstanding Stock.
"Annual Grant Date" shall mean the date of the Company's annual
stockholder meeting commencing as of the next annual meeting occurring after the
annual meeting held on the Effective Date.
"Automatic Grant Program" shall mean that program set forth in Article
III of this Agreement pursuant to which non-employee members of the Board are
automatically granted Options upon certain events.
"Automatic Option Grant" shall mean those automatic option grants made
on the Annual Grant Date, on the Initial Grant Date, and on the Effective Date.
Automatic Options" shall mean those Options granted pursuant to the
Automatic Grant Program.
"Award" shall mean a Stock Award, SAR or Cash Award.
"Board" shall mean the Board of Directors of the Company.
"Cash Award" shall mean an award to be paid in cash and granted under
Section 2.5 hereunder.
"Change in Control" shall mean (i) a person or related group of
persons, other than the Company or a person that directly or indirectly
controls, is controlled by, or under common control with the Company, acquires
ownership of 40 percent or more of the Company's outstanding common stock
pursuant to a tender or exchange offer which the Board of Directors recommends
that the Company's stockholders not accept, or (ii) the change in the
composition of the Board occurs such that those individuals who were elected to
the Board at the last stockholders' meeting at which there was not a contested
election for Board membership subsequently ceased to comprise a majority of the
Board by reason of a contested election.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean Cerprobe Corporation, a Delaware corporation.
"Corporate Transaction" shall mean (a) a merger or consolidation in
which the Company is not the surviving entity, except for a transaction the
principal purposes of which is to change the state in which the Company is
incorporated; (b) the sale, transfer of or other disposition of all or
substantially all of the assets of the Company and complete liquidation or
dissolution of the Company, or (c) any reverse merger in which the Company is
the surviving entity but in which the securities possessing more than 50 percent
of the total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such securities
immediately prior to such merger.
A-16
<PAGE>
"Discretionary Grant Program" shall mean the program described in
Article II of this Agreement pursuant to which certain Eligible Persons are
granted Options or Awards in the discretion of the Plan Administrator.
"Discretionary Options" shall mean options granted under the
Discretionary Grant Program.
"Disinterested Directors" shall mean those Directors who satisfy the
definition of "Disinterested Person" under Rule 16b-3(c)(2)(i) promulgated under
the 1934 Act.
"Effective Date" shall mean the date that the Plan has been approved by
the stockholders as required by Section 1.3(c) hereof.
"Eligible Persons" shall mean (a) with respect to the Discretionary
Grant Program, those persons who, at the time that the Discretionary Option or
Award is granted, are (i) key personnel (including officers and directors) of
the Company or Parent or Subsidiary Corporations, or (ii) consultants or
independent contractors who provide valuable services to the Company or Parent
or Subsidiary Corporations; provided that if a Senior Committee is formed
pursuant to Section 1.3(a) hereof, the members of that Committee shall not be
included as "Eligible Persons" under the Discretionary Grant Program during
their tenure on the Senior Committee; and (b) with respect to the Automatic
Grant Program, those persons who are non-employee Board members.
"Employee Committee" shall mean that committee appointed by the Board
to administer the Plan with respect to the Non-Affiliates and comprised of one
or more persons who are members of the Board.
"Exercise Date" shall be the date on which written notice of the
exercise of an Option is delivered to the Company in accordance with the
requirements of the Plan.
"Expiration Date" shall be the 10-year anniversary of the date on which
an Automatic Option Grant was made.
"Incentive Stock Option" shall mean a Discretionary Option that is
intended to qualify as an "inventive stock option" under Code ss. 422.
"Initial Grant Date" shall mean the date that an Eligible Person is
first appointed or elected to the Board.
"Non-Affiliates" shall mean all persons who are not Affiliates.
"$100,000 Limitation" shall mean the limitation in which the aggregate
fair market value (determined as of the respective date or dates of grant) of
the Stock for which one or more Discretionary Options granted to any person
under this Plan (or any other option plan of the Company or its parent or
subsidiary corporations) may for the first time be exercisable as Incentive
Stock Options during any one calendar year shall not exceed the sum of $100,000.
"Optionholder" shall mean an Eligible Person to whom Options have been
granted.
"Optioned Shares" shall be those shares of Stock to be optioned from
time to time to any Eligible Person.
A-17
<PAGE>
"Option Price" shall mean 100 percent of the fair market value per
share of the Stock on the date any Option was granted, as determined in
accordance with the valuation provisions of Section 4.5 hereof.
"Options" shall mean options granted under the Plan to acquire Stock.
"Parent Corporation" shall mean any corporation in the unbroken chain
of corporations ending with the employer corporation, where, at each link of the
chain, the corporation and the link above owns at least 50 percent of the
combined total voting power of all classes of the stock in the corporation in
the link below.
"Plan" shall mean this stock option plan for Cerprobe Corporation.
"Plan Administrator" shall mean (a) either the Board or the Senior
Committee, whichever is applicable, with respect to the administration of the
Discretionary Grant Program as it relates to Affiliates and (b) either the Board
or the Employee Committee, whichever is applicable, with respect to the
administration of the Discretionary Grant Program as it relates to
Non-Affiliates.
"SAR" shall mean stock appreciation rights granted pursuant to Section
2.4 hereunder.
"Senior Committee" shall mean that committee appointed by the Board to
administer the Discretionary Grant Program with respect to the Affiliates and
comprised of two or more Disinterested Directors.
"Service" shall have the meaning set forth in Section 2.2(o) hereof.
"Stock" shall mean shares of the Company's common stock, $.05 par value
per share, which may be unissued or treasury shares, as the Board may from time
to time determine.
"Stock Awards" shall mean Stock directly granted under the
Discretionary Grant Program.
"Subsidiary Corporation" shall mean any corporation in the unbroken
chain of corporations starting with the employer corporation, where, at each
link of the chain, the corporation and the link above owns at least 50 percent
of the combined voting power of all classes of stock in the corporation below.
EXECUTED as of the 8th day of May, 1995.
CERPROBE CORPORATION
By: /s/ C. Zane Close
------------------
Name: C. Zane Close
----------------
Its: President and CEO
-----------------
ATTESTED BY:
______________________________
Secretary
A-18
EXHIBIT 11 - COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net income $2,402,247 $1,212,823 $1,502,358
========== ========== ==========
Weighted average shares:
Common shares outstanding 3,775,327 2,976,018 2,619,518
Common equivalent shares representing shares
issuable upon exercise of stock options 295,906 411,202 1,068,222
---------- ---------- ----------
Total weighted average
shares - primary 4,071,233 3,387,220 3,687,740
Incremental common equivalent shares
(calculated using the higher of end of period
or average market value) 790,904 619,581 661,132
---------- ---------- ----------
Total weighted average
shares - fully diluted 4,862,137 4,006,801 4,348,872
========== ========== ==========
Primary net income per common and common
equivalent share $ 0.59 $ 0.36 $ 0.41
========== ========== ==========
Fully diluted net income per common and
common equivalent share $ 0.49 $ 0.30 $ 0.35
========== ========== ==========
</TABLE>
[KPMG Peat Marwick LLP LETTERHEAD]
The Board of Directors
Cerprobe Corporation:
We consent to incorporation by reference in the registration statements (No. 33-
8348 and No. 33-65200) filed on Form S-8 of Cerprobe Corporation of our report
dated February 2, 1996, relating to the consolidated balance sheets of Cerprobe
Corporation and subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1995, which report
appears in the December 31, 1995 annual report on Form 10-KSB of Cerprobe
Corporation.
/s/ KPMG Peat Marwick LLP
Phoenix, Arizona
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information
extracted from the Balance Sheet at December 31, 1995 and
the Statements of Operations and Retained Earnings (deficit)
and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 725259
<NAME> CERPROBE CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 263,681
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 2,802,081
<CURRENT-ASSETS> 7,988,539
<PP&E> 7,746,492
<DEPRECIATION> 3,078,706
<TOTAL-ASSETS> 14,967,450
<CURRENT-LIABILITIES> 3,217,080
<BONDS> 981,206
0
0
<COMMON> 204,792
<OTHER-SE> 3,212,038
<TOTAL-LIABILITY-AND-EQUITY> 14,967,450
<SALES> 26,098,637
<TOTAL-REVENUES> 26,098,637
<CGS> 13,706,435
<TOTAL-COSTS> 13,706,435
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 173,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,213,974
<INCOME-TAX> 1,811,727
<INCOME-CONTINUING> 2,402,247
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,402,247
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.49
</TABLE>
